Era's End

Money makes noise. There is money in the screams of locomotive brakes, rumble of subways, shrieks of factory whistles, whirr of machinery, cracks of pile drivers, cries of peddlers. There is "big money" in the clamor of exchanges, in the shouts of bidders, the scurrying of page boys, the ringing of telephones, the rattle of tickers. When money is plentiful, easy, the world's marts are thunderous with the din of handling it, transmuting it, losing or winning it. But when money is scarce, tight, there is silence.

In Wall Street, greatest of all money marts, silence is neither golden nor popular. The greater the tumult, the greater the profits of the traders, the more stocks and bonds are being sold and resold, the more money is being borrowed and relent. Last week, the powers of The Street prepared to ask New York's Board of Aldermen to still the noises of riveting, pile driving. But it was to spare their ears for the more important sounds of money-changing.

Bull. For four years, Wall Street has been noisier than ever before in its history. It has seen a stream of gold pouring in from abroad. Between 1923 and 1928, the U. S. exported gold worth $500,000,000, but imported $1,000,000,000. Each $1 of gold in a bank reserve means a potential $13 of credit. In four years, the U. S. in this way alone added $6,500,000,000 to its credit resources. It could finance a building boom, a Florida boom, vast instalment selling, new highways, new factories. It had enough credit to support a continuous bull market, with stocks soaring week by week. Through the twelve Federal Reserve banks, together with their member banks, it could lend money to brokers at 3 1/2 or 4%, swelling the credit available for speculation. Money was easy. Times were good for the traders.

Money was never so easy as last September, when the bull market was in full swing. But in Europe the central banks were in trouble. Helpfully, the Federal Reserve sought to ease up still further on credit in the U. S., with the sound idea that higher interest rates abroad would attract much-needed funds. It ordered the Chicago bank to reduce its rediscount rate from 4 to 3 1/2%. Chicago bankers, led by famed Melvin Alvah Traylor, head of the powerful First National Bank, dissented sharply, voiced grave warnings. Unheeding, the Federal Reserve forced its way, helped Europe weather its crisis.

Bear. Banker Traylor's warnings have been remembered in the last few months. Since September, Coolidge prosperity has suffered many a blow. One by one, market operators have noted these ominous signs:

1) The stream of gold has turned away from the U. S. In the last year, exports have exceeded imports by $497,963,400, killing all the gains of the 1924-27 period. In June, exports reached a record for a single month with $99,932.000.

2) Its credit resources already strained by the movement of gold abroad, the Federal Reserve stopped buying government securities, started selling them, withdrawing loose money from the market, reducing its credit reserves still further.

3) In spite of this reduction, borrowings from member banks, largely to finance brokers' loans, climbed to a new high point since 1921, reaching almost to $1,200,000,000.

4) Speculation skyrocketed. Brokers' loans increased by more than $1,000,000,000 in twelve months, standing last week at $4,242,699,000.

5) The stock market became nervous, jumpy, catapulted through a 5,000,000-share day, recovered a little, remained uncertain.

Program. Determined to stop the speculative orgy, the Federal Reserve started to bring the era of easy money to an end Sale of government securities was the first step. Then followed a series of experiments with the rediscount rate. New York advanced from 3 1/2 to 4% on Feb. 3, from 4 to 4 1/2% on May 18. Still the market held and brokers' loans continued to mount.

Last week, Chicago took the initiative, jumped the rediscount rate to 5%. Then New York, Richmond, Atlanta did the same. The market broke at once, representative stocks averaging a decline of 4.41 points, the greatest since the fateful July 30, 1914. Du Pont fell 16 1/2points; General Motors, 8; General Electric, 6 1/4. Call money rose to 7%. Thanks to six months campaigning, money at last was tight. At last, Banker Traylor had had his way.

Bets. Experts foresaw tight money throughout the summer, or until member-banks repay some of their debts to the Federal Reserve and brokers' loans show a marked drop. Col. Leonard Porter Ayres, famed economist of the Cleveland Trust Co., saw the stock market as a "great national bet against the continuation of high interest rates, and since the Federal Reserve authorities can hardly reverse their present policies until the excessive use of credit for speculation has been terminated, the decision will probably be against the stock-market." He predicted "the end of the 'Coolidge prosperity' era of five years and a serious decline in stock prices before the end of this year." Banker Traylor, 1927 Cassandra, ventured a snort, a prophecy: "There is no more justification for the prices of a lot of these favorite speculative stocks than there was for $500 an acre for Towa land in 1920. If there is not a return to sanity, we will lose our position of world leadership."

Morbid. Stock speculators shouted "Paternalistic!" and "Mollycoddling!" They cried: "What business is it of the Federal Reserve whether General Motors is at 150 or 200?" Bond houses watched a continuing weakness in their market with foreboding.

Strong Flayed. From Chicago came the angry demand of the Chicago Tribune for the resignation of Governor Benjamin Strong of the Federal Reserve Bank of N. Y. Declared the Tribune, in I-told-you-so spirit: "Stock speculation grows of its own momentum, like a snowball. This snowball was started on its way with the help of Gov. Strong. It was through his influence that the Federal Reserve Bank of Chicago was forced to lower its rate against the judgment of Mr. Traylor. Gov. 'Strong's participation at the start makes his resignation now imperative."