The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
( The article on the last page describes retirin g excess credit u nder the F ed era l R eserve system .)
M O N TH LY R E V IE W
Of Credit and Business Conditions
In the Second Federal Reserve District
By
th e
Federal
Reserve
Agent,
Federal
Reserve
Bank,
New
York
N ew Y o rk , October 1 ,1 9 2 1
Credit Conditions
H E reduction of discount rates of the N ew Y ork
Reserve Bank on September 22 was a reflection of
existing credit conditions in this Federal Reserve
district. M ore particularly, it was a reflection of easier
conditions in the money market. Evidences of the ten
dency toward lower rates for money, which have been
gradually extending since last winter, included the sale
on September 15 of $698,000,000 of Treasury certificates
and notes at rates lower, for corresponding maturities, than
at any time since M arch, 1920; the immediate quotation of
these certificates and notes in the open market at a pre
m ium ; the decline from 5 to 4 ^ per cent, in the rate at
which dealers offer bankers acceptances; and a rise in
the market prices of Liberty bonds and Victory notes.
T
they have been quoted since the establishment of the
open market in the early part of 1920. During the whole
o f 1920 the N ew Y o rk Reserve Bank maintained a prefer
ential rate on loans secured by certificates of indebted
ness. E arly in 1921 this preferential was withdrawn
to the extent that all loans secured by Government
collateral bore the same rate. It was not until June 15
that the N ew Y o rk Reserve Bank established a uniform
rate on all loans, whether on Government collateral
or commercial paper. In spite of the withdrawal of the
preferential the market value of certificates of indebted
ness continued to rise, as shown by the lower yields at
which they sell in the open market.
RATE
These lower rates of return on investments of com
plete security and the readiest sale are the best indices
at this time of market rates for money. T h ey imply
an increased volume of funds seeking the safest invest
ment. The banks have found it advantageous to utilize
funds not required by their customers to reduce and
ultimately to extinguish their debts at the N ew Y ork
Reserve Bank, and the discounts and advances of the
latter have fallen from $847,000,000 a year ago to $202,450,000 on September 21, 1921, the lowest point in more
than three years. A s such debts have been paid off,
more and more funds have become available for invest
ment in the money market.
A second factor of importance but with possibly a
more transient bearing on the situation, was the G o v
ernment redemption of $535,000,000 of Treasury cer
tificates on September 15, of which $280,000,000 were
redeemed at the N ew Y ork Reserve Bank. It has become
customary for Government operations on the quarterly
tax days to affect favorably the position of this bank.
Ordinarily the certificates redeemed in this district are
in excess of the taxes paid here, requiring the transfer
to N ew Y o rk of Treasury funds accumulated elsewhere.
A new issue of certificates put out at such times usually
has no effect on money conditions then prevailing, because
the proceeds remain on deposit at the banks until the
Government has occasion to withdraw them.
The diagram printed on this page compares the N ew
Y ork Reserve Bank discount rate on advances secured
by certificates of indebtedness with the rates at which
Open Market Selling Rates of Certificates of Indebtedness of Different
Maturities, Compared with the Rate of the Federal Reserve Bank of
New York on Advances Secured by Certificates of Indebtedness
T h e active demand for certificates in the open market,
where for m any months they have been quoted at a
premium, has enabled the Treasury to reduce gradually
since last Decem ber the rates of interest borne by new
issues. T h e successive changes in issuing rates since
early in 1918 are summarized in the following table.
MONTHLY REVIEW
About
Month of Issue
6 Months
Maturity
January, 1918........................
January, 1919........................
January, 1920 ....................
March, 1920..........................
April, 1920.............................
June, 1920..............................
December, 1920....................
March, 1921..........................
June, 1921..............................
August, 1921.........................
September, 1921....................
About
Year
Maturity
1
3-Year
Notes
4
4^*
4y±
4%
5%
5%
5V2
6
6
5%
^A
5V2
5'A
5H
5
Savings Bank Deposits
During A ugust as during July, the general trend of
deposits in representative savings banks in the Second
Federal Reserve District was downward. E igh t of ten
reporting banks in cities in the district outside N ew Y o rk
C ity reported slight reductions in aggregate deposits
between A ugust 10 and September 10. O f eleven re
porting banks in N ew Y o rk C ity, nine showed declines for
August. Such reductions in deposits are normal for
this time of year.
5%
5 {A
Bill Market
*Issued December 15, 1919.
O n September 22, Governor Harding of the Federal
Reserve Board, speaking at Charlotte, N . C ., made the
following com m ent upon the situation in the country
as a whole: “ T h e process of readjustment has not yet
been completed, but evidences are multiplying th at the
corner has been turned and that we have passed the
m ost acute stage of the readjustment period.”
Subsequently in the same address Governor Harding
said, “ A ll history shows that periods of prosperity and
depression come in cycles, the rotation being about as
follows: (1) Prosperity, (2) Liquidation, (3) Stagnation,
and (4) R evival. A t the present tim e the process of
liquidation is well advanced and the end of stagnation
and the beginning of the period of revival seem now
to depend upon certain things which are susceptible of
accomplishment in the near future, among which m ay
be enumerated the financial rehabilitation of our great
transportation systems and the determination of the
policy of the Governm ent with respect to revenues and
the tariff.”
PER CENT.
During the first two weeks of September, some offer
ings of prime bills were made at 4 % per cent.,
of
one per cent, below the rate previously prevailing. B y
the latter part of September, prime bills of 30 to 120
d a y ’s maturities were freely offered at 4 % per cent. D eal
ers’ buying rates for bills of these maturities generally
ranged % of one per cent, higher. There was a small
amount of 6 months bills in the market, drawn against
transactions in overseas trade, which were dealt in at
rates slightly in excess of those for the shorter maturities.
T h e lower bill rates were the reflection of generally
easier money conditions rather than of an active demand
for bills. Dealers reported th at buying of bills was
slow, but that the supply of bills was so light that their
portfolios were substantially decreased. Dealers con
tinued to find a steadier market with the country banks
than with the banks in this city, and they continued to
get new customers outside the city.
Of bills purchased by the dealers, sugar, grain, cotton,
and dollar exchange bills preponderated. Offerings of
grain bills continued comparatively heavy, as in August
and July, but there was some decrease in offerings of
sugar and cotton bills, and a further decline in the volume
of dollar exchange bills. Silk bills were also much less
frequently offered.
Commercial Paper
Deposits of 11 Savings Banks in New York City and 10 Savings Banks
in the Second District Outside New York City (Average Deposits in
1918 = 100 per cent.)
