The Indianapolis times. [volume] (Indianapolis [Ind.]) 1922-1965, 1934-01-25


NTOW, of course, nothing so alb
! y surd as this is happening. But
something not unlike it is happen
ing. BY borrowing very large sums
for short periods at high interest
rates, the government is providing
a beautiful refuge for banks and in
veStors who do not want to take
risks whatsoever. But recovery
means a willingness to take some
risks. That means that lenders and
investors must be made to feel that
it is improbable not to take any
risks.
That means that lenders and in
vestors must be made to feel that
it is improbable not to take any
risks. That means that they must
be able to earn very little money in
interest if they take no risk. But
that is not all. This policy not only
makes it attractive not to lend to
industry; it makes it extremely I'M
attractive to borrow. For if the
government is paying a lot for
money for no risk whatever, bust
ness has to pay exorbitant rates to
borrow. That is exactly what has
happened. The government pays
212 per cent, taX-eXempt, for year.
The yield on the very best corporate
bonds is about Az per cent, and on
bonds that represent enterprise and
risk the average is as high as As
per cent.
This surely is one of the funda-
mental reasons why we do not have
that private capital market which
every one is yearning for. The liza
bility provisions of the securities act
is no doubt deterrent. But as long
as private long term capital is so
expensive and federal short term
capital SO attractive, it is difficult
to see how private investment can
be expected to revive.
nor the past two years the Brit
l. ish have been dealing effectively
with this problem. Since the begin
ming of 1882 they have brought
down the yield on long term gov
eminent bonds for more than per
cent to about per cent; Of indus
trial debendtures from about 51a per
cent to 4 per cent. This is an
enormous difference. When you
reduce the yield on a bond from 4
to 8 per cent you reduce the income
by Is per cent. The investor hold
ing such a bond promptly begins to
look around for a bond that will
give him a better income. That
means that he must move out of
the area where there is no risk into
the area where there are risks be-
cause there is enterprise.
The capitalist, especially after he
has had a bad fright, is all for sit
ting at home in front of the fire.
If you make it too comfortable for
him there he will never go out of
doors and go to work. So what you
have to do is to feed him less and
less while he stays at home. till he
begins to feel hungry. and am
bilious. That its what the British
have done to their capitalists. By
bold cheap money policy they
have depressed the rate of return
on the safest investments to point
where money has begun to go back
to work. These high rates for no
risk which the treasury is paying
are just nothing but a way of
pauperizing" the capitalist. They
have much the same effect as a
dole which pays so well that a man
would rather be on the dole than
take job.
GO much for the principle. On
~ the technical procedure I do
not venture to have an opinion. .
But it is difficult to see what can
be fundamentally wrong in Mr.. j.
M. Keynes's recent suggestion that
the Federal Reserve system should
begin replacing it's short term gov
ernmentS with long term govern
mentS. The Federal Reserve holds
over two billion of securities. If it
began to buy long term government
bonds it would force down the yield
by raising the price.
This would enable the govern
ment to sell long term bonds in
stead of short and to convert its
large floating debt. If the policy
were pursued boldly, capital would
find it increasingly unattractive to
remain intrenched in bonds with no
risk, and would begin to seek bonds
and stocks that represent enter
prise.
This would reduce the cost of bor-
rowing, and so encourage business
men to borrow.
Technical as it is, the reduction
Of the rate of interest is one of the
prime conditions of a business re-
covery, and it is time that the
two tho h2y1lyc RI