Evening star., 1932-07-03
INCREASE IN DEBT
| HAS BEEN STEADY
Moody'S Service Comments
on Rapid Gain in Fixed
Obligations.
Iepselal Dispatch to The star.

Special Dispatch to The Star.
NEW YORK, July 2-The pressing
<problem facing debtors today is how
ITO meet their debts when their income
is sharply curtailed and when there is
extreme deflation in the commodities
pr merchandise with which they would
normally cover their obligations.
There are two schools of opinion, each
t-ying to solve the debt question by a
different method. The one inclines
Strongly to the view that imitation is
necessary in order to correct current
conditions surrounding debtors. The
other discards the imitation theory and
urges that the realities of the present
ituation be accepted and that debts be
adjusted to conform to the deflation
(which has occurred in commodities Sc
euritieS and in banking credit.
Changes Needed.
Interesting figures leading I'D to a
Solution are presented in a survey of
he business situation made by Moody's
Investors Service. This points out that
#while much OF the overexpansion of
Credit in the period from 1924 to 1929
has been corrected there are still a
humber of rigid features in our eco
honic structure that need to be changed.
The survey believes it is imperative
hat a new attitude be taken toward
Domestic fixed Indebtedness, war debts
hnd certain wage rates before the busi-
hess world returns to a healthy state.
Fl In dealing with credit defiation 1t
Indicates that from the high point Of
929 to the present time all American
y ~
per cent. Loans on security collateral
kre of as per cent, but are still above
sPuch loans in 1924. Real estate loans
are down about IA per cent, but more
han two and one-half times those of
Fhe year when the advance in securities
hnd the activity in real estate promo
kion began. Brol1ers' loans since 1929
nave declined 96lk per cent, and stock
8priceS are down 90 per cent.
The deflation + the last three years
EhaS carried industrial production of
nearly so per cent. 1t is 20 points lower
than in 1924. Wholesale prices are
down one-third and the cost of living
down nearly % per cent The national
|ancome is of 80 per cent, pay rolls 56
per cent and wage rates II per cent.
While these adjustments have been
taking place fixed debt in nearly every
form has been increasing. Even since
1929 1t has gone up nearly 6 per cent.
|or from $127,000 ,oo0. 900 in 1929 to about
|$l35, 900, 100000 The total Of CORPORA
|tion bonds has increased nearly per
cent In the last three years and over
so per cent since 1925. Municipal and
State obligations have increased I415
per cent since 1929 and about go per
cent since 1928. After having reduced
the Government debt nearly $4,000
600 900 through the sinking fund oper-
ationS following the war, this debt has
risen 10 per cent in the past two years
In 1925 the outstanding amount of for
eign dollar bonds was 81, zoo, 900 600 in
1929 1t was $1,000. .000, 900 and It is now
In excess Of $4,000. 900, 900. Urban real
estate mortgages show no change since
1929, due to the difficulty in financing
them. Thew are $4,000 ,000, 900 more
than in 1925, though farm mortgages
have slightly decreased.
Interest Charges Expand.
As this addition to fixed debt has in
creased the difficulties of the debtors,
the annual interest charges on the debt.
figured in terms Of 1925 commodity
prices. have rapidly expanded In 1925
they were per cent, In 1929 q trif1e
over BIZ per cent and in 1881 13 per
cent. This strikingly suggests the pre-
dicament of the debtor. whose total
obligations have not been reduced,
though the paying value of his dollars
has steadily decreased.
The solution of the problem, accord
ing to Meody's survey. is "a forced re-
organization of the weaker debtors and
adjustment of claims to reality. The
sooner realistic view on these mat
ters obtains-that is, the sooner the
rigid lines of thought are broken-the
sooner the necessary remainder Of defla-
tion viii be completed"
It is to be hoped that this realistic
view will be taken at Lausanne in con-
nection with reparations and war debts
and that it will be applied also to those
American corporations that can no
longer carry on successfully on the
basis of an Indebtedness incurred in
prosperous times. but which might con-
tinue to be solvent if their creditors
were willing to participate in a friendly
reorganization to accomplish the re-
|quired amount of debt scaling
(CopyrighE 1922