In the early weeks of September, a few sales of very
choice commercial paper were reported at 5 % per cent.,
or }/i of one per cent, below the usual selling rate then
prevailing for prime paper. Following the reduction in
the rediscount rates at the Federal Reserve B ank on
September 22, the number of sales at 5 ^ per cent, in
creased, and some offerings of highest grade paper were
made at 5 } ^ per cent. M o st of the dealers reported
difficulty, however, in selling any but the highest type
of paper under 6 per cent.
T h e lowering of the bank rate has been a factor in a
somewhat larger m ovem ent of paper, particularly in
N ew Y o rk C ity , where a number of the larger of the
banks have recently been in the market for small amounts.
There are reports, also, of increased buying in other
large cities, including Chicago, Boston, and Philadelphia.
A s in past months, however, the country market has
absorbed the larger proportion of offerings.
Reports to this bank from commercial paper distribu
tors showed that in spite of light dem and during A ugust
the volume of paper outstanding on A u gu st 31 was
FEDERAL RESERVE AGENT AT NEW YORK
somewhat larger than that outstanding on July 31
and a number of dealers reported rather substantial
individual gains.
Practically all dealers reported that the smallness of
their supply of paper is an important factor in restricting
business. M o st commercial paper borrowers are not
now in need of m oney, on account of the quiet conditions
of their business.
MILLIONS
OF DOLLARS
Stock Market Money Rates
Call money rates on the N ew Y o rk Stock Exchange
between A ugust 20 and September 20 were chiefly 5 to
5 Y i per cent., although on several days closing rates
declined to 43^ per cent., and on September 20, renewal
rates touched that figure. This period of thirty days
was the first since 1919 during which the maxim um call
loan rate was under 6 per cent. Excepting for a few days
near the first of the m onth, and prior to the tax paym ent
date, money was in ample supply, and considerable sums
frequently went unlent at the close of the day.
Tim e money was offered in moderate volume, but deal
ings were light as borrowers as a rule were supplying their
needs in the call money market. R ates ruled 5 }^ to 5 %
per cent, on September 20, or x/ i of one per cent, lower
than on August 20^
Stock Market
Representative averages of industrial stocks in September
advanced 7 to 12 points from the low levels reached in August
after the prolonged decline of the summer. This was the
most vigorous recovery since early in the year, and ac
companied reports of increased activity in some basic
industries, a halt in the general decline in com m odity
prices and a sharp rise in cotton and wheat prices.
Railroad stocks also advanced in September, though
less rapidly than the industrial shares, and are back at
3
about the level maintained for the first two months of
1921.
T otal stock sales during A ugust were the smallest
reported for any m onth this year, excepting February.
Somewhat more active trading accompanied the higher
prices in September.
Bond Market
In September, bond prices resumed the advance which
had been interrupted during August.
Trading was
more active, and b y September 20 representative averages
rose 1 to V/2 points above the levels erf A ugust 20 and
4 points or more above the average in the middle of June.
A number of issues reached new high levels for the year.
These gains were apparently based chiefly on continued
evidence of an easier tendency in money, and the same
industrial developments which affected the stock market.
Advances were distributed with fair uniformity through
railroad, industrial, public utility, and foreign govern
m ent groups. T h e continued strength of foreign issues
was noteworthy, indicating that the American invest
ment market, though comparatively unaccustomed to
foreign investm ent, has absorbed the large amount of
fdreign financing done here in the past two years.
Japanese bonds continued active, and in late A ugust
reached new high prices for the year, from which, however,
there was some reaction. T h e Japanese Governm ent
announced th at it had purchased in the open market and
retired £ 6 ,3 5 2 ,2 4 0 of its 4 Y 2 per cent, sterling bonds,
which, together with previous retirements, leaves £ 3 6 ,3 2 3 ,280 outstanding of the two series of £ 3 0 ,0 0 0 ,0 0 0 each
originally issued. Tow ard the close of September M e x
ican bonds made rapid advances in price.
A ugust sales of corporation and miscellaneous bonds
on the N ew Y o rk Stock Exchange were the smallest
reported for any m onth this year, and 40 per cent, less
than sales in August last year.
United States Securities
Beginning about the second week of September, trading
in Liberty bonds became active, and prices rose 1 to
13^ points to the highest levels reached this year. V ic
tory notes were heavily traded in, and likewise established
higher prices. T h e tax exempt 33^s, on the other hand,
declined. T h e following table shows the changes in
prices since the first of July.
Issue
Liberty 33^>s..........................
Liberty 1st 4s........................
Liberty 2nd 4s......................
Liberty 1st 43^s....................
Liberty 2nd 4 ^ s ...................
Liberty 3rd 43^s...................
Liberty 4th 43^s...................
Victory 4 ^ s ..........................
Victory 3% s..........................
Closing Price Closing Price
July 1
September 20
86.30
87.30
86.80
87.40
86.90
91.00
87.24
98.40
98.40
87.86
89.20
89.30
89.28
89.34
92.94
89.54
99.12
99.12
Advance
1.56
1.90
2.50
1.88
2.44
1.94
2.30
.82
.72
4
MONTHLY REVIEW
August sales of Government bonds on the N ew Y ork
Stock Exchange were $71,000,000, the smallest total
reported for any m onth this year, and a little more than
half as large as sales in August last year. B y the second
week of September, however, weekly sales were almost
double the A ugust weekly average.
T h e September 15 offerings of Treasury certificates
and three-year notes, offered on a basis 34 ° f one Per
cent, lower than preceding issues, were heavily over
subscribed, as shown in the following table. T h e longer
term issues were in the greatest demand.
provincial and municipal financing in this market was
active, and there were several fair-sized offerings of domes
tic railroad, industrial, and public utility issues, though
the aggregate of the latter was considerably less than in
former active periods. T h e demand for bonds was large,
particularly for the longer non-callable maturities.
Late in A ugust, a banking syndicate distributed $ 2 5 ,000,000 20-year non-callable 8 per cent, bonds of the
Brazilian Governm ent, upon a basis to yield 8.15 per
cent, to the investor, a slightly lower yield than was
offered on a similar issue in M a y .
(Figures in millions of dollars)
Gold Movement
N
ew
D
Issue
Y
is t r ic t
1
6
Total.............................
A
ll
D
is t r ic t s
Rate
Subscrip
tions
3-yr. Treasury Notes. . . .
-yr. Treasury Ctfs........
-mo. Treasury Ctfs.......
ork
5V2
5
Allot Subscrip
ments
tions
Allot
ments
$361
190
132
$147
80
48
$785
463
340
$391
183
124
$683
$275
$1,588
$698
These issues, in comm on with other Government
short term issues, are selling in the open market at a
premium. On September 20, the six-months 5 per
cent, certificates were quoted at an offering price to
yield 4.60 per cent., the one-year 5 34s to yield 5.02 per
cent., and the three-year 5 % per cent, notes to yield
5 .3 7 per cent.
