Aid from the Treasury
It is generally conceded in financial
circles that one of the most serious drawbacks to the present financial
situation is the continued accumulation of money in the Treasury.
During the months of July and August something over $6,000,000 passed
from the banks and from general circulation into the Treasury, the
government receipts having exceeded the expenditures by this sum.
Since the beginning of September the same process has continued
to operate, it being shown that the revenue reduction act passed
at the last session of Congress was inadequate, so far as creating
an equilibrium between the government receipts and payments are
concerned. In the meantime, the New York banks are obliged to meet
interior demands for money in connection with the crop movement.
As was pointed out in these columns a week ago, institutions at
the west are drawing upon deposits kept with their New York correspondents,
and since the beginning of August, when this movement in currency
to the south and west began, the New York associated banks, although
they have received considerable assistance from Alaskan and Australian
gold transferred from San Francisco, display a loss of fully $20,000,000
in their cash resources. It is generally estimated that in a normal
crop year about $30,000,000 has to be sent from the eastern financial
centers during the crop season. From the beginning of August until
the first week of November last year the New York banks, however,
lost $40,000,000, and in 1899, when the movement was complicated
by other causes, between $40,000,000 and $50,000,000 went from New
York to interior points, the total loss of cash by the banks being
The financial situation at the end
of last week was certainly calculated to create caution in banking
circles, even where there was no disposition whatever to take an
unduly unfavorable view of the matter. Complicated as matters were
by the attempt upon the life of President McKinley, the members
of the New York Clearing House committee, representing the New York
banks as a body, naturally felt impelled to adopt protective measures.
With this object in view, it is understood
that representative New York banks made up a pool of from $10,000,000
to $15,000,000 to be loaned in the market on call at 6 per cent.
Owing to the half-holiday there is no call-loan market on Saturday,
which, under the circumstances, was an advantage, enabling both
borrowers and lenders to take a dispassionate and calm view of the
situation, the assurances given that the President’s wounds were
not fatal having an additional beneficial influence. On last Monday
this syndicate money was freely offered at 6 per cent., but before
much of it had been placed other lenders offered rates down to 5
per cent., and finally to 4@4½ per cent. for call loans.
During the remainder of the week call money was abundant at around
4 per cent., and time loans were again made with freedom on a basis
of 5 per cent. until Thursday, when rates rose again to 5@6 per
cent., possibly on early information that the President’s case was
more grave than had been represented. The expectation that gold
shipments from Europe would set in, though entertained by many,
was not realized. On last Monday, owing to the influence of the
higher rate for call loans, demand sterling fell to 4.85. This figure
is about three-quarters of a cent above the normal gold-importing
point. It is estimated that comparatively trifling expense would
be incurred in securing and shipping about $5,000,000 from London
to New York with exchange at the present level. This, however, presupposes
a 6 per cent. money market, and, although leading bankers are understood
to have considered the matter and to have found that no serious
obstacle would have been placed in their path abroad, it was apparently
concluded that circumstances did not warrant extraordinary action
in connection with gold importations.
On the other hand, the Clearing House
committee thought that existing conditions warranted an appeal to
the Treasury, and Mr. F. D. Tappan, respresenting [sic] the New
York associated banks, communicated with Secretary Gage on the subject.
Mr. Gage’s response was prompt, and involved the issuance of orders
that internal-revenue receipts should be deposited with the national-bank
depositaries up to the full amount of the bonds held by the Treasury
against such deposits, instead of only 95 per cent. of their par
value, as has heretofore been the rule. This, it is estimated, will
add about $5,000,000 to the government deposits in the national
banks. More important than this, the Secretary announced that tenders
would be received by the Treasury for the purchase of $20,000,000
government bonds for the sinking fund, the only class of bonds excluded
from this offer being the new 2 per cents.
Under this offer Mr. Gage on Thursday
received tenders of $7,695,700 of bonds and accepted $7,508,800
of the amount at prices fractionally above the market quotations
for the various issues. Of the total, no less than $7,000,000 were
offered by New York bankers, including Messrs. Harvey Fisk & Son,
J. P. Morgan & Co. and a syndicate made up by Vermilye & Co. and
the Messrs. Fish, which tendered $3,500,000 of the 4 per cents of
1925 at 140. The offers accepted by the Treasury were, as Mr. Gage
explained, at prices which, if the proceeds were reinvested in the
new 2 per cents at the average market price of these bonds since
September 1, would yield an income return of about 1.62 per cent.
on the investment.
It can be readily appreciated that
the head of the Treasury was bound to take a conservative course,
as in making bond purchases of this kind the government is in danger
of raising prices against its own interest. Closely held as government
bonds now are, those not held by the banks for circulation or as
security for government deposits being in the institutions or investors
who have little inducement to sell, there is no floating supply
to speak of, and any demand tends to promptly strengthen prices.
Under the circumstances, the fact that the offers were comparatively
small need create no disappointment, and it would seem that further
pressure in the money market would result in a larger response to
any subsequent offer the Treasury may make.