The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
(T h e article on the last page describes what the reserve ratio m eans) MONTHLY O f C r e d it a n d I n By th e t h e F ed eral B u s in e s s S e c o n d R eserve F e d e r a l A g e n t, New REVIEW R e s e r v e F ed eral York, December 1, D is t r ic t R eserve B ank, N ew Y ork 1922 Since M arch of this year, when borrowing w as at a minimum, the total loans and investments of member banks in p rin cipal cities, where the effects of industrial a ctivity would be felt most, have increased $1,250,000,000 or over 8 p er cent. B u t this increase is ascribable not so much to loans fo r business purposes as to loans oti stocks and bonds and to investments made fo r the p u r pose of p u ttin g surplus fu n d s to work. The amount lent directly fo r business purposes, as fa r as it can be segre gated in the returns, declined un til the end of A u gu st. Since that time, however, it has advanced $267,000,000. W h ile the total amount o f credit extended b y banks, m easured b y total loans and investments, is indi re ctly and in the long ru n available fo r business use, loans made d irectly to business represent more closely current needs fo r credit. The movement of loans of the reporting member banks is illustrated in the diagram below at the left. The second diagram on this page shows the extent to which the F ed eral Reserve B an ks have been called upon to advance fund s to meet the increased demand fo r C re d it Conditions O V E M E N T S du ring the past month of the v a ri ous factors reflecting credit conditions were in the same direction as last month but more mod erate in character. The volume of credit in use as indi cated b y the commercial loans of member banks, and b y the earning assets of the Reserve Banks, increased at a slower rate than in Septem ber and early October. Note circulation of the Reserve B an ks fluctuated w ithin n a r row limits, and interest rates rem ained at substantially the level reached about the first of November. Th is greater stability in the factors reflecting credit condi tions does not appear to indicate th at a n y pause has taken place in general business activity. F o r the past few weeks such figures as are available appear to show a continued gain in industrial output and the distribu tion o f goods. There has been a considerable increase throughout the cou ntry in the volume of production and trade in the past year, but this increase has gone fo rw a rd w ith a relatively small demand upon the banks fo r credit. M BILLIONS OF DOLLARS BILLIONS OF DOLLARS BILLIONS OF DOLLARS C o n d itio n s 3.5 TOTAL LOAN! & INVESTMEI rrs , 3.0 /v/ > \\ \ • 25 • I --------* 2.0 \ COMMERC LOANS _ _ Y e a r n in g % ASSETS • \ \ Vv \ 1 .5 B IL L S V DI5C0UNTED * « 1.0 TOTAL INVESTMENTS ..*•** ... ....... .5 LOAN 5 On DTQvn & BONDS 0 19 20 192.1 192,2, Loans and Investments of 800 Member Banks in Principal Cities 1 \ / * * .......... .. __T , ACCEPTANCES^**’ U.S. SECURITIES 1920 • / 192.1 19 2 .Z Loans and Investments— all Federal Reserve Banks Gold Stocks in the Country and in the Reserve Banks 2 MONTHLY R E V IE W credit. E a r n in g assets, which are the best measure of the total accommodations w hich the R eserve B an k s are extending to business, increased $146,000,000 between A u g u st 9 and Novem ber 2 2 of this year. In recent weeks there has been a change in the nature of the loans com prised in the general group of earning assets. D is counts and advances to member banks have increased, while holdings o f acceptances and U nited States securi ties have diminished. The reason w h y increased production and trade, accom panied b y higher w ages and prices, have not resulted in a corresponding increase in the volume of bank credit issued directly for business purposes, m ay ap pear upon observing three factors, which among others are im portant in the present situation. Th e first facto r is the h eavy receipt of gold into this country. Sin ce the middle of 1 9 2 1 , gold im ports have totaled n early $600,000,000 and since J a n u a r y 1 , 19 2 2 , n early $250,000,000. T h is gold has found its w a y imme diately into the banks and thence into the Reserve Banks. The gold has served to liquidate borrowings b y b y individuals from their banks and borrowings b y banks from the F e d e ra l R eserve Banks. Liquidation from this and other sources has up to recently more than offset new borrowing. These receipts of gold have more over been largely responsible fo r the power of the banks to extend their investment accounts. A second facto r has been the accum ulation b y m any business concerns d u rin g the period of quiet business of a considerable reserve in the form o f investments or bank deposits which th ey could d raw upon to finance more active operations, without the necessity fo r borrowing. A th ird and probably more im portant facto r in the v e ry moderate increase in commercial loans m ay be seen in the fact that business is now being carried fo rw a rd w ith a m inimum of fu tu re commitments. A lth o u gh there has been some change in the tendency in recent months, both wholesalers and retailers still continue to b u y cautiously, and m an ufactu rers hesitate to produce goods without definite orders in sight. Stocks o f m anu factu red goods are in general low. E x a c t figures on this aspect of retail trade are re ported each month to this bank b y 60 departm ent stores in this district. T h e y show that the current ratio of the amount of stock held to the amount of sales is now in the neighborhood o f 3 y2 to 1 . The usual ratio is much nearer to 4 to 1 : that is, $ 4 w orth of stock on hand to every $ 1 of m onthly sales. There are fe w definite figures available in other fields which show the exact situation, bu t general reports indicate that the p olicy of c a rry in g sm all amounts o f stock on hand, and order in g only fo r immediate needs continues to p revail in m an y branches of in d u stry and trade. R a te o f T u r n o v e r o f B a n k D e p o s its The rate o f tu rnover o f bank deposits in N e w Y o rk C ity du rin g the month o f October showed a m arked in crease over the figures fo r Septem ber of this year, and October 1 9 2 1 . Reduced to an annual rate, the tu rnover this October was 86.3, ind icatin g that deposits were being checked out at the rate of 86.3 times a year. The corresponding figure fo r Septem ber this y e a r w as 68.6, and fo r October 1 9 2 1 w as 70.4. In fact, the rate of tu rn over was more rap id than in an y month since Decem ber 1 9 1 9 . Th is high rate o f turnover m ay be accounted fo r p a rtly b y a ctiv ity in the stock and bond markets, p a r ticu la rly the m arket fo r Governm ent bonds including the new issue, and is fu rth er in keeping w ith a heavy volume of sales b y departm ent stores, and wholesale dealers, as reported to this bank. The October figures fo r other im portant cities do not show a n y such large increase, although in Buffalo, Rochester, and Boston, the rate of tu rnover w as higher than a month ago, or a y e a r ago. In general, the increase in business a ctiv ity d u rin g the past y e a r has not been accom panied b y m arked increases in the rate of turnover of deposits. The figures fo r October of the past 4 years, and Septem ber of 1 9 2 2 are shown in the follow ing table. October Sept. 1919 New York City......... Albany......................... Rochester................... Syracuse..................... San Francisco............ 