New Financing
T h e market for new financing was dull during August,
when the total of new issues amounted to only $139,000,000. In September, however, there were larger
offerings, some of which were made at rates distinctly
lower than those of preceding months. On September 22,
a syndicate of bankers offered, at a 5.75 to 5.80 per cent,
yield, issues of equipment trust 6 per cent, certificates
totaling $12,038,800, purchased from the United States
Railroad Administration under the plan for making cash
available for paym ent of claims of the railways against
the Government, and for funding their debts to the
Governm ent for improvements made during the period of
Governm ent control. These yield rates were the lowest
offered this year on new securities with the exception of
Governm ent issues, and were the first break below 6 per
cent, on the current downward m ovem ent. U p to and
including September 22, total purchases by bankers and
others of equipment trust certificates from the Railroad
Administration amounted to $63,482,600. T h e purchase
rate in all cases was 6 per cent.
One of the larger individual offerings in September
was an issue of $25,000,000 Canadian National Railw ays
6 per cent. 15-year non-callable gold debenture bonds,
offered at a price to yield 6 ^ per cent, to the investor.
This was } of one per cent, lower than the rate on sim
ilar offerings during the early months of the year, and
slightly the lowest rate offered on any railroad issue this
year, excepting the equipment trust certificates. Canadian
August imports of gold totaled $86,202,000 , the largest
am ount received in any month this year except M arch.
E xports were only $672,000. T h e heaviest shipments
were from France and England. From these two coun
tries has come more than 56 per cent, of the gold imported
thus far in 1921. Sources of imports are shown in the
following table.
(000 omitted)
Country
First
Second
Quarter Quarter
England........................
$51,163
45,235
Sweden.........................
4,679
20,553
China and Hong Kong. 12,508
British India................
8,018
Netherlands.................
1,557
All Other......................
19,759
July
$51,078 $21,656 $19,202 $143,108
28,013 27,974
34,999 136,311
54,822
42
37,991
27,937
195
2,654
4,535
22,124
1,607
6,804
1,205
4,563
23,803
2,094
9,065
17,681
879
14,159
1,086
70,656
9,996
10,188
30,713
12,110
Total Imports.......... $163,535 $182,457 $64,248
Total Exports..........
4,471
August
Total
Jan. 1Aug. 31,
1921
2,219
3,735
Excess Imports........ $159,064 $180,238 $60,513
$86,202 $496,442
672
11,097
$85,530 $485,345
Foreign Exchange
T h e market for sterling exchange during the past month
has been dull and inactive, with an undertone of strength
which is probably accounted for mainly by the steady
flow of gold imports and by the absence of large offerings
of cotton and grain bills which are customary at this tim e
of year.
T h e continental exchanges have been irregular with
rates in general on a lower level than at the beginning of
September. This has been particularly true in the case
of reichsmarks which have declined from 1.15 cents to
.815 cent on September 27. T h e weakness in marks is re
ported to emanate from abroad and is generally attributed
to operations of the German Government incident to
reparations paym ents, speculation in marks both in G er
m any and the principal financial centers, and the internal
financial situation in Germany, in particular the rapid in
crease in her paper currency.
Exchange on the central
European countries has also continued to fall.
FEDERAL RESERVE AGENT AT NEW YORK
T h e principal development in the South American
exchanges has been the rise in Argentine pesos which
advanced from 30 cents to 33 cents for checks as a result
of the successful arrangement for the $50,000,000 loan
to the Argentine. Brazilian exchange has also shown
improvement. T h e Far Eastern exchanges, H ong K on g
dollars and Shanghai taels, have also advanced.
Gold is reported to be selling at a slight premium in
B om bay, and India has again become a buyer in the
London gold market.
T h e following table shows the changes that have oc
curred in the principal exchanges during the past month,
and likewise the changes since the first of M a y before the
formulation of the plan for reparations paym ents.
Country
England.....................
France.......................
Italy..........................
Germany...................
Belgium.....................
Holland.....................
Switzerland...............
Spain.........................
Sweden (Stockholm).
Argentina..................
Brazil.........................
Japan (Yokohama). .
China (Hong Kong)..
China (Shanghai). .. .
India..........................
Canada......................
Bar Silver in N. Y . . .
Sept. 20
Last
3.7125
.0702
.0418
.0093
.0702
.3146
.1720
.1300
.2162
.2993
.1248
.4813
.5238
.7313
.2625
.8969
.6563
Change
from
Aug. 20
+ .0525
-.0 0 7 3
-.0011
-.0 0 2 4
-.0 0 5 8
+ .0053
+ .0029
+ .0010
+ .0027
+ .0048
+ .0084
-.0 0 2 5
+ .0200
+ .0400
+ .0037
-.0 0 3 1
+ .0375
Per Cent.
Per Cent.
Depreciation Change
from Par
May 2Sept. 20
23.7
63.6
78.3
96.1
63.6
21.7
10.9
32.6
19.3
29.5
77.2
3.5
*
*
19.1
10.3
- 6.3
-1 0 .1
-1 3 .3
-1 0 .4
-1 0 .1
- 1 0 .4
- 2.3
- 6.9
- 8.2
- 3.9
- 2.7
- 0.2
+ 2.9
+ 8.9
+ 1.4
+ 0.3
+ 6.9
Foreign Trade
For some commodities, notably cotton and steel,
there has been a more active export demand in the past
month, but for certain other important export comm odi
ties, such as wheat, copper, and cotton goods, the market
has become quieter. Exporters doing business with
Australia and South Africa state that orders have increased
gradually, while those concerned chiefly with South
America have little change to report.
There has been a heavy export m ovem ent of cotton,
accompanied b y active new buying, particularly by
Germany, Italy, Japan, and China. Though weekly
shipments fell off compared with the average for July,
the total from August 1 to September 23 was over 7 23,000 bales, nearly two and a half times larger than in
the corresponding period of last year, and somewhat
above the total for the same period in 1919.
T h e demand
for cotton goods, which had become active in preceding
months, was largely diminished as a result of the sharp
rise in prices.
Foreign steel buying became larger, particularly in
the Far E ast, where large orders of sheets, tin plate,
and rails were sold. Some broadening in the market
5
was indicated in the receipt of business from Australia,
lately a quiet quarter. American producers have lowered
prices nearer to a competitive basis with those of foreign
companies, and there are reports that in certain cases
deliveries of foreign producers have not been satisfactory.
Export demand for American wheat became much
quieter after the first week of September, follow ing active
buying up to that tim e. Exports from July 1 to Septem
ber 17 were 87,700,000 bushels, compared with 88,800,000
bushels in the corresponding period last year.
