Depleted Money Market A Cause Of Depression

Again, if the Money Market is depleted from any cause - new Loans to Government, Foreign Loans, etc. - Government Stocks still remain depressed from the difficulty of finding customers at their low rate of interest, and from the temptation to the investor to rush into mere Stock Exchange speculation in consequence. It is true they are always in request as collateral for Bank advances, and as taking the place of cash itself at a sufficient discount; but as they enter at one door they quickly pass out by the other; and so in jog-trot times the purchases and sales of Government Stocks pretty well balance each other, and their market quotations still remain practically where they were.

Government Stocks As Trustee Investments

It is the same, too, with the large demand that always exists for Government Stocks as Trustee investments, as well as for their use as collateral to meet the lighter temporary exigencies of the Government itself; so that, in ordinary times, and for all temporary fluctuations of business credit, Government Stocks swing lazily backwards and forwards in a state of moving equilibrium, with even less demand when trade is brisk, credit good, and money plentiful, than when trade is depressed, credit shaky, and money scarce. The only permanent condition which can cause a steady rise in the value of Government Stocks is such an increase of the real productive wealth of a country as will give it both the increased power of paying its debts and the increased willingness to do so - a state of things which registers itself on the financial barometer by a fall in the rate of interest, and a lessened yield of income to investors.

Suddenness Of The Falls In Government Stocks

On the other hand, as a set-off against this necessarily slow rise of Government Stocks in the best of times, we have the sudden precipitation with which they plunge down in times of International trouble, Political crises, or Internal revolution; or in times of great and sudden withdrawals of money from the Money Market for loans to which the ordinary requirements of business continuity and development have not had time to adapt themselves.

Government Stocks Compared With Corporation Loans And Industrial Debentures

So that, summing up these various considerations as a whole, it would appear that in Government Stocks we have a species of security which, affected as it is so much more by Political events than other stocks, has a tendency always to run down on the slightest provocation, but to rise slowly and tentatively only on the most potent and real demonstrations of increased national wealth. From all of which it is evident that, however superior in ultimate security Government stocks may be over all other stocks in the same country, they are not practically as sound for investment purposes as the best Corporation Loans or Industrial Debentures, when regard is had at once to the lower yield of interest of Government Stocks, to their greater range of fluctuation, and to their greater tendency to fall on the least provocation rather than rise on the strongest inducement.

Little Possibility Of Consols Rising To Any Extent

Then there is the fact that while other loans have their range of fluctuation determined mainly by general Money Market influences, the speculations in them on the Stock Exchange, as well as by the prosperity of the Industries on which they rest, Government Stocks vary not only with all these influences, but with the state of the Political sky as well; and so their range of fluctuation is greater. And as they do not rise like other stocks in periods when Trade is booming, but only after long periods during which the permanent wealth of the country has steadily increased, their unnatural depressions are not only deeper but more abiding. And when we have added to this again the fact that the best of the other stocks have in Britain now been made Trustee Stocks, we can have but little hope that

English Consols, At Least, Will Rise Appreciably For A Long Time. Foreign Government Stocks

But there are other countries that have Government Stocks besides Great Britain, and before we can see the way in which a Geographical Distribution of Capital among these other nations can advantage the investor, we must ascertain what relation these Foreign Government Stocks bear to our own Consols and to each other, as well as to the other stocks of their respective countries.

Hierarchy Among Government Stocks Of Different Countries

To begin with, then, we may say that just as there is a hierarchy in the natural rank of the various stocks of the same country, so, too, is there a hierarchy among the Government Stocks of different countries, Great Britain standing at the head of the list, and being able to borrow at the present time at a 3 per cent interest; while the United States, France, and Germany have to pay somewhere nearer 4 per cent; Italy and Austria still more; Japan and Russia over 5 per cent, and so on; and to this we may add that in each of these countries all other bonds whatever take their cue and point of departure in the rate of interest they will be expected to pay, from the Government Stock of that particular country, having to pay more and more interest as they descend the scale; and, further, that each nation in the main considers that its own Government Securities are the best.