1920 1921 1922 1922 85.4 35.0 18.4 20.6 11.5 42.9 47.0 42.8 77.5 32.6 22.8 21.9 13.2 37.0 50.8 41.6 70.4 26.0 19.9 21.8 9 .0 32.2 46.6 42.2 86.3 24.0 22.6 23.6 8.8 34.6 43.7 37.4 68.6 21.6 20.4 21.1 8 .4 28.8 41.9 40.7 B ill M a r k e t M arket rates fo r bankers acceptances wjere/ m ain tained du ring Novem ber at the levels established late in October and the movement of bills increased substan tially. D u rin g the first h a lf of Novem ber the increased demand came p rin cip a lly from out of town, but a fter the fifteenth a strong c ity demand developed, especially fo r bills m aturin g before the end of the year. A t p res ent rates the dem and fo r bills is greater and more broadly distributed than fo r several months past. B ills draw n to finance the im portation of ra w silk, coffee, and sugar, the exportation of cotton and grain, and the domestic movement o f cotton w ere most num er ous of new bills entering the m arket d u rin g the month. C o m m e rc ia l P a p e r P re va ilin g commercial paper rates became definitely established at 4 % to 5 p er cent, ea rly in November, and these rates were m aintained throughout the month, not w ithstanding easier conditions in some other m oney markets. The volume o f p aper distributed rem ained rath er limited, due both to slow demand and to sm all supplies of prim e paper. N e w Y o r k banks were only occasional buyers, and m an y dealers reported distribution chiefly FE D E R A L RE SE R V E AGENT A T NEW YORK in the interior, where the higher rates appeared to in crease demand somewhat. B u y in g w as good in St. Louis and through the southwest, but elsewhere w as generally quiet. A s a rule, light b u yin g b y banks seemed to be due less to dissatisfaction w ith rates than to a dem and fo r funds from their own customers. The small su p p ly of p aper in the m arket w as due in considerable measure to the fa c t that borrowers gen erally found the cost of secur in g funds at their own banks lower than the cost o f financing through the open m arket. Reflecting lessened a ctivity in the market, this b a n k ’s com pilation of the outstanding p aper of 2 7 dealers showed a fu rth er decline at the end of October, as ind i cated in the accom panying diagram . M ILLIO NS OF DOLLARS 1500 3 points since J u l y . The reaction, which spread over a broad range of stocks, w as the most extensive since the advance began ap proxim ately fifteen months ago. A ve ra g e s of industrial stocks showed losses of about 7 y2 points from the m axim um level o f the rise reached in October. A v e ra g es of railroad issues continued a decline w hich began in the e a rly fa ll w ith the publi cation of earnings statements which w ere regarded as disappointing. Total transactions on the Stock E x ch a n ge du ring October were 26,000,000 shares, a larger volume than in recent months, but 4,000,000 less than in A p ril, the most active month o f the year. A c tiv ity lessened early in November, but increased later in the month accom p a n yin g lower prices. Bond M ark et 1250 A f t e r steadying tem porarily late in October and e arly in November, corporation bond price averages declined one point fu rth e r to levels about 3 y2 points below the Septem ber high point of the year. Influential factors ap p aren tly were firm money conditions, lower prices in the stock m arket, and a tendency fo r funds to be tran sferred from investment in securities to more active business employment. A cco m pan yin g easier m oney m arket conditions a fter Novem ber 1 5 , there was a pause in the decline and a decrease in the volume of trading. lQ iO fr 750 500 £50 0 191a 1919 \9zo \ 9z\ m e Commercial Paper Outstanding— Twenty-seven Dealers Sto ck M a rk e t M o n e y R a te s Stock m arket money rates became somewhat firm er e a rly in November, accom panying a loss of funds to the interior, coupled w ith the usual first-of-the-month financial transactions. C all loan rates twice touched 6 p er cent., and an average rate of 5y2 per cent, on new loans d u rin g the week ended Novem ber 1 0 w as the highest fo r an y week this year. A b ou t the middle of the month, however, stock m arket liquidation and h eavy transfers of funds to N ew Y o r k eased the m arket, and call loan rates dropped to 3 y2 per cent, fo r the first time in two months. There were later reactions to around 5 per cent. Tim e money advanced to 5 per cent, fo r all m aturities early in November, compared w ith 4% to 5 per cent, in October. W h ile offerings became somewhat free r later in the month and demand lessened, rates rem ained u n changed, i Sto ck The accom panying diagram shows the course of high grade bond prices in this country and in G reat B ritain , and indicates that an interruption of the u p w a rd move ment has been common to both countries. I n both the U nited States and G reat B ritain , the advance culm inat ing in Septem ber carried prices to the highest levels since the w ar. M ark et F re sh weakness in the stock m arket in late October and in November carried price averages below levels reached du ring the Septem ber decline, and to the lowest Average Monthly Prices of Liberty and Corporation Bonds at New York and British War Loans at London 4 M ONTHLY R E V IE W Domestic State and m unicipal issues shared w ith other domestic bonds in the Novem ber reaction. F o re ig n issues were also lower in sym p ath y w ith declines in ex change rates, and about the middle of Novem ber Fren ch , B elgian , C entral European, and m an y South A m erican issues fell to new low points fo r the year. L a ter, how ever, prices rallied strongly from these levels. October trad in g in bonds cither than U nited States Governm ent securities on the Stock E x ch a n ge totaled $221,0 0 0 ,0 0 0 , a sm aller volume o f transactions than in the most active months o f this y e a r when prices were rising, but 79 per cent, large r than transactions in Octo ber last year. U n ite d