National Republican., 1888-03-14
TIE PURCHASE OF BONDS
IS THE ONLY lMMEDIATE RELIEF FOR
AN OvERCR0wDED TREASURY.
Secretary Fairchild Lectures tho sem
ate on what Be is Pleased to Term
Excessive and Unnecessary Taxa
tion"--The Probable Effects of the
filll

]
| Iy Mr.. Sherman. Said bill directs the StCro.
| tiry Of the TIT asury to inveat 50 pcr cont. of
! the iund held by the treasurer of the Uuited
/ states uLdcT existing statutes for the rnlemp.
| ton of he notes OF national banks whiCh ave
| reduced their circulation by the purchase In
/ upcn maj kCt of United 5 ntcs intcrest.bearing
! bonds. The bill is mandatory, and would re-
| quire the investment TO he made Immediately
! uTon It's passage.
The seer, tary is further directed 10 sell in
| the open market SO many of the SAID bonds as
| IN his judgment shal be necessary to redeem
| The bank notes as they are presented for re-.
| compton whenever the unintestcd por,i N Of
! said iunu falls lie oS 20 per rent. Of the whole.
The bill further declares that it's purpose s
| TO maintain IN the treasury for such rcdcmt-
| ton not less than 20 per cent aud not more
| thall W pei cent. OF the money deposited.
| 1he notes 0f hanks are scattered over the
! county and ordinarily IL Ia more convenient
iorthe public to send them all to one place
! lOr II demption than TO select those Issued by
| each bank and send them to II, hence existing
/ hw provides that their redemption NAV be
mace at the treasury in Washington as well as
al the bank which has issued the notes, and
each bank is required to keep for that purpose
! nt all times with the treasurer n sum cuual to
5ltr cent. of its outstanding circulation.
Inc treasurer redeems the notes as they are
/ pItsc ted and they are returned to tho banks
| which Issued them, the notes unfit for Circu,
hli1n ting replaced by new notes. when,
however, national bauk fals, voluntarily
steps business, or decides to reduce the aulouut
/ uihOtes which 1t will have outstanding then
| deposits with the treasurer ct Washington law.
| iul money equsl in amount TO the notes which
| VIII he retired in consequence Of It's action,
| brd thereafter the notes ia question are re.
g,,med az The treasury alone, and when re-
/ dttmed are destroyed and no other bduk notes
| are Issued In their place, therefore this de-
| lvsit IS always exactly equal to an amount of
, limo vii be destroyed and never be ressued
| in any form.
For example: A bank has 100000 of United
States per cent bonds On deposiG with the
treasurer TO secure 800 600 of no,es; il will also
have "a 700 of lawful money on deposit with
the treasurer 10 enable him TO redeem such of
It's notes as may be presented for that purpose
from day to day; but II the bank decides 10
give up its circulation 1t will then deposit
, with the Treasurer sS5,jo0 in lawful money,
making m allSgc ,OC0, sum equal TO the whole
of It's outstanding circulation.
AS The Eotes OF that BANK are presented they
WIZ be redeemed and destroy ed, and nothing
VIII be issued in their place.
such q transaction as this would effect
diminution or contraction OF the circulating
medium available for business Of sS5, 500, aud
u taReS place when the bank deposits that
sum Win the treasurer.
These bank deposits, IL mny be we'll to say,
are mingled with the general assests of the
treasury and are iii no way distinguished from
them except that on the books there is
credit TO that fund and debit agains. the
general nssests
is desired by the holder Of the notes to be re-
uetmt d. On page &C OF tho finance report for
me year 1881 will be found the mode Of pay
mtnt during that year.
A large amount OF . per cent. bonds was on
dtrost with the treasurer TO secure bank cir
CuGtion, end when those bonds were called
many banks preferred to reduce circulation
rsiher than substitute new bonds. In suGh
cases lie banks were credited in the redemp.
lltr account with SO much Of the money due
t'tnl on the bonds as was necessary TO redeem
HE outstanding notes which had been Sc.
cured by the called bonds, the balance being
Iaid 10 tho anks.
tLaG hah accumulated In this way aud not
/ through nL,ual deposits of lawful money by
me oa1k :. This methnd, however, had the
media OF all kinds available for the business
Of the country as the actual deposit Of lawful
money by the banks would have had.
have not the data before me to show from
the ex;eritnce of the department the proper.
tlon OF redemptiors ordinarily made in the
iiisl, second and third years from the date OF
| year. and gradually decreased until at the end
OF NE third year about 30 per cent. of the
The innd to which the provisions OF This bill
s9L9?9. 74l. 90. so per centum OF which is about
duty Of the Secretary Of the Treasury ut once
TO invest In United States interest bearing
bonds at such rates as he could buy them at
in the open market.
