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Mr. BELL. No, sir.

Mr. COFFEE. One more question. On these 15-20-year bonds—and I understand that on the guaranteed bonds 15–20 years, that they would sell on the basis of about 21/2 percent?

Mr. BELL. That is our best estimate; yes, sir.

Mr. COFFEE. And the present Federal land bank bonds not guaranteed, would sell on a basis of about 23/4 percent?

Mr. BELL. Yes, sir.

Mr. COFFEE. In other words, this guaranty provided in this bill would make a saving of only about one-quarter of 1 percent on bonds of that duration.

Mr. BELL. That is our best estimate of the net saving resulting from guaranteeing the obligations and reducing their tax-exemption privilege.

Mr. FLANNAGAN. What is the Government paying on 15-20-year bonds today; what interest rate, and of recent date?

Mr. BELL. The 1955–60 27/3-percent bonds are selling on a basis to yield about 2.14 percent.

Mr. FLANNAGAN. When were they issued ?

Mr. BELL. March 15, 1935. They carry a 278-percent coupon. Since then interest rates have decreased so that these bonds are selling today to yield a little over 218 percent.

Mr. FLANNAGAN. That 15-20-year bond was issued by the Government

Mr. BELL. I beg your pardon.

Mr. FLANNAGAN. That is the last issue that you have of those bonds by the Government; that is, 15-20-year bonds?

Mr. BELL. We issued a 214-percent bond of 1951-53 in December.

Mr. FLANNAGAN. Mr. Bell, do you know about what the shorttime bonds have cost the Government, say over a spread of 25 or 30 years?

Mr. BELL. The longest bond that the Government has outstanding is the 234-percent bonds maturing in 1965. They were issued on December 15, 1938.

Mr. FLANNAGAN. I do not believe that you got the purport of my question. It was this: On the short-term bonds, the interest rate is the lowest?

Mr. BELL. That is right.

Mr. FLANNAGAN. Now, on short-term financing, what has been the average rate over the spread of 25 or 30 years paid by the Gov. ernment?

Mr. BELL. You are speaking now of just short-term borrowing?

Mr. FLANNAGAN. Just short-term borrowing over that period; what is that spread?

Mr. BELL. Well, back in 1920, we paid as high as 6 percent for short money; in 1921 it was 512 percent; in 1922 it got down to a little below 4 percent; we paid about 4 percent from that period until the early part of 1924, the rate dropped to about 234 percent during the last half of 1924. It stayed about 3 to 334 percent down to 1928 when it began to rise again and got up as high as 548 percent in June 1929; and then began to drop, and in December 1930, we borrowed on 17percent basis for short-term money.

Mr. FLANNAGAN. What term was that?

Mr. BELL. One year. Beginning in 1932, we had outstanding some 3- to 5-year notes which sold at prices to yield 2.50 percent. Certificates for a term of 1 year gradually went out of the picture.

From 1932 we borrowed at 21/2 percent; in 1933, 314 percent, and in 1934 it dropped to 134; in 1935, 114; 1936 a little over 1; 1937 it went back up to 114 again, and in 1938 it dropped to a little less than three-quarters.

In 1939 it was down to a half, and today these issues sell on a fourtenths of 1 percent basis.

Those figures are the yields on the 3- to 5-year Treasury notes.

The CHAIRMAN. That high period was when we were all trying to live on the stock market.

Mr. PACE. Mr. Chairman.
The CHAIRMAN. Mr. Pace.

Mr. PACE. Mr. Bell, in that connection, I notice that on December 30, guaranteed deposits were in excess of $56,000,000,000.

In your judgment, if that enormous accumulation of money should be released in some way, some time, do you not think that the shorttime rate would go up?

Mr. BELL. With a boom, you mean? Mr. Haas. With a change in conditions, Mr. Congressman, naturally, we might have an increase in the rate; but during the interim if gold continues to come in, it might overshadow the other factors.

Mr. Pace. Is it not true that the short-term interest rates you have today is probably largely due to the fact that the money has nowhere else to go for better earnings?

Mr. Hass. The large supply of loanable funds is, no doubt, the most important factor making for low interest rates.

Mr. PACE. Mr. Bell, one other question. It has been testified before the committee, and it has appeared in the newspapers, that the President is contemplating withdrawing 200 to 300 million of this farmcredit money. It has also been testified before the committee that there is an undeveloped, undisclosed loss to the Farm Credit Administration of around $300,000,000, which has not yet developed, very probably on these Commissioner loans, and you testified just now that you thought that probably the best thing was for the land banks to take the mortgage corporation and liquidate those assets the best that we can.

If the President should withdraw two to three hundred million of the funds available; if this corporation is taken over and liquidated and $300,000,000 losses appear there, what is going to be the financial structure of the organization and who is going to take the $300,000,000 loss?