State s G o v e r n m e n t S e c u r itie s The October decline in L ib e rty bonds w as halted tem p o ra rily at the end of the month, and prices rallied from around 98 to considerably above 99. A f t e r the first fe w d ays of Novem ber, however, prices weakened in sym p a th y w ith the general bond list and declined again to approxim ately the October low points. P ara llelin g these general movements, the new T re a su ry 4 14 s recovered from below 99 to above par, but closed the th ird week of Novem ber at 99*4. T ra d in g in U nited States Governm ent issues on the Stock E x ch an ge d u rin g October totaled $154,000,000, a higher figure than fo r previous months, due chiefly to the listing of the new T re a su ry loan. * A c tiv ity de creased notably around the m iddle of November, accom p a n yin g easing in m oney conditions. D ealers in T re a su ry certificates and notes reported a quiet m arket d u rin g the first three weeks o f November. O ffering rates on the whole showed little fluctuation and were generally about 1 4 o f one p er cent, higher than in the first week of October. BILLIONS OF DOLLARS The G o vern m en t D e b t The T re a su ry statement of the public debt fo r October 3 1 shows the changes in the debt resulting from the sale of about $764,000,000 of long term 4 y4 per cent. T re a su ry bonds. ^ The total gross debt shows a tem porary increase, but this is larg ely offset b y the increased balance in the general fund, and there w as at the same time a decrease in the short dated debt o f about $450,000,000. The diagram on this page at the left shows the growth of the total gross debt, and the debt that m atures w ithin 5 years, fo r the period du ring and im m ediately follow ing the w ar, and indicates a grad ual reduction of $3,50 0 ,000,000 since the high point on A u g u s t 3 1 , 1 9 1 9 . The reductions in the short dated debt (m atu rin g w ithin 5 y ears) have amounted to about $3,100,000,000. The diagram on the righ t illustrates the m anner in w hich the e a rly m aturin g debt has been g ra d u a lly re distributed into more convenient m aturities. D u rin g the w a r it w as the p olicy o f the T re a su ry to refu n d the floating debt at intervals into long term L ib e rty bonds, a process w hich is reflected in the diagram b y the changes in the amount of the certificates of indebtedness outstanding. A f t e r the A rm istice, however, conditions made it desirable that refu n d in g should take the form o f relatively short term issues, and $4,500,000,000 of 3 % per cent, and 4 % per cent. V ic to ry notes were sold m a tu rin g M a y 20, 1 9 2 3 , but callable in whole or in p a rt on Ju n e 1 5 and Decem ber 1 5 , 19 2 2 . G radual retirem ent through revenue d u rin g 19 2 0 and e a rly in 1 9 2 1 had re duced somewhat the short dated debt, but the T re a su ry in A p r il 1 9 2 1 still faced the necessity of meeting, the fo l low ing two years or thereabouts, m aturities m ain ly of certificates and V ic to ry notes am ounting to about $7,50 0 ,000,000. The refu n din g first took the form o f short term T re a su ry notes and six issues am ounting in the BILLIONS OF DOLLARS FE D E R A L R E SE R V E AGENT A T NEW YORK aggregate to about $2,750,000,000 have been sold. This fa ll there came an op portunity fo r long term refun ding and the issue of 2 5-30 y e a r T re a su ry bonds w as success fu lly sold in October. R e d e m p tio n of V ic t o r y N o te s A p p ro xim a tely 7 5 0 millions of V ic to ry notes have been called fo r redemption on December 1 5 . Th e notes which have been called and upon which interest w ill cease upon that date, bear the distinguishing letters A , B , C , D , E or F , and constitute about h a lf of the entire amount of 4 % per cent. V ic to r y notes now outstanding. U nder the auth ority o f the S e cre ta ry o f the T reasu ry, which continues u n til fu rth er notice, the F e d e ra l Reserve B an ks w ill receive these notes fo r immediate paym ent, i f the holder desires. B oth redemption and prepaym ent m ay be handled either through the banks or d irectly with a F e d e ra l R eserve B an k. The Secretary of the T re a su ry has also authorized u n til fu rth er notice the immediate paym ent, i f the holder desires, of V ic to ry notes of the uncalled series. These amount to about $900,000,000 and bear the dis tin guishin g letters G , H , I, J , K or L . A l l o f the uncalled series m ature on M a y 20* 19 2 3 . R e d e m p tio n o f W a r -S a v in g C e rtific a te s On Novem ber 1 3 , the T re a su ry announced its p lan fo r redeeming about $625,000,000 o f W a r-S a v in g s certifi cates of the series of 1 9 1 8 which fa ll due Ja n u a r y 1 , 1 9 2 3 . B egin n in g Novem ber 1 5 , holders w ere perm itted to exchange their w ar-savings issues through the post office, F e d e ra l R eserve Banks, or T re a su ry D epartm ent fo r new T re a su ry Sa v in g s certificates dated J a n u a r y 1 , 1 9 2 3 . Su ch transactions can also be handled through the banks. C ash redem ption o f w ar-savings issues w ill not be made before Ja n u a r y 1 , but beginning Novem ber 1 5 , holders were invited to fo rw a rd them in advance fo r redem p tion as o f Ja n u a r y 1 . The new savings certificates w ill m ature Ja n u a r y 1 , 19 28 , and yield 4 per cent., compounded sem i-annually, if held to m aturity. Certificates m ay be redeemed before m aturity at redemption values yield in g 3 per cent, simple interest. N ew F in a n c in g N ew financing du ring Novem ber was in sm aller volume than in the previous month, and dealers reported that there was no great pressure of business aw aiting offering. Dealers estimate that yield rates required on new corporation issues of good grade have recently advanced b y over 14 to n ea rly % of one per cent. C orporation issues du ring Novem ber were generally of small size, and public u tility offerings preponderated. Slow er demand w as also reported fo r State and m unic ipal issues, and dealers in some cases found it necessary 5 to raise yield rates on unsold portions of offerings as much as of ° ne P er cent, to effect their distribution. These conditions, coupled w ith prospective financing voted at the recent elections, tended to make dealers cautious in bidding fo r new issues and to restrict the volume o f offerings. F in a l totals of foreign offerings in this m arket du ring October reached $68,000,000, the largest amount fo r a n y month since Ju n e . D u rin g the first three weeks of Novem ber foreign offerings amounted to $24,000,000, including $18,0 00,0 00 Chilean Governm ent 7 p er cent, bonds, offered a t 9 6 ^ , which w ere reported to have had a good distribution. F o re ig n E x c h a n g e E x ch a n ge rates on F ran ce, Belgium , and Ita ly fell du rin g the p ast month to the lowest prices fo r the y e a r but later recovered p ra ctica lly to the levels p re va ilin g in October. F u r th e r declines in the exchange value o f the m ark carried the B erlin rate to near 1 / 1 0 0 of a cent, a depreciation of 7 5 p er cent, from the value of a month before. Sterlin g held steady around $4.4 6 until the latter p a rt o f the month w hen quotations advanced to $ 4 . 