During August the value of both exports and imports
was greater than during July, according to the monthly
summary of foreign trade issued by the D epartm ent of
Commerce. T h e downward m ovem ent that has con
tinued since December, 1920, is thus arrested. The
pause in the decline is in part due to a greater stabiliza
tion of prices, and in part to heavy shipments of wheat
during August and a larger m ovem ent of other foodstuffs,
oils, and oil products.
T h e following table gives the figures for the value of
exports and imports reported b y the Departm ent of
C om m erce.
(Thousands of dollars)
Month
Exports
Imports
Excess
Exports
January..................................
February................................
March....................................
April.......................................
May........................................
$654,271
486,454
386,680
340,364
329,710
336,899
320,709
375,000
$208,797
214,530
251,969
254,579
204,911
185,781
178,637
194,000
$445,474
271,924
134,711
85,785
124,799
151,118
142,072
181,000
August...................................
A comparison of m onthly price averages, as shown by
the D epartm ent of Labor’s index, with the monthly
foreign trade figures, provides some measure of the extent
to which the decline in the value of exports has been
due to lower prices, or to actual reduction in shipments.
During the three months ended with August, the value of
exports averaged about 50 per cent, lower than the
m onthly averages during 1920, while the average of
com m odity prices, according to the Departm ent of
t
Labor’s index, was about 39 per cent, lower.
World Commodity Prices
There were comparatively minor changes in wholesale
price averages throughout the world during August.
T h e indices continued to give evidence that the down
ward m ovem ent had been stayed in most countries, but
there was little evidence of a general upward tendency.
T h e m ost notable changes were in the nature of read
justm ents between the prices of different groups of com
modities. In general, those groups in which prices have
receded to points nearest to the 1913 level have shown
some recovery. Textiles, farm products, and foods are
examples of groups in which prices have risen. A s a
result the range between the prices of different groups
has been diminished.
6
MONTHLY REVIEW
T h e price index in Germany continued to rise during
August, accompanying a reduction of gold holdings of the
Reichsbank and the continued depreciation of the mark
in exchange.
PER CENT#
Domestic Commodity Prices
For the first tim e since M a y , 1920, the index of whole
sale prices compiled b y the United States D epartm ent of
Labor shows an increase over the figure for the preceding
month. T h e index of average prices in A ugust was 152,
as compared with 148 for July. Of the 327 comm odities
included in the list from which the index is obtained,
99 increased in price, 123 decreased, and 105 remained
stationary, bu t the principal increases were in the im
portant farm products and food groups, which are more
heavily weighted than other groups in making up the
index number.
T h e A u gu st changes tend still further to bring different
groups of the index nearer to a com m on level although
there is still a wide range between the highest and the
lowest groups.
(1913 average = 100.)
P
Commodity
Group
1920
1921
1921
Maximum July August Maximum
Level
Level Level
to
August
Farm Products.......
Food, etc................
Chemicals, etc........
Cloths and Clothing
Fuel and Lighting..
Building Materials.
House Furnishings.
Miscellaneous.........
Wholesale Commodity Prices in Four Countries (Average Prices in
1913 = 100 per cent.)
ercentage
All Items............
246
195
287
115
125
134
163
179
184
118
120
356
284
341
371
247
200
235
149
152
161
179
182
198
230
147
272
148
152
222
C
hange
July
to
August
- 5 2 .0
- 3 8 .5
-4 7 .0
-2 7 .5
-4 9 .7
-3 5 .9
-4 1 .9
-3 8 .0
-4 0 .5
+
+
-
2.6
4.0
13.4
1-.2
-
1.1
1.0
2.1
1.3
-4 4 .1
+ 2.7
0.0
Indices of Wholesale Prices
Base of 1913 = 100 unless otherwise noted
Per Cent. Change During
Country
June
United States:
basic commodities*..................
Department of Labor....................
Dun’s ..............................................
Bradstreet’s ....................................
Great Britain:
Economist......................................
Statist.............................................
basic commodities*..................
France.................................................
Italy....................................................
Japan..................................................
Canada...............................................
Swedenf.............................................
Australia}...........................................
Calcutta § ......................................
Norway...............................................
Germany ||..........................................
Denmark i f .........................................
12
20
105
152
135
120
(Sept. 24)
(Aug. Av.)
(Sept. 1)
(Sept. 1)
-7 .6
-2 .0
-3 .7
+ 1.0
179
183
158
333
542
196
174
198
159
183
284
1802
256
(Sept. 1)
(Sept. 1)
(Sept. 24)
(Sept. 1)
(Sept. 1)
(July Av.)
(Aug. 15)
(Aug. 15)
(July Av.)
(Aug. 1)
(Sept. 1)
(Sept. 1)
(Aug. 1)
-2 .1
-3 .9
-1 .7
-1 .3
-7 .0
+ 0 .6
-1 .9
0.0
-2 .4
-3 .3
-0 .6
+ 6 .6
-0 .4
*Computed by this bank. fJuly 1, 1913, to June 30, 1914 = 100.
If July, 1912, to June, 1914 = 100. ** Revised.
Per Cent.
Decline
from High
Date of High
August
+ 1.3
+ 2 .7
-0 .7
+ 0 .3
57
44
38
47
May 17,1920
May,
1920
May 1, 1920
Feb. 1, 1920
+ 0 .4
-1 .7
-2 .4
+ 0 .9
+ 4 .2
42
42
54
43
19
39
34
47
33
16
34
Apr. 1,1920
May 1,1920
May 21, 1920
May 1, 1920
Dec. 1, 1920
March, 1920
May 15,1920
Dec. 15, 1918
August, 1920
Feb. 1,1920
Oct.
1, 1920
Sept. 1, 1921
Nov. 1,1920
Latest Quotation
July
0.3
0.0
+ 2.4
+ 3.0
0.2
_
+ 1.5
— 1.3
.6**
+
+
+ 2.3
—
— 3.2
— 1.9
+
+
+ 17.4**
+ 1.2
1
2.2
1.6
2.8
6.8
tJuly, 1914 =* 100.
-0 .9
-6 .2
-2 .8
+ 3 .1
0
36
§End of July, 1914 = 100.
||Middle of 1914 = 100,
7
FEDERAL RESERVE AGENT AT NEW YORK
T h e outstanding price development of the early weeks
of September was a striking rise in the price of cotton
from 13 cents a pound in the latter part of A ugust to
21 cents on September 10. T h e rise followed the an
nouncement by the Bureau of the Census that the condi
tion of the cotton crop indicated a yield of 127 pounds
an acre, the smallest yield per acre since 1870. T h e
estimates placed the total crop at 7,035,000 bales, slightly
more than half as large as the 1920 crop and the smallest
since 1892. Higher cotton prices were followed b y an
advance of about 30 per cent, in the prices of manufac
tured cotton goods and trading in these products was
checked.
