The Topeka state journal., 1922-06-17
TOPEKA STATE JOURNAL
Information Bureau
FREDERIo J. HAsKIN. Dareceor.
Washington, ID. O.
REFUNDING GOVERNMENT
BONDS


handle. In that brief period the treas
ury must fund approximately $1,000
00o,00 in indebtedness In other
words, the United States government
must pay the equivalent of $50 to
every man, woman and child in the
United States.
This is the governments biggest fl
nancing job for the reason that the
nation is at peace and the war pa
triotism which stimulated the Liberty
loan drives between 1917 and 1919 is
absent. The financing must be done
in a cool business way. There will be
no brass bands, no flaming Liberty
loan posters and no groups of voIun-
teer workers to help handle the prob
lem. 1t must be done by a handful OF
hard-working officials and clerks in
the treasury department.
Slightly more than half of the vast
notes OF the Victory Liberty loan. 1t
viii be recalled that this. the last of
the big war loans. was a short term
loan of but four years and that the
four years will be up next May Before
that time, the treasury must also meet
Treasury Certificates OF Indebtedness
and War Savings Certificates to an
amount which will make up a total of
approximately five billion dollars.
The task will be accomplished, not
by paying off the whole amount in
fact, but by shifting OF credits and
creditors. A substantial portion will
be paid off outright but some of this
indebtedness will be met with new
borrowings, in many cases from the
same persons. Thus, a man holds
$40, 600 in Victory notes. This year
the treasury Will pay him in cash or
will give him new notes or bonds for
an equal amount. He may take part
payment in cash and part in new
bonds. The same method will be pur-
sued in retiring the whole $4,000. .000.-
900 to be paid in the next year. If all
or a large portion of the present
holders of the maturing securities
want cash, then other purchasers must
be found for the new securities in
order to provide the money to redeem
the old ones.
But even considering that the treas
ury will borrow some new money to
pay this huge debt. the transaction is
in effect the same. A total debt OF
IS, 900. 5000 must be met in one
way or another.
The problem is especially delicate
just now because the government can
not afford to pay so high a rate of
interest as it did during the war 1t
must induce holders of securities
which now pay AZ per cent or more
to accept new securities paying only
4 per cent or Az per cent. If the
treasury begins bidding franucally for
funds, the interest rate will rise and
the high interest charges. Therefore,
the financing must be done smoothly
and over as long a series of months
as possible SO as to create the least
possible disturbance in the money
market.
Business Demands Capital.
Another important fact is that the
country is on the edge of boom In
dustries are reviving their activities
and this brings a demand for new
money. Private industries usually are
willing to pay higher interest rates
49, u
therefore there will be a tendency for
these private companies to bid the
money away from the government.
There is no war pressure now to bring
to bear on the citizen to induce him
to forego private profits and put his
money in government bonds. The
treasury must go into the money mar
ket as a trader and make the best deal
it can.
A review of the public financing
situation shows that much progress
has been made since the Armistice in
pairing down the public debt The
peak of the debt was reached on Au-
gust 81, 1919. when it stood at $26.-
$50. 100000. which is equivalent to
S265 for every man. woman and child
in the United States. On March 81,
1922. the last date on which a govern
ment financial statement was issued,
the debt stood at $23,145, 600, 900 or
S3.451, 600, 900 less than the peak.
That means that every person in the
United States has paid off $34 of his
Indebtedness incurred on account of
the war. Everyone still owes 1921.
Many persons who owned Liberty
bonds have felt some resentment
against the government in the last two
years because of the deprecated mar
ket value of these securities. Attacks
have been made on the treasury, it
being claimed that it was unfair for
the government to sell bonds to the
public and permit them to depreciate
in value. A more careful examination
of the merits of the situation will re-
veal that this complaint is not well
founded.
Why Bonds Deprecated.
In a bargain made between the gov
ernment and the bond-buyer-a par
gain which was made to win the war
the bond-buyer and not the govern
ment is the one who has broken the
contract. The government said: Lend
me 500 for 10 years" If the gov
ernment pays back that 500 at the
end of the ten years. its part of the
bargain has not been broken. And in
addition. it has paid interest regular
ly. But in many cases. the bond-buyer
has said: Il want my money back Il
didn't really mean you could keep It
for ten years whether there was q war
or not" So this bond-buyer has sold
his bond. Many did this. which as a
matter of course resulted in a lower
price in the open market for the
bonds. The market price has nothing
to do with the original bargain be-
tween the government and the bond
buyer.
Despite the fact that the prices Of
some issues sagged because the hold
ers asked for their money back, bond
prices are all on the upgrade and will
continue so until all have reached a
price above par-that is, above the
face value. People will pay a pre-
MUM for the privilege of being a
creditor of the government and re-
ceiving the interest which is paid
The lowest point reached on the
war loans was a price of $40 for the
fourth liberty loan on May 20, 1920.
Ancrs+ 81 1e1SN1O9 "a 20 ~ +,r.s4
liberty loan. Since the armistice all