5 2 ^ , which w as the high point fo r the year. E x ch a n g e on N o rw a y advanced furth er, accom panying the tran sfer to N o rw a y o f the proceeds of the N orw egian Govern ment loan placed in the N ew Y o rk m arket the month previous. South A m erican rates were somewhat firm er than in the month previous. Exch anges on In dia and Ja p a n were steady and without im portant change but rates on H on g K o n g and Sh an gh ai declined slightly. The follow ing table compares changes in the prin cipal rates from a month ago and a y e a r ago. Country Nov. 20 Last 4.4938 .0744 .0476 Italy................................. .0002 Germany......................... .0697 .3928 Holland........................... .1866 Switzerland..................... .1529 Spain................................ .2674 Sweden (Stockholm). .. .3634 Argentina........................ .1253 Brazil............................... .4844 Japan (Yokohama). . . . China (Hong Kong). . . .5388 .7213 China (Shanghai).......... .3006 India................................ Canada............................ 1.0003 .6450 Bar Silver in New York. *Silver exchange basis. Change from Oct. 20 Change from Nov. 19 1921 Per cent, depre ciation from par + .0300 + .0006 + .0056 -.0 0 0 1 + .0014 + .0021 + .0042 - .0 0 0 7 + .0008 + .0027 + .0146 + .0044 -.0 1 7 5 - .0 1 2 5 + .0093 -.0 0 1 1 -.0 2 2 5 + .4963 + .0022 + .0059 - .0 0 3 6 -.0 0 0 3 + .0411 -.0 0 0 4 + .0159 + .0344 + .0370 + .0003 + .0069 - .0 1 0 0 -.0 6 2 5 + .0312 + .0865 -.0 5 2 5 7.7 61.5 75.3 99.9 63.9 2 .3 3.3 20.8 0 .2 14.4 61.4 2.8 * * 38.2 + 0 .0 3 6 M O N TH LY R E V IE W The tendency tow ards a reduction in the excess bal ance of exports in the past two years is shown more clearly b y the follow ing table from the D ep artm en t’s annual sum m ary. A verage M onthly E xport B alance Six months July 1 to Dec. 30, 1920................. “ Jan. 1 to July 1, 1921..................... “ July 1 to Dec. 30, 1921................... “ Dec. 30 to July 1, 1922.................. Three months July 1 to Oct. 1, 1922.............. W o r ld P r ic e s a n d N o t e Depreciation of Foreign Exchange Rates from Par Value F o re ig n T r a d e October exports of m erchandise from the United States totaling $372,000 ,0 00 were larger than those in an y other month since M arch 1 9 2 1 , and 1 9 per cent, more than in Septem ber. Publication o f im port figures fo r October w as delayed on account of changes in classi fications and rates made necessary b y the new tariff law. The increase in exports m ay be attributed in large p a rt to higher prices and an increased volume of cotton shipments, which more than doubled the Septem ber fig ure, to 798,664 bales, the largest total fo r a n y month since the h ea vy exports of October last year. E x p o rts of meats and d a iry products increased somewhat, but those of grain and grain products declined. C urrent foreign bu yin g of A m erican wheat w as reported to be light. $274,674,811 202,333,636 126,980,328 66,887,576 51,623,542 C irc u la tio n W o rld prices showed, in general, an u p w a rd tendency in October follow ing declines in the two months preced ing. H ig h er price levels in most E u ro p ean countries reflected rising quotations fo r the ra w m aterials of m anufacture, p a rticu la rly textiles and metals. The follow ing diagram s compare wholesale prices in three countries w ith changes in currency circulation d u r ing the present year. P rices have tended somewhat dow nw ard in E n g la n d throughout 19 2 2 , closely p arallel ing a decline in note circulation, and accom panying an u p w ard tendency in sterling exchange rates. In F ran ce, however, the general trend o f wholesale prices this ye a r has been u p w a rd as in the U nited States. In spite of a considerable recent reduction follow ing a bond issue, note circulation shows a net increase since the sp rin g of the year. I9 2 .a 192.0 W h ile reports of exporters recently have seemed to indicate a grad u a lly increasing movement of general m erchandise products, sellers of cotton goods found a more restricted demand in November, w hich is ascribed to high prices. Steel continues in ligh t request, and Septem ber figures showed a decline in shipments for the fourth successive month. Im ports of iron and steel fo r September, on the other hand, w ere the largest in th irty years, and were more than h a lf as large as the export movement in these commodities. F ig u re s published b y a p rivate agency indicated that silk im ports during October w ere larger than in a n y previous month. Note Circulation and Prices in Three Countries Compared with the 1920 Average A review of foreign trade changes du ring the fiscal year ended Ju n e 30, 19 2 2 , b y the D epartm ent of Com merce, indicated a fa ll of 28.6 per cent, in the value of im ports and o f 4 2 .1 p er cent, in the value of exports compared w ith figures fo r 1 9 2 1 . The level of prices in G erm any rose over 1 1 4 p er cent, du ring October, accom panying an expansion of circu la tion b y over 3 5 per cent., and a fall in exchange of more than 60 per cent. A va ila b le price indices from d if ferent countries are shown in the follow ing table. 7 F E D E R A L R E SER VE AG EN T A T N E W YO R K (1913 average=100 per cent, unless otherwise noted) Per C e n t . C hange D Country u r in g Latest Quotation Sept. Oct. 2.3 0 + 3.1 - 1.3 — 0.6 + 1.8 + 3.2 + 0 .7 + 3 .8 -I- 0.1 + 3.5 + 6.8 - - 1.6 + - 1.3 + - 1.6 0.6 1.8 1 .2 1.0 Aug. United States: 20 basic com modities!. . . . 149 (Nor. 25) Dept, of Labor 154 (Oct. av.) Dun’s ............... 151 (Nov. 1) Bradstreet’s . . . 145 (Nov. 1) Great Britain: 158 (Nov. 1) Economist. . . . Statist.............. 150 (Oct. 1) 20 basic com moditiesi. . . . 141 (Nov. 25) France................. 337 (Nov. 1) Italy...................... 601 (Nov. 1) Japan................... 190 (Oct. av.) Canada................ 162 (Oct. 15) Australia*............ 158 (Sept.av.) Norway*............... 221 (Nov. 1) 155 (Oct. 15) Sweden*............... Denmark*............ 180 (Nov. 1) Germany*............ 94,492 (Nov. 1) Shanghai?.............. 