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VOL. 133.

The firiantialI-Ito-rade

SATURDAY, AUGUST 1 1931. NO. 3449

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The Financial Situation.While European developments have not lost their

importance they have not engrossed the same con-spicuous attention they did last week and the weeksimmediately preceding, but have given place to adomestic development of great moment and of far-reaching consequence. We refer to the appearanceof the United States Steel Corp. statement of earn-ings and profits for the June quarter of the currentcalendar year, making such a poor showing that itcould hardly be much worse, with the concurrentaction of the Board of Directors in cutting thedividend on the common stock of the companyto only 1% for the quarter, against the previouspayments of 1%%meaning, in other words, thatthe dividend rate has been reduced from a basis of7% per annum to only 4% per annum. The an-nouncement of the action of the Board of Directorsof the company came after the close of business onTuesday, and the effect the next day was to precipi-tate a great break in the price of the stock of thecompany on the New York Stock Exchange, and abreak in the stock market generally.The income return of the Steel Corp. for the June

quarter was, as already stated, exceedingly poor. Anunfavorable exhibit had been looked for, but nothingquite so bad as what the results actually disclosed.The net earnings for the June quarter of 1931 provedto be only $13,817,524 as against $47,061,304 for theJune quarter of 1930 and no less than $73,861,426 inthe June quarter of 1929. A shrinkage of over $60,-000,000 in the earnings of a single quarter in theshort space of two years (as indicated by the declinein earnings for this quarter from $73,861,426 in thethree months of 1929 to only $13,817,524 in the samethree of 1931) illustrates in a striking way the re-markable transformation which has occurred in the

condition of the steel industry within the brief periodof time referred to.

After making the required appropriations for de-preciation, depletion, sinking funds, &c., there wasleft available net income in the June quarter of 1931of only $1,605,955, as compared with net income of$31,139,811 in the June quarter of 1930 and $57,-942,040 in the June quarter of 1929.This $1,605,955 was only a little more than suf-

ficient to meet the interest of $1,375,566 on thebonded indebtedness of the Steel Corp. and its sub-sidiary corporations. And in speaking of the bondedindebtedness it should not be overlooked that during1929 the Steel Corp. eliminated $271,385,000 of theoutstanding bonded debt by converting it into com-mon stock so as to strengthen the corporation's in-come position in times of adversity such as thosethrough which the company is now passing.In brief, then, the company during the June quar-

ter of 1931 earned only $230,389 in excess of theamount required on its greatly reduced bonded in-debtedness. And this $230,389 was all that wasearned for the quarter towards paying dividends onthe $360,281,100 of 7% preferred stock outstandingand the $870,137,100 of common stock outstanding.A windfall in the shape of special income of$7,160,966, representing profit derived from thesale of fixed property, or, to be more precise, fromthe sale of its subsidiary, the Gary Heat, Light &Water Co., enabled the Corporation to improve' itsincome results so as to show the dividend require-ment on the preferred shares fully earned, with asmall amount left over towards meeting the reduced1% dividend declared on the common stock. In otherwords, even with the addition of the special incomeof $7,160,966, the earnings on the common stock wereequal to only 13c. a share, and accumulated surplushad to be drawn upon to the extent of $7,617,856 inorder to meet even the 1% declared on the commonstock of the Corporation outstanding. Without thisspecial income, and relying only on the ordinarydaily operations, absolutely nothing was earned onthe common shares, and, indeed, only a few cents pershare was earned on the preferred shares. For thehalf year ended June 30, even with the aid of the$7,160,966 special income, only 18c. per share wasearned for the six months on the amount of commonstock outstanding. The Bethlehem Steel Corp. madepublic its income statement for the June quarterafter the close of business on Thursday, and it wasof the same unfavorable character. Earnings for thesecond quarter of 1931 fell below the requirementsfor the preferred stock dividend, a deficit of $297,257remaining after these dividends had been providedfor. The dividend on Bethlehem Steel common,which had been reduced three months before from a

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

681 FINANCIAL CHRONICLE [VOL. 133.basis of $6 a year to $4, was now further reduced to abasis of only $2 per year.The reduction in the dividend on United States

Steel Corp. common from a basis of $7 per year to $4per year was much more drastic than had been gen-erally looked for, the general expectation havingbeen that the directors would pay at the rate of atleast 5% per annum. And this, doubtless, had a partin the break in the price of the stock which occurred.But there was a further factor Which also contributedto the extreme decline in the stock. There was keendisappointment that no positive announcement cameof a determination to lower wage scales. The gen-eral feeling is that a point has now been reached inthe long-continued shrinkage in business where im-provement can be brought about only through somereduction in labor costs. Instead, the announcementgiven out by the Steel Corp. simply said: "The Boardof Directors also recommended that an adjustment ofsalaries of all officers and other salaried employeesbe made in varying percentages depending upon thecharacter of service rendered." This adjustment isundoubtedly a step in the right direction. ThePennsylvania RR. recently took similar action,and the present week the Del. & Hudson followedin the same footsteps. But this is far from beingthe general adjustment of wage scales to a lowerlevel which it is felt has now become absolutelynecessary.As the income results for the June quarter, as out-

lined above, so plainly show, business in the steeltrade is on an absolutely non-paying basis, and thereis no way in which it can be put on a paying basisexcept by reducing costs, and such reduction in costscan only be effected by lowering wage costs, whichconstitute the biggest item in the total cost of pro-duction. By lowering total costs, too, the prospectis opened up of selling steel and steel products at alower price to consumers and the consuming public.Lower prices, especially in times of depression,furnish the strongest incentive for making purchasesand for widening and increasing the market forproducts of all kinds. In view of all this some reduc-tion in general wage costs seems inevitable duringthe next three or four months if the Steel Corp. wouldretrieve its position as a paying concern and in orderto start general trade on an enduring basis of traderevival.It is never a pleasant task to lower wage scales,

even though the reduction may be comparativelyslight, but there is less hardship than usual in sucha course at present, since living expenses have beenso greatly reduced. As a result of the decline, a givenamount of wage will purchase a great deal more thanthe same sum only two or three years ago, and, afterall, the matter is not really under the control of theemployer or the manufacturer, in periods of tradeprostration, such as prevails at the present time.The simple truth of the matter is that no manufac-turer and no business man can long continue to payout more than comes in. That, unfortunately, isthe position in which the steel industry, as well asmany other industries, find themselves to-day be-cause of their adherence to the policy or the principleof maintaining wage scales unimpaired. Such apolicy is utterly out of harmony with prevailing busi-ness conditions which call for curtailing operatingand producing costs to the utmost limits.The general aspect of the question has an impor-

tance and a bearing that extends far beyond the

limits of the steel trade. It is for this latter reasonthat the events of the present week have attracted somuch attention, the question, indeed, having risento a position of commanding importance, exceedingeven that of the European situation, which latter cer-tainly is not such as to encourage very bright hopesfor the time being. The Administration at Washing-ton, as is known, is wedded to the idea that theremust be no general reduction in wage scales. As willbe remembered, President Hoover pledged the lead-ers in the different industries to maintain prevailingrates at conferences he had with them in the periodimmediately succeeding the panic in the autumnof 1929.Early in the present week it looked as if this policy

of maintaining wages at figures no longer warrantedmight be modified to the extent of permitting reduc-tions as the alternative to absolute shutdowns.Great rejoicing immediately occurred in the businessworld, on the theory that the obstacle to traderecovery which had existed for so long was at lastto be removed. The promise of such a change wascontained in a letter written by Secretary of Com-merce Robert P. Lamont to Representative FrancisB. Condon, of Pawtucket, R. I., made public on Mon-day. Declaring that "no one could have done moreto maintain wage rates" than the President, Secre-tary Lamont admitted that many corporations, whichhad been endeavoring to keep wages at 1929 levels arefinding themselves with depleted reserves and faced"with the prospect of closing down altogether andthus creating more unemployment, or, alternatively,seeking temporary wage reductions."

Writing apparently, said Washington news dis-patches, with the knowledge and approval of thePresident, since Mr. Condon's letter had been turnedover to him from the White House, Secretary La-mont's statement was considered as virtual aban-donment by the Administration of further efforts tomaintain wages as of less importance than the main-tenance of all employment that now exists, regardlessof pay scales.But simultaneously with the appearance of the

foregoing announcement it became noised about thatthe Steel Corp.'s directors at the meeting the nextday (Tuesday) would announce a reduction in thedividend rate on the common stock of the corpora-tion, and at the same time would also propose lower-ing of wage scales. Then it was, if newspaperaccounts are to be believed, that Administrationofficials got busy. The Washington correspondentof the New York "Herald Tribune," in a dispatchfrom Washington on July 27, said that "on thestrength of reports that the Steel Corp. is under pres-sure to reduce wages, the Administration has ap-pealed to leaders of this key industry to exhaustevery expedient before considering such a step.Only 12 to 15% of the industries reporting to theLabor Department thus far have reduced wages, itis estimated, as against reductions by 92% of theseindustries in 1921, and the Administration fearsthat a cut now by the Steel Corp. might let down thebars throughout the country."Apparently to counteract the effects of Secretary

Lamont's statement in his letter to RepresentativeCondon, President Hoover on Tuesday, July 28, thedate set for the meeting of the Steel directors, author-ized a brief statement declaring that the policy ofhis Administration in opposing wage cuts remainedunchanged.


