Character and Grouping of Domestic Corporate Issues (New and Refunding)

GOVERNMENTAL CREDIT AGENCIES

Several new governmental credit agencies covering widely different fields were established during the year. The Federal Farm Mortgage Corporation, established by an act of Congress approved January 31, 1934, is authorized to issue and have outstanding at any one time a total of $2,000,000,000 of bonds for the purpose of financing the loan operations of the Federal land banks and the Land Bank Commissioner. The First and the Second Export-Import Banks, authorized by Executive orders on February 2 and March 9, 1934, with combined authorized capital of $13,750,000, were established "to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States and other nations or agencies of nationals thereof." The National Housing Act, signed by the President June 27, 1934, is directed toward stimulation of private lending in the mortgage field by insuring mortgage loans and the deposits of investors in thrift and home financing institutions. The Housing Administration created by the Housing Act may insure financial institutions against losses incurred on loans made or notes purchased by them, provided the total loss does not exceed 20 percent of the aggregate original face amount of such loans or notes. The total liability incurred by the Administrator shall not exceed $200,000,000. The Federal Savings and Loan Insurance Corporation, also created by the Housing Act, provides for optional deposit insurance for building and loan and similar financial agencies.

The export-import banks made practically no loans during the year. At the end of the year the Housing Administration had insured 20 percent of the $30,451,000 loaned under the Housing Act and the Federal Savings and Loan Insurance Corporation had insured deposits and shares in building and loan associations to the amount of $83,600,000. The largest expansion in governmental participation in finance during the year was in the mortgage field. Loans of the Federal Land Banks increased from $1,213,000,000 at the end of 1933 to $1,896,000,000 at the end of 1934, and Land Bank Commissioner loans rose from $71,000,000 to $617,000,000 during the same period. The Home Owners' Loan Corporation, which had closed loans amounting to about $96,000,000 at the end of 1933, had increased this figure to over $2,000,000,000 by the end of 1934.

The increased participation of the above agencies in the field of mortgage finance has been paralleled by a decrease of mortgage holdings of certain other financial agencies. Real-estate loans of member banks declined $88,000,000 during the year, the mortgage holdings of life-insurance companies were reduced about $800,000,000, and the Reconstruction Finance Corporation reduced its loans to agencies engaged in mortgage finance.

The Reconstruction Finance Corporation, however, increased both the scope and the volume of its other lending activities in 1934. Total proceeds of loans and stock purchases disbursed, less repayments, increased from $1,960,000,000 at the end of 1933 to $2,394,000,000 at the end of 1934. Loans to banks and trust companies declined, but this decline was more than offset by an increase of $596,000,000 in purchases of preferred stock, capital notes, and debentures of banks. Railroads were indebted to the Reconstruction Finance Corporation to the amount of $376,500,000 at the end of 1934, an increase of about 12 percent over the 1933 figure. Despite the broadening of the scope of its lending operations, about 80 percent of total loans and stock purchases represented advances to banks and railroads at the end of the year.

The importance of governmental credit agencies can be seen from the accompanying table.

Condensed Balance Sheet of Governmental Corporations and Credit Agencies,

Source Compiled from data published by the Federal Reserve Board.

Total loans of governmental corporations and credit agencies amounted to $7,324,000,000 on December 31, 1934, an amount only slightly below 61 percent of the loans of member banks on December 31, 1934. The Government interest in these corporations amounted to $4,447,000,000, or about 43 percent of their total assets. In addition, the Government had guaranteed the obligations of these corporations to the amount of $3,327,000,000.

LIFE INSURANCE AND SAVINGS INSTITUTIONS

The monthly average of new life insurance written in 1934 increased about 8 percent over 1933, while premium collections increased about 4 percent. The principal changes in the assets of life-insurance companies during 1934 were in their Government bond and mortgage holdings. Government bond holdings of 49 legal reserve life-insurance companies increased about $891,000,000, or 43 percent during the year, while total mortgages, both farm and urban, decreased $735,000,000, or 13 percent. Policy loans and premium notes held by these companies declined about $104,000,000, or 3 percent from the corresponding 1933 figure.

Savings deposits changed little during the year. Deposits of mutual savings banks increased about $163,000,000, or only 2 percent. Postal savings deposits at the end of the year were practically unchanged from December 1933, while time deposits of reporting member banks were only slightly higher than at the end of 1933. Whereas the large growth in the volume of postal savings deposits in 1932 and 1933 reflected mainly a lack of confidence in banks, the present volume reflects more largely the lack of banking facilities and of fields. of investment in which depositors are willing to invest their funds.

PUBLIC FINANCE

FEDERAL GOVERNMENT

The financial operations of the Federal Government during the calendar year 1934 were marked by a substantial increase in receipts and a considerably greater increase in expenditures. The resulting deficit made it necessary for the Treasury to borrow heavily and the public debt rose beyond the previous peak in 1919. The large deficits and increased debt were occasioned by expenditures in the emergency classification, since receipts were sufficient to cover the general expenditures, including debt retirements.

