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 $80,000,000.
     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.