Auo. 1 1931.] FINANCIAL CHRONICLE 685

Mr. Hoover's statement, reaffirming his oppositionto wage reductions, was authorized, a Washingtondispatch to the New York "Times" said, prior to thereceipt of the news of the Steel directors' meeting.The statement read: "No member of the Adminis-tration has expressed the view, or holds the view,that the policy of the Administration in advocatingmaintenance of wages should be changed. It has notbeen changed!'It may well be that the Steel directors in issuing

their non-committal statement in regard to the courseto be pursued with reference to wages in the steelindustry were influenced by this reiteration of thePresident's views and, at any rate, out of deferenceto the President they would be unlikely to want totake action directly contrary to the views 60 em-phatically expressed anew by him, since then it mightbe thought that they were acting in express defianceof the President's wishes, which would certainly befar from courteous or deferential.

Possibly out of a desire to meet the President'swishes they mean to give the existing wage scales afurther trial to see if the results warrant the con-tinuance of the policy insisted on. If, however,the results prove as unsatisfactory as they have thusfarif despite the President's contention no revivalof trade takes place and the business of the SteelCorp. fails to yield the required amount of earningsand profitsthey will have no alternative but tolower wages somewhat from the prevailing levels,regrettable though such a course may be. It is tobe borne in mind that the President's policy of main-taining wages has been pursued now for almost twoyears, and has been unattended by any signs of traderevival. In view of this, it would seem incumbentnow that a new and different policy should be pur-sued. The statement we have quoted further abovesaying that only 12 to 15% of the industries report-ing to the Labor Department have thus far reducedwages as against reductions by 92% of these indus-tries in 1921 proves too much, if it proves anything.In 1921, as a result, presumably, of the 92% reduc-tion in wages, thereby permitting a lowering ofcosts to that extent in the manufacture of goods andproducts, business revived almost immediately,which was natural, as it meant an immediate read-justment to changed conditions, whereas during thetwo years since 1929 in which the opposite policyhas been pursued, preventing the readjustment tonew conditions so imperative, all evidence of traderevival has been completely lacking. Is it not hightime, therefore, that pet theories, so lacking in de-sired results, should be abandoned and the helm oncemore placed in the hands of trade leaders who fromlong practical experience know best the proper policyto pursue in cases of dire emergency such as haveconfronted the business world during the last twoyears. The Steel directors would be lacking in theirordinary duty if now they failed to cut loose fromthe old policy and listened any longer to the swansong of those who get their promptings almost en-tirely from political quakers.

The foreign situation still furnishes occasion fora great deal of anxiety. The Bank of Germany yester-day further advanced its discount rate from 10% to15%, and the Lombard rate from 15% to 20%. How-ever, Germany appears to be engaged in working outits own deliverance, of course in a painful kind ofway. On the other hand, Great Britain seems to

be going through much the same experience as Ger-many has had. Credits are being withdrawn in pro-digious volume from London, and the process is beingattended by a huge outflow of gold from London,mainly for Paris, though some amounts of the metalare also going to other Continental centers, indicat-ing that the withdrawals have a more or less commoncause, though being largely of French origin, as here-tofore. The Bank of England on Thursday furtheradvanced its discount rate from 31/2% to 41/2%, afterhaving raised the rate last week from 21/2% to 31/2%.This, of course, is with the purpose of re-attractingsome of the funds and some of the gold withdrawnon such a large scale during the last two or threeweeks. It is to be hoped that these higher discountrates will have the effect so earnestly desired. Butother Continental centers are also engaged in safe-guarding their situation by higher discount rates.The National Bank of Sweden has this week markedup its discount rate from 3% to 4%. The Bank ofEngland return for the week ending Wednesdaynight reported 16,734,921 loss in gold, following15,155,310 loss the previous week, and making 31,-890,231 for the two weeks combined, reducing thetotal holdings of the bank to 133,309,663, which com-pares with the Cunliffe minimum of 150,000,000.On Thursday the Bank of England lost 523,172more of gold, and on Friday suffered further with-drawals of 1,531,007.There have been many unfavorable developments,

too, of domestic origin. One favorable feature hasbeen the fact that steel production has slightly in-creased during the week, the steel mills of the coun-try being now engaged to 32% of capacity as against30% last week. On the other hand, rubber futureshave dropped to a new low record in all time, andthe price of cotton has also again tumbled to newlow figures. Grain prices have remained very muchdepressed, though cornering operations developedin the July option for corn at Chicago, which sold upto 721/2c. yesterday and Thursday, as against 577/8c.on Friday of last week. The September option forcorn at the close yesterday was only 501/4c., and theDecember option only 431/4c. July wheat -at Chicagoclosed yesterday at only 48I/8c., and the SeptemberOption at 501/4c.Further dividend reductions and omissions have

kept coming in, but reflect past conditions ratherthan the future. We have already referred to thecut in the dividend on the common stock of the U. S.Steel Corp. from a basis of 7% per annum to 4%, andin the dividend on Bethlehem Steel common from abasis of 4% per annum to only 2%. General Refrac-tories common reduced its quarterly dividend from$1 to 75c. a share; Savage Arms Corp. cut its quar-terly dividend on the common from 50c. a share to25c.; Reynolds Metals Co. reduced its quarterly divi-dend from 50c. a share to 371/2c. a share; Vick Finan-cial Corp. declared a quarterly dividend of 71/2c. ashare on the common stock as against 10c. previouslypaid; Federal Water Service reduced its quarterlydividend on the class A stock to 30c. from 60c. ashare; the Childs Co. omitted the quarterly dividendof 60c. a share due about this time on common. TheJones & Laughlin Corp. omitted the quarterly divi-dend on common, as also did Deere & Co. Gorham,Inc., voted to defer action on the quarterly of 75c. ashare, due at this time on the $3 cum. pref. stock.The Barnsdall Corp. omitted its quarterly dividendson class A and class B stocks. The Industrial


686 FINANCIAL CHRONICLE L VOL. 133.

Finance Corp. omitted the quarterly dividend dueAug. 1 on the 7% cum. pref. stock. The New YorkChicago & St. Louis has omitted the quarterlydividend on the common stock and the cum. pref.series A.

The feature in the returns of the Federal ReserveBank this week is the large increase shown in theforeign bank deposits, which now are in excess of1100,000,000, the exact amount given being $100,-435,000, which compares with only $58,481,000 July22, being an increase of, roughly, $42,000,000, andcomparing with no more than $5,676,000 on June 17.No explanation is offered for this rise in foreignbank deposits. It is understood to be due, how-ever, to the action of the Bank of France in convert-ing its holdings of bankers' acceptances into cash.As it happens, bills purchased by the Federal Reservebanks for foreign correspondents have decreasedover $44,000,000 during the week, the amount of suchbills held the present week being down to $253,-578,000 as against $298,111,000 last week. On June17 the holdings of bills purchased for foreign corre-spondents was $378,717,000. The other changes inthe Federal Reserve return as compared with a weekago are not of any large consequence. The discountholdings of the 12 Reserve institutions stand at$183,036,000 this week as against $181,602,000 lastweek; the bills bought in the open market stand at$66,536,000 as against $67,023,000, and the holdingsof Government securities at $677,977,000 as against$678,701,000. Total of bills and securities, reflect-ing the amount of Reserve credit outstanding, standsat $934,795,000 as against $933,810,000. The volumeof Federal Reserve notes in circulation has increasedduring the week from $1,731,752,000 to $1,735,-501,000, while the gold holdings have risen from;3,424,347,000 to $3,443;554,000.

Brokers' loans by the reporting member banks inNew York City show a further contraction of $26,-000,000 for the week, and the total of these loans isnow down to $1,390,000,000, which is the smallestamount since 1924. At $1,390,000,000 comparisonis with $3,228,000,000 12 months ago on July 30 1930.The loans made by the reporting member banks fortheir own account decreased during the weekfrom $1,033,000,000 to $1,002,000,000, while theloans for account of out-of-town banks increasedfrom $215,000,000 to $219,000,000, and the loans"for account of others" from $168,000,000 to$169,000,000.

The stock market this week suffered another severesetback. Prices moved rather irregularly at the half-day session on Saturday last, and again on Mondayand Tuesday. There were intimations that at themeeting of the directors of the United States SteelCorp. on Tuesday the dividend on the common stockwould be reduced either to 5% or to 4%, and alsothat action would be taken towards a reduction inwages. But the market did not appear to be dis-turbed by the news, and, in fact, the steel shares them-selves were rather strong, with prices for the sameshowing a rising tendency on a growing volume oftransactions. After publication, however, of the in-come statement of the company, with the exceedinglypoor statement made by the same, and the announce-ment that the dividend on the common stock hadbeen reduced to the basis of 4% per annum, the wholecourse of the market was reversed. The public had

counted upon seeing a poor exhibit, but none quiteso bad has actually appeared. The general opinionhad been the dividend would be reduced to 5% perannum instead of to only 4%, and then, also, thenotion had prevailed that definite action would betaken towards reducing railroad wages, thereby cur-tailing costs and giving the company an opportunityto improve net results as a consequence.