RECEIPTS

Tax and other receipts of the Federal Government, exclusive of trust account items, were $3,491,739,000 for 1934, on the basis of data in the unrevised Daily Statement of the United States Treasury. This represents an increase of 38 percent over receipts of the preceding calendar year. The rise is the result of increases in all classes of receipts except the proceeds from foreign government securities (war debt obligations) which fell from $20,336,000 to $668,000. Customs receipts rose 7 percent to $308,143,000. Miscellaneous receipts, exclusive of the proceeds from foreign government securities, were $204,876,000 as compared with $142,913,000 in 1933. The yields from corporate and individual income taxes were about $465,000,000 and $448,000,000, and were above the preceding year by 33 percent and 18 percent, respectively. As in the past 2 years, miscellaneous internal-revenue taxes constituted the principal item in receipts and amounted to $1,582,659,000, or almost half of the total. As compared with the preceding year, the yield from such taxes increased 31 percent, largely as a result of taxes on alcoholic beverages which brought into the Treasury about $375,000,000, an increase of over 170 percent. Another important factor in the rise of total receipts was the return from the group of special taxes levied on the processing of certain agricultural commodities. The return from these taxes, which is specifically allocated to agricultural subsidies, amounted to $482,232,000 as compared with $133,327,000 in 1933. Tax legislation in 1934 altered the existing laws in several respects. The taxes on alcoholic beverages were on the whole established at higher rates than those previously prevailing. Tax rates on estates and gifts were increased, and both the corporation and individual income taxes were materially modified, generally in the direction of increased yields.

EXPENDITURES

Expenditures in the calendar year 1934 were $8,028,197,000 as compared with $5,105,519,000 in 1933. A truer basis of comparison is afforded by deducting public-debt retirements which are made at irregular intervals during the fiscal year. After this deduction, 1934 expenditures were $7,556,012,000 as compared with $5,068,924,000 in 1933, an increase of approximately 50 percent. Of the expendi

tures exclusive of debt retirements, $4,670,933,000 or 62 percent were classified by the Treasury as emergency and $2,887,079,000 or 38 percent as general expenditures. Part of the emergency expenditures consisted of outlay of funds for loans and investments that are repayable. The Budget Bureau reported that about 36 percent of the emergency expenditures in the fiscal year ended June 30, 1934, were of this type.

Expenditures under the public-works program have increased rapidly. In the last 6 months of 1933 only about $217,500,000 was disbursed for this purpose, in the first half of 1934 the outlay was $436,000,000, and in the 6 months ended December 31, the disbursements were approximately $659,000,000. There remained on that date unexpended appropriations of $1,738,000,000, or over half of the appropriation available for public works.

DEBT

The net deficit for 1934, exclusive of public-debt retirements, was $4,064,273,000, the difference between expenditures of $7,556,012,000 and receipts of $3,491,739,000. The deficit was met by new borrowings. The gross public debt increased from $23,813,791,000 at the beginning of the year to $28,478,664,000 on December 31, an increase of $4,664,873,000. Of the total increase in debt, $600,600,000 represents additions to the general fund of the Treasury and $4,064,273,000 represents the financing of the net deficit. At the close of the year the balance in the general fund was $2,563,846,000, an increase of $1,537,697,000 in the 12-month period. The increase is accounted for by a rise of $125,722,000 in trust and related accounts, by $811,376,000 of the increment of gold that was allotted to the general fund, and by an increase of $600,600,000 in the funds derived from new indebtedness.

Although the mounting public debt has increased interest charges, this burden has increased much less rapidly than has indebtedness, because of declining interest rates. As compared with December 31, 1930, when the interest-bearing public debt was at the post-war low of $15,733,710,000 and the computed annual interest charge was $591,524,000, the public debt on December 31, 1934, was 77 percent higher but the annual interest charge was only 40 percent higher. The computed annual interest charge was $827,106,000 at the close of 1934 upon an interest-bearing debt of almost $28,000,000,000. The computed interest rate at that time was 2.960 percent, being below 3 percent for the first time since 1917. The trends of the interest-bearing debt and of the computed interest from 1919 to 1934, inclusive, are shown in chart 9.

The cost of new funds secured by the Treasury has been affected by the type of securities sold as well as by the general decline in interest rates. The short-term issues have been taken up by financial institutions which were faced with a shortage of desirable commercial loans and were eager to maintain a high degree of liquidity. The Treasury has met this demand by relying largely upon the sale of short-term issues at very low rates as a source of new funds. During the year, long-term United States bonds increased by only $676,000,000, or 4.34 percent, while short-term issues, excluding special issues not offered for sale, rose $3,776,000,000 or 50 percent; and at the close of the year constituted 40 percent of the interest-bearing debt.