Evening star., 1949-01-02
Support Of U. 5. Bonds
Proved Successful,
Despite Obstacles
by the Assoeiatsd Press

NEW YORK, Jan. 1.-The guardi-
ans Of the Nations credit pulled a
rabbit out of the financial hat this
year in one Of the slickest maneuvers
in years.
Told in the language of the bank
ing trade, the trick doesn't sound
like much. The results, though, rip
pied through Main Street, Wall
Street and Pennsylvania avenue.
! The monetary authorities, in
short, successfully supported the
price of United States Government
bonds and in so doing kept the long
term interest rate down to around
2la per cent.
This policy of supporting Govern
ment issues at or slightly above par
created opposition that at times had
all the fervor of fanaticism. A by
product Of the policy was a cat
and-dog fight in the business world
in which one man, Thomas L. Par
kinson, of the Equitable Life As
surance Society took on virtually
single-handedly the Nations COM
merclal panKS.
Argument Still RACES.
| The argument over the wisdom Of
the Administrations support pro-
gram is still raging. At the yearend,
though, it looks as If the authorities
are playing with a pat hand.
The proof lies in current prices for
Government bonds. Long-term is
sues are selling above the prices at
which the Federal Reserve System
stands committed to buy all bonds
that are offered for sale.
The advance above the support
levels, or pegs, occurred only re-
Gently and after the Federal had
purchased hundreds of millions of
dollars of bonds. Since then the
Federal has been able to sell some
Of its long-term holdings.
Government support of the bond
market means. simply, that the cost
of borrowing money for long periods
was kept down.
The cost of money is a decisive
factor in the amount of taxes you
pay. 1t determines how much big
business has to pay to build plants,
improve its methods and charge for
its products. 1t decides what it will
cost you to build a home And it's
major. factor in the corporate
bond market.
Faced Tough Problem.
Support for the Government bond
market was originally dictated by
the desire Of the administration to
keep the interest cost on the ma
tional debt as low as possible. That
was undoubtedly laudable aim but
In the process the administration
found itself faced with what seemed
to be an insoluble problem
A policy of cheap money. or low
interest rates. began with the ad-
ministration of Franklin D. Ro6se-
welt. The idea behind the policy
was to keep down the cost of money
in order to stimulate the use of
money by business. Interest rates
gradually declined until the start of
the war when they were frozen at
the then existing rates.
A1CeT tne war Cnere was strong
pressure to increase interest rates.
The monetary authorities recognized
the trend by allowing the short term
rate to rise although at the same
time refusing to bulge on the long
term rate.
Railroad bonds, on the average,
made little headway over the year.
The carriers gradually moved up to
l948 high in June, and then settled
down for the balance of the year
without reaching the low established
in January.
Low-yield, or high-priced bonds
established high in midyear,
dropped to low in early November,
and then started to turn upward
again.
Industrial bonds closed 194s at
just about the years top.