Imperial Valley press., 1944-11-24
Economist Views
Plans to Pay
Government Debt
Bv ROGER W. BABSON


BABSON PARK. Mass, Nov. "a.
How can the huge postwar u. S.
government debt be servieed? When
the total annual expenses of the
government under President Cool
ide Including army. navy, pensions,
debt. it6rest, etc. were only three
billions. how can We now provide
the money to pay interest alone of
six billions?
Prewar national income was about
sixty billions. Our bankers state that
Washington will provide the neceS-
Sary money to pay interest on the
$500 coo 000.0 .0G0 debt By doubling
this national income. BY increasing
prices. land values, etc, this can
perhaps be done; but I am not too
sure Certainly. initiation would be
a dangerous way out.
StatiSticians believe that all ma
tions must make some readjuSt-
ments in their huge debts after the
war. They see no reason why the
United States-if We want our
share OF foreign trade-Should not
do the same thing. If SO, how may
our debt be readjuSted?
GOVERNMENT OWNERSHIP
Some day the banks together
with the railroads. public utilities
and certain large corporations, may
be taken over by the government.
This, however. will not happen until
the next business depression. One
step. however. We may expect any
time. This will be to nationalize the
twelve federal reserve banks and
thus save the government the in
terest on bonds held by these re-
serve banks.
The federal government could
also institute a 100 per cent reserve
policy and thus save the govern
ment the interest on all govern
ment bonds held by the banks This
is now being advocated by the Lon
don Economist" In fact. Godfrey
Crowther recently urged such a
program before the Manchester
,EnglanO statistical society. This
could be done. he claims, in a way
not to hurt the banks. although l
am not too sure of this.
My own present guess is that as
the E F" and G's" become due
an entire new system of refunding
will be instituted which will both
save the government money and not
necessarily hurt anyone. For in
stance, maturities up to a limited
amount-say S5000-will be paid in
cash. Larger holders can be given
the option: ~ OF accepting 2ia
per cent registered fifty year bonds
two per cent being retired by lot
at par each year. it being under
stood that the government shall
not buy any in the open market un-
der par, or C2) Of accepting per
cent coupon ten year bonds which
would have 4 free market and have
some tax advantage.
NEW LEGISLATION
Along with such refunding, .egiS-
lation will be passed by congress
whereby insurance companies (and
this will now be possible under the
recent supreme court decision) will
be allowed to value such 2la per
cent bonds at par; and banks will
be allowed TO value the / per cent
bonds at par-Whatever either issue
may be selling for in the open mar
ket. This program could result in
cutting the federal interest costs
about in half and ultimately in re-
tiring the bonds.
All of the above means that the
federal debt could be divided into
two parts-like the departments of
every bank-viz: a savings depart
ment and a commercial depart
ment. These who want income will
get 2i2 per cent. but they must be
willing to forego liquidity until their
bonds are called by lot at par.
Those vino want liquidity must be
content with l per cent interest. but
they will always be able to sell their
bonds. This should be nc different
from the way the banks are now
treating us depositors in their two
aforementioned departments.
We all should buy our share of
war bonds series E F" and G."
During the years ahead they may or
may not be our best investment
Only the future can tell; but this
one thing is certain: If we will also
buy carefully selected list Of good
stocks, then we will have two bar
rels TO our gun. If the bonds go
down in price, the stocks should go
up; while if the stocks go down, we
will have a safe backlog in the
bonds.