Evening star. [volume] (Washington, D.C.) 1854-1972, 1879-12-30
Government Finances.

LETTER FROM SECRETARY SHERMAN.
Senator Morrill, has received, and makes pub
lie, the following important letter from Secre-
tary Sherman, concerning refunding:
TREASURY DEPARTMENT, Dec. q, 1879.
Hon. Justin S. Morrill, Committee on Fi1lnca,
u. s. Senate:
sir:-In response to your verbal inquiries 1
have the honor to submit the following observa-
tions respecting the refunding OF the national
debt:
In addition to the 900 six per cent.
bonds absolutely payable Dec. 81 1880, S945,OO0
payably July 1, 1881, the following bonds of the
United States will become redeemable within
the next year and a-half, vZ.:-May !, 1881,
per cent. sos 40 $50; June 30, 1881, per cent,
S264, ,S21 ,35O-making total Of Sl12 161, 700, the
annual interest charge on which :is $41 $751;,
29S. so.
About one-half of thes are coupon bonds hav-
ing coupons running only to the dates OF re-
redeemability, and, II they are not refunded or
paid off, the holders will have to be supplied
with additional coupon sheets at the expense of
the government, and at a cost probably nearly
as great as would pay for an original issue of a
loan.
off in 1881, and therefore felt it to be my duty
to recommend in my annual report that author
ity be granted to refund them into four per cent.
bonds, thus effecting saving in the annual in
tereSt charge OF about ten and half million.
The present time believe to be most advan-
tageous for such refunding, probably much
more favorable for the operation than any
future time, and we have at hand in the four
per cent consol. a bond already well known
and extremely popular.
The successful funding Of so large portion
OF the public debt into these bonds during the
past year was mainly due to the exceptionally
favorable state OF our foreign and home trade
and the resumption of specie payments and it
is my firm belief that our wisest course is to
fund the remainder of the bonds bearing high
rate OF interest while this state Of affairs con-
tinueS.
tatives, on the Sd instant, by Hon. Fernando
Wood, chairman OF the committee of ways and
means, and which has been sent to me, pro-
vides as follows: '.That so much OF the authority
conferred upon the Secretary Of the Treasury
by the acts OF July H. 1870, and January 20, 1871
to refund the public debt to the extent of fifteen
hundred million dollars as has not been ex-
hausted and executed. be, and the same is here
by modified so as to limit the rate OF interest
upon the bonds yet to be issued, as authorized
by these acts, to rate OF interest not to exceed
three and one-half per cent. per annum."
This bill if enacted into law would perhaps,
be construed as prohibiting the sale of bonds for
resumption purposes at greater rate of inter-
est than three and a,half =. per cent, although
Aside however, from its possible bearing upon
the ability of the department to maintain re-
sumption, believe that its passage would be
fatal to refunding, although should, of course,
be happy to refund the debt into 81 per cents.
if it were practicable to do so.
That So per cent. bond would not non sell
to expect that such bond will be more favora-
bly, looked upon as an investment in 1881 than
1t would be now. On the contrary with the re-
yival OF industry and the great activity in man
seen in all parts Of the country and the con-
Stantly increasing demand for money arising
therefrom, it seems to me to be not at all GER
tain that we shall then be able to borrow freely
at even per cent. per annum, and OF the cor
rectnesS OF these views received the most pos
sitiye assurances during my recent visit to New
York.
Our4 per cent. consuls, now having twenty
eight years to run, were worth during the first
half Of this month 1021 net, at which price they
yield to the investor TO carry to maturity 1855
per cent. per annum. A thirty years 81 per
cent. bond tOyield the same income would have
to be purchased at 1910.
Again, per cent bond to yield but 81 per
cent. per annum would have to be purchased at
10S.ss. and therefore 81 per cent. bond cannot
sell for that until the 4per cent. bonds are worth
1Osss. With a small supply in the market, the
permanent investments, the per cent bonds
are now selling for nearly the best price ever
obtained for them; but it is not probable that
this price can & oe fully maneained a against an
would remind you that, during the late refund
ing operations, sales of these bonds had to be
suspended more than once owing to derange-
ments In the money market and the unfavora-
BILE state OF the exchanges, these causing the
bonds to fall below par, at one time to IS per
cent. Fortunately these arrangements were
the department was able to resume sales
AS before stated, think the present an ey-
ceptionally favorable time for the refunding,
and am satisfied that the per cent. and per
cent. bonds so soon to become redeemable can
not be so safely and so prottably provided for
In any other manner.
The very large amount to be refunded prior to
July 2, 1ss1-nearly eight hundred millfons-is
considerably in excess OF the amount REFUNDED
in any one year since refunding began, and l
respectfully submit that the time now available
is none too great for the purpose.
The passage Of the bill introduced by your
self in the Senate and by General Garfield In the
House Of Representatives will, believe, enable
the department to refund the entire amount
prior to the maturity of the bonds but II it
should not result in speedily refunding the
whole Of them, that clause OF the bill which
renders applicable the provisions of the act of
July /, 1910, etc., win enable the department to
'.call" such per cent. and 6 per cent. bonds
after they shall have matured, and to redeem
them with the proceeds of the sale OF the per
cent. bonds SO authorized, and such proceeds
would include, of course, whatever premium
the bonds may then sell for.
While it Is not thought safe to assume that
upon resuming funding operations with the
prospect of an emission OF per cents about
equal In amount to the present fssue), the bonds
will remain at price much, Ii any, above par,
it is thought that under the operation of the
proposed bill parties may be induced to surren-
der the bonds now held by them upon the pay
ment OF an amount not to exceed the difference
in interest between the bonds received and