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"The United States government has at last returned to a normal basis of finance where its expenditures approximately equal its income," said Governor Benjamin Strong of the New York Federal Reserve System in a recent interview as to financial conditions in this country. Governor Strong is one of the best-known of America's financiers, and, although he cannot predict definitely for the coming year because of his official position, he is inclined to believe that 1920 will prove a year of prosperity for America.
"For the past few years," continued Governor Strong, "finance has not been subject to the normal influences of peace, and this state of affairs will continue as long as governments are forced into paying out more than their revenues bring in. As a war measure the governments of the world have been forced to assume credit wherever they could find it. Although the United States has in the main recovered her stability, the nations of Europe still remain under the war cloud.
Private Industry Freed.
"The most important feature in the financial situation today is that the Government of this country no longer over-shadows the interest and influences of private finance. The government is no longer the great and outstanding borrower that it was forced to be during the period of the war. One of the chief consequences of this is that the production of goods for export is even greater than before.
"Despite the immense increase in our international trade, the foreign exchange rates, unless re-established by banking arrangements, seem likely to impair our foreign trade. The rate of exchange is, of course, greatly in our favor, and the demand for dollars has at no time in our history been so great. Even if the foreign exchange system were to collapse, the effect on our domestice trade probably would not be vital for a good many months, owing to the intensified demand of American consumers.
"Foreign exchange should be considered not as a barometer, but as resembling the thermostat more closely. As the thermostat regulates the temperature of a room, so do the changes in foreign exchange regulate the international trade. The effect necessarily reacts on the cause and will without doubt control it later. We will see prices come down when the exchange rates are more nearly even and when the imports to this country more nearly equal our present tremendous exports.
Decline in Foreign Exchange Rates.
"The country views with misgivings the continued decline in the foreign exchange rates. They know that the existing premium on the American dollar in most of the countries of Europe cannot be allowed to persist without a serious blow to American trade in that part of the world. I believe that the financial leaders of the country would welcome a concerted effort on the part of the government and of the bankers to restore the equality of exchange rates, even if that involved a further extension of credit to Europe.
"One of the greatest difficulties at present is the fact that the world needs such a vast capital to carry on the work of reconstruction. The ravages of the war must be repaired, and it will cost a sum almost beyond comprehension to bring order from the chaos that now exists. However, I firmly believe that the United States will easily weather any storms that may appear and that the coming year will prove the stability of the financial system that has been erected in this country.
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