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of the public, amounted to over three billion. The reserve ratio was down to 42 per cent, which was close to the legal minimum.

This was the situation in May 1920, and it constituted inflation in full flower.

How does the condition in May of this year compare with that of eight years ago?

Considering the important items in order, we find first of all that the gold reserves on May 9 of this year are $700,000,000 larger; they stand at almost $2,700,000,000 now as compared with less than $2,000,000,000 then.

The rediscounts of the member banks are under $800,000,000, as contrasted with $2,500,000,000 at the carlier date; and the total bills and securities are $1,400,000,000 as against $3,200,000,000.

This latter figure of total bills and securities is of especial significance, since it measures the extent to which the public and the member banks are leaning upon the credit resources of the Federal Reserve banks. It stands to-day at less than one half the sum which it had reached in 1920. The Federal Reserve notes which we carry in our pockets have declined from over $3,000,000,000 to $1,600,000,000. They have been replaced by the yellow-backed gold certificates which have become so familiar to the public during the last five years. We imported gold in such amounts during this period that the Federal Reserve decided to put it into circulation rather than carry

reserve.

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As a consequence of this increase in gold reserves on the one hand and the decreased note circulation on the other, the reserve ratio of the system has risen to 70 per cent as against 42 per cent during the year of inflation.

The present condition of the Federal Reserve banks is certainly far from inflation.

But how far does it stand from deflation? It is conceivable that, though we have not yet arrived at inflation, we may be far enough removed from the conservative situation which followed the depression of 1921 to give

us concern.

By May 1922, our credit structure was thoroughly deflated. The loans of the member banks had fallen to their lowest point because of the shrinkage in the volume of productive activity and the staggering fall of commodity prices. Bills discounted had declined from $2,500,000,000 to one fifth that amount, and the total earning assets from $3,200,000,000 to $1,200,000,000. The gold reserves had increased a full billion, and the Federal Reserve notes in circulation had declined a like amount. As a result the reserve ratio rose to 77 per cent.

There was universal agreement that the banking system had been purged of inflation. of inflation. We had imported a billion dollars of gold, and the public needed a billion dollars less currency to carry on the smaller volume of business at reduced prices. Both these sums were deposited in the member banks, which in turn handed them over to the Federal Reserve banks and paid off their redis

counts.

The spring of 1922 marked the end of deflation for the member banks. Presently their loans began to increase, and from the low-water mark of seventeen billion dollars these have risen steadily to over twenty-four billion. During the same period their holdings of securities have grown from six and one-quarter billion to ten and one-half. But this

expansion of bank credit to the public brought no corresponding increase in the amount of Federal Reserve credit used by the member banks. On the contrary, the earning assets of the twelve Federal Reserve banks reached a new low mark two years later, in May 1924, when they fell to less than $800,000,000, as contrasted with $1,200,000,000 in May 1922. During

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these two years we imported $700,000,000 more of gold. Three hundred million of this went to meet the increased needs of circulation, and the rest was employed by the member banks to reduce the earning assets of the Federal Reserve banks. But this time they did not reduce their rediscounts; these were already at a low point. Instead they bought government bonds from the reserve banks. In short, they exchanged the incoming gold partly for gold certificates which they paid out to their depositors, and partly for government bonds which earned them interest where the gold would have earned them nothing. It was during this period that the phrase 'worthless gold' was used by one editorial writer. The exceedingly low volume of reserve credit outstanding at that time was looked upon as clearly abnormal. The reserve ratio had risen to over 83 per cent.

After some increase in the use of reserve credit during 1925 and 1926, the system found itself again, in the spring and summer of 1927, almost as thoroughly deflated as in 1924, and markedly easier than in 1922. For in May of last year the member banks were actually using less reserve credit than five years earlier, and the reserve ratio was 80 per cent.

Even in August of last year gold reserves were still three billion dollars, rediscounts less than half a billion, and earning assets only slightly more than one billion.

This was almost identically the same situation as in May 1922. Only in the note circulation was there a marked change. This was smaller, because the Federal Reserve banks had not allowed the imported gold turned over to them by the member banks to swell the gold reserves, but had put it into circulation in the form of gold certificates.

Since last year the picture has changed. Our gold reserves have decreased almost four hundred million

dollars, and the rediscounts of the member banks have risen almost exactly the same amount. The earning assets of the reserve banks exceed $1,400,000,000, and the reserve ratio has fallen to 70 per cent. The reason for these changes is found in our gold exports.

