3% Money

The Federal Reserve Banks of St. Louis, Boston and New York each last week reduced its re-discount rate from 4% to 3 1/2% and by their action proved the angry prediction of the Chicago Journal of Commerce that such would be the sequence of results from the Federal Reserve Bank of Kansas City's similar reduction the week before.

According to the Journal of Commerce those re-discount reductions were the result of the recent visit with Governor Benjamin Strong (the New York Federal Reserve Bank) of Governor Montagu Norman (the Bank of England) Deputy Governor Charles Rist (the Bank of France)' and Dr. Hjalmar Schact (head of the German Reichsbank) (TIME, July 11). Those visitors went with Governor Strong to Washington for a conference with members of the Federal Reserve Board.

After that conference, the Journal of Commerce charged last week, "The little New York group that dominates the Federal Reserve System came to Chicago and tried to induce the directors here [of the Chicago Federal Reserve Bank] to cut the [re-discount] rate and afford pretext to New York. The request was flatly and somewhat indignantly refused. borrowed at a low rate, can be reloaned at a slightly higher rate.

Continued the Journal of Commerce: "Europe and particularly England wants, and no doubt needs, a very low money market in this country so that American bank funds in large totals may be' attracted to England; and to that end our re-discount rates are to be reduced, and probably Federal Reserve securities are to be sold, and easy credit is to be manufactured.

Clarence Walker Barren's Wall Street Journal, less brash in such business & financial matters than the Chicago paper, noted last week: "American banks are finding it profitable to place surplus funds in London, owing to higher level of money rates there, and such transfers of dollars into sterling have been a leading cause of firmness in the sterling rate this week. , Some American funds are also being placed in Germany, to take advantage of higher rates prevailing in Berlin."

Concluded the Journal of Commerce: "What Europe wants, and what the present Federal Reserve manipulations are intended to provide, is an artificial expansion in our business, an increase instead of a decline in commodity prices; so that Europe may get more money for the goods she sells to us and so that we may sell so cheaply to our foreign customers in competition with Europe."

"James B. McDougal is Governor of the Chicago Federal Reserve Bank.