Bank deposits in this period are at the maximum. Loans are very low in proportion to deposits, altho they increase as trade makes increasing requirements. Reserves which have been high in proportion to loans decline somewhat, tho still showing a thoroly sound condition. Interest rates as represented by commer cial paper, remain low or harden somewhat. In gen eral, banking conditions are sound and resources very large.
We find the security market with bonds high and advancing to their maximum for the cycle, under the influence of bankers' demand for them to employ their surplus funds. Stocks which have been low make a rapid advance to normal or even above it. This is a direct result of the influence of an anticipa tion of improved earnings in the immediate future.
9. Period of period of re covery and improvement ripens into one of more and more intense business activity. Workmen are now fully employed and factories are operating at maxi mum capacity. The general improvement in com fort, and the knowledge that some persons are grow ing rich, excite the ambitious to increased efforts. Opportunity to make ventures in new enterprises is no longer looked upon critically, but it is sought after eagerly. Such periods were 1902 and the first half of 1903, 1906 and the first half of 1907, the second half of 1909 and the early months of 1910, the winter of and the year 1916.
In this stage new buildings have already been pro vided for industrial purposes, and the totals of new building permits fall below the average. Pig-iron production is large, reaching now its maximum for the cycle, and starting a decline. Pig-iron prices run up to a high point and then hold firm or make slight recessions. The unfilled orders of the United States Steel Corporation are large and attain a maxi mum, while the earnings of that corporation, which are high, begin to fall off slightly. Commodity prices reach a high level. Railroad traffic is usually heavy. Clearings, which have been high, turn downward. Failures are few. In general, business is sustained much above normal, making a maximum for the cycle.
The statistics of banking show that this intense ac tivity has put a great strain on banking resources. Loans have increased rapidly and surpassed deposits. Resources steadily decline in proportion to loans, pass ing for New York City banks, below 25 per cent for brief periods. Correspondingly, interest rates are raised. In general, bank resources, which have been below normal, decline still further and reach danger ous levels.
The security market reveals bonds making a rapid decline as the banks sell their holdings and call the loans secured by them, in an endeavor to recoup their resources. Stocks, in spite of the immense business being done, reach a top price and begin a decline which may be slow or rapid, in anticipation of future trouble.
10. Period of business world is now confronted with the problem of bringing indus trial operations and commodity and security prices into conformity with average producing and consum ing power. The rapid expansion made possible by a previous period of conservatism and economy must now be checked. The checking process is almost cer tain to be, in some aspect or particular, a harsh and destructive one. Accordingly, as it proceeds, there is produced an anxiety and nervousness which leads to widespread liquidation and a consequent sacrifice of values. Such a period was the latter half of 1903, the last half of 1907, the latter three-quarters of 1910, and the long reaction which covered 1913 and 1914.
In such times building expenditures promptly drop to the lowest levels. Pig iron production makes a striking drop, while iron prices often reach a new minimum. The unfilled orders of the United States Steel Corporation fall almost to zero, while the earn ings of the corporation make a similar drop. Com ' modity prices fall from high or average to low. Rail road traffic still continues good as the business already contracted for is cleaned up. Clearings decline from very high figures to average or low records. Fail ures, at first small, rapidly increase. In general, business makes either a slow or a rapid readjustment to low levels.
The banking world now passes thru a period of great strain in the effort to save fixed assets and in tangible values from being destroyed by forced liqui dation in a distracted market. Deposits are rela tively low, but they increase as liquidation progresses. Loans rise to a great climax, passing much above parity with deposits, and so indicating the full use of banking capital. Reserves fluctuate with the course of liquidation, frequently dropping, for New York City banks, below 25 per cent (under the old reserve law), and even reaching the neighborhood of 20 per cent in the worst periods. Interest rates mount to the maximum for the cycle. In general, banking re sources are called upon to the utmost, but the strain relaxes rapidly toward the end of the period.