Instead, the only announcement that came saidthat the board of directors had also recommendedthat an adjustment of salaries of all officers andother salaried employees be made in varying per-centages, depending upon the character of the salary.Disappointed in these different ways, the stock suf-fered a big decline on the Stock Exchange on Wednes-day. Steel common opened at 871/4 Wednesdaymorning against 92% Tuesday afternoon, and closedat 84%, showing a net loss for the day of 734 points.The drop in this stock carried the whale market withit, the steel shares being particularly weak. Bethle-hem Steel showed a net loss for the day of 6% points,American Can of 51/4, J. I. Case 47/8, WestinghouseElec. 31/4, American Tel. & Tel. 4%, Vanadium 2%,Amer. & Foreign Power 17/8, and so on down the list.On Thursday, after further severe losses in the earlypart of the day, a sharp rally ensued. On Friday,however, the course of prices was again downward.Aside from the developments regarding the SteelCorp., there were no events of large importance bear-ing on the value of stocks during the week. Divi-dend reductions and omissions continued numerous,with little or no evidence of coming relief from thelong depression in trade. The steel mills wereslightly more active. The call loan rate on the StockExchange again remained unchanged at 11/2%through the entire week. In the general tumble 53stocks established new low records for the yearduring the week; only 17 stocks attained new highfigures for the year.

Trading, as a result of the break in the market,has beep on a somewhat enlarged scale. At the half-day session 'on Saturday the sales on the New YorkStock Exchange were 412,575 shares; on Monday theywere 572,480 shares; on Tuesday, 650,716 shares; onWednesday, 1,576,835 shares; on Thursday, 1,353,780shares, and on Friday, 1,219,650 shares. On the NewYork Curb Exchange the sales last Saturday were91,725 shares; on Monday, 164,365 shares; on Tues-day, 138,685 shares; on Wednesday, 224,850 shares;on Thursday, 170,545 shares, and on Friday, 150,910shares.As compared with Friday of last week, prices are

generally lower, but with some exceptions. GeneralElectric closed yesterday at 40 against 401/8 on Friday of last week; Warner Bros. Pictures at 634against 67/8; Elec. Power & Light at 38 against 367/8;United Corp. at 221/8 against 22; North American at65% against 67%; Pacific Gas & Elec. at 451/4against 467/8; Standard Gas & Elec. at 61 against 62;Consolidated Gas of N. Y. at 91% against 91%; Co-lumbia Gas & Elec. at 2834 against 29%; Inter-national Harvester at 38N against 41%; J. I. CaseThreshing Machine at 55% against 68%; Sears, Roe-buck & Co. at 541/4 against 55; Montgomery Ward &Co. at 201/8 against 19; Woolworth at 681/4 against66%; .Safeway Stores at 63 against 59%; WesternUnion Telegraph at 113% against 114%; AmericanTel. & Tel. at 169% against 175; Int. Tel. & Tel. at271/8 against 29%; American Can at 91% ex-div.against 98%; United States Industrial Alcohol at


AUG. 1 1931.] FINANCIAL CHRONICLE 687277/8 against 28; Commercial Solvents at 16%against 161/4; Shattuck & Co. at 20 against 201/4;Corn Products at 643/4 against 665/8, and ColumbiaGraphophone at 7% against 83/4.

Allied Chemical & Dye closed yesterday at 1061/2against 114 on Friday of last week; E. I. du Pont deNemours at 87 against 86; National Cash Registerat 251/8 against 2434; International Nickel at 121/2against 131/4; Timken Roller Bearing at 295/8

against34; Mack Trucks at 32 against 32; Yellow Truck &Coach at 77/8 against 77/8 ; Johns-Manville at 503/4against 51; Gillette Safety Razor at 211/4 against21; National Dairy Products at 333/4 against 33;Associated Dry Goods at 18% against 18; TexasGulf Sulphur at 331/8 against 333/4 ; American & For-eign Power at 271/8 against 27%; General AmericanTank Car at 59% against 58; Air Reduction at 74'against 7534; United Gas Improvement at 281/2against 28%; Columbian Carbon at 665/8 against70%; Universal Leaf Tobacco at 32 bid against 3214 ;American Tobacco at 1151/8 against 118; Liggett &Myers at 697/8 against 70; Reynolds Tobacco class Bat 501/8 against 501/4; Lorillard at 19 against 1914,and Tobacco Products class A at 97/8 against 97/8 bid.The steel shares have of course suffered beyond all

others in the general decline. U. S. Steel closedyesterday at 85% against 90% on Friday of lastweek; Bethlehem Steel at 367/8 against 42; Vana-dium at 26% against 29; Republic Iron & Steel at 13against 133/4, and Crucible Steel at 39 against 41bid. In the auto group Auburn closed yester-day at 142 against 1601/4

on Friday of lastweek; General Motors at 37% against 367/8;Chrysler at 25 against 22; Nash Motors at 261/4against 27; Packard Motors at 71/8 against 7;Hudson Motor Car at 1314 against 12%, andHupp Motors at 814 against 67/8. In the rubbergroup Goodyear Tire & Rubber closed yesterday at3914 against 391/8 on Friday of last week; UnitedStates Rubber at 1314 against 14, and the preferredat 231/2

bid against 241/2.The railroad stocks have also been conspicuously

weak. Pennsylvania RR. closed yesterday at 44%ex-div. against 46 on Friday of last week; Erie RR. at20 against 20; New York Central at 7334 against811/8; Baltimore & Ohio at 48% against 54%; NewHaven at 647/8 against 69; Union Pacific at 153against 159%; Southern Pacific at 76 against 78;Missouri Pacific at 211/2

against 23; Missouri-Kansas-Texas at 13 bid against 14; Southern Rail-way at 28 against 30; Chesapeake & Ohio at 35against 347/8 ; Northern Pacific at 35 against 36, andGreat Northern at 421/4

against 44%.The oil stocks have followed the course of the gen-

eral market. Standard Oil of N. J. closed yesterdayat 3714 against 371/8 on Friday of last week; Stand-ard Oil of N. Y. at 1778 against 17; Standard Oilof Calif. at 3614 against 36; Atlantic Refining at147/8 against 151/4 ; Texas Corp. at 231/8 against 2314;Richfield Oil at 1% against 114 ; Phillips Petroleumat 714 against 81/8, and Pure Oil at 7% against 7%.The copper stocks have also moved with the gen-

eral market. Anaconda Copper closed yesterday at247/8 against 25 on Friday of last week; KennecottCopper at 18 against 19; Calumet & Arizona at 37against 40; Calumet & Hecla at 6% against 7;Granby Consolidated Copper at 12% against 14bid, and American Smelting & Refining at 31%against 331/2.

Stock exchanges in the important European finan-cial centers remained much subdued this week, owingto the financial crisis in Central Europe and theextensive repercussions experienced elsewhere. TheBerlin Boerse remained closed all week, and therewere indications that the German exchange mightnot resume business until the second half of August.The July monthly settlements on the Boerse werepostponed until August 31. It was noted in Berlinwith some satisfaction that German stock quotationshave been maintained on foreign markets with rela-tive firmness, only alight recessions appearing inleading stocks at Amsterdam. The exchanges inLondon and Paris were extremely dull, with a uni-versal tendency apparent to await the outcome ofthe present German difficulties and the heavy with-drawals of gold from London for Continental ac-count. The London Stock Exchange was stable untilThursday, when the Bank of England announceda further advance in the discount rate. The newlevel of 41/2% supersedes the 31/2% rate effective onthe previous Thursday, when the rate was advancedfrom 21/2%. The Paris Bourse was steady in mostsessions. Other than indications of severe recessionsin foreign trade returns of leading European coun-tries, few reports on industrial trends were availablethis week.The London Stock Exchange opened quietly, Mon-

day, with British funds in mild demand owing to again in sterling exchange. The gilt-edged list wasalso strengthened by a rise in Brazilian bonds fol-lowing the publication of the report of Sir Otto Nie-meyer. The industrial list was uncertain, withchanges unimportant both in the British and inter-national lists. The tone Tuesday was slightly firmeruntil just before the close, when moderate recessionsappeared in most sections of the market. Britishfunds eased a little, but German and Brazilian bondsmade headway. International stocks were somewhatmore active, with prices slightly improved. Movements in British industrial issues were again of noimportance. Dull and unsettled conditions prevailedWednesday, with overnight reports of the drasticdecline at New York causing a sharp drop in thequotations of international trading favorites. Britishindustrial issues also were down, but to a smallerextent. British Government issues receded on weak-ness in sterling exchange. Thursday's dealings wereunsettled by the discount rate advance of the Bankof England, and almost all securities receded again.The higher bank rate was not unexpected, but Britishfunds dropped sharply on the announcement. Britishindustrials moved slightly lower, while the inter-national list turned irregular. With the Augustbank holidays imminent, trading dwindled at Lon-don yesterday. The general tone was firm.

Trading on the Paris Bourse was started with ashow of confidence Monday, but the session soonturned extremely dull and price changes were notespecially significant. Some stocks made slight prog-ress for a time, but toward the end they droppedback about to the previous closing level. A bettertendency appeared Tuesday, owing to reports of aninformal agreement between the Bank of France andthe Bank of England on gold movements. Gains inquotations were general, if not very large, and thefinal quotations were the highest in most instances.Denials Wednesday of the reported agreement be-tween the British and French central banks causeda set-back on the Bourse, only a few industrial issues


688 FINANCIAL CHRONICLE [VoL. 133.

escaping the general liquidation. Leading stocks,

notably Bank of France and Suez Canal, were off

sharply. The approach of the month-end settlements

also caused some selling, dispatches said. The Bourse

showed relative firmness Thursday, notwithstanding

extreme inactivity. Reports from other centers were

almost all unfavorable, but there was nevertheless a

little buying and it sufficed to lift the more promi-

nent issues slightly. The gains were unimportant

owing to the limited volume of business current. The

Bourse was heavy yesterday, with dealings again

small.