The member banks had turned the gold which they imported over to the Federal Reserve banks, as it flowed in between 1921 and 1927. Now certain foreign nations, notably France and the Argentine, are asking those banks to send them gold in return for loans and for money which those nations had previously been investing in our market. The member banks must get it from the Federal Reserve, which has it in custody. When they receive it, they must give something in return. If the Federal Reserve banks were buying back the government securities which they previously sold to the members, these could be exchanged for the gold. But the central banks are not increasing their holdings of securities, therefore the member banks are rediscounting commercial paper and borrowing on government bonds as collateral. They have borrowed only the amount needed to get back a small part of the gold which they originally paid over to the reserve banks.

Is this inflation? Hardly. Nor is it even an approach to that dread

state.

During these last nine months we have exported some of the 'worthless gold' which we had in our possession; and we have received from foreigners in return for it bills of exchange and securities which bear interest where the gold earned nothing. Inflation may come as a result of expanding business, increased note circulation, and the loss of gold reserves through exports. But these movements would have to be so great that their consummation is highly improbable in the near future.

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ITHIN the shadow of historic Jamestown new history is being made in Virginia. Here industry is colonizing the "Old Dominion" in unmistakable earnestness.

the Within a few years Richmond and Hopewell have attracted more than a hundred million dollars for rayon, tobacco and nitrogen plants. Hampton Roads, the greatest potential port existing, has assumed the world's leadership in coal export.

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But these tell only some of Virginia's story. She has an abundance of resources which are attracting wealth at a fast rate. Here are unsurpassed water and harbor facilities; proximity to fuel which is more economical than hydro power; nearly a million potential horsepower.in streams; famous farms of Shenandoah, Piedmont and Eastern

"We bank on

Shore; resorts, highways, natural beauties and historical interests which attract millions of tourists. Virginia is within five hundred miles of fifty million people and now has 23 industrial cities.

Virginia is typical now of the steady and tremendous commercial development taking place in the South. Southern investments... in industry or in well chosen securities... are beyond question farsighted, sound and promising. Every American investor should today include Southern securities among his holdings.

A Southern investment institution of years experience and serving investors the nation over, Caldwell & Company offer their intimate knowledge of Southern conditions and opportunities to all interested in sound Southern securities. Write for our current suggestions.

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Assured Marketability

ALLYNA

UMRING

COMPANY

We invite you to send
for this

"Marketability”
folder.

Ask for AA-285

In addition to underwriting and distributing
sound bonds for investment, we lay stress on the
marketability of the bonds we sell.

For this reason we have just prepared a folder
which explains what marketability really is; why
bond trading is largely done outside of the
Exchanges, and especially, why this organization,
with its own Trading Departments linking the
principal financial centers, can render prompt
service on quotations, purchases or sales on listed
or unlisted bonds and stocks.

A.C.ALLYN AND COMPANY

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Digging deep for facts

BEFORE a new issue of bonds is under

written and recommended by The National City Company a corps of accountants, engineers, economists, bankers and lawyers have dug deep into the facts underlying it.

All bonds appearing on our offering lists have withstood the acid test of investigation.

The National City Company

National City Bank Building, New York Offices in more than 50 leading cities throughout the world BONDS SHORT TERM NOTES ACCEPTANCES

Empire Bonds

When Safety MUST Come First

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THE

Investors' Library

HE search for information on the part individual investors is one of the encouragi signs of the times.

The Atlantic Monthly, in connection with its Financial Adv tising Department, wishes to encourage this by the publicat of the following list of booklets, which, it is believed, sho prove useful to those readers who are concerned over the pr lems of the investment of their surplus funds.

It is recommended that readers write directly to the inve ment houses, making request for such booklets as seem m likely to be useful, or for such information as the booklets m suggest. Our banker friends will be glad to be of service Atlantic Monthly readers.

"Successful Investing.” An interesting booklet for inve ors. Offered by William R. Compton Company, 7th and Loc Streets, St. Louis, Missouri.

"What Constitutes Marketability." A booklet givi much interesting information about this subject. Offered A. C. Allyn & Company, 67 West Monroe Street, Chicago, "Investors List." A monthly list of various securities, wi comments, useful to investors. Offered by Paine, Webber Company, 82 Devonshire Street, Boston, Massachusetts. "Water Service the Aristocrat of Utilities," is an i teresting booklet describing water bonds as a sound form investment offered by P. W. Chapman & Company, Inc., 1 West Monroe Street, Chicago, or 42 Cedar Street, New Yo City.

"Securities Backed by Modern Road Building.” T largest road-building organization in the United States, Warre Brothers Company, of Cambridge, Mass., offers an illustrate booklet giving interesting facts about the Company and i work. Apply to Paine, Webber & Co., 82 Devonshire Stree Boston, Massachusetts.

"Insuring Your Intentions." A booklet giving muc interesting information about the life insurance trust servic and its possibilities is offered by the Guardian Trust Compan (Allan B. Cook, Vice-President), Cleveland, Ohio.

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