Arizona republican., 1922-03-13
TREASURY CHIEF SAYS
BILL DANGEROUS ABUSE
Of GOVERNMENT CREDIT
Mellon Declares Forced Bank Loans Under
Netv Bonus Bill Will Increase Burden Of
Taxpayer; Calls Attention To Harding's
Note Asking Sales Tax Or Postpone Bonus

loans would have to be redeemed.
$6l5.822 600. This would mean total
payments within about three and one
half years of over $1,000, 900 900
These estimates take no account of
amortization against certificates 70
remain outstanding after the fiscal
year 1925, which would add at least
$40,000,000 a year to the current
charges, or of possible additional
II the reclamation projects therein
costs under the land settlement plan
authorized should be carried through.
1t is estimated that about 500, 00o,-
600 per annum would be required
after 1928 il these reclamation prof.
cts should be pressed.
$4,5oo,ooo, 900 Total Cost q
"If all the veterans should CHOOSE
the certificate plan the total face
amount of the certificates would
amount to over $4,000, 600, 900, dis 4
tributed over 20 years. and II all tho,
veterans should choose the farm and
home aid plan. the total cost would
amount TO $2,093 00o,00 within the
next two or three years.
Apart from the direct cost OF the
bill, a most serious feature is the pro-
vision for bank loans upon adjusted
service certificates during the period
between its passage and September
80. 1925. The effect OF this provision
is TO transfer the cost OF policy loans
from the government to the banks ana
to place in the banks. to the extent
that the ex-service men are able 10
obtain loans from them. q mass of
unliquidated non-negotiable paper,
upon which the banks will be unable
to realize until 1925. The result would
DC frozen bank loans and initiation OF
currency and credit. The extent that
the banks are obliged TO make loans
on adjusted service certificates. their
ability 10 take care of the demands
OF business and industry will be cor
respondingly reduced, and even
though the paper accrued by the Ger
tificates may not be eligible for re-
discount at federal reserve banks. the
indirect result is certain to be in
creased borrowings by member banks
from the federal reserve banks.
From the point OF view OF the
treasury the most serious aspect OF
these loans on adjusted service GER
tificates is the fact that the loans
would be floated at the banks on the
credit Of the United States. The plan
In substance, therefore. involves a
dangerous abuse of the governments
credit. for it contemplates the issue
of a vast amount OF government obli-
cations which are non-negotiable and
have no present realiZable value un
less pledged with banks. in which
event the obligations become, In ef-
feet, two or three year notes, which
the government would be obliged 10
pay off in 1925 upon default by the
veterans.
Forced Bank Loans
s@rhis practically means that cash
payments on adjusted service certifi
Gates would finance for the next three
years through a forced loan from the
banks.
From the point of view OF the
banking system and the general
financial situation. it would be far
better if a bonus is to be financed
by borrowing. for the government TO
resort to direct borrowing and TO
provide for direct policy loans on ad-
iusted service certificates from the
outset. If congress concludes TO ADOPT
q soldiers bonus with paid-up endow-
ment insurance as its chief feature.
the direct or regular way would be
to authorize insurance provisions for
direct policy loans and the amortiza-
ton and the amount OF reserves that
would be required ss mater or
sound business policy. A certificate
plan on this basis. II chosen by All
ex- service men eligible to elect II,
estimates. mean an aggregate liability
of about 4500, 100000 men and on the
basis of a 20-year maturity would in
volve the following current charges
each year on account OF maturity ot
certificates on account OF deafh
averaging about s40,000,000; q
amortization payments, computed =
four per cent compounded -apuNalkY
calculated 10 provide within 20 -s'eAts
FOR the whole liability. avernEsnR
about sI2S, 100000 a year aud 80
provision for direct policy ioariF iAQF
the government on about the Aamf
basis as is customarily allowed ny l1e