Europe presented this week a baffling picture of

continued financial difficulties in Germany, of reper-

cussions in Great Britain in the form of further

heavy gold withdrawals, of international financial

consultations and of visiting statesmen who also

added their counsels in the general attempt to settle

the troubles speedily. Almost all the difficulties, as

currently portrayed, take their immediate origin

from the huge flight of capital from the Reich, which

attained uncontrollable proportions soon after

Chancellor Bruening and Foreign Minister Curtius

informed all the world of their country's economic

woes while at Chequers early in June. Slow but

perceptible progress was made this week toward

alleviating the financial ills occasioned in Central

Europe by the flight of capital. Additional foreign

aid for Germany remained a matter of more or less

energetic discussion in several financial centers, but

practical steps were conspicuous by their absence.

In this situation the German authorities have ap-

plied themselves to the righting of their own finan-

cially disordered house, measures being taken not

only for the further relaxation of the stringent regu-

lations covering withdrawals from the banks, but

also for the strengthening of the banking system of

the country.Equalling in general interest the progress made in

settlement of the Central European financial troubles

were the further huge gold exports from London to

the Continent, and the consequent action of the

Bank of England in raising its discount rate Thurs-

day from 31/2 to 41/2%. The rate advance was thesecond in as many weeks, and the upward revision

now amounts to 2%. This quick increase in the rate

followed gold losses on an unprecedented scale, which

in turn were due to the German financial crisis and

heavy withdrawals of French balances from the Lon-

don market. Sterling exchange broke badly when

the German financial restrictions were first applied,

probably as a result of selling of bills in London by

German interests in order to meet their external

obligations elsewhere. French withdrawals of bal-

ances from London followed on an immense scale as

a result of the alarm occasioned by the realization

that London had large credits outstanding in Ger-

many. The pressure on sterling drove it far below

the point at which gold could profitably be exported

and the extent of the shipments that were thus

occasioned is illustrated by the decline in the bullion

reserves of the Bank of England in the last two

weeks. The holdings were 165,199,000 on July 16,

but by July 30 they had dropped to 133,309,000, a

reduction of 31,890,000. Almost all the metal went

to France, with a little going also to Holland.

Although the sterling dollar rate was much under

the point at which gold might profitably be moved

from London to New York, engagements were rigor-

ously eschewed, owing, it is understood, to the gen-eral unwillingness of American bankers to add to thepressure already felt in London.With Prime Minister MacDonald and Foreign

Secretary Henderson, due to make their return visitto Berlin early this week, there were reported to havebeen some suggestions in London circles that theFrench gold takings were due in part to politicalpressure. In all responsible circles, however, a re-port to the New York "Times" said, little patiencewas displayed with the theory that political motivesinspired the withdrawals. "The prevalent view isthat the French withdrawals are due to a desire toincrease liquidity in exceptionally dangerous times,"the dispatch stated. In Parisian banking and politi-cal circles firm denial was made of the reported alle-gations that the enormous gold withdrawals were inany way due to a desire to use the situation to politi-cal ends. Enlightening, in this connection, are indi-cations that Foreign Secretary Henderson madestatements in Paris which "staggered and seriouslyalarmed" French officials and financiers. Earlyrumors of Mr. Henderson's alleged statements havenot been denied, and they have now, indeed, receiveda measure of confirmation from Paris, where theymay well have caused alarm. He made the declara-tion, a Paris dispatch of Thursday to the New York"Evening Post" asserts, that "if Germany declaresa moratorium, England will be forced also to declarea moratorium." Even in France, the dispatch adds,this declaration is now considered unfounded.While the gold flow from London to Paris was at

its height late last week, conversations on the finan-cial situation were started in Paris between SirRobert Kindersley, a director of the Bank of Eng-land, and Clement Moret, Governor of the Bank ofFrance. These discussions were continued untilTuesday, when Sir Robert returned to London. Theygave rise, early this week, to reports from Paris thata credit of 20,000,000 was under arrangement infavor of the Bank of England, with the French cen-tral bank and French private institutions joining inthe reported advance. Such accounts were appa-rently exaggerated, as London dispatches of Wednes-day stated that "considerable amusement and someannoyance were expressed in responsible financialcircles at the nature of the Paris reports." The state-ments that the Bank of England was seeking a20,000,000 loan from the Bank of France were de-scribed, an Association Press dispatch said, as anunjustified attack on British credit and financialstability. Authoritative financial opinion in NewYork is to the effect that the Paris discussions re-sulted in formal assurances that ample credits wouldbe placed at the disposal of the Bank of England incase of need. It has been well understood for sometime that a similar arrangement is in effect betweenNew York and London.

Augmenting the series of political conferences inEurope which began early in June at Chequers, thecountry home of British Prime Ministers, were sev-eral visits paid to Berlin during the past week byAmerican and British statesmen. There were a num-ber of indications that these visits were intendedoriginally to pave the way for definite achievementsat the general disarmament conference which is tobe held at Geneva next February. The continuingfinancial crisis in Central Europe far overshadowedsuch considerations, however, and in the popular


AUG. 1 1931.] FINANCIAL CHRONICLE 689estimation all the conversations were definitely con-nected with the current troubles. This was due inno small part to an animated discussion in severalEuropean capitals regarding the London conferenceof seven governments, which ended July 23. It wasremarked in Berlin, a dispatch to the New York"Times" said, that Chancellor Bruening had returnedto Germany "with untarnished virtue, having sur-rendered nothing, signed nothing, and achievednothing." In London financial circles disappoint-ment was general over the poor results of the Londonconference. It was believed widely that the recom-mendations for the renewal of the credit of $100,-000,000 extended the Reichsbank and the proposalfor maintenance of the existing credits were merely"palliatives and postponements." In Paris thestrategy of Premier Laval, who is said to haveinsisted on political conditions for French participa-tion in a long-term loan to Germany, was highlypraised.The general atmosphere thus prevalent in Europe

made consideration of disarmament matters ratherdifficult. Secretary of State Henry L. Stimsonarrived in the German capital late last Saturday fora two-day "private" visit designed to round out hisimpressions of the European situation. Mr. Stimsonjourneyed to Europe with the avowed intention ofcombining a vacation with informal discussions inthe chief European capitals. The London conferenceupset his itinerary and his visit to Berlin was short-ened as a result. He declared on his arrival that hehad no intention of discussing financial questions,as these had been referred to certain agencies whichwould deal with them in accordance with conclu-sions reached at London. Mr. Stimson and UnitedStates Ambassador Frederic M. Sackett conferredmost of last Sunday with Chancellor Bruening andForeign Minister Curtius, a Berlin report to the NewYork "Herald Tribune" said, chiefly on the prospectsof armament reduction at the coming Geneva con-ference. The American Secretary of State departedfor London, Monday, after an audience with Presi-dent Paul von Hindenburg. Before leaving he issueda statement expressing "confidence in Germany, herpeople, her resources, and her future." The presentfinancial troubles in Germany he attributed to atemporary lack of confidence, and he added that"with courage and a return of confidence Germanywill be able to recover her prosperity." Similar com-ments were made by Mr. Stimson when he arrivedin London, Tuesday. "He is said to have told Ger-man statesmen, a dispatch to the New York "Times"remarked, that since the war Germany has beenbrooding too much over her political grievances, andthat unless her leaders stop crying despair it wouldbe hopeless for them to get the loans they need sobadly."A few hours after the departure of Mr. Stimson

from Berlin Prime Minister MacDonald and ForeignSecretary Henderson arrived in the German capitalto repay the visit made to Chequers in June by Chan-cellor Bruening and Foreign Minister Curtius. Theoccasion was considered a momentous one in Ger-many, as the visit was the first official diplomaticincident of its kind since the war. Chancellor Brue-ning welcomed his guests at a State dinner Mondaynight, in the course of which he declared that Ger-many is making every effort to overcome the presentcrisis. "We thankfully appreciate what your Gov-ernment has already done for us by its unreserved

and hearty agreement with the Hoover plan and byits efforts in summoning the London conference," theChancellor said. "We know that you, in England,also are passing through serious times, by reason ofthe present financial crisis which has now assumedinternational importance." Mr. MacDonald pointedout, in reply, that he and his Cabinet colleague hadcome to Berlin not merely for a return visit but withthe purpose of demonstrating British confidence inGermany. "A free, self-respecting Germany," hesaid, "is indispensable for the union of civilizednations." The Prime Minister made an earnest pleafor mutual confidence and for abandonment of feel-ings of mistrust among nations.

Conferences between the British and Germanstatesmen which followed, Tuesday, were concernedvery largely with questions of disarmament, andespecially with the Geneva gathering of next Feb-ruary, Berlin reports said. "It was learned in com-petent quarters," a dispatch to the New York "Times"said, "that Foreign Secretary Henderson apprisedthe German leaders of his desire to have the inter-national field in advance cleared of any obstacleswhich might imperil the success of the Geneva dis-cussions." Dr. Bruening is said to have restated theGerman position on disarmament as resting on theprinciple of strict equality. At the close of the "Ger-man Chequers," Tuesday night, Prime Minister Mac-Donald talked freely to British and American presscorrespondents. He expressed the conviction thatthe German people and their economic and industrialresources will be able to overcome the presenttroubles. An official statement on the results of theconference indicated that the "best means of givingeffect in a constructive manner to the decisionswhich had been taken at the London conference" hadbeen discussed. Other subjects, also reviewed in amost cordial manner, were the general economicsituation, the operation of the international conven-tion for uniform hours in the mining industry, andthe disarmament problem. The two British states-men returned to London Wednesday.A report on his journey to Berlin was made to the

House of Commons in London yesterday by PrimeMinister MacDonald. Pointing out again that thevisit was planned to return the Chequers visit ofGerman statesmen in June, Mr. MacDonald addedthat the conversations begun at Chequers were pur-sued. The opportunity also was taken, he remarked,to examine the financial position of Germany in rela-tion to the work done at the London conference ofseven governments. "The committee set up by theB. I. S. on the suggestion of the London conferenceto report on the matter is now at work and will cometo its conclusions without delay," the Prime Ministerstated.

