The Washington times., 1929-04-23
New u. s. Financing

"A complete revision in the Treas
hry short-term financing system in
volving the issuance at discount of
D new security bearing no interest
known as a Treasury bilr' and
putting this form Of borrowing on a
competitive bidding basis would be
authorized in bills introduced simul-
taneously in the Senate and House
today by Senator Smoot tR) of
Utah and Representative Hawley
R) of Oregon.
recommended to Congress passage
Of this legislation.
"I have introduced today a bill
to authorize the Treasury to issue
a. new form of security, namely,
Treasury bills" Smoot stated for
the sponsors Of the bill. These
bills will be short-term security,
with .maturities not more than a
year and probably Of 80, so and so
days, will be issued on discount
basis, rather than with interest cou-
pons, and will be offered on COM
petitive basis. They are intended
to supplement and make more flex-
ible the Governments short-term
II believe that the short term
financing under the proposed
legislation will be more economical.
Competitive bidding will result in
the lowest possible rates, and the
Government will be able to take
advantage of seasonal periods OF
low money rates. The sale of Treas
ury bills can be made to coincide
more exactly with the Governments
need for funds and will also afford
the investing public a desirable in
yestment for short term purposes" !"
Secretary Mellon explained that
the present method of financing
was developed as a war measure
aud has served admirably up to he
present time. He said, however,
that the Treasury believes that Ger
tain notifications are necessarily in
the interest of greater economy and
of closer adjustment Of current bor-
rowing in short term operations.
Mellon said it was not proposed
to discontinue the present system Of
financing, but simply to supplement
IT. with the proposed plan. In de-
scribing defects of the present short
term system of borrowing. Mellon
said:
Since the Government borrows
only four times year, the funds
are borrowed in advance OF the
actual requirements, and the inter.
est cost on such borrowing has ex.
ceeded the interest received on idle
Government deposits. Thus the
Government borrows on March IS
the funds necessary to meet
definite obligations on April Is, and
there is necessarily a 30-day in
terest loss on the funds borrowed.
IL Treasury bills were sold on April
Is the saving would be immediate
and substantial. .....>..,-...
Under the present system where
certificates are issued bearing a fixed
coupon rate the Treasury Is con.
fronted with the difficult task of ac.
curately adjusting the rate to cur
: rent market conditions, and, while,
the department has been doing this
with great accuracy, nevertheless it
would be mora desirable to have the
market itself fix the rate by com
petitive bidding"
Competitive bidding, Mellon held,
would enable the Treasury to get the,
lowest discount rates consistent with
current market conditions. The sale
Of securities could be timed to coin-
eide almost exactly with the need
for funds, thus saving interest. Ma
turtles could be timed to correspond,
close. to the actual collection of IN
come taxes and not all made to fall
on the nominal, date of tax payments
as at present. It world eliminate
the necessity occasionally present of
offering large issues during periods
of temporary stringency and high
money rates. The public would be
offered new instrument for invest
ing temporary FUNDS with frequent
and convenient maturities.