Evening star., 1932-12-17
BALANCED BUDGET
HELD TRADE NEED
Expert Believes Business Re-
VivaI Waits on Govern
Mlent Financing.
Special Dispatch to The Star.

Special Dispatch to The Star.
NEW YORK, December Ito the
layman the mystery Of the enormous
subscriptions by banks and corpora
tions to all new issues Of low-interest-
bearing Government securities remains
unsolved. He cannot understand the
practice that has been in existence fo-
over year Of filling investment port
folios with Treasury certificates and
discount bills at nominal rates Of in
terest and at the same time shutting
of the supply of capital from markets
that need it in order to facilitate the
ordinary operations Of business
The latest illustration of this Gov
ernment security complex is furnished
by the overSubscription for the 234 per
cent four-year notes and the three
quarters Of ! per cent certificates,
which the Treasury offered last week.
The one was covered 20 times and the
other 16 times.
On the other hand. three excellent
public utility and industrial loans that
were brought on the market recently
have had hard Shedding. All of them
were available today at approximately
the price paid by the underwriters, or
from ~ to 2l2 per cent below the
price Of issue.
Competition for Capital.
The competition between the Gov
ernment and private corporations for
capital was referred to by Col. Leonard
P. Ayres today in review of the busi-
ness prospects for 1888. G In this he
said:
New construction and industrial
equipment are normally paid for by the
fotation of long-term bonds, and until
such issues can be sold in volume, no
return to satisfactory business activity
is to be expected. 1t is quite unlikely
that such issues can be freely sold
until the Federal Government itself
can market a long-term issue, and it
may well be doubted that this can be
done until convincing steps have been
taken to insure real balancing of the
Federal budget"
The amount of new corporation cap
ital. placed in the first II months of
this year was only S3l5,0000 900, of
which about s274.O00,O0O represented
period of 1881 new capital created by
similar corporations was about $l,700,-
100000, in 1880 it was S4,763 900 900
and in the January-November term of
1929 it was s8,377 000,00 or % times
more than this year. Including the
most recent Government offerings there
have been IS Treasury issues placed on
the market this year, aggregating So
00O,0OO,000. The amount applied for
was s48 1000, 100000, or an average over
subscription of six times.
The report of the controller Of the
currency for the year ended June 80,
1882. shows that the investment ac-
count OF 19, 163 banks on that date in
cluded United States Government Sc
curities of par amount of $685.
$4,000. This was nearly double the
sum OF Federal securities held the year
previous. 1t compared with $1,000 .0O0,-
600 bonds OF States, counties, munich
palltles, railroads and public service
corporations. The September 80 state
ment of the banks to the controller of
the currency and TO State banking au-
thorltleS was notable for the expansion
that had occurred since June 80 in
government short-term paper. When
tne december 81 report is available it
Is not unlikely that another increase
be indicated
1t Is understood that before the De-
cember 10 offering of Treasury paper
was announced last week, a number of
the large New York banks and trust
companies indicated to the Secretary
OF the Treasury that they would be
willing to subscribe to between $780,
100000 and s4O0. .00o0 900 in Iong-term
Government bonds. 1t was also re-
ported that the life insurance com
panles have available something like
$500 COO,000 which they are anxious to
place on long-term basis and would
prefer Government securities.
Experiment Is Urged.
The value in at least trying the ex-
pertinent Of long-term Government
loan would be in educating the public
to the safety of United States Govern
ment bonds as well as their productivity
In income. for it is assumed that a long
maturity would carry rate of at least
312 per cent. At the same time there
would be started a program of reduc-
Ing the shortterm debt and providing
a source OF money supply other than
that which has been confined to the
banks and large corporations. When
money rates begin to advance under a
revival of business, they will obviously
sell out their low interest bearing paper
and by so doing considerably unsettle
the market for all Government loans.
On the other hand, a general distribu-
ton of long-term bonds with the pub
Tic would lessen any such contingency.
(Copyright, 1922