The Washington herald., 1913-09-04
BONDS And THE
PUBLIC CREDIT
National City Bank Discusses
Treatment Of z Per Cents
in the Glass Bill.
NEW POINTS DEVELOPED
Explains Strengthening of the Mar.
ket for Government Securities.
Interesting Facts.

The market for government bonds dur
ing August has been fairly active, with
prices for the 2 per cent issues as high
| in actual transactions as 49, As the
| month closed, purchases and sales were
made as a rule at prices in the neigh
borhood of 20 l-2 TO IS 3-4. The partial
| recovery in the price of the . per cent
bonds, from the low of 80 at the end OF
July, was largely due to the action OF
| the Secretary Of the Treasury in requir.
ing national banks selected as deposi-
taries for crop moving funds to deposit
a sufficient amount of government bonds
| TO cover 10 per cent Of their aIlOtments;
end also TO the further requirement that
such banks, before being permitted TO
receive crop moving funds, should have
at least 10 per cent of their capital in
vested in government bonds pledged as
security for national bank circulation.
The House Committee on Banking and
Currency also has given aid 10 the gov
ernment bond situation by awaking to a
realization that the public credit was be-
ing endangered by the failure to make
proper provision i'm the currency bill for
safeguarding the integrity OF the more
than $d3o00o,OO0 IS now outstanding These
issues constitute practically four-fifths OF
the entire interest bearing public debt
OF the per cent issues had either been
so wholly inadequate or Indifferent to the
fate or the bonds as to create a we'll
founded feeling of misturst as to the fu-
ture Of these securities, S7OOOOO.OOO of
which are. held by the national banks.
This feeling resulted in almost a COM
plete cessation of buying demand. while
on the other hand a few banks. fearful
OF the outcome, and desiring to avoid
the risk Of greater depreciation than had
already occurred, pressed their bonds for
sale. Fortunately this was not done to
any great extent, banks generally having
shown disposition TO withhold their
bonds from the market pending definite
information as 20 the treatment they are
to receive. The comparatively small
amount of bonds recently pressing for
sale would few months since have been
absorbed without any material decline
in the market, but in the almost COM
piete absence of demand. the inevitable
result was serious decline.
The new draft OF the Glass-Owen
bill, which has been the subject of con-
slderation by the Democratic caucus
OF the House during the closing days
of August, provides in section 10 that !
upon y pplication the Secretary of the |
Treasury shall exchange per cent |
ponds bearing the circulation privilege
Tor is without the circulation privilege.
The per cent bonds are to have a |
dehnite maturity, and are payable after
twenty years from date OF issue. No !
national bank shall in any one year |
present per cent bonds for exchange !
to an amount exceeding : per cent OF .
The total amount OF bonds such bank /
has on deposit with the Treasurer Of !
the United States for circulation pur- /
poses. 1t also provides that should any I
national bank fail in any one year to
exchange its quota, the Secretary of !
the Treasury may permit any other ma
tional bank or banks 10 exchange
bonds in excess of per cent. allot- /
ment to be made to applying banks in
proportion to their holdings OF bonds.
Then follows the important declara-
tion that at the expiration of twenty /
years from the passage of this act
every holder of > per centum bonds
then outstanding shall receive pay
nent at par and accrued interest. After
twenty years from the passage of this
act national bank notes remaining out
shall be recalled and retired
by the national banking associa tions
ssuing the same within the period and
lnder regulations to be prescribed by
he Federal Reserve Board, and notes
still remaining in circulation at the
md of such period shall be secured by
IN equal amount of lawful money to be
deposited in the Treasury of the United
states by the banking associations
issuing such notes. Mean
While every national bank may con-
inue to apply for and to receive cir
notes from the Comptroller of 7
he Currency based upon the deposit
# per centum bonds or any other
'onds bearing the circulation prfvi- /
ege.' The provisions might well have
'een in the original draft OF the cur
ency bill. and perhaps II they had
'een the holders of government Issues
would not have become so apprehen-
i've as to future prices which these
ecurities would bring. One of the ,
revious drafts of the bill contained a
rovision which denied national banks
he privilege of increasing their circu- {
alton by the deposit OF these bonds or
( restoring their circulation accounts r
houid they have ventured at any time
uring the refunding period to reduce
heir circulation accounts by the with
rawal of bonds. 1t was the proposed
brogation of the circulation privilege
uring the refunding period, together
nth the failure to provide for the re-
rement of the bonds in cash at par,
'hich in the beginning led to the un-
est on the part Of banks and inSi
idual holders o. the IS. r
This provision as Il now stands Is an r
Improvement over those which have been B
oandoned. still it cannot be wholly ef- B
.ctive. 1t may never be enacted and
lould il be it is not binding on any sue @
seding Congress. The latter contin- 2
ency might be obviated should the Is
ow outstanding be authorized to be ex-
hanged for new 2s having a definite y
aturity. The present per cent con- r
rs are payable after 1880 at the pleas \
re of the government. Holders Of these n
'nds would doubtless avail themselves S,
the privilege to exchange them for
,nds payable at the end of twenty A
,ars. Once such an exchange is effect NJ
!, no future Congress could alter the
rms of the new bonds without the con- Cl
mt of the holders. This would make 9
far better protection for the 2s than ~
mere promise in the act that they y
ould be paid at the end of twenty In
ars, since the promise might be re- n,
aled. Such an exchange could be au- NJ
orized without prejudice to the pro- "
sed refunding plan, by which 2s with ~
e circulation privileges may be ex-
anged for IS without the circulation -,
ivilege. ~
Safeguarding Public Credit. "
Readers of this circular will recall thar Pu
1903 Senator Aldrich. then chairman
the Finance Committee of the Senate, Al
opposed that authority be given the Sec Co
tary of the Treasury to issue bonds Co
airing a higher rate of interest than
per cent, the proceeds to be used an y
the construction of the Pam
Ia Canal At that time the chairman Y,
the Finance Committee declared that 70
ere was no longer market for the Of