Other recent important changes in the prices of basic
commodities were a rise in wheat prices from $1.16 on
August 23 to $1.34 on September 10, followed b y a
reaction to $ 1 .2 4 ; and an advance in the prices of pig
iron and several steel products. T h e composite price of
seven important finished steel products continued to
decline, however.
Civil War and World War Price Changes
T h e following diagram brings into comparison the
m onthly fluctuations in the wholesale prices of fourteen
important basic commodities during the Civil W a r and
W orld W a r periods. For both periods the prices of
exactly the same commodities were used and in m any
cases, of exactly the same specifications. Price quo
tations for the Civil W a r period were obtained from a
large number of sources, including the Annual Reports
of the Secretary of the Treasury, the American Iron
and Steel Institute, the report of the Senate Com m ittee
on Finance, (1893), and a considerable number of private
pru cent .
sources. For the Civil W a r index, average prices in
the year 1860 were taken as a base of 100 per cent., and
for the W orld W a r period, the average prices in 1913.
Th e upward m ovem ent of the prices of these comm odi
ties was almost identical until the year before the termi
nation of hostilities. In the Civil W a r period prices
began to drop before peace had been signed in 1865,
probably in anticipation of the early conclusion of the
war; while in the more recent war period there was no
decline until the actual signing of the Armistice.
T h e major difference between the price fluctuations
in the two periods occurred, however, after the close of
the war. A fter the Civil W a r there was no recurrence
of war prices, but in 1919 prices began a steady climb
which lasted for a full year. T h e difference at this point
is probably due in part to the fact that the price increases
of the Civil W a r period were in the main peculiar to the
United States and with the resumption of normal inter
national relations, prices settled back to the world price
level. A t the conclusion of the W orld W a r, however,
this country found itself on a lower price level in relation
to prewar figures than m ost of the other countries of
the world whether prices were computed on a gold or on
a currency basis, and at the same tim e the country was
subject to influences which were world-wide.
In the Civil W a r period the peak of prices for these
fourteen identical commodities was 136 per cent, higher
than the prewar level, while prices in 1920 reached a point
182 per cent, above the prewar level. T h e maxim um
decline in 1864-1865 was 39 per cent, in a period of 10
months, while in 1920-1921, the decline was 57 per cent,
and lasted for 12 m onths.
T h e fourteen commodities, prices of which were used
in making up the index, are wheat, corn, hogs, steers,
sugar, hides, wool, pig iron, copper, lead, coal, petroleum,
sulphuric acid, and tobacco.
Cost of Living
T h e National Industrial Conference Board has reported
an increase of 1.7 per cent, in the cost of living for a wage
earner’s fam ily during August, the first notable increase
since the downward trend began in July, 1920. Of the
various groups which go to make up the cost of living
index number, food advanced in price 4.7 per cent.;
clothing declined in price 1.3 per cent.; all other items
remained unchanged. Living costs are now 64.8 per
cent, higher than in July, 1914.
155
157
169
179
183
29.2
45.5
+ 4 .7
-1 .3
10.5
4.7
0.0
0.0
0.0
164.8
19.4
+ 1.7
Food...............................
Clothing.........................
All Items....................
Per Cent.
Change
During August
September 1
Index
Fuel and Light..............
Monthly Price Index of 14 Basic Commodities During Two WTar Periods.
Prewar Year in Each Case is Taken as the Base of 100 per cent. Prices
of the Same Commodities are Included for Each Period
Per Cent.
Decline
from High
Items
1.2
The increase of 4.7 per cent, in food prices is accounted
for b y an increase of from 8 to 13 per cent, for dairy prod
ucts and smaller increases in m eat and canned goods. In
MONTHLY REVIEW
8
general, the largest increases occurred in the industrial
centers east of the Mississippi and north of the Ohio.
In Rochester the increase was 8 per cent., in Buffalo,
7 per cent., and in N ew Y ork, 6 per cent.
In the United K in gdom the cost of living declined 1
per cent, during August. I t is still 120 per cent, above
the prewar figures.
Production of Basic Commodities
A vailable figures indicate that the production of basic
commodities during August was larger than during July.
Of thirteen production indices given for August in the
following table, nine show increases, one is the same as
last m onth, and three show slight decreases.
Iron and steel production shows, for the first time in
m any months, a distinct improvement. Th e consump
tion of cotton during August was the greatest in any
month since August, 1920, reflecting an increased demand
for cotton goods. The woolen mills are reported to
have sufficient orders on their books to insure full time
operations until next spring. The production of silk
goods, for which there is no available index for the United
States as a whole, has continued to decline somewhat.
M ills in this district were operating at about 30 per
cent, of capacity in September as compared with 40
per cent, in August and nearly 60 per cent, in the spring.
Retailers have thus far placed only small orders for silk
goods for fall. M ills manufacturing silk hosiery are,
however, operating at capacity and the demand for
their product is exceptionally large.
The following table gives the available figures for
m onthly production as percentages of normal production.
Allowance has been made for the normal increase in
production from year to year and the normal seasonal
variation from month to month.
(Normal production = 100)
Commodity
Anthracite coal mined. .. .
Bituminous coal mined.. .
Pig iron production.........
Steel ingot production---Zinc production................
Lead production..............
Tin deliveries....................
Copper production...........
Gasoline production........
Cement production..........
Cotton consumption........
Wool consumption...........
Wrheat flour milled...........
Sugar meltings.................
Meat slaughtered.............
Av.
Jan.March
103
64
58
58
52
66
31
67
103
79
62
70
89
85
90
April
102
63
33
36
43
59
31
40
95
88
63
98
114
96
100
May
90
69
34
38
47
63
24
19
92
83
67
104
105
82
96
June
93
67
31
31
50
64
31
15
89
84
71
109
103
81
101
July
94
61
26
26
40
63
30
13
84
89
64
97*
148
84
88
Aug.
92
63
28
36
38
64
16
89
75
96
174
106
113
*Revised
Commodity Stocks on Hand
The continued rapid movement of grain to primary
markets has resulted in a piling up of stocks on September
1 far larger than those normally held at primary markets
at that time. In the case of corn, barley, and rye, Sep
tember 1 figures show a considerable increase over stocks
for August 1. Stocks of wheat are lower than those of
most other grains, largely because of the heavy export
movement. For the first seven months of this year
exports of wheat have been twice as heavy as for the
first seven months of 1920.
Figures showing stocks on hand compiled by this
bank for September 1 show no other striking changes.
Sugar stocks are up a little from the low point reached
on August 1, and zinc and tin stocks, which have been
considerably above normal, have decreased somewhat.
Paper stocks continue above normal, although production
has been low. The high stock figures reflect in part a
decreased volume of advertising.