Cautious preparations for the resumption of nor-mal banking and financial conditions in Germanywere made this week by Government and financialauthorities, with a good deal of uncertainty stillreported regarding the probable date for removal ofthe restrictions which were imposed July 13. Theefforts to secure additional foreign credits havingproved unavailing, means were examined duringrecent days which will safeguard the financial insti-tutions against possible runs on the reopening.There were also conferences with foreign bankers inBerlin intended to assure the passive assistance ofthe lenders who placed the $1,200,000,000 in short-


690 FINANCIAL CHRONICLE [VoL. 133.

term credits now estimated to be.outstanding in theReich. Some consideration was given also to thequestion of the securities exchanges, which havenow be closed almost three weeks. There weresome expectations that reopening of these institu-tions might be possible early in August, but after aconference of the heads of the German exchanges itwas considered doubtful whether they will be re-opened before Aug. 15. In the meantime trade bothwithin the country and with foreign nations is badlyderanged, with important plants beginning to closedown here and there for lack of orders. Imports areaccumulating under bond at Hamburg and Bremenowing to the lack of foreign exchange for payment.The country remains calm, however, no disordersbeing noted this week.Announcement was made in Berlin last Saturday

that the leading banks of the country would unite formutual guaranty of their liabilities by forming theAcceptance and Guaranty Bank, with capital of200,000,000 marks. Under this scheme, the statementdisclosed, the Darmstaedter und Nationalbank alsowould be enabled to resume payments. Currency tothe amount of its capital is to be placed at ths dis-posal of the new institution in exchange for first-ratedrafts, and this reserve will, in turn, be available toall the banks, which will thus be buttressed againstruns. With the emergency decree covering with-drawals from the banks expiring Tuesday, a furtherdecree was issued providing a little more latitudefor holders of bank balances. Permission wasgranted for withdrawal of sums needed for paymentof rent or interest on mortgages, while withdrawalsotherwise were limited to 300 marks daily from draw-ing accounts, as against 200 marks theretofore. Afurther decree provided that all German debts of50,000 marks or more owed abroad must be reportedto the Finance Ministry, to the end that a completeschedule of German foreign obligations might bemade available.Reports that the Reichsbank would raise its dis-

count rate sharply in advance of the general resump-tion of payments were eonfirmed last night, when anincrease to 15% from the previous level of 10% wasannounced. The Lombard rate (on collateral loans)was increased at the same time from 15% to 20%.By this means, it is held, the private bankinginstitutions will find it advisable to sell to thecentral bank their remaining foreign exchange hold-ings, estimated by some German authorities at $500,-000,000. Repayment of debts to commercial banksalso would follow, and this would, in turn, make pos-sible reduction of debts owed the Reichsbank. Thehigher interest rate would attract hoarded funds tothe commercial banks, it is maintained, and consid-erable additional funds thus made available, sinceit is estimated that German currency now hoarde(1amounts to 1,500,000,000 marks. There was somediscussion early this week of the advisability of asupplementary currency issue, reports said, butfinancial experts opposed such suggestions. Con-ferences on these questions continued all week, withDr. Bruening and Dr. Hans Luther, President of theReichsbank, in constant touch with heads of thegreat private banks. Not a little grumbling wasnoted late last week against the policies of Dr.Luther, and there were rumors that he might resign,but an official denial was issued last Saturday.On the question of the foreign credits still out-

standing in Germany several interesting steps have

been revealed. An informal agreement is understoodto be in effect among the leading foreign lenders, whohave conformed tacitly to the needs of the situationand to the recommendations of the conference ofseven governments on this point. It is reported, how-ever, that some smaller institutions in the UnitedStates have succeeded in withdrawing 611111S fromGermany and restlessness has been occasioned bythis practice. It is assumed in Germany that exten-sive withdrawals of foreign credits cannot be madefor at least another three months. Officials of theGerman Government and the Reichsbank conferredon this matter with foreign bankers this week, in theattempt to reach a formal agreement on such credits.Among the foreign representatives, dispatches said,were Dr. Oliver Sprague, adviser to the Bank ofEngland, and James H. Gannon, of the ChaseNational Bank of New York. This gathering ofofficials and bankers was dubbed in Germany the"freezing commission," and there were severalreports that agreement had been reached for exten-sion of the short-term credits. Confirmation of thesereports is lacking so far, and it is now reported thatfurther negotiations will be necessary.

Officials of the Bank for International Settle-ments, at Basle, began this week to organize thecommittee which the London governmental confer-ence suggested should be set up to inquire into theGerman economic situation. It was disclosed inNew York, Thursday, that Albert H. Wiggin, Chair-man of the governing board of the Chase NationalBank, had been named by the Federal Reserve Bankof New York to represent American interests. Baslereports indicate that other members of the B. I. S.committee will include Walter Layton of England,Emile Moreau of France, Karl Melchoir of Germany,Emile Francqui of Belgium, and Alberto Beneduceof Italy. The committee is directed, under the Lon-don resolution, to "inquire into the immediate creditneeds of Germany and to study the possibilities ofconverting a portion of the short-term credits intolong-term credits."

Increasing likelihood of a full resumption of pay-ments by the banks of Germany early next week wasreported in Berlin dispatches yesterday. A programwhich is expected to make this possible was underconsideration by the Cabinet, with an announcementby Chancellor Bruening imminent, an AssociatedPress report said. One important step in the planwas announced officially. This consists of an agree-ment among the large industrial establishments ofthe Rhine and Ruhr valleys, whereby the Darmstaed-ter und Nationalbank will be placed on a sound foot-ing and enabled to reopen with the other large insti-tutions. Jacob Goldschmidt and other large share-holders of the bank have agreed to turn over to theindustrial firms shares of the bank with a face valueof 35,000,000 marks for 43,000,000 marks, or at therate of 125%. The sum is to be paid immediatelyand the funds left at the disposal of the bank. TheGovernment guaranty of depositors' funds is con-tinued, and will be extended by an emergency decreeto include bills of exchange and surety obligationsof the institution. It is also reported that Govern-ment aid will be extended the Dresdner Bank in ad-vance of the general reopening, this institution beingconsidered sound, but requiring greater liquidity.An issue of 300,000,000 marks in 7% preferred sharesof the bank is to be sold to the German Treasuryunder the plans, with 25% paid in immediately. It


AUG. 1 1931.] FINANCIAL CHRONICLE 691

is believed this arrangement will meet all re-quirements.

A drastic decree placing Mexico on a silver basisand eliminating the gold peso as a monetary unitwas passed by the Congress in Mexico City last Satur-day and made effective Monday. The scheme isknown as the Galles plan, and its promulgation fol-lowed the appointment of Plutarco Elias Canes asPresident of the Bank of Mexico. Reports of thearrangement so far available are unofficial, but allagree that it provides for the repayment of obliga-tions in silver, even when contracted in gold. Thebanks will be required to repay in gold only 30% oftheir gold peso deposit accounts, with the remaining70% to be paid in silver. Foreign currency loans,payable at maturity in Mexican currency, also willbe payable in silver, it is said. The Bank of Mexico,the reports indicate, will assume functions of a cen-tral bank to a greater extent than formerly,especially as regards rediscounts. After the reformof statutes under which it was organized, this institu-tion will be empowered to issue currency on a smallermetallic backing than is now the case. A centralbanking commission consisting of one representativeof the Government, one from the Bank of Mexico, andone each from five leading banks, was named underthe new law to supervise certain functions of theBank of Mexico. When the banks reopened Mondaymuch confusion was reported regarding the applica-tion of the new legislation. In one account it wasestim that the changes enacted will mean a lossof , 100,000 to gold basis lenders.