106 (Oct. 1) Increases of 8 or 9 p er cent, in the prices of wheat, corn, and cotton w ere la rg e ly responsible for carry in g the farm products group u p w ard . The prin cipal in crease, reflected in the movement of the miscellaneous group, w as a 40 p er cent, advance in rubber prices. - 3.1 3.3r + 0.2 + 1.9r 4- 2.5 - 2.9 - 1.1 - 1.3 - 2 .2 1 .2 1.1 + 107.5 - 2.0 + 1.9 - 0 .9 - 3.1 - 1.1 + 5 2 .5 - 1.7 + 2.7 + 2 .4 + 3.3 - 1 .2 - 0 .3 - 1.8 - 1.9 + 2.3 + 114.3 0 .1 The latest values of the groups m aking up the D ep art ment of L ab o r index together w ith recent changes are shown in the follow ing table. Commodity Group Farm products.......... Foods...................... Cloths and clothing.. Fuel and lighting.. .. Metals......................... Building materials. .. Chemicals and drugs. House fum’g goods... Miscellaneous............. All groups.............. Computed by this bank. *July 1914 = 100. aDec. 31, 1913— June 30, 1914 = 100. <July 1, 1913— June 30, 1914 = 100. *July 1912— June 1914 = 100. tfuly 1914 = 100. ?Sept. 1919 = 100. r— Revised. G o ld M o v e m e n t Prelim in ary reports fo r October show gold im ports of $20,866,000 and exports of $17 ,5 9 2 ,0 0 0 , nearly all of the latter to Canada. Th is is the largest amount exported in an y month since Novem ber 19 2 0 and the net excess of imports, $3,274,0 0 0 , is the smallest since the inflow of gold began in Septem ber 19 20 . The sources o f im ports are shown in the follow ing table. (000 omitted) Sept. 1922 Oct. 1922 England................................... $13,270 583 Sweden..................................... 393 Canada..................................... 870 China and Hong Kong......... 890 France...................................... 1,115 Denmark................................. 333 Mexico..................................... 642 Colombia................................. 996 All other................................... $8,442 114 232 971 2,070 $9,927 296 95 596 2,635 674 651 11,310 326 581 6,410 $94,368 32,798 9,041 6,408 19,605 17,769 4,850 6,236 39,300 Total................................. $19,092 $24,464 $20,866 $230,375 Country Aug. 1922 Total 1922 D o m e s t i c W h o le s a l e P r i c e s A continued decline d u rin g October in the price of fu el w as more than offset in the D epartm ent o f Lab o r index of wholesale prices b y considerable increases in the farm products, clothing, and miscellaneous groups. There w as some increase in all groups w ith the excep tion of fuel and lighting, and chemicals and drugs. Value of Index Oct. 1922 Per Cent. Change Aug. to Sept. Sept. to Oct. Per Cent. Incr. from Low 138 140 188 226 135 183 124 176 120 + 1.5 0 + 1.1 -1 0 .0 + 6.3 + 4 .7 + 1.6 0 + 0.9 + 3 .8 + 1 .4 + 2 .7 -7 .4 + 0 .7 + 1 .7 0 + 1 .7 + 3 .4 21.1 6.9 9.9 24.9 23.9 18.1 2.5 1.7 5.3 June Jan. Apr. Sept. Mar. Mar. July Sept. June 154 - + 0 .7 11.6 Jan. 1922 1.3 Date of Low 1921 1922 1922 1921 1922 1922 1922 1922 1922 Th is b an k 's index num ber fo r the prices of 20 basic commodities showed an increase o f 1 p er cent, du rin g the first 3 weeks o f November. The rise in prices of wheat and cotton continued until the th ird week of the month, when some reaction occurred. C o st of L iv in g F o llo w in g some months behind the increase in whole sale prices, the cost of liv in g index num ber of the N ational In d u strial Conference B o ard fo r the U nited States continued in October the rise begun in Septem ber. The October increase w as sligh tly larger, am ounting to 1 per cent., and w as the largest advance since M arch of this year. Fo o d prices increased 2 .1 per cent., and clothing 1 .3 p er cent., while other items rem ained unchanged. The D epartm ent o f L a b o r reported an increase of 3 per cent, in October in the cost of food in N ew Y o rk C ity . There has been a total advance of 6 per cent, since the low level of M arch 19 2 2 and the index is now 5 1 per cent, higher than in 1 9 1 4 . E m p lo y m e n t a n d W a g e s The N ew Y o rk State D epartm ent of Labor, in its m onthly su rvey of employment, found an increase of 3 per cent, between Septem ber 1 5 and October 1 5 in the number of w orkers employed in the factories of the State. A l l groups of m an ufactu ring industries added to their w orking forces w ith the exception of plants that handle food products, in w hich a seasonal decline took place, follow ing the close of the canning season. Th e follow ing diagram compares the number of w ork ers now em ployed in each of eleven leading industries 8 MONTHLY REVIEW in this State w ith the num ber employed in J u l y 1 9 1 4 , and at the lowest point since 19 20 . Th e increase in the total num ber of workers since A u g u st 1 9 2 1 , when em ploym ent w as at its lowest point, has been 1 9 p er cent., and the num ber of workers is now n ea rly 5 per cent, larger than in Ju n e 1 9 14 . 19T4- tO O V o LOW SINCE INDUSTRY J 1920 1922 Number of Workers Employed in Principal Industries in New York State Compared with the Number in 1914 and at the Low Point since 1920 Em ploym ent agencies in this district continue to report a shortage o f common labor and o f certain typ es o f skilled workers accom panied b y increasing w age rates. The shortage has not extended to clerical w ork ers although there have been a num ber of isolated cases o f w age increases among such workers. D e p o s its Deposits of reporting savings banks in N ew Y o rk C ity declined sligh tly between October 1 0 and Novem ber 10 , follow ing an u n u su ally h eavy increase in the month previous. In other cities o f the Second F e d e ra l R eserve D istrict deposits showed a fu rth e r increase. In three o f the five years d u rin g which these figures have been tabulated, deposits of the reporting banks in N ew Y o rk have declined and those in other cities have increased at this tim e o f y ear. P r o d u c t i o n in B a s i c I n d u s t r i e s October w as a month o f largely increased production in basic industries, p a rtic u la rly in iron and steel, and other m etal industries. O utput of bituminous coal fo r the month, as reported in the prelim inary estimates of the U nited States Geo logical S u rv e y , w as 4 5 ,15 4 ,0 0 0 tons, an advance of 4 ,14 1,0 0 0 tons over Septem ber figures, and about 7 5 per cent, of estimated norm al production. In the W e st V i r ginia, and K en tu ck y fields, production is still ham pered b y inadequate transportation facilities. I n the middle west, on the other hand, reports of lack of m arket occur w ith increasing frequency, due as f a r as can be ascer tained to b u y e rs’ dissatisfaction w ith current asking prices rather than to absence of demand. Production September 1. October 1. . . November 1. 