The Birmingham age-herald., 1919-09-26
RELATIVE VALUE
 OF LIBERTY LOANS
nv NJ. H. sTERNE
Of Ward, stcrne & Co.

.swbv is if that the First Liberty Loan. paving s1h per cent interest, sells for more than other loans paying A in terest?" is a question that has to be an- swered many times daily. The answer IS that the first loan is exempt from all in- come tax, while the Second. Third and Fourth loans are fully exempt only from the normal income tax, except that under certain restrictions a total amount of si60,000 may be invested in the various issues and the income exempted from in- come tax for period of two years as to $105, ,000, five years as to $50O 900 and until maturity of the bonds as to 5000. The income tax exemption is not of vital inn portance to people with smaller incomes, but when it is remembered that the man with an income of over S100.000 year must give up at least 50 per cent Of 1t as federal income tax. it is easy to see why he can better afford to buy 315 per cent bonds at par and receive a net re- turn of 31A per cent, than to buy AZ per cent bonds at 94 and receive 21a or less net on the investment The Victory 3& notes are also exempt from all taxation. There has been substantial advance of all Liberty Bonds in the past few days A factor in this rise has been the appearance in the market of the war finance corporation, acting for the treas ury department in the purchase of Lib- erty Bonds for the sinking fund. It has been reported that the corporation was buying bonds in excess of $5,00000o day on some occasions. It will be remem- bered that there is sinking fund Tn force until one year after the expiration of the war. as proclaimed by the Presl- dent authorizing the purchase on the open market of per cent per annum or the amount of bonds outstanding of the loan issues since the Second Liberty loan act, including such of the 3h per
 cent bonds as have been converted. AL ready there have been about $40OOoO,Ooo of bonds purchased for the sinking fund, and the operation of the sinking fund will mean the purchase of about $70,oo0,- = 900 per month of bonds.
 Effective July l. 1920, new sinkinzg fund goes into effect providing for the
 purchase annually of an amount equal
 to 2h per cent of the aggregate amount
 of bonds and notes outstanding, less an amount equal to the amount of our loans
 to the allies In addition there is also
 to be put into the sinking fund an amount
 equal to the interest that would have been payable on bonds and notes that 1 have been redeemed or purchased out or the sinking fund in the past
 l Another IdCtOT III tiic shu'e'Nc O- ertv Bonds was the reduction of the in- terest rate on the last issue of treasury certificates to A per cent. Indicating. ac- cording to the Wall Street Journal, thai | the treasury is beginning now the real liquidation of the floating indebtedness connected with the war"
 1 A third item of perhaps minor impor, tance at this time. but indicative o'
 what may be expected in the future is
 the announcement that Great Britain
 has paid back s22. .5oo.Ooo and France S,-
 5OO. .0o0 of loans made them by the United States All repayments of advances made | to the allies are to be applied 10 the purchase of Liberty Bonds on the oper
 market for the purpose of cancellation,
 With all these factors going to create
 strong market for government ponds
 and with the supply of bonds in the hands
 of people unabla or unwilling to fRie
 them being rapidly absorbed, the predic
 ton is freely made that, except TOT tenn
 porary flurries. the price of goyernmen bonds will steadily advance from now
 on until all issues are at par or higher.