A series of sound steps toward financial recon-struction in Brazil is suggested in the long-awaitedreport of Sir Otto Niemeyer, of the Bank of England,who studied affairs in the South American republicduring recent months at the invitation of the Rio deJaneiro Government. The two chief recommenda-tions made by the eminent British financial authorityare that budgetary equilibrium be maintained by theFederal Government and its political subdivisions,and that immediate consideration be given the forma-tion of a central bank patterned along the lines ofthe Federal Reserve System of the United States.The report was made available last Saturday inBrazil and in such important financial centers asNew York and London. It was given out here byDillon, Read & Co., as fiscal agents of the BrazilianGovernment. Comment on the report was generallyfavorable in Brazil, only papers of a radical tingeoffering any criticisms. There was much conjecturein advance of its publication regarding suggestionsSir Otto might make about the public debt of thecountry. It was predicted on several occasions thathe would recommend a moratorium on the externaldebt, but on this point the report itself makes nocomment."It cannot be too emphatically stated," the report

points out, "that financial reconstruction in Brazilas in other countries insistently demands two funda-mental bases: 1, the maintenance of budgetary equi-librium by all public authorities, that is to say, themeeting of annual expenditure out of annual revenue,to the exclusion of loans, and 2, the stabilization ofthe currency. So long as public expenditure is metby the artificial increase, directly or indirectly, ofthe means of payment, whether through the issue ofnotes or of paper securities not taken by an investing

public, it will be impossible to prevent those economicdisturbances which result from variations in nominalvalues, including variations in the rate of foreignexchange. So long as budgets are not balanced pub-lic authorities will be forced into inflationary meas-ures which can never be the true or permanent solu-tion of financial difficulties. So long as inflationis practiced, a stable national currency is impossible,for, inevitably, if the quantity of real things remainsunchanged, while the quantity of symbols in whichthey may be paid for is increased, any real things(goods or services) can only be acquired for an in-creasing number of paper symbols. On the otherhand, if the currency is not stabilized budget equi-librium will be constantly upset by changes in thelevel of public expenditure, and in particular in thatpart of public expenditure which depends on externalprices. The two factors, budget equilibrium andstable money, must march together, and neither onecan be maintained without the other. Unless publicauthorities are willing and able to take necessarymeasures to stop inflation it is useless for them tocomplain of the uncomfortable results of theiractions."A set of statutes for the formation of the suggested

Brazilian reserve bank is contained in the report pre-pared by Sir Otto, who states: "It is hardly neces-sary for me to point out that the matter of the estab-lishment of a central bank in Brazil is of the greatestimportance to its economic life and to the future rein-forcement of its budgetary equilibrium. It is notenough for a country to possess a central bank. Itmust be a genuine central bank, conducted exclu-sively on central banking lines as regards the natureof its business and liquidity, and not in the main abank conducting a commercial business and merelyfulfilling a few central banking functions. It shouldnot be involved in the difficulties which from timeto time cause commercial banks to seek assistance.and it will, accordingly, be able to bring the wholeweight of its resources to bear where help is needed."At this point it is remarked by Sir Otto that it wouldbe unwise to do away with the Bank of Brazil or tochange it into a central bank. An entirely newinstitution is recommended as a central bank, andthe relative functions of the present Bank of Brazilcould be taken over by the new bank, while the com-mercial banking could still be done by the Bank ofBrazil. Important steps also are suggested by SirOtto for reorganization of the post and telegraphservices and the railways, while reforms in taxationare likewise recommended.Owing to the importance of coffee in the economic

life of Brazil, much careful thought was given thiscommodity. Coffee alone accounts for more than60% in value of Brazilian exports, the report ob-serves. "So one-sided a development is certain toproduce great difficulties," Sir Otto remarks. "Theunfortunate experiences of coffee valorization haveshown that it is no exception to the general experi-ence, reinforced by similar results elsewhere withother commodities such as rubber, wheat and sugar.Artificial attempts to maintain on borrowed money,external or internal, an excessive price for coffee, acommodity in which Brazil, 60 far from having amonopoly, had not even control of the most market-able qualities, has only resulted in excessive over-production and the blocking of the normal marketwith swollen stocks." Summarizing the statisticalposition, it is pointed out that the world's visible


692 FINANCIAL CHRONICLE [Vor.. 133.

supply of coffee at the beginning of 1924 was9,663,000 bags, whereas at the start of this year some29,306,000 bags were available. "Meantime," thereport continues, "Brazil has wasted effort in pro-ducing supplies for which there was no demand in-stead of turning to other and more varied produc-tiona double loss, once in producing what is notrequired and a second time in not producing what isrequired. Clearly, a valorization policy cannot becontinued (or repeated in other connections). Inliquidating the present position no further stepsshould now be taken which involve governmentalresponsibility and transfer to other production. Theinterest now being taken abroad in Brazilian chilledmeat, fruit, &c., of which recent exports are encour-aging, is an indication of a large field for productsother than coffee which Brazil with advantage cansupply. These and other exports should be intenselydeveloped, with particular attention to improvementin quality and reduction of production costs."

Changes in the Government of Chile have takenplace with kaleidoscopic swiftness, not only Cabinetsbut also Presidents being tumbled from office oneafter the other as the people registered their discon-tent in a series of bloody riots. Much of the rebel-lious spirit was apparently directed against Presi-dent Carlos Ibanez, who had become increasinglyunpopular since his election in July 1927, owing tohis high-handed rule. General Ibanez was forcedout last Sunday, and his powers were taken over inconformity with the Chilean Constitution by PedroOpazo, President of the Senate, Who was appointedActing President. Pronounced hostility toward.Senor Opazo speedily developed on the allegedgrounds of a family connection with General Ibanez,and authority was transferred Monday to Juan Este-ban Montero, former Minister of the Interior. SenorMontero assumed the Premiership and the Vice-Presidency, and, therefore, according to the ChileanConstitution, the Acting Presidency. The Chamberand Senate met hastily and adopted resolutions onthe same clay, declaring former President Ibanezdestitute of any rights of power and the post of thePresidency vacant. This means, if legal require-ments are observed, that elections will be held in 60days. General Ibanez fled across the border intoArgentina to escape the public wrath. Within Chilesteps were promptly taken to formulate a new finan-cial plan, and as a first measure a four-day mora-torium was placed in force for the entire country,with all banks ordered to close until July 30. Thecountry was urged by Senor Montero Tuesday toresume its normal life, and to this plea a favorableresponse was made, no further disorders beingreported.Numerous changes in Cabinets reflected the diffi-

culties encountered in recent weeks by GeneralIbanez. The Cabinet headed by Rodolfo Jaramilloresigned July 10, and President Ibanez appointedFrancisco Garces Gana to form a new Cabinet. Thetask proved too difficult and a new Cabinet wasfinally formed July 13 by Pedro Blanquier, who de-clared, as one of his first acts, that service on foreigndebt would be discontinued for the time being. Pre-mier Blanquier resigned July 21, without giving apublic explanation of the reasons for the act, and onthe following day Senor Garces Gana was appointedPremier once again. He announced the formationof a Ministerial Council July 22, but ominous riots

immediately began and resignation followed onJuly 23. Carlos Froedden, one of the oldest friendsof President Ibanez, was next appointed Premier,but further riots developed, with the movementpalpably directed against General Ibanez. Studentdemonstrations against the Ibanez regime heraldeda rebellious movement that gained ever widerascendancy. Street car service was suspended inSantiago, the capital, July 24, and bands of strikersjoined the students in their demonstrations.Mounted police forces patrolled the thoroughfaresand numerous clashes resulted, two students beingkilled and many wounded. A close censorship wasestablished, but reports seeping over the border toBuenos Aires told of further disorders, with the deadestimated at 50. The campaign against GeneralIbanez was joined, such accounts said, by doctors,lawyers, bank clerks, teachers, civil engineers, dockworkers and others.With the country quite out of his control last Sun-

day, General Ibanez issued a statement to the effectthat he would "abandon the Presidential office tem-porarily," and requesting Constitutional permissionfor an absence from the country for a period of oneyear. "Grave reasons forbid me to continue exer-cising the office of President," he said, "and PedroOpazo, President of the Senate, will succeed me withthe title of Vice-President, in accordance with theConstitution." The Chilean Congress was calledinto session to ratify this procedure, and in the mean-time joyful demonstrations by the people testifiedto the enthusiasm aroused by the prospect of achange in government. Resignation of the FroeddenCabinet followed, Monday, and Senor Montero waschosen Premier. When it appeared that the populaceobjected to Vice-President Opazo on the score of hisfamily connection with General Ibanez, a furtherchange in Government followed, and Senor Monteroassumed the office of Vice

-President as well. Thenew Cabinet issued a statement expressing gratifica-tion over the "triumph of liberty," but adding thatthe "public finances are in a condition of bankruptcywhile the country is struggling under the most seri-ous economic depression ever recorded in the nation'shistory." Fullest co-operation was urged in orderto solve the problems of the hour and order wasreadily restored. The new Cabinet is as follows:PremierJuan Estaban Montero WarCarlos SaezForeign MinisterCarl 08 Balmaceda NavyAdmiral Calixto RogersEducationPedro Gody Perez Social AidDr. Sotero Del RioJusticeLuis Gutierrez

Changes in European bank rates have been nu-merous during the week. Yesterday the Bank ofGermany jumped its rate up from 10% to 15% andthe Lombard rate from 15% to 20%. On Thursdaythe Bank of England further raised its rate of discountfrom 332% to 41/%. On Friday the Bank of Ire-land further advanced from 43% to 53/2%. OnThursday, the National Bank of Sweden marked itsrate up from 3% to 4%, effective Friday. Ratesare 10% in Austria; 15% in Germany; 9% in Hun-gary; 63'% in Spain; 53,% in Ireland and Italy;4% in Norway and Sweden; 33% in Denmark;43% in England; 23,% in Belgium, and 2% inFrance, Holland and Switzerland. In the Londonopen market discounts for short bills yesterday were43/@,4 3-16% against 3%@3 7-16% on Friday oflast week, and for three months' bills 43A4 5-16%against 3 7-16% the previous Friday. Money oncall in London on Friday was 34%. At Paris the


AUG. 1 1931.] FINANCIAL CHRONICLE 693open market rate remains at 13g%, and in Switzer-land at 2%.

