Evening star., 1935-08-31
|U.S. BOND SURPLUS
lis HELD GOOD SIGN
Lack of Buyers of Notes
Shows Treasury Need
for Boosted Rates.
BY DAVID LAWRENCE.

stabilized level and that better busi-
ness conditions are in the offing.
The Treasury may perhaps be criti-
cized somewhat for having failed to
sense the recent trend toward higher
interest rates, but $100, ,000, 900 issue
is relatively small nowadays and is,
after all, q testing device to determine
what interest rates the investor mar
ket really should be paid for the much
larger and more important issue OF
81 $50 .000, 900 Of Government securi-
ties that are to be hoated October Is
next, when the remainder Of the
Fourth Liberty Loan issue, bearing
IA per cent. Is to be refunded.
What the experiment with the
500, 900, 900 issue proved was that
for q four-year note, the interest rate
Of 11a per cent was much too low
Indeed, 1t confirms what has beer
said by competent observers for many
months-that when business began tc
improve there would be a period oi
hesitation to lend out funds until in
terest rates assumed more favor.
able trend to the investor.
Rates Interdependent.
The average man may think all thil
Is Of no concern to him because Sc
much of these Government securitie,
are held by banks and life insurance
companies and other institutions. Bu
the truth Is interest rates are inter.
dependent on one another and wher
Government bonds fluctuate and dt
not find a natural level, the cost o!
money for first mortgages or for com.
mercial use at the banks is likewiss
held in an uncertain range. This Il
not good for expanding or revivins
business.
One of the important factors in s
recovery movement Is, Of course, .
reasonable interest rate so that re.
funding and credit operations can b
carried on with confidence. And the
whole series of interest charges fol-
Government loans of short-term anc
long-term maturity must be worked
out so carefully that the interest
structure for private finance Is moi
impaired or retarded In its delicate
machinery Of satisfying the investor
For in America. the investor, whether
in public securities or in private Sc.
curities, Is king. II he does not thini
au investment is safe or If 1t does moi
give him q proper return, he either
withholds his investment for better
rates or enters the area of equities OF
stocks There have been no forced
loans by the Government in Americs
as in some other lands.
U. S. Responsibility Great.
The Treasury Department has q
stupendous responsibility in adjust
ing its interest rates to the appetite
Of the investor and gauging his be-
havior on future issues. With the
exception Of the 500, ,000, 900 issue oi
last week, which, apart from the Low
interest rate, went wrong probably
for technical reasons, Secretary Nor
genthau and his able assistant
Undersecretary Thomas Jefferson
Coolidge, have q splendid record
They have done q marvellous jot
Of handling the Governments re.
financing in the face Of New Dea
policy, legislatively speaking, which
has been everything adverse that pos.
sibly could have been imagined u
the principles of sound finance.
1t Is, to be sure, because Of q funda'
mental belief that the Roosevelt ad'
ministration must balance the Fed.
eral budget in the next two or thre,
years that the investors are buying
any Government bonds or holding OF
to what they have bought. Within
the last couple of days, the intima
tions are that Secretary Morgentnal
and the President have been discuss.
ing this very aspect of public finance
1t is, Of course, not wholly outside
the realm Of possibility that th,
Treasury itself has been trying to le
the facts speak for themselves In tn,
| discussion with the White House a.
to what can and cannot be done with
Government bonds when there is NJ
firm policy projected about budget
balancing.
Deficits Hamper Credit.
While the failure Of the Treasury
Ia per cent venture In itself has n
implications Of long-range effect, it i
obvious that If the spending polio,
and deficits Of the New Deal are to b
continued indefinitely, then the Gov
ernment may some day be faced witt
the contingency Of investor reluctanc
! to buy any more Government bonds
This is what Mr.. Roosevelt himsel
must have had In mind when he tol,
Congress early in his administrator
that too often liberal government
are wrecked on the loose rocks Of un
sound fiscal policy"
The most serious problem OF financ
| confronting any government is tn
presence Of large short-term hoatin
debt. It Is usually characteristic o
governments with unbalanced budget,
because the investor is willing to tax
chance for short periods Of time, bu
is hesitant to invest In longer-tern
issues. The short-term debt of tn
Treasury is very large, but by n
means unwieldly as yet. It may prov
serious II the Treasury Is compelle,
to keep on borrowing repeatedly 3
take care Of maturing short-term deb
and yet find new money to meet grow
ing expenditures on the part Of tn
New Deal.
While the Treasury has commend
| ably reduced the cost of borrowing
by constantly putting out short-tern
certificates and notes at low interes
rates. nobody should expect tn
Treasury to do this right along,
Hence the reduction Of short-tern
debt by refunding into higher in
terest-bearing long-term debt is tn
paramount job the Treasury face!
today. All this naturally means In
creased cost to the taxpayer, becaus'
as the interest rates 60 up, the tota
cost Of servicing o $50 ,000, ,000, ,o0l
public debt must rise also.
Decline In Values Feared.
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