22.000.000 tons 28.000.000 tons 35.000.000 tons 17 days’ supply 22 days’ supply 27 days’ supply OCT. BOOTS 8 SHOES CAR BUILDINGLEATHER COTTON GOODS IRON&^TEEL PAPER WOOLEN G00D5 MEN'S CLOTHING SILK GOODS KNIT GOODS CIGARS-TOBACCO A INDUSTRIES LL S a v in g s B a n k as a whole is in advance of requirements, and stocks in the hands of commercial consumers, as reported to the F e d e ra l F u e l D istributor, have increased since the te r m ination of the strike as fo llo w s: „ A n th ra cite coal mined du rin g October amounted to 8,530,000 tons, almost twice the Septem ber production. Shipm ents from the mines w ere about 2,000,000 tons less than the amount produced, and transportation fa c il ities of railroads were taxed to capacity. Production of p ig iron d u rin g October totaled 2 ,6 38 ,000 tons, the largest output since Decem ber 19 20 . D a ily blast furn ace c ap a city in operation increased from 77,0 0 5 tons at the outset of the month to 8 7 ,9 35 at the close. Th e month has been m arked b y a dow nw ard revision o f prices. The m arket along the seaboard has been affected b y im portation, inasm uch as 200,000 tons of B ritish and Continental iron have recently been de livered at prices below A m erican quotations. Steel ingot production fo r October w as 3,28 3,0 0 0 tons, as com pared w ith 2 ,7 13,0 0 0 tons du ring Septem ber, an increase of 2 1 p er cent. Unfilled orders fo r finished products on the books o f the U nited States Steel C o r poration October 3 1 amounted to 6,902,000 tons, as com p ared w ith 6,692,000 tons Septem ber 30 , an increase of 3 per cent. F r e ig h t embargoes contributed to this increase. A s in recent months, r a ilw a y supplies consti tuted the bulk o f new business and dem and fo r general products w as less active. O rders fo r stru ctu ral m aterial, fo r example, w hich in A p r il amounted to 8 5 p er cent, of shop cap acity, declined d u rin g October to 5 5 p er cent. The follow ing table shows production fo r the past six months, expressed as percentages of estimated norm al production. I n estim ating normal, allowance has been made fo r y e a r to y e a r growth, and seasonal variations. (Estimated normal production = 100 per cent.) Commodity Anthracite coal......................... Bituminous coalr..................... Steel ingots............................... Copper, U. S. mine.................. Tin deliveries............................ Crude petroleum...................... Portland cement....................... Wheat flour............................... Meat slaughtered..................... Sugar meltings U. S. Ports. .. Cotton consumption................ Wood pulp................................. Tobacco consumption............. Paper (total)............................. Wool consumption*................. May June July Aug. Sept. Oct. .4 41 73 81 70 92 51 111 119 100 108 146 88 108 91 100 96 116e ^Seasonal variation not allowed for. ary. e — Estimated. 1.0 43 79 82 75 90 53 110 120 104 112 135 92 110 97 100 101 116e 1.4 32 82 79 75 75 60 110 128 142 99 131 84 105 90 93 109 103 e 1.9 46 61 70 86 77 59 112r 121 117 109 144 97 105 103 107 103 126e 61 72 68 74 80 r 92 62 111 123 112r 105 110 92 102 99 105 104 121 e 94p 7dp 83 85 84p 103 75 112p 126 109 103p 108 95 88 i3 i« r— Revised, p— Prelimin- FE D E R A L RE SE R V E AGENT A T NEW YO R K PER PER. : ent C ent : 150 150 NM ^ OA RL A A 100 100 h 50 50 PIG IRON suerAR. 1 .... . 0 0 150 150 i 100 ^ A /v n O R rlA L / - A J \ A' 100 Ir 50 50 U J X £ BITM COAL 0 F CUR L KT i 0 150 150 NM OA RL 100 V “VvA A 50 r * 100 50 COT1‘ON 0 0 150 150 /A a\ V 100 Vs NM OA RL A . 50 100 50 PETR.O LEUM TOB>\cco .... 1 .. 0 0 -------- 1 150 150 100 y /A - V---- V NM OA RL \ 1 100 50 50 R PAPIE . i 0 1916 1919 I9 £ 0 192.1 1922 1918 1919 0 192.0 192.1 Production in Basic Industries (Estimated Normal Production = 100 Per Cent.) \9ZZ 10 M O N TH LY R E V IE W Railway Traffic A s a result o f the continued h eavy movement of coal and of the delayed shipment of grain because of car shortages in the northwest the seasonal decline in car loadings which norm ally begins ea rly in October did not begin this ye a r until ea rly in Novem ber and the decline has been at a slower rate than usual. A f t e r the middle of October car loadings were fo r some weeks even larger than the h eavy traffic o f 19 20 . The freigh t car shortage increased steadily through out October, reaching 180,000 cars on October 30, the largest shortage ever reported. Th is shortage w as m ainly in the central western and northwestern States. Recent operating statistics indicate higher efficiency in handling cars. The average freigh t car load was raised from 2 5 tons in J u l y to over 2 7 tons in Septem ber and the average d a ily car movement increased from 2 1 miles in J u l y to over 2 4 miles in Septem ber. M oreover the num ber of cars needing rep air had been reduced b y N o vem ber 1 to the lowest figure since M arch 1 9 2 1 . W h o le s a le T r a d e The gain in the volume o f wholesale business in this district, which w as first noted in A u g u s t and Septem ber, continued d u rin g October w ith increased momen tum. The weighted average of wholesale trade, com puted b y this bank from reports of dealers in ten p rin cipal commodities, shows that the dollar value of sales w as 1 3 per cent, above th at of October 1 9 2 1 , as com p ared w ith a gain o f 1 0 per cent, in Septem ber over a yea r ago. October sales were the largest of a n y month since the autum n of 19 2 0 . The trend of sales d u rin g the past fou r years is shown in the diagram at the foot of this page. The dollar sales figures have been adjusted, as n e a rly as it is possible to do so from the available data, to make allowance for normal seasonal changes. The trend of wholesale prices du rin g the same period is also shown, computed from the group price indices o f the Departm ent o f Labor. The ph ysical volume of sales has been estimated b y d ividin g the dollar sales b y the prices p revailin g du ring each month. The diagram shows that during 19 20 , when both dol lar sales and prices were highest, the actual amount of merchandise distributed w as lowest, reflecting restricted bu yin g b y retailers. In 1 9 2 1 and 1 9 2 2 as retailers' stocks were reduced, the volume of wholesale transac tions began to increase. In the past few months this increase has been quickened, and the amount of m er chandise distributed b y these dealers d u rin g Septem ber and October has probably been greater than du rin g a n y other month fo r w hich figures are available. The diagram also reveals the tendency of m erchants du ring the past two years to b u y fo r immediate needs only. The volume of business has not been distributed du rin g the y e a r as form erly, but has been greatest d u r ing the sp rin g and fa ll months, coinciding w ith the bu sy seasons fo r retail distributors. W holesale m erchants whose business is nation-wide report that sales to customers in western, m iddle-western, and southern States have been p a rtic u la rly good, and the increase in sales in those States has been rela tiv e ly greater than the increase in sales in the northA tla n tic States. T otal N et Sa l e s (in percentages) Oct. 1919 All Commodities (weighted). . Machine Tools........................... Jewelry........................................ Stationery................................... Diamonds................................... Hardware.................................... Drugs........................................... Groceries...................................... Clothing...................................... (a) Men’s ............................... (b) Women’s .......................... Dry Goods.................................. Shoes............................................ Oct. 1920 Oct. 1921 Oct. 1922 Sept.* 1922 127 554 241 146 217 129 110 135 91 69 149 118 219 107 564 186 173 107 129 107 122 102 90 133 78 80 100 100 100 100 100 100 100 100 100 100 100 100 100 113 342 132 131 130 118 113 113 112 95 158 103 95 110 413 123 98 208 122 108 106 129 134 119 95 102 ♦September 1922 figures are expressed in percentages of sales in September 1921. 11 FEDERAL RESERVE AGENT AT NEW YORK Department Store Business Sales b y departm ent stores in this district were re tarded du ring the early p a rt o f October b y unseasonably w arm weather w hich delayed the b u yin g of fa ll and w in ter w earing apparel. D u rin g the latter p a rt of the month sales increased and fo r the month as a whole showed a gain of 4 .5 p er cent, over those o f October last year. This compares w ith an increase of 1 6 per cent, reported for the previous month. Sales b y Buffalo, Rochester and N ew ark stores w ere relatively larger than those b y N e w Y o rk C ity m erchants, in contrast w ith the tendency, evident fo r several months previous, fo r sales in the M etropolitan area to expand more ra p id ly than those in other sections o f the district. A tendency to purchase a better q u ality of m erchan dise w as even more evident in October than in Septem ber. There w as an increased dem and fo r fine furn iture, oriental rugs, pianos and other m usical instruments, fine linens and the highest q u ality of w earin g apparel. E v i dence o f this change in the character of purchases is found in an increase of 8.4 p er cent, in the average indi vidual sale from $ 2 .9 8 in October 1 9 2 1 to $ 3 .2 3 this year. D etailed sales and stock figures are shown in the fol lowing table. T otal N et Sa l e s (In Percentages) St o c k (S e l l i n g P r i c e ) (In Percentages) Nov. Nov. Nov. Nov. Oct. Oct. Oct. Oct. 1, 1, 1, 1, 1919 1920 1921 1922 1919 1920 1921 1922 94 All Dept. Stores.. New York........ 97 84 Buffalo... Newark............. 91 Rochester. . . . . 87 Syracuse........... 102 Bridgeport........ 104 Elsewhere in 2d 82 District......... Apparel Stores. . . 88 Mail Ord. Houses 178 98 97 99 102 104 107 113 100 100 100 100 100 100 100 104 104 109 110 107 104 103 98 98 96 98 118 126 103 118 118 115 121 136 150 118 100 100 100 100 100 100 100 98 97 92 96 97 98 100 94 93 116 100 100 100 90 106 124 84 89 ** 102 110 *** 100 100 *** 93 108 *** Stocks held b y departm ent stores on Novem ber 1 were 2 per cent, below those held on the same date last year. Th is reduction, coupled w ith the somewhat larger sales, has resulted in a more rap id stock turnover. M erchants are m aking plans fo r an u n u su ally large Christm as business. D u rin g the past two weeks they have received large shipments o f h oliday goods and the sales forces are being increased. O utstanding orders on Novem ber 1 amounted to 8.2 p er cent, o f the total p u r chases d u rin g the previous calendar y ea r as compared with 6.0 per cent, one y e a r ago. M ail order sales in October were 2 4 p er cent, above those of last October, the largest gain since the autum n of 19 20 . Th is increase is a reflection of la rg e r purchas in g pow er in farm in g districts, where the m ail order houses find their chief market. Th e follow ing diagram compares the sales b y m ail order houses w ith sales b y departm ent stores in all sec tions of the U nited States, as compiled b y the F e d e ra l Reserve Board. In each instance allowances have been made fo r seasonal variations. Throughout the latter p art of 19 20 , d u rin g 1 9 2 1 , and thus f a r in 19 2 2 , sales of departm ent stores in the larger cities have been larger in comparison w ith 1 9 1 9 average sales than sales b y m ail order houses, but recent increases in m ail order sales have brought the two lines somewhat nearer to gether. PER CENT. 150 1.25 A DEPARTM NT f STORE* f \ \ 10 0 1919 AVERAO& h V * • 75 \ i * ;/ ’• *./ \ . • V* * MAIL DRDER HOU SES 50 25 1920 \9ZZ 1921 192.3 Sales by Department Stores Throughout the United States Com pared with Sales of Principal Mail Order Houses (1919 Average = 100 Per Cent.) C h a in S to re S a le s October sales b y chain store systems that report to this bank w ere 8 per cent, larger than those o f last October. The chief increase, am ounting to 1 2 p er cent., was reported b y chain grocery organizations and w as due to the opening of about 2,400 new stores du ring the y e a r ; average sales p er store were lower. Sales b y chain shoe stores declined 1 3 p er cent, due p a rtly to a decline of 7 .2 p er cent, in the average price per p a ir from $ 3 .8 7 last October to $ 3 .5 9 this ye a r and p a rtly to a decrease of 5 .7 per cent, in the num ber of pairs sold. Number of Stores Type of Store Grocery. . . Apparel. . . TenCent. . Drug.......... Cigar Shoe.......... Total. . . Oct. 1921 Oct. 1922 6,378 8,765 433 370 1,598 1,666 280 281 2,248 2,670 218 192 11,067 14,032 Total Net Sales (In percentages) Oct. Oct. Oct. Oct. 1919 1920 1921 1922 94 69 76 88 80 95 83 104 100 92 101 109 105 100 100 100 100 100 100 100 100 112 112 110 100 92 87 108 Per cent, change in Sales per Store Oct. 1921 to Oct. 1922 -1 8 .6 - 4.0 + 5.9 + 0.5 -2 2 .5 -2 3 .0 -1 5 .1 W h a t th e R eserve V E R Y week the F e d eral Reserve B o ard an nounces through the press a statement of condi tion of all twelve F ed eral Reserve Banks, show ing their prin cip al assets and liabilities, and also showing w h at is known as the reserve ratio, or reserve percentage. This reserve ratio freq uen tly is singled out for editorial comment, and is often considered an indicator of the state of credit throughout the country. B u t fo r its proper interpretation, it is necessary to understand the circum stances which influence it at all times, and to make allowance for such special conditions as m ay