The Governors of the Bank of England at theirmeeting on July 30 in a further effort to check theflight of gold from London, which for the two weeksended July 29 amounted to no less than 31,890,231,raised the discount rate by a full percent. to 43%.The previous rate of VA% had been inaugurated atthe previous weeks' meeting and succeeded a rateof 23'% which had been in effect since May 14 1931.The statement for the week ended July 29 shows aloss of 16,734,921 and since it was attended by anexpansion of 3,264,000 in note circulation, broughtabout a reduction of 19,999,000 in reserves. TheBank's gold holdings now aggregate 133,309,663as compared with 165,199,894 two weeks ago and153,250,395 a year ago. Public deposits fell off1,154,000 and other deposits 3,458,696. Otherdeposits consists of bankers' accounts, which de-creased 4,380,920 and other accounts which rose922,224. The proportion of reserves to liabilitiesdropped from 49.3% a week ago to 32.4% now.A year ago the ratio was 41.75%. Loans on govern-ment securities gained 18,185,000 while those onother securities showed a loss of 2,774,813. Thelatter consists of "discounts and advances" and"securities." The former increased 2,597,714, whilethe latter declined 5,372,527. Below we furnishcomparisons of the different items for five years:

BANK OF ENGLAND'S COMPARATIVE STATEMENT.1931.

July 29.1930.July 30.

1929.July 31.

1928.Aug. 1.

1927.Avg. 3.

Circulation-a 359.363.000 368.377,007 371,817.795 137,258,190 138,342,010Public deposits

15,219.000 9.087.688 11,078,004 12.171.240 9,521.683Other deposits 89.484.932 98.375,872 97.964.585 103,540,288 102,840,165Bankers accounts_ 55.798.330 60.970,985 60,277.499Other accounts 33.686.002 37.404,887 37.687.086

Govt. securities__ 52.560,906 51,665,547 62.256.855 29,201,528 52,078.999Other securities 36.300.633 29,032,768 34.102.467 48,423,840 44.740,905

Disct. & advances 9,896.484 6.740,720 9,951,195Securities

26.604.149 22.292,048 24,151.272 Reserve notes & coin 33.947.000 44,873,388 30.792,449 56.192.839 33.676.770Coin and builion_133,309.663 153,250.395 142,610,244 173,059,029 152,268,780Proportion of reserveto liabilities 32.4% 41.75% 28.23% 4844% 30%

Bank rate

4 ty % 3% 544% 444% 04%a On Nov. 29 1928 the fiduciary currency was amalgamated with Bank of Englandnote issue adding at that time 234.199,000 to the amount of Bank of Englandnotes outstanding.

The Bank of France statement for the week endedJuly 25 records a gain in gold holdings of 1,246,483,-172 francs. Owing to this gain the item now aggre-gates 57,893,064,952 francs, as compared with45,282,858,901 francs last year and 37,299,601,159francs two years ago. Credit balances abroad rose816,000,000 francs, while bills bought abroad de-clined 922,000,000 francs. Notes in circulationcontracted 187,000,000 francs, reducing the totalof notes outstanding to 77,766,225,575 francs, incomparison with 72,110,310,005 francs the cor-responding date last year and 64,135,256,725 francsthe year before. French commercial bills discountedand creditor current accounts rose 914,000,000francs and 1,837,000,000 francs, while advancesagainst securities declined 82,000,000 francs. Belowwe furnish comparisons of the various items for threeyears:

BANK OF FRANCE'S COMPARATIVE STATEMENT.Changesfor Week.Francs.

StatusJuly 25 1931Francs.

as ofJuly 26 1930,Francs.

July 27 1929.Francs,

Gold holdings- - .Ino.1246,483,172 57,893,004.952 45,282.858,901 37,299,601.159Credit bale abr'd_ _Inc. 816.000,000 0,474.841,059 7.104,420.036 7,325,293,083French Commercial

bills discounted_Inc. 914,000,000 5.345,066.479 6.058.134,333 8.406.842,280bills bought abed_Deo 922.000.000 18,048.220,842 18,952.332.948 18.478.532.307Adv. agt. scours_ _Deo. 82,000,000 2,757,485,33. 2,682,225.400 2

.353,409.970Note circulation_ _ Dec 187 000.000 77.76625.575 72.110.310.005 64.135,256.725Crod. curr. soots__Inc.1837,00u.000 24.459,553,421 17,494,833,382 19.599.463,404

The Reichsbank's statement for the third quarterof July shows another loss in gold and bullion, thistime of 13,289,000 marks. The total of bullion nowstands at 1,352,803,000 marks, in comparison with2,618,728,000 marks the corresponding date lastyear and 2,085,323,000 marks the year before.Reserve in foreign currency bills of exchange andchecks, notes on other German banks, other assets,and investments record increases of 35,166,000 marks,313,115,000 marks, 3,053,000 marks, 64,105,000marks and 4,000 marks respectively. The item of gdeposits abroad now aggregates 116,787,000 marks.Notes in circulation show an expansion of 32,798,000marks, raising the total of the item up to 4,194,607,-000 marks. Circulation a year ago was 3,965,868,000marks and two years ago it was 4,091,054,000 marks.Silver and other coin and advances decreased 5,105,-000 marks and 69,588,000 marks while other dailymaturing obligations and other liabilities rose 277,-903,000 marks and 16,760,000 marks respectively.Comparisons of the various items for three years isgiven below:

REICHSBANWS COMPARATIVE STATEMENT.Changes for

Weak.Assets Rgehtsnsarks.

Joy 23 1931. JO, 23 1930. July 23 1929RelcArmarke. Reicharnarks. Refehsanarks.

Gold and bullion Dec. 13.e89.000 1,352,803,000 2,618,728.000 2,08.5,323.000Of which depos. abed. Unchanged 118,787.000 149.788,000 142,887,000Res've in teen curr Inc. 35.166.000 159,533,000 181.638.000 340.788.000Bills of exch. & checks.Ino. 313,115.000 3.066,554.000 1.544,875.000 2.133,323.000Silver and other coin Deo. 5,105,000 73,618,000 180.692.010 143.038.000Notes on oth.Ger. bks.Inc. 3,053.000 12,274,000 24,010.000 23,428.000Advances Dec. 69,588.000 318,419,000 57,558.000 53.207.000Investments Inc. 4.000 102.259000 101,017.000 92,891.000Other assets Inc. 64.105,000 920,491,260 753,550,000 540,165.000

LiabUtliesNotes in circulation Ino. 32.798,000 4,194,607,000 3.965,868.000 4,091.054.000Oth.dally matur.oblig.Ino. 277.903.000 585.017.000 666.970.000 550.906.000Other liabilities Inc. 16,760,000 737,000,000 217.631,000 329,807,000

Extremely quiet conditions prevailed in the NewYork money market this week, with rates in all de-partments unchanged. Funds were in abundantsupply at the low rates prevalent for so many months.Call loans on the Stock Exchange were 1 for alltransactions, whether renewals or new loans, whilethe Curb Exchange quotations held at 2%, theusual differential of M% being observed. In theunofficial outside market, funds of investment houseswere offered every day at concessions from the officialrate. Dealings Monday were at 114% in the street,while on all subsequent days transactions were re-ported at as low as 1%. United States Governmentborrowing by means of an issue of $59,850.000 in91-day Treasury discount bills was effected Thursdayat an average cost of 0.51%. There was no reflec-tion in this market of the Bank of England discountrate advance of 1% to a level of 43/2%, announcedThursday. Brokers' loans against stock and bondcollateral, as reported for the week to Wednesdaynight by the Federal Reserve Bank of New York,declined $26,000,000, with the aggregate at $1,390,-000,000 now the lowest since June 4 1924. Goldmovements for the same weekly period consisted ofimports of $2,094,000, with no exports. There was,however, an increase of $2,500,000 in the stock ofgold held earmarked for foreign account, this changecorresponding to an export.

Dealing in detail with call loan rates on the StockExchange from day to day, there was again no devia-tion at any time from the figure of 11/2%, this havingbeen the quotation both for new loans and for re-newals on every day of the week. Time money hasagain been without noteworthy movement. An occa-sional loan for four months has been made, but other


694 FINANCIAL CHRONICLE [Vol,. 133.

maturities have been at a standstill. Quotations con-tinue at 11/4@11/2% for 30 and 60 days, and also for90 days; the rate for four and five months is 11/2@1%%, and for six months 13/4@2%. Prime com-mercial paper has been in good demand, a large pro-portion of the inquiries originating in the GreaterNew York, though there was also a very considerabledemand from the New England banks. Rates forchoice names of four to six months' maturity con-tinue at 13/4@2%. Names less well known andshorter choice names are 21/4@21/2%.

Prime bank acceptances were in good demand dur-ing the week, but business was again limited by theshortage of satisfactory paper. Rates remain un-changed. The quotations of the American Accept-ance Council continue at: For bills up to 90 days,1% bid, 7/8% asked; for four months' bills, 11/8% bid,1% asked; for five and six months, 1%% bid and114% asked. The Federal Reserve banks suffereda further decrease in their holdings of acceptancesduring the week from $67,033,000 to $66,536,000.Their holdings of acceptances for foreign corre-spondents fell from $298,111,000 to $253,578,000.Open market rates for acceptances also remain un-changed, as follows:

SPOT DELIVERY.180 Days 150 Days 120 Days-8(4. Asked. Bid. Asked. Bid. dual.

Prime eligible hulls 134 131 134 13( I% 190 Days 80 Days 30 DaysMd. Asked. Bid. Aske4. Bid. Asked

Prime eligible bills 1 34 1 34 1 Si

FOR DELIVERY WITHIN THIRTY DAYS.

Eligible member banks 1% bidEligible non-member banks 134 bkl

There have been no changes this week in the redis-count rates of any of the Federal Reserve Banks. Thefollowing is the schedule of rates now in effect forthe various classes of paper at the different Reservebanks:DISCOUNT RATES OF FEDERAL RESERVE BANKS ON ALL CLASSES

AND MATURITIES OF ELIGIBLE PAPER.

