The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1921-07-20
TOPEKA STATE JOURNAL
Information Bureau
FREDERIC }. HAsKnS. Director.
Washington, d. @.
EXTENSION OF FARM CREDIT

INSPECTION trip of this island possession
with a view to ascertaining whether
the provisions of the farm loan act can
4 be extended to the Porto Rican farm
ers with certainty of success.
About six months ago congress
passed an amendment to the farm loan
act granting the board authority TO ex-
tend its work TO Porto Rico, but max
ing this extension discretionary with
the board. 1t Is the confident belief of
the members of the board that the is
land farmers will fit into the farm
loan scehem without any hitch. If a
favorable report is made by w. S. A.
Smith, of Iowa, who was chosen for
this mission, a branch of the federal
Hand bank situated at New CLEANS will
be established at some point in Porto
Rico. The cities of San Juan, the
capital, and Ponce, on the southern
coast, appear to be the only con-
So great have the demands on the
funds of the land banks become that
congress recently amended the act
creating the system, so that the treas
Jury may have on deposit with these
banks at any one time as high as
$3l, 100000. Until few days ago,
this figure was but 5000, 900.
This additional fund will enable the
twelve banks to make loans to farm
ers turnout the summer without the
NECESSITY of seeking to sell another
issue of bonds when the market for
them is not at the best. 1t is believed
that by October the farm loan board
can advantageously sell another issue
of bonds and provide itself with addi-
tional funds for farmers.
The law requires that within IS days
/ after the sale of an issue of bonds that
the deposits made by the treasury in
Land banks be returned.
The system has grown so tremen-
dously since its inception that mem
of he hno I'd nCftV Al q
times as much money could be used
as even the tremendous amounts now
handled. Up until the last of May, a
resume shows that $4,000 farmers
turnout the United States had taken
advantage of this federal credit, and
that total of $354.000,000 had been
loaned to them. On these loans. the
farmers have to pay per cent inter-
est at present.
To balance this huge loan, the fed
eral farm loan board has sold bonds
Amounting to about 325,00O,0OO. The
difference in the money secured from
the sale of bonds and the actual cash
lent to farmers was made up from the
slender capital on which the IL land
banks started - $4,000, 00O-and the
profit on the operations of the banks.
Method Used.
The feature which has tremendously
ipopularized the farm loan system is
the amortization part of 1t. which is
obligatory upon all farmers who bor-
row money from the banks. Thus, on
each $1,000 borrowed, the farmer
must return each year to the Land
bank from which he got it, $65. These
payments, which apply alike on prin-
cipal and interest, in the course of
33h years pay off the whole loan.
The land banks have been SO sue
cessful in their operations with the
farmers that each year it has been
possible to pay a dividend of 6 per
cent to the National Farm Loan Asso-
citation. This association is made UP
of the farmers who have borrowed
money to carry on their business, and
this dividend on the capital stock of
the bank is distributed among these
men as, in effect, a rebate on the in
terest they pay for their loans.
The National Farm Loan Associa-
ton Is made up of nearly 1000 county
farm loan organizations, and as there
are but $500 agricultural counties in
the United States, there is an average
OF considerably better than one or
ganization to each farming county.
Before the Board was created, there
was a great deal of criticism from
members representing the more pros
porous agricultural states that the es-
tablishing of the loan system was in
tended almost solely for the poorer
farmers of the South. This criticism
was made at time when southern
senators and representatives headed
nearly every committee in Congress,
and was hard one to combat. The
denials made at that time have been
amply borne out by later develop
ments, however. The state of Iowa,
for instance, which saw little need of
the Farm Loan Board at that time,
when its farmers could get all the
credit they needed for 5 and per
cent, is now the greatest patron of
Federal "A he Oil 10
exception OF Texas, which is a ire
mendousiy larger commonwealth.
The bonds sold to provide the funds
to loan are issued largely at the discre-
ton of the Board. However Congress
has retained certain powers, one of
which is fixing the maximum interest
rate the bonds can bear. The present
legal limit is per cent. Also. ex-
listing law limits the difference be-
tween the bond interest rate and the
interest on loans as not more than 1
per cent. Thus the limitation of the
bonds to an interest rate OF per cent
automatically prevents the land banks
from charging more than per cent
on the loans to farmers.
At times when excellent bonds are
being floated which bear interest
rates In some cases as high as per
cent, at first glance, it would appear
the open market. However, this OBJ
: stacle is overcome by the provision
OF law making the farm loan bonds
free OF federal taxes of all kinds, with
the possible exception of the in
heritance tax. The question of the in
/ heritance tax has been brought up,
, but not yet settled. As it is a funda-
mental rule that states cannot tax in
come derived from the obligations of
the federal government, the income
/ to holders of the farm loan bonds is
entirely free of any assessment.
System Shows Profit.
The land banks. operating on the
present basis, are making money
They are paying their annual per
= cent dividends, and are laying by a
little reserve each year which can be
commanded by the farmers in a
pinch. The cost of the board in
, Washington, which is composed of
four members with the addition of