Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-07-28
TREASURY IS BUSY
IN SPITE OF HEAT
War Brought Vast Banking
Task That Goes on
Unabated.
BIZ JOHN r. SINCLAIR.

The Government employes-probably
| a hundred and fifty thousand OF them
keep on working. Only few ever get
In the public print. But their work
is the essential work OF the Govern
ment.
In the Treasury through which every
government expense must 60, Secretary
Mellon cor tinues to work through the
hot Summer upon his immediate
problems.
There are many of them. Mr.. Mellon
may be found at his office every day,
receiving callers and keeping appoint
ments-right on time.
But the immediate problem Of the
Secretary Is now and always has been
keeping the financial machinery well
oiled. so that the friction will be
mininnized and the Government credit
stabilized.
Not q Simple Problem.
The problem is not so simple rs 1t
sounds. Tax receipts reach sharp peaks
four times a year while the debt ma
TURTLES and interest payments on debts
which the Government owes have never
been adjusted to these peak points. It
hes been impossible under the methods
i1i~h have been followed since the be-
ginning Of the war. But the system,
vl,ile il has worked reasonably well,
is not very flexible and HIS in 1t certain
inherent weaknesses.
Tn, aim of the Treasury at this time
is tn attempt to maintain all Of the
strong features OF I've present system,
but eliminate the weaknesses that have
cropped out in recent years In connec-
ton with 1t.
In order to obtain the huge sums Of
money needed to carry on the war, 1t
was necessary to work out q plan TO
secure as nearly rs possible 100 per
cent cooperation in all the new issues
which the Government expected to issue
for war purposes.
So, william G. McAdoo. Secretary Of
the Treasury. In cooperation with the
Federal Reserve system. originated the
plan whereby most of the banks of the
country qualified as Government de-
positories. So that all money which
came In or was paid out from that bank
for Government purposes took the form
Of book credits. The banks themselves
got the real benefit Of huge deposits
during that period, and naturally, the
interest which accrued from the de-
posts.
Income Tax Receipts Heavy.
As a result the banks gave almost
unanimous support to the Government
and the number of subscribers to the
Liberty loan bonds increased from
$500, 900 for the first issue to $500 600
for the second and over ls,oo0,0o for
With the close Of the war. the total
debt Of the Government had reached
SIG. 900. 900 900. subscribed for In more
than $4,000. 900 individual sales. There
were $4,000, 900, 900 In Liberty bonds,
$4,000, 000. 900 IN Treasury certificates OF
Indebtedness and almost $1,000, 900 900
in Treasury savings securities.
During the next eight years the Gov
eminent retired about 81 ,000, 900 900
year. During this period there was q
considerable amount Of bonds, which
matured that could not be paid out of
receipts. so these were picked up and
refunded mostly with short-term securi-
ties.
It is we'll known that on the 18th of
March, June. September and December
the Government receives very heavy in
come tax payments. Under ordinary
conditions. Federal Reserve banks. as
the fiscal agents Of the Treasury. receive
the money. So the Treasury balances In
the Federal Reserve banks really rep
resent money taken out Of the market.
On these dates these great sums of
money payments for income taxs. If
taken out Of the market and put into
the banks might cause serious condi-
ton. For oftentimes the amount runs
from $500 100000 to $Soo,ooo,0o0.
Stringeney Nicely Avoided.
So to meet this situation the Treas
ury has issued certificates which mature
In an amount about equal to the estt-
mated tax payments. AS a result, the
two transactions wash and the threat
ened financial stringency does not take
place.
But oftentimes the Government needs
additional funds to carry on not pro-
vided for under the above arrangements,
so additional certificates are sold. But
not for cash. The banks pay for them by
sending to tbs Treasury q deposit slip
for the face value of the bonds. Then
the Government receive per cent inter-
est on the deposit. This gives the Govern
ment cash In these banks, which 10 calls
upon when 1t needs money for It's vari-
Gus purposes.
% It makes Government deposits
depend not upon the Secretary of the
Treasury, but upon the amount of Sc
curities any bank sees fit to subscribe
for.
az It furnishes the Government with
a first-class primary market for its Sc
curities.
80 It permits large fiscal operations
to be conducted without involving q
large transfer or withdrawal Of funds on
single date.
Now the disadvantages of such sys-
tenn are obvious: 1t means the Govern
ment pays out considerable more in
terest. for 1t borrows much In advance
borrow on these quarterly tax dates suf-
flcent money TO carry over the ordinary
expenditures over the receipts during
the next three months
Large Deposits Carried.
AS result, large deposits are carried
by the Government for months at a
time. So what the Government loses Is
really the difference between the coupon
rate at which the Government securities
were issued and the 2 per cnt which IL
receives from the banks on the deposits.
That this item Of idle Government
deposits amounts to huge total may
be seen from the records. The war
years show up the highest. For exam
pie, at the close Of the fiscal year 1915
the Government had on hand In cash
81 .585, 900 900. The next year IL had al
most as much. But since that time this
amount Is considerably less, but at no
time has 1t been less than $2lO, 900 900
Now, how can that amount be re-
duced and the Government operations
be carried on with efficiency.
The answer-the Treasury BILL
On June II Congress passed an act
giving the Secretary of the Treasury
power to issue Treasury bills on q dis.
count basis and payable at maturity
without interest. These Treasury bills
are offered on a competitive basis, and
the total which the Government can
issue cannot exceed ten billion.
This Is something new. Never before
In American history has the Treasury
bill been part of the fiscal system. II
Is copied from England, where about
two hundred and nifty million dollars