Dear Money

The Government, like any other business concern, bows to the money market. But the Government, more than any other moneyed concern -- especially since the Federal Reserve System began affecting the stock market -- helps make the money market. Hence the interest of economists and the perturbation of speculators when Secretary Mellon last week made the Government's usual June bond offering to carry the highest interest rates since 1924. The offering was $400,000,000 worth of certificates at 4% for six months, 3 7/8% for nine months.

Three months ago, in March, the Government offered only 3 1/4% and was oversubscribed. Since 1924, the rate has been as low as 2 3/4 %.

Money sharps were not greatly surprised. Money rates have been climbing steadily all spring. Call money now brings

But what might have embarrassed Mr.

Mellon was an attack in The United States Banker by Senator Carter Glass, who helped install the Federal Reserve System, upon the recent practice of that System, which Secretary Mellon is popularly (but inaccurately) supposed to manipulate. Senator Glass observed that Federal Reserve loans for speculative purposes had risen from some $800,000,000 in 1921 to some $5,000,000,000 in 1928. This was apparently so, though really the Federal Reserve Banks did not loan that sum directly to speculators, nor all of it. Member banks did the loaning. Much of the money belonged to their depositors; the rest they secured from their Federal Reserve District Banks by re-discounting speculative notes. Astute speculators predict calmly that "brokers' loans" will hit ten billions before so very long.

But Senator Glass's point was that such use of Federal Reserve funds is not only dangerous but outside the law's intention. The danger is patent: when more and more money is speculated, tension increases, crashes are thought to impend--and there is nothing that is, but thinking helps it to be so. The impropriety is less patent: the Federal Reserve law does not prohibit rediscounting of Federal securities for speculative purposes.

But the effect was most patent of all: with some $5,000,000,000 out bolstering stock market prices and with tension increasing, and with the Federal Reserve rate jacked up to 4 1/2% all over the country to try and decelerate this movement--the money market of the U. S. was momentarily "high" and Secretary Mellon was obliged to offer, tax-exemption and all, the highest rate*he has paid in four years on short-term borrowings. Money men noted, also, that he made no specific reference to the terms that will be offered for financing the remaining $1,328,881,750 Third Liberty Loan Bonds which mature on Sept. 15.

The Treasury's offering was snapped up by bankers almost two-and-one-half times over, $992,000,000 being bid for the $400,000,000 of certificates.

*The Government of Australia was obliged to offer 5 1/3%, last week, in putting on the market a $100,000,000 war debt conversion loan.