Evening star., 1950-04-30

uSeQ 10 puy an T. bOllu, dIlO
asked, do you think that I am
safe in continuing this practice?'
To this profound question:
question which an increasing
number of American citizens are
today asking as the Federal Gov
ernment continues it's policy of
deficit financing and the public
debt mounts and mountS-the
Assistant Secretary replied:
II can assure you that the peo-
pie of the country need have no
fear for the safety of their Gov
ernment bonds. Never in the his
tory of this country has the Fed
eral Government defaulted on any
of it's obligations or paid them at
less than par value. The present
debt will be no exception. :"
In commenting further on the
letter from Senator Magnuson's
constituent, Mr.. Bartlett said:
Factors to Consider
1.-The letter also raises a queS-
ton with respect to the purchaS-
ing power of the dollar which may
be received in redemption of saw
ings bonds at maturity. 1t should
be borne in mind that changes
in the price levels have no differ
ent effect on the dollars with
which United States Government
securities are repaid than on the
dollars with which other securi-
ties-corporate stocks and bonds,
mortgages, etc-are repaid. While
1t is, of course, possible to place
money in some forms of invest
ment in the expectation that they
would appreciate in value, thus
hedging against higher prices,
there would also be a correspond
ing speculative risk. When COM
pairing United States Government
securities to other forms of in
vestments, therefore, it is neces-
sary to consider not only the pos
sible rate of return and appre-
citation in value which may ac-
crue from other forms of invest
ments, but also the security of
income and safety of principal
offered by the United States Gov
ernment Obligation -
In this question and answer, we
have opened for us the whole
question of whether or not the
integrity of our money is being
jeopardized by the present deficit
financing policy of the admins
tration.. ~ ~-.
The question this common
man" asks is whether or not the
dollars which ultimately he will
receive in payment for his bonds
when they mature will have a
purchasing power value equal to
that of the dollars he is each
month investing in E Bonds. The
Assistant Secretary, however, an
swers this question by, in SUBJ
stance, merely stating that Gov
ernment bonds now being pur-
chased will without doubt be paid
dollar for dollar, plus interest, at
maturity. The fact that the dol
lars with which these bonds are
repaid will be the same kind of
dollars used to pay corporate
bonds and other securities and
mortgages as they mature does
not appear to be pertinent to the
question.
1t would seem that the crux of
the question is a matter of value.
That is, will today'S holders of
Government bonds be paid S,
10 or 20 years hence in dollars
which, in terms of purchasing
power, will have an actual value
only Of dimes, in relation to the
purchasing power value of the
dollar at the time it was invested
in the bonds.
Stresses Safety
In his reply to Senator Mag
nuson, the Assistant Secretary of
the Treasury stressed the safety
of an investment made in Gov
ernment bonds. He is entirely
correct in emphasizing the safety
OF Government bonds insofar as
whether or not they will be paid
In full in dollars. No one should
doubt for a single moment but
that they will be fully repaid in
dollars upon maturity. The ques-
ton, however. is not one of num-
bers but of value. Safety in re-
spect to numbers is but one OF
many factors which goes to make
up value. In addition to this
there is the important factor OF
purchasing power value of the
dollars at the times the bonds
mature in relation to their pur-
chasing power at the time the
investment was made. Another
important consideration is secur-
ity, or, as the banking fraternity
would say, collateral. Unlike
bonds issued by corporations ano
secured by mortgage on some
tangible property which, in the
event Of default, might be reduced
to the possession of the bono
holder, a Government bond is Sc
cured, not by some tangible prop
erty. but only by the power of the
Government to impose taxes upon
the people-upon holders and non
holders of bonds alike.
Since the Government has the
power to issue bonds in unlimited
amounts and in turn issue money
(dollars) against these bonds, the
only thing which secures the value
Gas distinguished from safety in
sofar as number of dollars involved
is concerned) of United States
bonds is the integrity of the Fed
eral Government. And since peo-
pie know that throughout all times
governments have been in the
hands of frail human beings who
under stress invariably tampel
with the currency as q means OF