Evening star., 1950-12-31
Government 10 Turn
To New Borrowing 10
Finance Rearmament
By ChorIes MoIony
Associated Press Financial Writer

By Chorles MoIony
Assoeiatsd Press Financial Writer
Mobilization is adding to the
financial headaches of a Federal
Government which already owes
far more than it's 1872 million
people, its business concerns,
States, cities and counties put
together.
Administration officials admit
privately the Government Is going
bto have to do more borrowing in
1951-thereby increasing debt
already above $257 billion-be-
cause taxes won't go up enough
to cover the surging costs of
rearmament.
The Treasury Department ex-
poets to tap lenders (from
individuals to banks for several
billions.
New Borrowing Due.
The new borrowing will have
to be done against the back
ground of these complications:
/. The Governments back debt
is about five times the size Of its
prospective income in 1851.
2. About $1.1 billion in Savings
Bonds sold to individuals just
before and during Pearl Harbor
month, December, 1941, will be
due for final payment in 1851
because they've been held a full
10 years.
Another 1894 billion in these
bonds, and over $40 billion in
other types of savings bonds could
be presented to the Treasury for
payment in 1851, although they
are not finally due until later.
3. About $13.6 billion or about
81 in each $40 the Government
already owes, is tied up In bills
that fall due each 81 days and
have to be ref1nanced over and
over through the course Of the
years.
4. Most important of all, the
Treasury will have to ref1nance
over $40 billion in debt that will
come due during 1851 when secu-
rites mature that have been out
standing for as long as 20 years.
Interest Rate Lifted.
In 1850 the Treasury had an
easier time Of it. It had to bor-
row only around billion in new
money. but it was compelled to
lift the rate Of interest it pays.
That is important, because
carrying charges on the huge Fed
eral debt already cost about IS
billion a year. This has to be
raised by taxes or borrowing, and
a l per cent rise in the interest
rate average is enough to cost the
Government over $2.5 billion.
Government financing in 1850
was featured by a conflict be-
tween the Treasury Department
and the Federal Reserve Board
over what rates the Government
should pay on securities, not
counting the infrequently issued
long-term bonds.
The conflict was active from
mid August to Thanksgiving Day.
Then the two Offices reached an
agreement that may or may not
prove very lasting.
Crux of Conflict.
Crux OF the conflict was Fed
eral Reserve insistence that the
Treasury pay higher interest in its
borrowing in order to help check
mounting imitation.
The Reserve Board contended
higher Treasury rates would bring
higher interest rates all around
and that higher rates would dis
courage borrowing. Also that
new securities carrying higher
rates would tend to keep banks
from selling Government securi-
ties to raise money for loans to
other borrowers.
The Treasury, however, held to
the view that higher rates for its
securities would increase carrying
charges on the Federal debt, but
could not be counted upon to re-
strain inflationary borrowing in
other quarters.
Argument at Peak.
The argument reached its peak
after the Treasury refinanced
some $13.5 billion in maturing
debt with an offering Of ~ per
cent. 13-month notes, sticking
pretty much to the rate 1t had
been paying before imitation be-
came menacing.
The Reserve authorities retail
lated by forcing up the interest
rate on the Treasury's 9l-day bills
from a 1.174 per cent level to
1888 per cent, highest rate for
such issues since the 1888 bank
holiday.
They did so by holding back on
the buying support the Reserve
System usually gives the Treasury
to help keep up the prices of its
securities and thus to enable it
to hold down the amount of in
terest 1t pays.
The Treasury Federal Reserve
peace or truce - was signaled
when the Treasury, under pres
sure, offered So billion in five-year
notes at a ia per cent rate, "a
per cent higher than it's last pre-