European War

Fourth. The European war has suddenly stimulated the tendencies which were previously evident. It has temporarily cut off a considerable amount of European trade in South America, thus leaving an opening for even more rapid development of our trade than would otherwise have taken place. It has deprived South America for a period of several years of the steady inflow of European capital. It has enormously increased the exports and decreased the imports of this country, thus placing suddenly at our disposal greatly enlarged financial power, possibly as much as $1,000,000,000 per annum above normal. Its ultimate effect, we may safely assume, must be to increase considerably rates of interest the world over, thus stimulating the tendency toward an enlarged outflow of capital from the United States into neighbouring countries.

By reason of the war the same kind of a situation that would otherwise have developed slowly in a period of years now confronts us suddenly when we are as yet in a state of financial unpreparedness. The new machinery provided by the federal reserve act is not yet fully utilised or adjusted in its final form. It will require careful study, combined with prompt action, to utilise the financial opportunities now before us with greatest advantage to all concerned.