1947 4. 3 271. 0 3. 2
Although the public debt is expected to decline, a substantial volume of
refinancing will be required, because of the large volume of maturing
obligations. Redemptions of savings bonds also have been running high in
recent months and are expected to remain large for some time. The issuance
of savings bonds will be continued. These bonds represent a convenient
method of investment for small savers, and also an anti-inflationary method
of refinancing. Government agencies and trust funds are expected to buy
about 2.5 billion dollars of Government securities during the next 6
months, and 2.8 billion dollars more during the fiscal year 1947. Through
these and other debt operations, the distribution of the Federal debt among
the various types of public and private owners will change, even though the
total is expected to decline.
The interest policies followed in the refinancing operations will have a
major impact not only on the provision for interest payments in future
budgets, but also on the level of interest rates prevailing in private
financing. The average rate of interest on the debt is now a little under 2
percent. Low interest rates will be an important force in promoting the
full production and full employment in the postwar period for which we are
all striving. Close wartime cooperation between the Treasury Department and
the Federal Reserve System has made it possible to finance the most
expensive war in history at low and stable rates of interest. This
cooperation will continue.
No less important than the level of interest rates paid on the debt is the
distribution of its ownership. Of the total debt, more than half represents
direct savings of individuals or investments of funds received from
individual savings by life insurance companies, mutual savings banks,
savings and loan associations, private or Government trust funds, and other
agencies.
Most of the remaining debt--more than 100 billion dollars--is held by the
commercial banks and the Federal Reserve banks. Heavy purchases by the
banks were necessary to provide adequate funds to finance war expenditures.
A considerable portion of these obligations are short-term in character and
hence will require refinancing in the coming months and years. Since they
have been purchased out of newly created bank funds, continuance of the
present low rates of interest is entirely appropriate. To do otherwise
would merely increase bank profits at the expense of the taxpayer.
The 275-billion dollar debt poses a problem that requires careful
consideration in the determination of financial and economic policies. We
have learned that the problem, serious as it is, can be managed. Its
management will require determined action to keep our Federal Budget in
order and to relate our fiscal policies to the requirements of an expanding
economy. The more successful we are in achieving full production and full
employment the easier it will be to manage the debt and pay for the debt
service. Large though the debt is, it is within our economic capacity. The
interest charges on it amount to but a small proportion of our national
income. The Government is determined, by a resolute policy of economic
stabilization, to protect the interests of the millions of American
citizens who have invested in its securities.
During the past 6 months the net revenue receipts of the Federal Government
have been about 20 billion dollars, almost as much as during the closing 6
months of 1944 when the country was still engaged in all-out warfare. The
high level of these receipts reflects the smoothness of the reconversion
and particularly the strength of consumer demand. But the receipts so far
collected, it must be remembered, do not reflect any of the tax reductions
made by the Revenue Act of 1945. These reductions will not have their full
effect on the revenue collected until the fiscal year 1948.
It is good to move toward a balanced budget and a start on the retirement
of the debt at a time when demand for goods is strong and the business
outlook is good. These conditions prevail today. Business is good and there
are still powerful forces working in the direction of inflation. This is
not the time for tax reduction.