Evening public ledger. [volume] (Philadelphia [Pa.]) 1914-1942, 1921-06-03
LIBERTY BOND HOLDERS AND
THE EUROPEAN SITUATION
Until the Old World Is Put on Its Feet
There Can Be No Economic Reeov-
cry in the United States

LpIDOWlNG the announcement OF the
L Federal Reserve Banks that after July l
Liberty and Victory Bonds would be ac
cepted as collateral for loans on the basis
of their approximate market value instead
Of at par. the market price for tho 3'a per
cent tax exempt bonds fell to Sc
Tho action Of what is 10 all intCnts
Government bank has thus depressed the
market value of Government securities.
1t has been explained that the purpose Of
this move Is to force reduction in The
amount of outstanding loans secured by
Government bonds. The bonds have not
been properly absorbed by the investing
community. They were bought in large
quantities by banks. which took the amount
assigned 10 them; and tho banks. in order
tn prevent their working capital from being
tied NJ in this way. borrowed money from
the Federal Reserve Banks on the security
of tho bonds. Private capitalists went 10
the relief of tho Government in tho same way
and borrowed money from their banks TO pay
for the bonds, and the banks in turn Dor
rowed money from the Federal Reserve
Banks to get the money to loan 10 their
customers.
An attempt was made several months ago
n forCc a reduction in tn" amount Of thpse
loans II was not successful as was
desired Until surplus capital enough has
been accumulated to absorb tho war loans
without drawing on the banking resources
Of the country the bonds will mako trouble
in tho money market. And so long ms money
can be lent to private borrowers at higher
net rate Of interest than is paid on the Gov
crnmcnt bonds. those bonds will be selling
below par
This condition will continue until the
economic questions growing out Of the war
have been settled both in this country and
in Europe.
The situation is such that every holder
Of a Liberty or Victory Bond is financially
interested in tho policy Of tho Administra-
tiun in Washington. Consequently the man
ifcSt determination Of the Administration to
participate in the settlement Of tho economic
questions in Europe through tho Supreme
Council. sitting in London. and the Council
Of Ambassadors and tho Rcrarations Com
mission, sitting in Paris. should be rcassur-
ing. However reluctant the United States
may be TO got entangled in any way in tho
political concerns Of Europe. it cannot ignore
the financial conditions over there Euro
pran Governments owe tho American Cover
mont about $40. 1000. 900. 900. and European
industry owes American bankers between
So .000, 900 900 and 81 900 OOO, 900 more.
We must do our utmost to assist our debtors
to get on their feet so that they can pay us
what they owe.
If it shall .bCcome necessary for us to
assist ultimately in the political rehabiita-
tion Of Europe as part Of the task Of COM
plotting the economic rehabilitation. it is
probable that we shall accept the logic of
tho situation and do what seems best under ,
tho circumstances
The plan of Senator Watson. NJ Georgia.
to rolrvc economic conditions by making
Government bonds legal tender for debts
is Of piece with tho populstc theories Of
ctntc bD ,b; ;nl,
that the country j. suffering from a shortage
in the circulating medium. He proposes
that il hc increased to the amount Of the
outstanding debt of tho Government
Now. in tho first place. tho country is not
suffering from contraction of the currency
Its troubles are due n part to too much
expansion Of the currency. a trouble that
aff1icts il along with tho othor nations in
volvcd in the war. which werc forced to
expand their currency in order 10 provide
funds with which to make the enormous
purchases necessary to carry on the war.
This brought about high prices and high
wages and high interest rates for money
because the purchasing power of the dollar
decreased as the number NJ dollars in cir
Culation increased.
In tho second place. no experiment with
an interest bearing Government note as cur
rcncy has ever been successful Such note
has TO compete with all other time securities
offered in the market it, value fuctuates
with the market. Experience has proved
that non interest bearing demand notes
such AS tho Federal Reserve Bank notes. are
the best form in which to issue currency
So long as tho credit Of the Government is
good they ar" on a par with the gold in which
they arc to be redeemed, for the gold can be
obtained instantly whenever il is needed By
the holders Of the notes A bond is a time
note which cannot ho turned into gold until
| the date Of its maturity. This is why the
war bonds due in three or four wears are
selling at higher price than tho long term
bonds which fell tO Sc when the Federal
Reserve Banks announced that they would
/ hc accepted ms collateral for loans az their
market value.
Senator WatsOn'S plan will not he adopted.
4 for tn" Senator is not q safe financial guide.
/ TIo has advocated irrcdccmabIe paper cur
rcncy and all tho other Populist economic
/ falHricS based on ignorance of the nature
aud function Of money. If he had had his
. way. wears ago tho Government printing
presses would have been kept busy turning
out money" Just as the Bolshevst printing
presses havo turned out rublcs until it takes
a halo of them to buy a meal in Moscow.
I His plan deserves attention only 10 warn the
unthinking against It. It would neither
. restore tho Liberty and Victory Bonds 70
+ par nor WoHid il relieve tho business of the
country I'm any way whatsoever. Indeed, il
it should bc adopted it would bring about
, financial chaos
Long headed men with available capital
are buying the Liberty bonds az the
prevailing prices, for thcv know thar
there j. 20 safer investment and few on
which a better profit can b" made in the
long run. Every man of modest means vino
has "A so bond or one for $500 mr. $1,000