Evening star., 1932-11-20
Moderate LuII in Markets and
Business Blamed on
Uncertainty.
EARLY BUDGET ACTION
ALSO HELD IMPERATIVE
Drastic Economies, New Taxes and
Long-Term Financing Seen as Way
to Bolster Confidence.
BY CHARLES f. SPEARE.
Special Dispatch to The Star.

Ok ChAhLES r. SPEARE.
Special Dispatch to The Star.
NEW YORK, November l9.-Ths
moderate relapse in markets this week
and the quieter state of business may
be charged against the active discus
sion Of the war debt question. This
topic has occupied the minds of those
Identified with financial and indus
trial enterprises. Until 1t has been
clearly established how the matter of
the December payments of the allied
nations Is to be treated, not much
progress may be expected in securities
or in trade
A temporary solution is possible from
the conference scheduled for next Tues
day between President Hoover and
President-elect Roosevelt and their ad-
visers, but in the present state of
| mind of members Of Congress and a
portion of their constituency, it is ap-
parent that the amounts due next
month will have to be paid in spite of
the embarrassment that this may mean
to Great Britain by drawing down re-
serves. needed to support sterling. This
VIII allow reasonable time to elapse
before the next installment natures,
when review of the entire debt status ,
and its disposition on an equitable basis
may be attempted.
There is no intention by any Of the
important debtors to default now.
On the other hand. it is well known
that they are unwilling to continue
along the lines dictated to them when
the present schedule of annual pay
ments was set up.
Capacity to Pay" Is Test.
In dealing with the leading debtors,
Great Britain, France and Italy, the
fair principle to apply to them in
dlvidually is their capacity to pay"
This includes not only the total sum
to be remitted annually to the United
States. but the rate of interest involved
and the number Of years intervening
before the debt is fully hquidated None
OF these countries would admit that its
credit Is SO poor today that It could
| not meet the immediate portion Of the
debt. On the other hand. all NAV
| fairly argue that their economic and
| political futures viii be deeply preju-
diced by any decree that obligates them
to large yearly transfers of funds to
this country for the next two genera
tions.
The report of the World War For
eign Debt Commission In 1925 had this
to say on this subject: while the in
tegrity of international obligations must
be maintained, 1t Is automatic that no
nation can be required to pay to an
other government sums in excess Of
its capacity to pay. Nor does the prin-
ciple OF capacity to pay require the
foreign debtor to pay to the full limit
OF its present or future capacity. It
must be permitted to preserve and i'm
prove its economic position, to bring
its budget into balance and to place its
finances and currency on a sound basis,
and to maintain, and, If possible to
improve the standard of living of its
citizens"
The heaviest burden of the war debt
is being carried by Great Britain. She
has made least complaint about it until
now. 1t is obvious that she has less
are to stand, than, for instance, France,
whose attitude toward the debt has
never appealed very much to the Amer
lean people. 1t is essential, therefore,
that the subject be viewed from the
standpoint of the individual debtor
rather than collectively, in SO far as
this can be done in its relation to repa-
rations payments.
Budget Problem Faced.
Next to the settlement of this ques-
ton as a means of re-establishing some
of the lost confidence of the last few
weeks is the need for an early balancing
Of the national budget. This is es-
sential to Q permanent recovery. 1t is
the subject on which the administration
and Congfess should concentrate in the
next three months. 1t involves not only
drastic economies by the Government
but the imposition Of additional taxes
Of a character that will not lay too
great a weight on business or on the
individual taxpayer.
There also is the unfavorable distri-
button of the Government debt between
short and long term maturities which,
sooner or later, must be corrected. If
there is ever to be time when refund
ing can be effected to the advantage OF
the Government 1t is now, with interest
rates at the lowest level since the end
of the last century and vast sums of
capital either unemployed or invested
in securities that produce only NOM
inal return. Advantage of this condi-
ton has already been taken by Great
Britain, France and Australia. 1t Is
believed that, with reasonable induce
ments. the American public would SUBJ
scribe freely to a long-term Govern
ment bond and that in the future the
Treasury would not be compelled to rely
exclusively ON the banks and wealthy
corporations for support of its new
issues.
This should also be helpful in broad
ening the market for corporation loans
and thus permitting an expansion th66
would result in wider employment. The
total amount of new capital raised by
corporations in the first 10 months OF
this year was only 1904, 100000. In the
same period of 1881 it was $1.646. 000,-
600, and in 1880 1t was 81, ,626, 900, 600
OF the new corporation capital more
than 30 per cent was procured in behalf
of the public utilities. The railroads,
iron and steel. motor oil, shipping and
other large industries found no outlet
in the open market for their financial
requirements. The competition of the
Government for capital has been SO
great in the last year as to bring about
practically an embargo on private loans.
Bank Troubles Secondary.
A secondary factor in unsettling con-
fidence this week has been the increased
number of bank failures. The chain of
institutions in Oklahoma that suspend
ed and the three banks in Pittsburgh
that closed their doors, and several
others in widely separated parts Of the
country, were apparently not considered
by the Reconstruction Finance Corpora
ton as having future that would JUS
tify this agency in coming to their
rescue Without much improvement in
securities, no betterment in real estate
and again sagging prices in agricultural
products, the position of banks that
still have a high proportion Of paper
loss on their investments to their cap
ital and surplus Is one that win be b
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