NEW CREDIT

Poverty Bay Herald, Volume LX, Issue 18258, 29 November 1933, Page 12

NEW CREDIT

. INEFFECTIVE INFLATION. UNITED STATES’ EXPERIENCE There has already been inflation in the United States. Many interests are calling for more inflation. They believe that if more of the tokens of money are available prices will rise. All the information shows that there is more money available in the United States than the people can find use for. Of what use then would more inflation he? The extreme ease of money, which has been a feature of the business situation in the United States ever since May last, the Review of the National City Bank of New York reports, became even more pronounced during September. Under the influence principally of continued Federal Reserve purchases of Government securities in the open market, the volume of bank reserves mounted steadily to higher and higher levels, and inasmuch as loans and deposits of member (trading) banks failed to maintain a corresponding" rate of expansion the excess reserves of the banks at the end of September had risen to the new record peak of over 700,000,000 dollars, compared with the previous high level of around 635,000,000 dollars in January. Money rates continued to soften under pressure of this enormous supply of free funds, dropping to levels lower over than before. For the first time,at least in the history of the Stock Exchange of New York, call loans were quoted officially at less than 1 per cent, while bankers’ acceptances at one quarter of I per cent, for 90-day maturities equalled the record low point of February.

Tho source of the latest additions to the already overflowing money market was the expanded programme of Government security buying by the Reserve Banks. In six weeks the total holding of Government securities by the central institutions increased by 144,000,000 dollars to a record of 2,238,000,000 dollars. Despite this continuous pumping of new credit into the market, the volume of credit in use by the member (trading) banks diil not display the increase which was the object of monetary policy. While. Federal reserve holders of Government securities increased and bank reserves rose, the volume of loans by 'member (trading) banks and their investments changed but little. Unsecured loans, which include loans made for commercial purposes, increased by a moderate amount, but the increases were more than offset by decreases in loans on securities and in security investments. Deposits increased during the six weeks by 100,000,000 dollars, reflecting chiefly funds put into the market by Federal Reserve activities.