The Washington herald., 1920-02-21
MUST REFUND
LIBERTY BONDS
Long Term Government
Issues at Higher Interest
Rates Only Solution.
CREDIT DETRIMENT
Country's Banks Carrying
Heavy Burden Due to
Government Methods.

Perhaps the most important rem
edy which might be applied to the
credit situation. and which Is the
most difficult on account of OBJ
structing politics. is the refunding
of the Liberty and Victory bonds In
to a long-term government issue
bearing a high enough rate Of In
terest to enable 1t to compete with
other capital issues and to make
good to the people who patriotically
put their money into governments
during the war. These people were
urged to buy bonds with their saw
ings, and to buy more than their
savings would warrant, and borrow
money of the banks with the prom
Use of carrying them at a rate of in
terest low enough SO that there
would be no loss in so doing. Con-
trary to these promises, the rates
for carrying such bonds are above
the yield. and the bonds themselves
have sunk. some OF them. as much
as ten dollars on the hundred in
market price.
The result has been that people
have been selling their holdings of
such bonds at the rate of y15.000, 900
to $S0,O00,0o0 per day in Wall Street,
to get funds. in some cases. to in
vest in what they think will pay
them better Un many instances buy
ing instead, worthless wildcat is
sues)' but large part of these peo.
pie have sold their bonds and are
spending the proceeds in extrava-
CANT purchases.
This is one phase OF the results
from the unfortunate character of
financing under which Liberty
Bonds were put out at too low a
rate OF interest.
High Rates on Gov. Bonds Necessary.
But the situation with regard to
credit conditions is more vital. Be-
cause of the low rate of interest
which these bonds bear. a good part
was not absorbed by investors, and
! it is estimated that as the National
aud State banks and the Federal
Reserve Bank are carrying more
than S6.500.000!O00 OF Government
obligations, at least s5.500.00 are in
Liberty and Victory bonds and GER
tificates. 1t is impossible to obtain
estimates of the amount of loans
which the National and State banks
are carrying with these bonds as
collateral. but the amount would be
large. At any rate, the Federal Re-
serve Bank is discounting for MEM
Der banks around $1,000. 100000 Sc
cured by Government obligations.
II the Liberty and Victory bonds
and the certificates of Indebtedness
were made exchangeable into a
!long-term bond at five per cent.
with perhaps gradual reduction OF
the rate at stated periods and GER
tain provisions for tax exemption,
1t can be easily promised that this
issue would be rapidly and even
tually completely absorbed by. in
vestors desiring to place funds in
the highest-class security in the
world. bearing an attractive rate of
interest.
From this would follow a most
beneficial relief to the banks from
the burden of carrying the present
low-rate bonds. and a reduction in
bank loans which would clear up
the credit situation impressiveIy
and effectively. The country would
thus be put in position to stand any
strain which might be put upon it
through the future course of the ex-
changes and of business.
Tax Methods Destroy Investment
Operations
Another remedy which Is likewise
In the hands of Congress Is a COM
plete turnabout in the methods of
taxation through elimination of the
excess profits tax and substitu-
tion of the tax on sales.
The effect OF this tax as IL bears
upon the credit situation has been
to blot out the army of 400 900 in
vestors, small and large. WIN before
the war could be counted upon to
absorb every year. securities run
ming into hundreds of millions, upon
which investment the legitimate en-
terprises of the coutry have been
dependent for furnishing new capi-
tai required in commercial and A.
nancial development. This army of
investors is not now in evidence.
The heavy income and excess prof
It's taxes, added to the increased cost
OF living. have consumed a yery
large percentage OF the funds which
each year they were, ready to place
at the disposal OF the countrys
business.
This constitutes a r,os+ ..-,.,. -