Evening star., 1942-07-13
Heavy Bank Buying
OF Treasury Bonds
Eyed Wari|y
Absorption Of Growing
Debt Creutes New
Credit Problems
BY FRANK MacMILLEN,
Wide World Business Writer.

NEW YORK, July 13.-The
United States Treasury last week
successfully sold $4,000 100000 worth
of bonds in the first offering of the
current fiscal year, which began
July l.
If that seems a prosaic statement,
something to be expected, it should
be noted that Wall Street watched
this particular issue with more in
terest. perhaps, than any since the
United States entered the war
There never was any question
that the issue would be largely
oversubscribed.
Allotments to subscribers were So
per cent of the amount applied for.
That is, subscription applications
were $3,843, 10000 for the $2,00O,-
100000 issue.
But money market experts, con-
cerned with the fact an increasing
amount of the debt created by the
war is going into the banks, noted
particularly that these institutions
were huge buyers of the new issue.
Huge Orders Revealed.
Secretary of the Treasury Nor
genthau, jr., revealed two big New
York banks alone applied for $780,
100000 and $125,000, 900, respec-
lively, of the new issue. These were
among the largest single subscrip-
tions ever made for any security
Offering.
Dealers in Governments were
agreed that other banks were also
very large subscribers for the issue,
which bore a 2 per cent coupon
and natures from 1949 to 1851,
making it medium term issue.
The longest term Treasury bonds
outstanding now come due in 1860.
The issue did not come through
without a helping hand from the
Federal Reserve Banks which bought
$50, 100000 of Government securi-
ties in the open market.
The Reserve System has been buy
ing Governments in the open mar
ket since early April, during which
time it has added nearly s700 900, 900
to its portfolio in the greatest buy
Ing campaign of this kind in the
l8 years the regional banking sys-
tenn has been in existence.
The object, of course, has been
to sustain the excess reserve" posi-
ton OF the commercial banks and
thus facilitate their absorption of
the huge amounts of new Govern
ment securities being fioated.
Reduced at New York.
Even so, the excess funds of New
York City member banks declined
by $55,000,0 900 during the last week
TO reach the unusually small total
of s295, 10000, lowest since the end
of 1887.
Thus while the banks are absorb
ing big new offerings of Govern
ments and appear capable of doing
so indefinitely, money experts said,
the operation is not being accom-
plished without adjustments
throughout the banking system.
Bankers point out that absorp-
ton OF the growing Government
debt to a large extent by the COM
mercial banks poses special prob
lens for the whole credit structure.
When a commercial bank buys
Treasury securities it pays for them
not with cash but with a deposit
credit on its books.
This Government deposit, as 1t is
spent, merely becomes private de-
posits as those who receive it de-
posit the Governments payment
checks in their banks.
In this way, when the Govern
ment borrows from the commercial
banks, it creates, in a sense, its own
currency, for it has money to
spend while nothing on balance has
been subtracted from the total
amount OF check money the country
possesses.
Linked With Imitation.
This is what the economists mean
when they talk about credit infla-
tion," the creation of means of pay
ment without any corresponding
increase in the amount of goods
money will buy. 1t invites, and in
fact almost creates, higher prices
unless other steps are taken to
check it.
That is the reason, money market
experts explain. why the current
huge issue of Government securities
and those forthcoming shortly have
been watched SO closely.
These experts will watch for many
months to come how great a pro-
portions of each new issue flows
into the commercial banks, where it
can become a phantom addition to
the money supply at a time when
the things money can buy are de-