New-York tribune., 1922-03-10
Loans.
Crissilnger Will
w arm Bankers
Continued from page onol

economic standpoint said Mr.. Mills.
"Whilc I do not assume that most
banks will desire to loan on this form
of certificate, | am of the opinion that
public opinion probably will compel
them to do so. Should they do so, and
should practically all of the men elect
the adjusted service certificate plan
as ] assume they Will-one of two
results will follow: Either the banks
will loan the amount from existing
funds-and that will necessarily re-
duce the amount available for business
and commercial purposes by anywhere
from S500,000,00O to $500, 900, 900, with
a consequent restriction of credit and
increased interest rates-or else they
will rediscount eligible paper, which
they all hold, with the Federal Reserve
banks, and Federal Reserve notes in
an equal amount will be issued, and
that means imitation, with all of the
evils with which recent events have
made US thoroughly familiar.
The extent of that imitation may
be gathered from the fact that Fed
eral Reserve notes outstanding am cunt
to about $780, 100000, so that this
would represent an increase of from
% to so per cent
lnterferes With Rcfunding Plan
LII LIe StCOuQ pidtt, lut tutdSbir
interferes with tho Treasury fve-year
rcfunding plan even more seriously
than would direct government borrow
ing The adjusted service certificates
constitute a direct obligation OF the
government, but they are not issued
under government control nor at a
rate of interest determined by the
Treasury. They will not only interfere
with the investment market. but they
froncioJ hl1rNnn fhp
Treasury in 1926 in an amount at pres
ent impossible to determine, but with
a possible maximum of between 81 ,00O,-
100000 and $1,250, 100000
at does not seem to be generally
understood that under Section 502 the
bill makes provision for cash bonus
PAYABLE in full in 1925 if the veteran
dations at a bank. He borrows so per
cent of his adjusted service pay from
the bank, and in 1925 he is entitled to
receive from the government the DIFF
ference between so per cent of' his adj
justed service pay and the amount he
already has received from the bank.
So that by borrowing from the bank
and defaulting on his obligation, ne
collects by 1925 a very substantial
amount of cash, while the government
is compelled not only to reimburse the
bank but to pay three years interest
on the loan, which will run anywhere
from 61a to 7 per cent. TIE Treasury
could borrow at a4 per cent
"In the third place, If the men 90
not elect to default and collect cash
in 1925, but keep their certificates, the
bill will create an obligation falling
due in 1912 which will run from $3,00O,-
100000 to $4,000 100000 at the very
time when the second Liberty loan
falls due
No Provision to Meet Obligations
"In the fourth place, the bill violates
every principle of sound government
finance by making no provision what
soever for meeting these obligations.
Unlike our other long-term obliga-
tions, the law fails to provide for
sinking fund to meet the long-term
1912 debt, and in so far as the billion
or more which may be payable in 1925,
it apparently trusts to some wlndtail,
though no man even partially familiar
with the state of public finances can
suggest Treasury surplus of $1,00O,-
100000 in 1925, unless, of course, ad-
ditional taxes are imposed.
''For the reason suggested in the last
paragraph, as well as by reason of the
fact that no provision whatsoeve is
made for raising the money to meet
the direct payments to be made by the
Navy and War Departments under
Sections 4o1, 4O2 and 4o3, or for the
very heavy expenses connected with
the administration of the law, it vio-
lates in addition every principle upon
which the executive budget system re-
Gently established is based, and will
come very close to destroying the ex
ecutive budget which has meant SO
much to the program Of economy con-
sistently adhered to during the last
twelve months"
Representative knight said:
"The financing Of the plan is placed
upon the banks for the next three
wears Thew are now unable to finance