There are added to this m onth’s table figures for the
stocks of frozen poultry, frozen and cured meat, dairy
products and eggs, flour, paper, paper pulp, and bonded
lead. The figures of this table show actual stocks as
percentages of normal stocks, allowance having been
made for normal changes from year to year and from
m onth to month.
(Normal stocks = 100)
Av.
Jan. 1- May 1 June 1 July 1 Aug. 1 Sept. 1
Mar. 1
Sugar...................................
Cotton.................................
Coffee..................................
Tobacco..............................
Wheat.................................
68
104
95
113
60
251
Corn....................................
93
90
Barley.................................
Bye...................................... 143
Flour (in Chief Centers). . . 116
90
Frozen Poultry..................
Frozen and Cured Meat. .
Dairy Products and Eggs. 95
Total Paper........................
Total Paper Pulp............... 113
Zinc..................................... 263
Nitrate (at Chile Ports). . . 152
Gasoline..............................
Tin (World Visible Supply). 116
Fuel Oil............................... 129
88
120
100
Portland Cement...............
Bonded Lead......................
*Revised
86
^1
426
74
125
114
76
134
113
30
262
183
114
124
87
106
92
171
144
157
279
143
106
118
149
97
37
324
224
151
142
101
168
86
105
96
127
143
164
293
131
119
123
164
102
102
188
64
145
97
115
39
437
284
220
99
75
92
45
157
95
52
164+
93
145
766
208
310
248
79
78
94
140
727
100
111 101
142
158
315
116
118
131
176
108
97
185
137
146
324
108
125
139
179
113
98*
181
222
353
599
106
75
87
100
303
104
133
89
fPreliminary
Employment
During the past month there probably has been a
slight increase in the number of persons employed in
this district, due principally to somewhat greater activity
in a number of industries. Th e approach of cold weather,
however, and the cumulative effect of unemployment
in the reduction of savings and in the reduction of the
number of vacant positions have brought the subject
more forcefully to public attention.
A large shipbuilding establishment in this district has
prepared figures showing what part of the m onthly
FEDERAL RESERVE AGENT AT NEW YORK
turnover of its force has been due to resignations and
what part to dismissals. A year ago, out of about 3,000
who left the employ of the plant each month considerably
more than two-thirds resigned. Last month, out of
2,600 terminations of em ployment there were 324 resig
nations. Further indication of the difficulty in securing
work at the present time is found in the percentage of
orders for workers to applications for work received at
N ew Y ork State em ployment offices. The latest reported
percentage (69) is slightly the lowest since M arch of
this year.
T h a t the effects of unemployment have not as yet
been as severe as in 1914-1915 is indicated by the fol
lowing figures for the number of families under the care
of the Charity Organization Society of N ew Y ork each
month.
Year
1914...................................
1915...................................
1921 .................................
June
July
August
September
2,789
3,289
2,797
2,966
2,044
2,749
2,675
1,951
2,410
2,110
WAGES
2,668
The absence of any widespread need for assistance
following large reductions in the working forces of many
industries m ay be accounted for in a number of ways.
During the war years and in 1920 an unusually large
proportion of the population was drawn into industry,
and agriculture and domestic and personal service were
left correspondingly undermanned. This fact is demon
strated by the preliminary figures of the 1920 census of
occupations. The proportion of the population which
was gainfully employed in 1920 was not extraordinarily
large. Industry took its extra workers not so much
from the school and the heme as from other occupations.
In the past few months many workers released from
industry have gone back to their previous occupations.
Then again war wages made possible large savings, and
at present continued high wage rates and a reduced cost
of living make possible a reduction in the number of
wage earners to a family without serious consequences.
A n extraordinarily large school enrollment this year
indicates that a not inconsiderable part of the reduction
in the number of industrial workers has been absorbed
by the schools.
A national conference on unemployment, called by
President Harding and including in its membership repre
sentatives from industry, commerce, finance, and agri
culture, has begun its sessions in W a sh in gto n .
Wages
In order to secure a current index of changes in wage
rates, as distinguished from average earnings, this bank
has gathered from representative employers in this district
figures showing b y quarters since 1913 the average hourly
wages of male comm on or unskilled labor, together with
figures showing the average number of hours in the
working day. T h e returns cover building laborers,
railroad laborers, and laborers in a variety of industries.
Th e following diagram compares the average weekly
rate of pay of male common labor as shown by the figures
9
Average Weekly Earnings of Factory Workers in New York State and
the Average Weekly Wage Rate for Male Common Labor in the Second
Federal Reserve District
reported to this bank, with the average weekly earnings
of workers in N ew Y o rk State factories as reported to
the N ew Y o rk State D epartm ent of Labor. T h e aver
age weekly earnings figures include data for women as
well as for men and for skilled as well as unskilled oper
atives.
T h ey also reflect part tim e em ploym ent and
changes in the type of person employed rather than rates
of pay alone. In spite of these differences, the tw o lines
have run remarkably close together. B oth indices in
1920 reached a point about 130 per cent, higher than in
1914. The rate of pay for comm on labor has declined
to a point 84 per cent, higher than in 1914, while average
weekly earnings are still about twice as high as in 1914.
Th e lesser decline in average earnings is due partly to
the fact that the less efficient and less highly paid workers
in factories have been discharged first and partly to the
fact that the pay of skilled workers changes less rapidly
than the pay of the unskilled. T h e m ost frequent wage
for unskilled labor is now 40 cents an hour, or a little
over three dollars for an eight-hour day. A recent slight
increase in the average weekly earnings in N ew York
State factories is due to the seasonal inauguration of a
longer working week in several industries.
A reduction in rates of pay continues in various occu
pations. A new agreement between the steamship
companies and the longshoremen’s unions provides for
a reduction of 20 per cent, in rates of pay. Th e Secre
tary of the N a v y has announced reductions ranging
from 13 to 30 per cent, in the wages of 70,000 civilian
employees of the N a v y . T h e arbiter in a controversy
over building trade wages in the Chicago district has
rendered a decision ordering reductions ranging from
10 to 33 per cent, with an average in the neighborhood
of 20 per cent. T h e award makes a complete realign
ment of building wages on the basis of thte relative skill
required by different types of work.
MONTHLY REVIEW
10
Volume of Building
Building construction increased substantially in volume
in A ugust due partly to the settlement of wage disputes in
a number of moderate sized cities in N ew Y o rk and other
eastern States.
In N ew Y o rk and Northern N ew
Jersey the value of contract awards in A ugust reported
by the F . W . D odge C om pany was 11 per cent, greater
than the July totals, while construction activity in the
twenty-seven northeastern States increased about 4
per cent. M ore than half the construction in N ew Y ork
and Northern N ew Jersey thus far in 1921 has been
residential, and for August this type of building con
stituted nearly three-fifths of the total.
