The watchman and southron. [volume] (Sumter, S.C.) 1881-1930, 1914-10-31
WHY The Bond Issue Should be De-
fcatCd.

~ ~ 'o"'ii S"i "ioiiud banker, VINO mas
long been particularly close student
of pubic affairs.)
The News and Courier.
Upon the proponents of the bond
issue rests the burden of proof to
show that the State and it's citizens
will be benefited by the proposed
issue. Before the general assembly
should submit the question to the
people. and certainly before the peo-
,ple should approve it, there should be
no reasonable doubt that benefit will
accrue.
Granting that the farmers will
benefit, can it be demonstrated that
all other classes will participate in
that beneht Unless this can be done,
the constitutionality of the issue will
be most seriously questioned and will
be tested in the courts. That means a
delay for many months, for a case Of
such magnitude, involving from twen-
ty-fve to thirty-five millions of dol
lars, as the issue may be, is sure to go
to the federal supreme court. Able
and disintersted lawyers are of the
opinion that the State has no right to
issue bonds for the assistance of one
class of her people, and certainly be-
fore any Of the bonds are accepted by
careful investors, including the banks,
this question of cOnstitutionality will
have to be decided by the highest
courts.
1t is not proposed, it may be pre-
sumed, that any effort will be made to
dispose of this bond issue to outside
investors, but to place them with the
banks of the State. 1t is easy to
point out that it will be impossible to
place them with the usual class of
bond buyers. 1t has been pointed out
that certain municipalities in this
State and adjoining States have re-
Gently f1oated bond issues, but these
bonds are of an entirely different class
from the proposed State cotton bond
issue; the municipal bonds are floated
upon municipal utility plants or for
permanent improvements, and are
long-term issues, suitable for the in
vestInent of life insurance company
funds. This is not the case with the
proposed cotton bonds, which will run
for only comparatively brief period
and will have no attractions for the
usual class Of bond investors.
According to the press dispatches
the committee sent on to Washington
has received assurance that the pro.
posed bonds will be acceptable as Sc
curity under the federal reserve act
So far so good. But let us see just
what this amounts to.
! 1t is true that the federal reserve
act permits the federal reserve banks
to buy State bonds and notes, and
when the federal reserve banks are in
operation this is going to be a good
provision for the State which, like
South Carolina, have to borrow mon
ey each year; in other words, instead
Of borrowing every year from local
institutions the State can probabl!
place it's notes with the federal re-
serve banks, provided the reserve
banks have surplus funds to invest
But the reserve banks are not yet es-
tablished, and when they are in op-
GRAFTON it will be long time before
they will have sufficient surplus to in
vest in this manner They will GER
tainly not do so at the beginning of
the system, as the capital is to be
paid in by installments. and heavy de-
mands will be at once made upon the
reserve banks for accommodation by
the member banks in this section.
The assurance given the South Car
olina committee, therefore, simply
means that South Carolina banks,
members of the reserve system, can
use these bonds as collateral with the
federal reserve banks. But the
amount of indebtedness-disc
and rediscOunts-which member
bank may incur with it's federal re-
serve bank will be limited; the act
does not fix it, but it is left in the dis
cretion of the federal reserve board
This limit will be a limit that is with
in the bounds Of safe banking, and in
calculating what the limit will be it
should be borne in mind tlr"t practi
cally every national bank likely to
come in the system has already out
standing not only its bond-secured
currency, but its full proportion of
emergency currency, all Of which must
be taken into account as liability in
addition to the bills payable which