Evening star., 1940-10-20
Small Investor
To PLAY Vital
Defense Role
Sole Of U. S. Bonds
In Broader Market
Is Advocated
BY GEORGE T. HUGHES.
(Releasec by the North American

oiC WV" tiic'N VA eAAAo
time year ago while Government
receipts are running ahead of last
year. Here are the figures taken
from the Treasury statement of
October 10:
Expenditrs. S:.eo3 6as.:5, s.. 100, 1870: la
Receipts 634 950SS4 l.51o.151 49,
Deficit o96s. 741,36s Sl,159.a7@.75l
The fiscal year runs from July
to June 30 This is, therefore, the
l941 year. and so far the excess
of expenditures is roughly $780,
600 900 less than it was at the
same time in the 1910 year. Nobody,
however, need jump to the con-
cluSion that this is permanent
trend. 1t Is not. All that has hap
pened is that the outgo for ex-
penses, in particular defense ex-
penses, is not up to schedule, but
the taxes are coming in as per
estimate. The budget is not balanced
nor is it going to be. 1t does give
Secretary Morgenthau little more
time than he had expected to have
before new financing must be ac-
complished. Probably it means that
another jump in the authorized debt
limit can be postponed while
longer But that, too, is sure to come
in time.
Real Savings Needed.
This then is an appropriate oc-
casion to consider how the Gov
ernment deficit is to be financed
from here on. The problem was
touched upon by Dr.. Sumner H.
Slichter, professor of business eco
nomics al Harvard in the round
table iscussion Modifying
Americas Economic Strength, at
the recent luncheon forum in this
city given by Chairman Sloan of
General Motors. Dr.. Slichter. re-
ferring 20 the ways and means of
avoiding initiation hroucht on by
GefonSo e%OenditureS End the in
evitablc defiation that would follow,
said:
Another important protection
against the shocks and dislocations
will be through financing a large
part of the defense program by
means Of real savings-that is. pur-
chases OF national defense bonds
by millions of small buyers. We
shall probably generate considerable
consumer income as result of the
defense program during the next
two years. and if all of that con-
sumner income were to attempt to
translate itself into higher stand
ard of living at once, the imitation
which Mr.. Moulton has warned
against would be very difficult to
prevent.
The Liberty bonds purchased by
millions of Americans during World
War proved the most important
cushion when the war was over.
They provided the mans for
first payments on many hundreds
of thousands of houses and
automobiles. We came out of that
war with the best reserve against
unemployment that we have ever
had. and it is important that we
repeat it and protect ourselves
against the transition period by
persuading millions of Americans
to support part of the defense
program out of the savings from
their larger pay rolls"
Distinction Made.
Bankers and economists are
agreed that the desirable method
of defense financing, insofar as it
Is done by issuing bonds, is to sell
the bonds to real investors who will
pay for them by drawing on their
savings and not TO banks who pay
for them by crediting the Treasury
with deposit for the required
amount. The one is not initiation
is too we'll known to need elabora-
ton here.
To obtain this objective, however
requires a Government obligation
in a form and with an investment
return which will attract both the
insurance companies and the sal
aried man and wage Garner. That
means a higher interest cost to the
Government. At present the savings
bonds (popularly called Baby
bonds') are the sole recourse for
the small saver. Their distribution
should be pushed even at the cost
of increasing a demand liability
already of some three billion dol
lars total. Possibly coupon bond
could be substituted for the dis
count, one now being offered AS
to the institutions and larger indi-
vidual investors the suggestion is
made of longer-term issue than
any now on the market with, of
course, higher return and more
carrying costs to the Government.
Such is the dilemma that will face
the next Secretary of the Treasury