Railway Traffic
T h e m ovem ent of railway freight traffic in both August
and September showed a normal seasonal gain and was
at a higher rate than in any previous m onth since D ecem
ber, 1920. Railroads centering upon the port of N ew Y ork
report particularly heavy traffic in recent weeks due to a
temporary freight blockade at M ontreal as a result of the
large export grain m ovem ent. Several leading systems
have also reported an increased westward m ovem ent
of goods during September, mainly small shipments of
miscellaneous goods and manufactured articles. Freight
traffic is still about 15 per cent, less than in corresponding
weeks in 1920.
tiates previous evidence that the volume of merchandise
sold by department stores is greater than that sold last
year. The average individual sale was $2.59 compared
with $3.11 in August, 1920, a decrease of about 17 per
cent.
Sales in the larger cities of this district compare more
favorably with those of last year than the sales in the
smaller cities. N ew Y o rk , Brooklyn, Buffalo, Newark,
and Rochester stores report declines in sales ranging
from 3 to 7 per cent, while those elsewhere in the district
show declines of 10 to 12 per cent. This reverses a previous
tendency; for up to July sales outside of the larger cities
tended to be in better volume as compared with last
year. Stores that sell wearing apparel exclusively show
a smaller decrease than stores that handle both apparel
and house furnishing goods.
A distinct advance during August is shown by the
sales of 8 leading chain store systems. M a il order sales
also show an improvement in August, but the improve
ment is in this case largely seasonal as fall sales begin
early for mail order houses. The following table shows
the changes in net sales of the leading chain store systems
and mail order houses as compared with those of depart
ment stores:
N e t S a le s in A u g u s t ,
July
1921
August
1920
August
1919
- 4.2
+ 5.1
+ 14.9
— 5.2
— 5.6
-2 8 .1
+ 6.8
+ 2 1 .6
-3 0 .6
Retail Trade
Th e dollar value of sales of department stores in this
district during August was 4.2 per cent, less than during
July, a normal seasonal decrease. B ut as compared
with August, 1920, there was a decrease of 5.2 per cent,
whereas the year-to-year decline shown in July was 11.5
per cent. This difference m ay be accounted for by the
fact that the volume of sales had begun to decline in
August, 1920.
Th e number of individual sales in August was 18.2
per cent, greater than in August, 1920. This substan
1921
C om p ared w ith
Department Stores...............
Chain Stores..........................
Mail Order Houses...............
The following diagram compares the fluctuations
in sales by 8 nation-wide chain store systems, and by
department stores in this district during 1919, 1920,
and thus far in 1921. The chain store figures are affected
by the occasional addition of new stores although this
has not recently been a large factor.
Business of Department Stores
New York
and
Brooklyn
Per cent, change in net sales in August, 1921, com
pared with net sales in August, 1920...................
Per cent, change in number of transactions in
August, 1921, compared with number of trans
actions in August, 1920.........................................
Per cent, change in net sales from July 1, 1921, to
August 31, 1921, as compared with same period
in 1920.....................................................................
Per cent, change in stocks at close of August, 1921,
compared with stocks at close of July, 1 9 2 1 ....
Per cent, change in stocks at close of August, 1921,
compared with stocks at close of August, 1920...
Percentage of stocks at close of July and August,
1921, to net sales during same months.................
Percentage of outstanding orders (cost) at close of
August, 1921, to total purchases during calendar
year 1920.................................................................
-
4.1
Buffalo
-
6.2
Newark
-
6.4
Rochester
-
3.1
Syracuse
-
9.4
Elsewhere
in Second
District
Apparel
Stores
3.3
Entire
Second
District
-1 1 .2
-
+ 8.2
+ 16.5
+ 18.2
-
-
5.2
+ 24.9
+ 8.9
+ 7.9
-
-
7.6
-1 0 .2
-
4.5
- 1 2 .0
-1 4 .3
-
+ 4.0
+ 4.8
+ 7.0
+ 5.4
+ 4.9
+ 1.0
+ 24.1
+ 5.2
-2 3 .1
-2 1 .6
-1 9 .8
-2 5 .1
- 2 4 .6
-
9.1
-1 5 .9
- 2 1 .2
455.6
462.0
459.1
445.2
498.1
557.4
313.7
453.7
7.5
10.0
5.7
11.7
8.3
14.2
8.3
8.2
4.2
8.6
11
FEDERAL RESERVE AGENT AT NEW YORK
two previous years are shown in the following table
together with an estimate of the price changes since last
year.
Commodity
Estimated
Per Cent.
Per Cent.
Per Cent.
Per Cent.
Change in
Decline
Change in
Change in
in Prices
Sales
Sales
Sales
August, 1920 August, 1920 August, 1919 July, 1921
to
to
to
to
August, 1921 August, 1921 August, 1921 August, 1921
Drugs.............
Groceries........
Dry Goods. . .
Shoes..............
Stationery. . . .
Hardware. . . .
Clothing........
Machine Tools
Sales of 57 Department Stores in the Second District and 8 Leading
Chain Stores Doing a Country-Wide Business (Average Monthly Sales
in 1919 = 100 per cent.)
Stocks of department stores increased 5.2 per cent,
between August 1 and September 1, a normal change
due to initial shipments of fall and winter merchandise.
The value of stocks at the selling price is now 21 per cent,
below the value of those held last year, a decline largely
due to price changes.
25
35
45
35
33
38
40
38
+ 3.0
-1 3 .4
-2 2 .4
-2 5 .4
-3 4 .3
-4 5 .1
-5 7 .4
-8 3 .9
+ 2.7
-2 0 .5
- 2 8 .7
-4 4 .3
- 1 6 .2
-3 1 .1
-4 4 .9
-8 2 .3
+ 7.5
+24.7
+ 51.4
+44.4
+ 3.7
+ 1.2
+32.7
-3 3 .0
The following diagrams show the fluctuations in
sales by wholesale dealers in clothing, shoes, dry
goods, and drugs during 1919, 1920, and thus far in 1921.
T h ey represent the dollar value of sales and are expressed
in percentages of the average m onthly sales for the year
1919. T h e general trend of the lines follows the course
of prices during the past three years.
Merchants are placing orders for their fall and winter
requirements with greater confidence. Orders outstand
ing on September 1 were 8.3 per cent, of the total pur
chases in 1920. Merchants who have delayed placing
large forward orders report that they have not recently
been deterred by the prevailing wholesale price levels
or the expectation of lower prices later on, but by uncer
tainty as to the ability of the public to continue buying
at the present rate, in view of the large number of
unemployed.
