Severe Flutter

British reporters buttonholed as many important men as they could find last week and asked their opinion of the financial crisis. The answers were not over-encouraging:

Winston Churchill, last Conservative Chancellor of the Exchequer: "Why should there be a doubt in England's financial stability? Thousands of ships reach British ports yearly. . . ."

Neville Chamberlain, Conservative leader: "I do not believe that the prosperity of this country has gone forever. It will return only through our own efforts and on how much we can induce other parts of the Empire to join us in close combination trading."

Viscount Grey of Fallodon, Liberal, ornithologist, dry fly fisherman: "The Government must not be led to suppose that because the Liberals support its foreign policy, therefore they can rely on the Liberals in the last resort to keep it in office at all costs. . . . The danger of the financial position of the country is so real and great that the Liberal party should oppose increases in public expenditure and vote for a policy of economy even if this involves defeat of the Government."

Sir John Simon (who resigned from the Liberal Party last month): "The report of the Economy Committee declares that to produce a properly balanced budget in 1932 a gap of -L-120,000,000 ($583,200,000) will have to be filled either by fresh taxation or economy.

"Either alternative will be unpleasant. Indeed it is obvious that the limits of direct taxation have been reached and the gap is not going to be filled merely by reiterating our fiscal convictions. I prefer to see the gap bridged by effective economies, but I confess the gravest doubts whether the MacDonald Government is capable of effecting economies on the scale needed."

Sir Hilton Young, director of the Southern Railway and of the English Electric Co.: "The possible failure to balance ensuing budgets is probably one of the causes of the present crisis, but there is still a deeper one--the failure of the country to live within its means. We are living on our capital. That is proved by the figures of our foreign investments, which have dwindled away to the disappearance point. . . . There is no remedy in a manipulation of our banking system, our system of currency or our system of credits. . . . [They] must not be blamed for the present crisis. . . . The confidence of investors has been shattered by the spendthrift policy of our Government."

Sir Charles Higham (Britain's Bruce Barton): "Perhaps I am too optimistic about Britain, but I don't despair. France and the United States have most of the gold in the world divided between them. What we have left is our character and our credit. Now our credit is imperiled.

"Ten years ago Sir Eric Geddes tried to save the country's credit by ruthlessly suggesting economies. Had only 10% of his recommendations been carried out we would not now be in this predicament."

Herbert George Wells, novelist, cosmic thinker: "I have arranged with the British Broadcasting Company for a series of talks [by eminent economists & sociologists] in September on the subject, 'What I would do with the World.' "

London certainly gave reason for the gloom of most of these gentlemen. The proud Bank of England has been forced to ask for credits to halt the drain of her gold reserves to France.* By what was realized last week to be the most important financial operation of the year, the Federal Reserve Bank of New York collaborated with the Bank of France and gave a credit of -L-50,000,000 ($243,000.000). Never before has the Bank of England sought such a large credit. In 1925, when the Federal Reserve of New York offered $200,000,000 credit to the Bank of England it was never used.

Last week just after this historic credit was made available, sterling exchange executed what British bankers called "a severe flutter." It dropped over 2-c- on dollar exchange, to $4.84. Sterling recovered in a few hours but international bankers were scared. London telephone calls were put through immediately from half a dozen Wall Street offices. There was no explanation for the flutter.

Was the $243.000,000 credit drawn on last week? Wall Street gossip was certain that it had been. London bankers would not be quoted but did everything possible to suggest that it had not yet been touched. Sterling fluttered no more last week. The drain on British gold subsided to a trickle, but it did not stop. This time it was The Netherlands that was making withdrawals. The Dutch drain was partly covered by a $5,000.000 shipment of gold from, of all places, indigent Australia.

Norman, British bankers, British editors talked wisely about economy and the untouched solidity of the Bank of England. Privately they were looking for someone to blame for their troubles. They found it in the person of trilby-hatted, grey-bearded Montagu Collet Norman, Governor of the Bank.

Foreign correspondents were unanimous in declaring that Montagu Norman is probably the ablest banker in Britain today, at the same time all admit that his sympathies and instincts are far more German than French. For several years he has foreseen the slipping of Europe's financial mastery from Great Britain to France and loathed the idea. Rumors were started in London last week that the Bank of France was demanding his resignation. He has made many enemies in Lombard Street by practically dictating Great Britain's financial policies for the past eleven years. British bankers were suggesting last week that if Mr. Norman had been more tactful in his dealings with France, many of Great Britain's troubles could have been avoided. They blamed the mysterious flutter of the pound on failure to cooperate with Paris.

Montagu Norman's real crime is that like Germany's ablest banker, Hjalmar Schacht, he has consistently said what he thought. He does not believe that "prosperity is just around the corner" and he says so. He thinks that Reparations are one of the basic causes of the Depression and he says that too. There was no overt move to remove him last week, but the Manchester Guardian started the campaign with the following delicate knife-in-the-back:

"The ability of Mr. Montagu Norman to remain in active control of the Bank of England is being discussed somewhat anxiously. The governor has been reported as being very seriously exhausted, especially since the last session of the Bank for International Settlements at Basle, where he was prevented from taking much part in the discussions, due to fatigue."

*France, which undoubtedly took most of the gold from Great Britain in recent weeks, has received all the blame in the world Press. Unnoticed were the Dutch bankers who have been hauling out their gold, too, as fast as possible.

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