The midland journal. (Rising Sun, Md.) 1885-1947, 1900-12-14
REFUNDING THE DEBT.
The Government Loses Over $780,
100000 In the Refunding Under
the Recent Act to State
ment in the Report of
Secretary Gage
Incorrect.
Incorrect.


Democratic Association, at its last weekly
meeting:
Funding and re-funding, being gener-
ally used in reference to government
debts of large amounts, are often looked
upon as part of the mysteries of finance,
too deep for the comprehension of ordi-
nary minds, but their meaning is simple
Funding is putting off the payday of a
debt, and refunding is postponing the
time of payment for the second or any
subsequent time. When man pays one
note by giving another payable at later
day, which is called renewing his note, he
does the same thing the government does
when it refunds its debt. This difference,
however, attends the two transactions; in
the case fthe individual it is usually the
debtor, but in the case of the government
it is the creditor, who desires to postpone
the time of payment. Debts of strong
government, especially when they can be
used as basis for the issuance of bank
notes, are SO much desired, as invest
ments, that the holders of such debts,
when they are about to become due, are
always willing if the government, instead
of paying the debts will give new bonds
payable at later date, to accept lower
rate of interest on the new bonds. This
reduction i'll the amount of interest to be
paid per year is then held up as saving
and the statement is made that the gov
ernment is making money by the
transaction.
The advocates of funding say that it
costs the government so many millions
less each year to pay two per cent interest
on its debt than it would to pay four or
five per cent, and as no one can deny this
they consider the argument closed; but
they omit to state that it will cost the
government more to pay two per cent for
thirty years, than it would to pay FIVE per
cent for five years. They say, that by
refunding four per cent bonds into two
per cent bonds the government saves half
the annual interest, but they omit TO say
that, by paying the debt, the government
would save the whole of the annual
interest.
The truth is that refunding operations
have always resulted in loss to the gov
eminent and gain to its creditors. The
refunding now going on is no exception.
Secretary Gage, in his aunnal report, at
tempts to show that the government has
gained over eight millions by the Iefund-
ing, under the recent financial act, to date
He shows that bonds amounting to $751;
o83,45o which would have been Cue in a
few years, some of them bearing three,
some four, and some five per cent, have
been exchanged for new bonds to the
same amount bearing two per cent and
payable in 1880; that the interest on the
old bonds, if they had run to maturity,
would have amounted to $43,75o, o58; that
in order to get the holders of the bonds to
give them up before they became due,
the government has paid them premiums
amounting to $34,e22, oo6, and that the
difference between those premiums now
paid, and the interest which would have
been paid from now until the maturity OF
the bonds, amounting to $S,82S,o52, is
that much saved by the government.
This would be true, for all interest
which the government is obligated to pay
is loss, if the bonds had been paid. But
they have not been paid. The govern
ment still owes the $50 millions; and has
given new bonds for that amount with
interest at two per cent for thirty years.
This interest on the new bonds, which
the government is now bound to pay
amounts to $2II, ,o7o; SO that instead
OF the government saving over eight mil
lions of interest, it has lost over two
hundred milliens
The real transaction is that the govern
ment traded new bonds which will bear
III millions of interest, for old bonds
which would have borne a. millions OF
interest, and has given the bondholders
| IS millions Ito BOOT.
The bondholder apparently will get less
interest per year on the new bonds, than
he would have gotten on the old, but
really, by reason of the premium on the
old bonds and the additional banking
privileges attached to the new, the bond
holder (if bank will get more interest
each year on the new bonds; for he will
get not only two per cent on the bonds
but six per cent on an equal amount OF
bank notes less a tax on circulation OF
one-half of one per cent.
Not only does the government, that is,
the people who pay the taxes. lose by re-
funding, but the whole debt, principal
and interest, is thus put off to be paid by
children yet to be born, who never in.
Cured the debt or received any benefit
from the money borrowed; consideration
which induced Thomas Jefferson to de-
clare that spending money to be paid by
succeeding generations under the name
of funding, was but "swindling prosperity
on large SCALE"
When the Democratic party was some
thing more than mere opposition party.
it always stood for the speedy payment of
the public debt. When we were little
people aud poor, We paid the entire debts
of the Revolution and the War of 1872,
within twenty years from the end of the
latter. t1nW nj xva ora nraof aud ~.