Money Stock Market Blues

THE TICKER TAPE on the Big Board is marching for peace in spite of itself. The paper worth on the industrial side of the infamous complex has decreased markedly over the course of Nixon's war, despite public assurances from Nixon's economic experts that the economy will recover soon.

One could explain away this bear market as response to anti-inflationary measures, but the stock exchange in the past has shown itself more an index of national feelings of optimism or depression than of value. Since the invasion of Cambodia market sages claim that the key to understanding the market is the war. And no one on Wall Street seems to believe the Administration on that subject any more-on May 12 a "Melvin Laird rally" of stock prices, spurred by his assurance that all ground forces would be out of Asia by June, 1971 lasted only a few hours. The Dow Jones Industrials, the most widely published index of market prices, closed 5.48 lower than it had opened that morning.

The businessman's President has made several attempts to coax stock prices upward and offer an illusion of prosperity. On April 28, after the Dow closed at 724.33, the lowest since the day John Kennedy was killed. Nixon spoke of his absolute faith in the economy and said that he would, himself, be buying stocks now if he had money to spare. Presumably investors were to believe in Nixon and buy stocks, making the market rise . . . By May 5 the Dow Jones Industrials had fallen to 709.81. And the Dow closed Friday at 702.22.

After the market closed for the day on May 5 the Federal Reserve reduced margin requirement for buying stock from 80 per cent to 65 per cent. Since investors now need less cash (they borrow the 35 per cent from the broker) more stock can be bought with less money, and the market should have gone up.

Decreasing the margin on stock purchases was unsound economic policy. If stock purchased on margin goes down and the investor can't repay his broker, the broker sells the stock at the lower price to get what is owed him, plus interest. This selling off of margined stock can further depress an already bearish market and has done so for a matter of hours several times during May.

More important, buying stock on margin diverts lend-able money to the market, away from mortgages and other uses.

THERE isn't much money around in the credit markets at present. Bond prices have been low and interest rates high for months. Buying money is so expensive that some states and municipalities are holding back on floating bonds for public improvements. Interest rates for housing are prohibitively high-construction has virtually ceased.

Even the Federal government is having trouble financing and refinancing the accelerating national debt. Why? the Treasury sold a 3.5 billion dollar bond issue on May 5, the entire credit system almost collapsed. The cause went beyond a shortage of money caused by the Federal Reserve Board's anti-inflationary moves in April. Because of Cambodia, investors didn't want to touch the issue. The Federal Reserve had to buy much of it, thereby pumping money into the economy and accelerating inflation.

Meanwhile, the Democrats have a bill before the House Banking Committee to provide 4 billion dollars worth of mortgages to families who earn between $8,000 and $12,000 a year. The money would come from unused reserves of foundations and pension funds. The Nixon Administration, the Federal Reserve, and the House Republicans will try to defeat it. Reserve Board Chairman Arthur R. Burns explained that such a move "would release serious inflationary pressures." So the Nixon Administration will submit a plan which would filter 250 million dollars worth of subsidies through savings and loan associations. There will be no limit on interest or family income in the Nixon plan.

It is doubtful that the Nixon Administration will ever realize that a sound economy is not one which is cleverly primed and pumped and manipulated-it is one that simply produces what is needed and distributes that to those who need it. But maybe if the bottom falls out of the stock market and the bond market collapses-maybe then Americans will finally elect men who want to produce more butter and no guns.