Wholesale Trade
In m ost lines August sales by representative wholesale
houses th at have submitted reports to this bank show
sharp increases over sales during July. W h ile in several
of the lines increases are normal for the season, and in
several others, sales figures are slightly larger because of
price increases, the upward m ovem ent is sufficiently
marked to indicate a genuine increase in the volume of
goods sold.
W ith the exception of drugs, dealers in all lines report
a decrease in sales as compared with sales during the
corresponding month in 1920. T h e decrease in the
value of sales, however, in a number of cases has not
been as large as the decline in prices, and in these cases
the volume of merchandise sold is as large as that sold
last year.
Changes in the dollar value of sales in A ugust as com
pared with sales in July and with sales in A ugust of the
ZOO
£00
DR.U&:
CLOTH ING
h
150
100
A
150
Aj
4
100
A
%
D
3*0
50
\
1919
1920
1921
1919
1920
1921
Monthly Sales of Representative Wholesale Houses in the Second
Federal Reserve District (1919 Average = 100 per cent.)
R e tir in g
E xcess
C r e d it
U nder
N last m onth’s R e v ie w the mechanism of expansion
under the Federal Reserve system was described.
A description of the reverse process by which excess
credit is retired will be of interest at this time.
Just as the increasing demands of a bank’s customers
for funds cause an increase of the loans and deposits of
a bank and in turn of the loans, deposits and circulation
of a Federal Reserve Bank, so the decreasing demands
of a bank’s customers for funds cause a decrease of a
bank’s loans and deposits and in turn of the loans, deposits
and circulation of a Federal Reserve Bank. In other
words, the first step in a reduction in the volume of
credit, as in its expansion, is taken by a bank’s customers;
the second step is taken by the banks themselves, and
the third step is registered on the books of the Reserve
Bank.
W hile an inspection of what has already taken place
will give the clearest idea of the processes by which
excess credit is retired, it should be understood, however,
that our recent experience is probably not typical of
what might be anticipated under normal conditions.
Th e loans of the Federal Reserve Banks reached their
highest point on October 15, 1920, the same date on
which the loans of member banks in the principal cities
throughout the country reached their maxim um . A co m
parison of the principal items is as follow s:
I
RESOURCES
(In millions of dollars)
th e
Sept. 21,
1921
Increase
or
Decrease
Gold reserves...........................
Other reserves.........................
Total earning assets................
Uncollected items...................
All other resources..................
$1,992
163
3,422
998
35
$2,711
152
1,652
592
54
+ 719
11
-1,770
- 406
+
19
Total Resources............
$6,610
$5,161
-1,449
Sept. 21,
1921
Increase
or
Decrease
LIABILITIES
(In millions of dollars)
October 15,
1920
Member bank reserve deposits
Other deposits.........................
Deferred availability items... .
Federal Reserve notes in
actual circulation................
Federal Reserve bank notes in
actual circulation................
All other liabilities..................
$1,868
48
777
$1,588
103
503
+
-
280
55
274
3,353
2,475
-
878
214
350
103
389
+
I ll
39
Total Liabilities..................
$6,610
$5,161
-1,449
In the following summary, the Reserve Bank credits
which were retired have been grouped so as to include
earning assets— that is, the loans made by Reserve
Banks to member banks, the bankers acceptances held
by the Reserve Banks and the Government securities
held by them— collection items, such as checks in
process of collection, Federal Reserve notes and bank
notes held by Reserve Banks other than those which issued
them , together with national bank notes held by Federal
Reserve Banks; and a small amount of miscellaneous
assets. T h e means by which the retirement of Reserve
Bank credits was accomplished have been grouped to
R eserve
S y ste m
include the increase of reserves, the decrease of deposits,
and the decrease in Federal Reserve note and bank note
circulation. The period covered is from October 15,
1920, to September 21, 1921.
Retirem ent o f R eserve Bank C redits:
1. D e c r e a s e d e a r n i n g a s s e t s
Member banks reduced their discounts and advances
at the Reserve Banks...............................................$1,387,000,000
The Reserve Banks held less acceptances...................
286,000,000
The Reserve Banks held less Government securities.
97,000,000
2.
D
ecreased
c o l l e c t io n it e m s
The Reserve Banks had a smaller net amount of
items in process of collection..................................
3.
132,000,000
D e c r e a s e d m is c e lla n e o u s a s s e ts
The Reserve Banks had a smaller net amount of
miscellaneous assets............... ..................................
20,000,000
Total........................................................................$1,922,000,000
T h e M e a n s o f R etirem en t:
1. I n c r e a s e d
reserves
The Reserve Banks received from member banks and
other sources additional gold which caused a net
increase in reserves.................................................... $708,000,000
2.
D e c r e a s e d c ir c u la tio n
The member banks in paying loans at the Reserve
Banks used $878,000,000 surplus Federal Reserve
notes and $111,000,000 Federal Reserve bank notes
3. D
October 15,
1920
F ed eral
ecreased
989,000,000
d e p o s it s
The member banks, in paying loans, used excess
deposits at the Reserve Banks of $280,000,000,
which, with an increase in other deposits, caused
a net reduction of......................................................
225,000,000
Total........................................................................$1,922,000,000
The element which distinguishes the present period
from others in the experience of this country, and pos
sibly from corresponding periods in the future, is the
increase in gold reserves. Since October 15, 1920, gold
importations have amounted to $696,000,000, of which
all but $4,000,000 has been incorporated in the reserves
of the Federal Reserve Banks. T h e effect of this large
increase in gold reserves has been to increase rapidly
the reserve ratio of the Federal Reserve system. Inas
much as the retirement of Federal Reserve notes releases
as free gold only 40 per cent, of the amount retired,
and inasmuch as the decline in deposits at the Reserve
Banks releases only 35 per cent, of their amount in gold,
the introduction of gold directly into the reserves of the
Federal Reserve Banks is more than twice as effective
as the retirement of notes or deposits. If there had
been no gold accessions since October, 1920, the reserve
percentage of the Federal Reserve system would now be
52 per cent, instead of 68.7 per cent.
M em ber banks were able to reduce their deposits at
the Reserve Banks $280,000,000 because their own
deposits were reduced. T h a t reduction served to improve
the position of the Reserve Banks to the same extent
as importing $98,000,000 of gold— not much more than
Was received in the single m onth of August. B ut inas
much as member banks keep on the average about 10
per cent, of their deposits with the Reserve Banks, that
reduction implies a decline of about $ 2 ,8 00,000,000
in their own deposits, and a corresponding decline of
about $2,800,000,000 in their loans to customers.
H ad the increase registered in the reserve position of
the Federal Reserve Banks been based entirely upon
liquidation by customers cf member banks, it would
have presupposed a contraction in the business of the
country of the m ost serious and far-reaching consequences.
@FedFRASER