There would therefore be simultaneously a
large expansion OF the circulating medium and
forced purchase of a large amount OF bonds,
cond!tions which would conspire greatly TO
Within one year from the time of purchase a
large proportion and, within three years nearly
all of the bonds purchased must be sold in the
open market at such prices as they mig ht bring
for the purpose OF again getting into the treas
ury money TO redeem the notes as they are
presented, but now the conditions would be
exsctly the reverse OF what they were at the
time of purchase; there would be forced sale
OF oohos, and at the same time contraction
OF the circulation medium, conditions which
would coDspire TO lower the price of bonds
Under these circumstances II might happen
mat enough money, would not be realized
N IN ~ l.l -.
his trust to the people of the country, who
Pave Pave In their possession the s97,0l7,7il.2O OF
This would certainly be the case unless the
interest which might accrue upon the bonds
thou equal the loss caused by the decline
II the price which would result from The con-
II has been suggested that The price of bonds
might, II the bill became law be suddenly
forced down beyond the normal point by per.
sons who should collect ana present f,r re.
d,mption national bank notes In abnormal
Quantities this result would not beimpoi,ible,
pe,h9ps not Improbable, IL the opportunity
such trust ought not to be exposed 10 the
hazard OF bond speculation.
After mature consideration of the ab've
facts and statements 1t does not seem TO be
well thus forcibly and suddenly TO expaad the
circulating medium when expansion inevlta-
by must be followed in shore time and per-
The business OF the country has already
adapted itself 10 whatever dimipuiion OF cir
NuIutllS iupulum DH- DteU caused tnTDllgl the
surrender of circulation by national banks.
The alternate expansion and contraction re-
snl!ing from this bill, in my Judgment, pro-
What I have said thus far relaies to the
money already in the fund in question. Had
law similar to this been enacted several years
ago, and In aniicipatlon of the deposits TO be
made. the evil effect would have been less
than " enacted now and applied to so great
an accumulation Of deposits. 1t would not
have caused sudden expansion OF the
circulating medium and IL WDulI hnya
Ioned for short time the contraction |
which IN any event must follow the surrender
might be said of Il bill which should apply |
only to deposits for that fund hereafter 70 be |
made. sun the contraction would only be |
TO be better that the time when this contraC-
tion takes place should be determined by the |
voluntary Sc'iSp Of ,he banks is tue
BE ns aSse Ssssa'Yf eyes e., Si MGpd appleS Ss
only to future deposits. Banks will not sell
the treasury might be forced to sell them at a
loss under the prov sions of such bill. The
contraction Of the circulating medium would
sudden under such bill than under the law
as II now stands.
The last section of the bill authorizes ma.
tonal banks TO issue, circulating notes to the
par value Of the bonds deposited Instead of 90
per ceDtum as now.
on Feb. rs last, The amount Of bonds o, de-
pOsit with the tIeasuTer'tO secure circulation
was 8ls2, ,22l 200, and the circulation t1uS g.
cured was 8l03, 22l sos. The Increased cirouIa.
ton authorized by this bill wOuld probably not
exceed 10 per Gentum OF The bonds now on de.
posit or in all about $40 COO COO for there
would not be great profit in circulation at The
present price of bonds even II this additional
circulation were authorized, and any attempt
by the banks TO purchase many bonds would
soon advance their price beyond the point
where circulation could be pTOltably Issued
upon them; tnis certainly would be the case II
The forced governmental purchase Teouired by
the earlier provisions oi this bill was simultn.
neous with bank purchases; however, the 10
per cenlum increase wOuld be iO that extent
public except us II might compel the gGyern.
ment 10 pay more for the bonds. the plrchase /
OF which is directed by this hill than ntbnr I