Reactions of the Wall Street slump

IT'S an ill wind that blows nobody any good. The fall of Bank rate on Thursday by another half per cent is an outward and visible sign that the dramatic and precipitous slump of the last three weeks in Wall Street has definitely relieved the pressure on the world's money markets which the New York situation has been exerting so continuously for the last two years. Very few could have dared to hope, when Bank rate was raised to 6½ per cent on September 26th, that it would be back again at 5½ per cent in less than two months. That advance, indeed, was a by no means negligible factor in turning into the opposite direction the tide of funds which had been flowing so strongly towards New York, and in causing the edifice of American speculation to totter. But that it would collapse so completely was hardly to be expected. In the event the financial strain has been lifted, and money rates have fallen to such an extent that for the last two weeks, Bank rate, which fell to 6 per cent on October 31st, has been ineffective, three months' bills having fallen this week to a bare 5 per cent. In the circumstances the Bank had no alternative but to lower its rate. Indeed, some people had thought that it should be even bolder and reduce the rate to 5 per cent.

This optimistic view, however, did not take sufficient account of the gold situation. Since the end of September the Bank has continued to lose gold to France, and has barely balanced these losses by receipts, its holding today being about the same as when the rate was raised. But there is a vast difference between a situation in which the Bank is fully holding its own and one in which it was losing heavily every week. There is no urgent need for the Bank to embark on a drastic policy for the purpose of rebuilding its reserves. It is clear that we are about to enter on a period of considerably cheaper money, and the rebuilding process can take place steadily when a new world level has been attained.