occa sionally prevail, for exam ple the recent immense im portation of gold. E F u n c t io n of B a n k R eserv es G en erally speaking, a reserve is a fu n d set aside for em ergency use. R eserves are m aintained b y business men as well as b y banks. B u t in the case of banks the law specifies w h at reserves shall be maintained, for the better protection of their depositors. The amount of reserve required fo r a bank which is a member of the Fe d e ra l Reserve system depends on the size of the com m un ity in which the bank is located and the nature of its deposits. On the average throughout the country the reserve required fo r a member bank is about 10 per cent, of the amount of its deposits p ayable on demand. In the same w a y , Reserve B an ks must keep in reserve a certain proportion of their funds, and because of the fa ct that the R eserve B an k s c a r ry reserves fo r other banks, the percentage is much higher— 3 5 per cent, of the amount of their deposits, and 40 per cent, of the amount of their n o te s; but fo r purposes of convenience and ease of reference the published reserve percentage is a single figure. Th is figure is the proportion which the total reserves bear to the amount of both deposits and notes. Thus a 7 5 per cent, reserve ratio (or percentage) means that the Reserve B an ks have reserves in gold or law fu l money which amount to three-quarters of the sum o f their deposits and notes. E lem ents in th e R atio The reserve ratio of the Reserve B an ks m ay therefore be affected b y a n y one of three factors,— a change in the amount of cash reserves, a change in the amount of note issues, or a change in the amount of deposits. Changes in the cash reserves, however, affect the ratio more than do changes in either of the other two items. This m ay be illustrated best b y an example. On N ovem ber 22, 19 2 2 , the cash reserves of the R eserve B an ks were $3,219,000 ,0 00 . Deposits were $1,895,000,000, and notes in circulation $2,299,000,000. The reserve percentage is computed from the fraction 3,219,000,000 3,219,000,000 ---------------------- ---------------------------- o r ----------------------- , 2,299,000,000 plus 1,895,000,000 4,194,000,000 which equals 7 6 .7 per cent. I t is clear, arithm etically, that an increase or decrease of $100,000,000 in cash re serves, shown above the line, affects the percentage more than a like change in deposits or notes, shown below the line. This alw ays holds true as long as the reserves are less than deposits plus notes. E ffect of H ea vier or L ig h t e r C redit D e m a n d s U nder ord in ary circum stances of w orld trade it is probable that the stock of gold in the cou ntry would not v a r y greatly, certainly not to the extent that has occurred in recent years. O rd in arily the p rin cip al changes would take place in the figures below the line, nam ely in the Reserve B an k deposits and note issues. The w a y in w hich such changes would come about, and the reserve ratio be thereby affected m ay R a tio M ean s be illustrated b y the follow ing example. A m er chant of B ata via , N. Y ., finding his business growing, is in need of additional funds w ith which to increase his stock of goods. H e goes to his bank and obtains a loan, p a rt of which he m ay wish to receive in the form of a deposit credit against w hich he m ay d raw checks, and p a rt of which he m ay wish to receive in currency. I f his b a n k ’s reserve is high, it m ay be able to su p p ly him without borrowing. B u t if business is exceptionally active the bank itself m ay have to borrow in order to accommodate the m er chant and its other customers. I t borrows perhaps $100 ,000 at the Reserve B ank, receiving in return F e d eral Reserve notes or a deposit on the books of the R e serve B an k which under the law serves as reserve against the increased deposits of its customers. The Reserve B an k does not p a y out or p a rt w ith a n y of the cash com posing its reserve, but the aggregate of its deposits and notes is increased $100 ,000 and the reserve ratio is pro portionately lowered. Conversely, when business a ctivity is dim inishing, the B a ta v ia m erchant and m an y others like him, are p a yin g off their loans at their banks and at the same time c u r ren cy is being released from circulation and deposited in the banks. W ith these receipts the banks in tu rn re duce their borrowings at the Reserve Banks. The cash composing the reserves of the R eserve B an ks is not in creased, but their deposits and notes are decreased, and the reserve ratio is proportionately raised. Thus if conditions were such that the gold reserve rem ained p ra ctica lly stationary, the reserve percentage would reflect directly the changing needs of business and agriculture. Its low ering w ould mean a grow ing vol ume of commercial activity, accom panied b y an increased credit demand upon the banks and a grad ual n arro w in g of the m argin of available credit. Its rising, on the other hand, would mean a slackening pace of industry, an easing in the credit demand, and a replenishing of the credit reservoir. E ffe c t of G old I m po r ts or E x po r ts B u t present conditions are not such that the gold reserve of the F e d e ra l Reserve B an k s rem ains station ary. In the past two years it has increased more th an a billion dollars, p ra ctica lly all of w hich represents im portations of gold. In the e a rly stages o f the gold movement, when the gold found its w a y into the Reserve Banks it p aid debts owing b y the member b a n k s; latterly it has perm itted the member banks to increase their deposits to the highest point ever reached and at the same time to m aintain the reserves th at the law requires w ith v e ry little borrow ing from the R eserve Banks. The combined effect of these huge gold im ports, in creasing the reserves, and of sim ultaneous h eavy redemptions of F e d e ral Reserve notes, decreasing the liabilities, has been to b rin g about the present reserve ratio of about 7 7 per cent., which compares w ith the ratio of 85 per cent, when A m erica entered the w a r and the ratio of 4 2 .5 per cent, in the autum n of 19 2 0 when the credit strain w as at its peak. The present high reserve ratio, then, is in large p a rt due to the recent flow of gold to the U nited States from countries w hich fo r the time being are not on the free gold basis which obtained before the w ar. A retu rn to such a basis, under which gold would flow fre e ly into or out of such countries in settlement of international bal ances, would, if our balances w ere adverse, cause a cor responding outflow of our gold. This would decrease our reserve ratio, e xa ctly as recent im ports have in creased it.
@FedFRASER