The Valley Virginian. [volume] (Staunton, Va.) 1865-1895, 1881-03-03
Almost a Panic.

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Almost a Panic.
The incompetency of the Democratic |
party to deal with national affairs has been |
as often demonstrated, that it seems strange |
that any portion of the non-partizan bust |
ness men could ever have placed the least |
confidence in its control, and stranger still |
that there should be those who by their |
votes would aid in placing that party in
power. Its history is long record of stu
pd blunders-blunders for which the bust
ness of the country, and consequently eve
ry business man, must suffer, and which
not unfrequently eliminate in disaster
The last evidence of the stupidity of the
majority in Congress is furnished by the
passage of the refunding bill, measure,
the effects of which were so seriously felt
in the business centres, that but for the sa-
gacity of the Republican Secretary OF the
Treasury, monetary panic would probably
have resulted, and the entire business OF the
country been thrown into confusion. and
public and private enterprises OF impor-
lance been embarrassed if not paralyzed.
During the present year about six hum
dred and seventy millions OF bonds OF the
government become payable at the option
of the government. These bonds are of the
old issue, bearing five and six per cent. in
terest, and large proportion OF them are
held by the national banks to secure circu-
lation. To meet this obligation it was pro-
posed to issue bonds bearing a less rate of
interest, from the proceeds of which the
old bonds were to be retired and ma.
terial reduction effected in the interest
charge. Secretary Sherman and the lead
ing financiers agreed that a 81 per cent.
bond was the lowest that could be put on
the market at par, and that the attempt to
reduce the rate of interest below that figure
would result in seriously affecting the cred
it of the government. To undertake to
float loan at less rate would either re-
duce the bonds below par, or if their sale
at par was one of the conditions OF their
Issuance, the result would be that there
would be no buyers, and the Treasury
would not have funds sufficient to retire
the maturing five and six per cents.
But in the face of the protests and argu-
ments of the best opinion of the country
the Democrats in both branches of Congress
succeeded in passing the refunding Bill, fix
ing the rate at three per cent, and requir-
ing the bonds to realize their face value. All
experience and observation combined to
demonstrate that three per cent. bond
could not be sold at par, and therefore in
accordance with the terms of the bill could
not be sold at all. One of the first fruits
of the measure was that the national banks
became alarmed at the prospect of having
to accept in lieu of their five and six per
cent. bonds, new bonds bearing interest so
low as to probably make them Improbable
to the banks and unsaleable in the mar
ket. Over one hundred of them have de-
posted currency for the redemption of
their notes to an amount exceeding $l7,-
900, 900. Other banks refused loans. Doubt
full whether it would pay them to lock up
their capital in three per cents, in order
to obtain taxed circulation, they were dis
posed to hoard their surplus funds, in order
to be in a position to give up their circula-
ton if it should prove advisable. AS con-
sequence of this contraction of the currency
and The unwillingness of the banks to loan,
there was great stringency in the money
market, and on Friday last in New York
and Philadelphia it almost amounted to
panic. Men whose obligations were out
were unable to obtain money to meet them,
and some of the most prominent and staple
firms were forced to pay one and one and
half per cent. per day in addition to the
legal rate Of six per cent per annum.-
Stocks of all kinds tumbled, the very best
securities falling five and ten per cent,
doubtless have ensued had not Secretary
Sherman telegraphed the Sub-Treasurer at
New York, ordering the purchase OF $l0.-
000,0 900 of five and six per cent, bonds for
the sinking fund at par and accrued inter-
est. In this way disaster was warded off.
The excitement in the money centres on
Friday was intense, and in some respects
the day was not entirely different from the
famous Black Friday, when SO many men
were ruined and the business of the coun-
try received terrible shock. The danger
is not over yet. Should the new three per
cent. bonds be placed upon the market and
find no takers, it is not probable that the
banks will consent to receive them. If not,
a contraction of the currency will necessa-
rily result, in comparison with which the
withdrawal of seventeen millions will be
mere bagatelle. The banks now hold about
1925, OOO, 900 of the five and six per cent.
bonds. If they conclude to give up their
circulation rather than exchange these
bonds for three per cents, it will result in
a withdrawal of currency from the chan
nels of trade to an amount exceeding
$500, 1000, 900. Such a sudden contraction
would paralyze business and bring about
a condition of affairs that would be most
disastrously felt in enterprises of all descrip-
tions.
There has been a great deal of harsh crit
icisms against the banks for their action in
the premises. 1t should be remembered
that banking institutions are organized for
the purpose of making money, and that
they pay for the privilege of conducting
their business. The officers are entrusted
with the money Of the stockholders and
are held accountable for its judicious in
vestment. This is perfectly legitimate and
proper. If by the enactment OF adverse
legislation. the circulation of a bank be-
comes improbable, it should certainly have
the privilege of withdrawing. This is what
the banks have proposed to do, and it is
what every business man would do.
Since the above was written, various
amendments have been proposed to the Bee
funding Bill, which may lessen its bad eff
fects but as yet the bill has not been sent
to the President,