Mr. BELL. Well, if you lose $300,000,000 in the Federal Farm Mortgage Corporation, you certainly would wipe out all its capital of $200,000,000 plus whatever reserves are set up. However, the $200,000,000 is already a part of our public debt, as the Treasury advanced the money to buy that capital stock. On the basis of your figures, there would be an additional loss of $100,000,000 apparently, which would have to be met by the Treasury. I do not know that they are going to lose $300,000,000. I have not heard that. I have not seen any estimate of that amount.

Mr. Pace. That was testified to here before this committee.

The CHAIRMAN. It was not testified to, Mr. Pace, by anyone connected with the Farm Credit Administration. That was some man's opinion from the outside.

Mr. PACE. It is very noticeable that there has not been any denial made by the Farm Credit Administration, and they have been sitting here.

The CHAIRMAN. They indicated that they did not think that there would be anything like that.

Mr. Pace. I have not gotten that from the witness stand. I just think that we ought to have the whole picture of losses there and the money that is going to be withdrawn.

Personally, I want the cheapest interest rates possible, consistent with sound financing; but I think we ought to have the whole picture when we go into this thing.

Mr. BELL. Any estimate of the losses of the Farm Credit Administration made at this time must be very rough. Theirs is a longterm program, and I do not think we can know for several years what are going to be the losses, if any.

Mr. Pace. I think it is based partially on defaults, past experience, and commissioner loans.

Mr. BELL. As I recall the report made under Senate Resolution 150 did not give any such indication. In that report $152,000,000 was the estimated loss in the land banks and in the Federal Farm Mortgage Corporation, without giving consideration to future earnings.

Mr. PACE. That is all.
Mr. ANDRESEN. May I ask one more question, Mr. Chairman?
The CHAIRMAN. Mr. Andresen.

Mr. ANDRESEN. You indicated a moment ago that our excessive reserves in part were due to the large amount of gold holdings we had. Do you think there is any danger to the general public, our domestic economy, from these large, excessive reserves ?

Mr. BELL. We have had large excess reserves for several years. I cannot give you a definite answer as to what will happen in the future.

Mr. ANDRESEN. I have heard some alarm has been expressed in the Treasury on account of these large gold holdings, causing excessive

reserves.

Now, a large part of the gold, or between 11 and 12 billion dollars worth of the gold we now possess has come from foreign countries.

Mr. BELL. That is about right.

Mr. ANDRESEN. Do you believe that these large foreign gold purchases are responsible for some of our excessive reserves ?

Mr. BELL. Undoubtedly.

Mr. ANDRESEN. But, so far as you know now the Treasury is noi alarmed over it?

Mr. BELL. We know that there is a problem there; but there is no present answer to it.

Mr. ANDRESEN. In other words, we have a bear by the tail and cannot let go?

Mr. BELL. I would not say that.

Mr. ANDRESEN. Well, what can we do in order to correct the situation?

sen.

Mr. BELL. I understand the Senate Committee on Banking and Currency is undertaking a study of the whole question with a view to making recommendations.

Mr. ANDRESEN. Do you not believe that it would be advisable for us to place a tax of around 40 percent on gold imports so as to get the gold prices more or less in line with the old prices?

The CHAIRMAN. I think that we had better stay within the range of this bill.

Mr. BELL. I do not think I would care to answer that, Mr. Andre

The CHAIRMAN. Are there any further questions? If there are no further questions, we thank you, Mr. Bell.

Mr. BELL. Thank you.

The CHAIRMAN. Now, gentlemen of the committee. Mr. Taber desires to be heard and would like to leave tonight, and I am wondering if we could hear him this afternoon. The private calendar is on over in the House. I am wondering if the committee would be willing to meet this afternoon and hear Mr. Taber, meet, say, about 2:30. I understand that the private calendar will probably not take more than an hour. We can adjourn now and meet at 2:30 if that is agreeable to the committee.

Mr. COFFEE. How about continuing now?
The CHAIRMAN. What is your preference, Mr. Taber?

Mr. TABER. Mr. Chairman, I would be glad to testify now or this afternoon, whichever is convenient to you gentlemen. I can make my time suit yours.

The CHAIRMAN. I think we would hardly have time to finish before the noon hour, unless the committee wants to sit on after noon.

Several members have private-calendar bills and they do not think that it will last more than an hour.

Mr. PACE. Would there be any objection to Mr. Bell putting in tables that he has in connection with his statement !

The CHAIRMAN. Without objection that will be permitted. (The tables referred to are as follows:)

Estimated coupon rates on selected new issues of Federal farm-loan bonds

(Based on closing prices, Mar. 27, 1940)

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5 to 8 years
8 to 12 years
12 to 15 years.
15 to 20 years

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NOTE.—These estimates of coupon rates on new issues are necessarily rough because there are no issues of similar maturity and call period outstanding. (The longest nonguaranteed fully tax-exempt Federal farmloan issue outstanding becomes callable in about 6 years. The longest partially tax-exempt issue fully guaranteed by the United States becomes callable in about 5 years.) The estimates are based, therefore, on the market patterns established by the closing prices on Mar. 27, 1940, of the outstanding direct and guaranteed issues and the Federal farm-loan issues.

Comparison of short-term and long-term interest rates, 1920–30

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