Cash on the Barrelhead

The Federal Reserve Board last week fired another shot to bring down the highflying stock market. It raised margin requirements to 100%, virtually put all stock buying on a cash basis. Twice in the last year, the board has popped away. Last February it upped requirements to 50%, in July to 75%. The bull market went right on. No one expected this pop would stop it. Reason: most stock buying has been on a cash basis for some time.

In the two days of grace before the new rules became effective, the market had its busiest days in over five years. Trading was at the rate of 700,000 shares an hour, almost as much as had been traded in an entire day a year ago. Dow-Jones industrial averages rose to 205, fell off only when the steel strike became certain.

Federal Reserve Board Chairman Marriner Eccles realized as well as anyone else that the soaring market was the result, rather than the cause of inflation. Said he: speculation on credit was a minor factor.

"... The primary source of inflation ... is the vast accumulation of currency and bank deposits. . . . Too much of the cost of the war was financed through the creation of commercial bank credit and not enough was financed out of taxes and the savings of the public."

What must be done, said Eccles, is to balance the federal budget, stop selling Government bonds to commercial banks (which swells the supply of currency), and change the capital gains tax so that profits on speculation in stocks, real estate, etc. will be heavily taxed.

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