Evening star., 1937-04-16


rates, broadly speaking, are In the
direct and indirect control of the
Federal Government.
For all practical purposes the recent
break in bond market prices indicated
that for some time to come the
ref1nancing process by means of the
so-called cheap money which has been
SO plentiful for refunding of existing
or maturing issues of bonds will be
at a standstill. The reflnancing of
the last 18 months was fortunate for
those companies which were able to
do it. Now the reflnancing will be
done at higher interest rates or not
at all.
Refinancing Suspended.
In many parts of the United States
electric light and power companies
have been able to effect substantial
economies in their interest payments
by paying off their security issues and
borrowing new money at lower rates
of interest. Where the Government
has been in competition or threaten
Ing competition with the electric light
companies, as in the T. V. A. area
refnancing has been more or less
suspended anyway, but in other parts
of the Nation where no direct threat
of competition has been prevalent the
tendency has been to refinance and
effect economies for the consumer.
The situation in the South would
not be alleviated even if interest rates
stayed low. Some sort of joint plan
whereby the R. F. c. or some Govern
ment agency arranges to guarantee
the refinancing is about the only way
that particular dilemma will be met
and it may be the way by which
compromise set-up of a Government
partnership with the utilities or joint
Government control of certain areas
may be worked out.
But apart from the effects on
utility companies, there are other
businesses which had looked forward
to refinancing in the next year or so.
OF the s4,5o0,oO0,o0O of securities
issued in 1885, about three fourths
was in the nature of refunding of
existing debt. The saving in interest
payments was, therefore, very sub
stantial and aided producers in keep
ing prices down. The cost of the
money borrowed is a material item
in many a manufacturing enterprise.
Cheap Money Rates Urged.
Cheap money rates have, of course,
been urged by the administration be-
cause its own borrowings have been
80 extensive. AS money rates go up,
the interest on the public debt rises
and thus the expense side of the Fed
eral budget goes up, too.
What is causing the interest rate
level to rise? Partly the demand for
commercial loans, but very largely the
uncertainty that prevails about the
future Of the Federal budget. The
President is well aware of the diff
culties because he has sent out word
to all departments to economic as
much as possible. He has indicated
that the deficit for the fiscal year
ending June 80, 1887, may be much
greater than anticipated. This is
because tax receipts are not what they
were estimated to be. The gravity of
the situation, however is not alone
in the showing to be made on June 30
1887, but in the clear indication that
1888 will show a substantial deficit
too, and that was the year in which
the President really promised bal
anced budget except for debt retire.
nent.
Mr. Roosevelt has been forgiven by
his friends because his repeated
promises of balanced budget have
not panned out, but his opponents
have consistently declared that the
rising level of expenses will never
permit balanced budget. Now, how
ever, friends and opponents alike, are
faced with the fact that tax receipts
are not coming in as expected and yet
no substantial cuts in expenses have
been made.
Relying on Recovery Curve.
The administration has been relying
on q rising recovery curve to enable