Federal Reserve Bank.Rate in Shiedon July 31.

DateEstablished.

PreviousRate.

Boston 2 May 7 1931 234New York 134 May 8 1931 2Philadelphia 3 May 7 1931 334Cleveland 234 May 9 1931 3Richmond 3 May 15 1931 334Atlanta 3 Jan. 10 1931 314Chicago 234 May 9 1931 3St. Louis 244 May 9 1931 aMinneapolis 3% Sept. 12 1930 4Kansas City a May 21 1931 334Dallas 3 May 8 1931 314San Francisco 234 May 22 1931 3

Sterling exchange and the entire foreign exchangemarket continues, as during the past several weeks,under the domination of the financial crisis in Ger-many and Central Europe. The Bank of Englandhas again lost gold heavily during the week to France,Holland, and Belgium. On Thursday the marketwas taken by surprise when the Bank of England in-creased its rediscount rate from 33/2% to 43/2%.This followed upon an increase on Thursday of lastweek from 23/2% to 332%. As a result of the firstincrease in the rediscount rate sterling moved upfirmly on Friday to a closing rate of 4.85% for cabletransfers, which placed the pound safely above theshipping point for gold exports from London to NewYork. However, sterling continued as weak as everwith respect to French francs and the fear of excessivewithdrawals of gold from London for Paris was theprincipal reason for the present advance in the Lon-don Bank rate. The range for sterling this week hasbeen from 4.85 3-16 to 4.863 for bankers' sight bills,

compared with 4.835% to 4.853. last week. Therange for cable transfers has been from 4.85% to4.863., compared with 4.84 to 4.85 7-16 a week ago.Although sterling moved up vigorously following theannouncement of the 43/2% Bank of England re-discount rate, the actual volume of trading was notlarge. Apparently there was no noticeable responseto the higher rate in Paris, although all the otherleading Continental currencies, including the neutrals,moved in sympathy with sterling. On Thursday theLondon check rate on Paris closed at 123.91, whichwas uncomfortably close to the gold shipping pointto Paris, 123.89. However, the drain to Paris seemsto have ceased for the time being, but bankers areapprehensive lest sterling again prove vulnerable torenewed French nervousness.The necessity for the 41A% rate may be seen from

the fact that the Bank of England statement for theweek ended July 29 showed a loss in gold holdingsbetween July 22 and July 29 of 16,734,921. Goldholdings of the Bank were at high for the year onJuly 8, when they stood at 165,810,946, so that theBank's entire loss since the beginning of the drainresulting from the German crisis amounts to approxi-mately 02,501,283. By far the greater part of thisgold went to France, with Belgium and Holland tak-ing small amounts. Since the issuance of theJuly 29 statement the bank has lost additional goldto Holland. Bankers in New York are inclined tointerpret the higher rate as the Bank of England'sanswer to the $100,000,000 credit which the Bank ofFrance in conjunction with French private banksproposed to offer England and which, it was under-stood, was the subject of conversations between theFrench banking authorities and Sir Robert Kindersleya director of the Bank of England. This subject isunderstood to have come up a number of times inthe past, but Montagu Norman, Governor of theBank of England, has always been strenuously op-posed to placing the Bank under any direct obligationand has preferred to meet the problem of supportingsterling solely through central bank measures. Theone exception to this attitude was the acceptance ofa $300,000,000 credit in 1925 from the Federal Re-serve Bank and J. Pierpont Morgan & Co. at thetime of the amalgamation of the British currency.This credit was never used. The present crisis,however, has been so exceptional that the Bank ofEngland authorities might reasonably be expectedto seek outside assistance, but it was known severaldays ago when the matter was first broached thatChancellor Snowden had a conference with GovernorNorman of the Bank of England at which Snowdenprotested vigorously against the bank's receiving anyassistance whatever from France or other outsidesources.

It is believed in some quarters that the Bank ofFrance is nevertheless acting to support sterling ex-change by bill purchases, as that bank is powerlessto prevent French private banks from importinggold. The first break in sterling exchange, whichoccurred a few weeks ago, was occasioned by Germanselling of London bills to raise cash for the paymentof private external obligations in other centres. Therealization that London had large amounts of credittied up in Germany which under the "gentlemen'sagreement" cannot be removed alarmed French in-vestors, who immediately began drawing down theirLondon balances. They transferred their funds toParis with the same reckless haste which has evoked


AUG. 1 1931.] FINANCIAL CHRONICLE 695

much criticism in international banking quarters onprevious occasions when sterling was under strain.The shifting of capital was on a scale sufficientlylarge to depress the pound below the gold exportpoint on all principal centres. For instance, sterlinghere dropped to 4.83 1-16 against dollars, comparedwith the gold export point from London to New Yorkof 4.851/. Despite this weakness the New Yorkbanks refused to make a profit on gold shipments at atime when additional losses would increase the burdenon the Bank of England. Swiss banks, too, havelargely refrained from importing. It still remainsto be seen whether the latest action of the Bankof England will prove effective in easing the strainwhich sterling has undergone in the past few weeks.From a theoretical standpoint there is every reasonto expect a heavy flow of funds from practically allquarters for investment in England. The spreadbetween London and New York money rates issaid to be sufficient to bring about a substantial flowof gold to England from New York. UndoubtedlyNew York banks will welcome this opportunity toplace funds, which are unloanable here, in Londonto take advantage of the higher interest rates which,at present levels, offer an attractive yield, but theFrench balances are still an unknown quantity anda marked disposition seems to exist in Paris to bringhome funds in order to be ready for any emergencyand to keep them domiciled in Paris, despite thefact that they are unloanable there at the lowestimaginable rates of interest. Concomitant with theincrease in the Bank of England's rediscount rate,the joint-stock banks automatically marked up theirrates on "accounts current" to 13/2%. Prior to thefirst increase in the official rate a week ago the joint-stock banks had been paying M of 1%. Other banksare now paying 3% and some even 332%. A drasticmarking up of bill rates also accompanied the change,with 90-day bills quoted at 43%-4 5-16% against3 7-16%-33/% on Wednesday, while six

-month'spaper is now 4%-5% against 431% previously.This is the highest rate for 90-day bills since Jan. 31930, while six-months' bills have not been quotedat 5% since Nov. 21 1929. The present Bank ofEngland rediscount rate is the highest since March 61930, when the rate was lowered to 4% from 43/2%.According to one banking authority the excessiveapprehension manifested because of the continuedgold drain from London seems exaggerated in viewof the fact that the amount of gold now held bythe Bank is in much greater volume than was normalin pre-war days. Furthermore, the Bank of Englandhas under the Act of 1928 been legally empowered toexpand its fiduciary note issue beyond the total of260,000,000, under certain specified conditions. Ifthe Governor thinks the limit is unduly restricted hemay ask the Treasury for permission to increase theamount of the uncovered note issue, thereby releasinggold now required to be held as cover.The Government stated at the time the bill was

under discussion that the provision for expanding thefiduciary note issue was not intended to be used"reluctantly and with hesitation." The Govern-ment authorities said at the time "It is always possiblethat owing to a change of policy upon the part offoreign banks a large sum of gold might be with-drawn in a short time by the realization of thosebalances." The official memorandum continuedwith the statement that such a measure would prob-ably be avoided by co-operation among the central

banks, but it added, if withdrawals should be insistedupon, the circumstances would justify asking theTreasury for permission to expand the fiduciary noteissue. As is well known, the Cunliffe committeerecommended that the Bank of England should en-deavor to maintain a minimum gold cover of 150,-000,000, but the Macmillan committee in its recentreport suggests a change in the law to provide for astatutory increase in the fiduciary note issue whichwould enable the Bank in emergencies safely topermit its gold reserves to fall to a much lower figure.This week the Bank of England shows a decrease ingold holdings of 16,734,921, the total standing at133,309,663, compared with 153,250,395 on July 301930. On Saturday the Bank of England sold 3,-500,000 in gold bars. On Monday the Bank sold1,977,803 in gold bars and exported 63,000 insovereigns. On Tuesday the Bank sold 949,653 ingold bars, released 200,000 in sovereigns, exported129,000 in sovereigns, and set aside 250,000 insovereigns. According to dispatches from Londonbullion brokers a total of 500,000 South African goldavailable in the open market on Tuesday was takenon behalf of France a week earlier. On Wednesdaythe Bank of England sold 307,740 in gold bars andexported 126,000 in sovereigns. On Thursday theBank sold 582,172 in gold bars, received 98,000 insovereigns, and exported 39,000 in sovereigns. OnFriday the Bank released 1,100,000 in sovereigns,sold 424,773 gold bars, bought 1,766 gold bars,received 2,000 sovereigns from abroad and exported10,000 sovereigns.At the Port of New York the gold movement for

the week ended July 29, as reported by the FederalReserve Bank of New York, consisted of imports of$2,094,000, of which $2,024,000 came from Peru and$70,000 chiefly from other Latin American countries.There were no gold exports. The Reserve Bank re-ported an increase of $2,500,000 in gold earmarkedfor foreign account during the week. In tabularform the gold movement at the Port of New York, asreported by the Federal Reserve Bank of New York,was as follows:GOLD MOVEMENT AT NEW YORK, JULY 23JULY 29, INC.

Imports. Exports.$2,024,000 from Peru

70,000 chiefly from Latin None.American countries

$2,094,000 totalNa Change in Gold Earmarked for Foreign Account.

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