Baby Mystery

When a Democratic Administration needed billions to fight the War, Congress judicially inserted in the Second Liberty Bond Act a top limit to the U. S. debt. That figure--$48,000,000,000--was never approached. To a municipality a debt limit is an effective curb because it is usually fixed by State statute which invalidates securities issued in excess of the authorization. A Federal debt limit, however, is utterly without significance, for it may be changed by Congress at will. And sure enough, fortnight ago, Congress solemnly cut the debt limit from $48,000,000,000 to $45,000,000,000 by a legislative trick which in actual effect boosted the limit by more than $9,000,000,000.

That legal exercise was prompted by the fact that under the old law the Treasury could not replace with new issues some $12,000,000,000 of Government bonds that have been retired or refunded since 1917. And while Secretary of the Treasury Morgenthau still had more than $8,000,000,000 to go before reaching the limit on short-term issues, his leeway on long-term bonds was only $2,500,000,000.

When President Roosevelt signed the debt-bill last week he was less interested in these purely hypothetical limits than he was in a provision which authorized the Treasury to sell discount securities in small denominations. These baby bonds in units as low as $25 will be sold through post-offices or "otherwise," in a grand drive to place some of the Government's towering debt in the hands of bona fide investors instead of in commercial banks. Appropriate fanfare is planned for March 1 when Secretary Morgenthau will sell to President Roosevelt Baby Bond No. A1.

Secretary Morgenthau expects to raise hundreds of millions through loyal post-masters. His good friend Tom K. Smith, head of Boatmen's National Bank of St. Louis and a vice president of the American Bankers Association, informed him that there was "great interest" throughout the land. But many another banker was less sanguine. Small investors have not seen a discount security since the days of War-Savings stamps. Most private investors want their interest regularly. Instead, they will soon be asked to buy a $100 Government bond for, say, $76. The interest, compounded, will be paid at maturity in one lump sum represented by the difference between the purchase price and the face value.

Furthermore, Secretary Morgenthau's baby bonds are not transferable. They may be turned in to the Treasury for redemption after six months but not sold because Mr. Morgenthau does not want them to seep into bank portfolios. But just why a thrifty citizen should be expected to gobble up an unmarketable, low-yield, non-coupon bond while savings banks are solvent remained a profound Morgenthau mystery.

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