THE AMERICAN DEBT. T HE chief financial event of the present
week has been the publication of the prospectus of the new American Funding Loan. At an issue-price fractionally over par, this form of security will, beyond any doubt, find much favour with the British investing public, who are already largely in- terested in the Government Bonds of the United States. But the new Funding Loan has more than a money-market import- ance. It bears testimony to a remarkable advance in the financial policy of the Union, and with the maintenance of that policy the highest political interests are bound up. Only ten years ago the opinion of the shrewdest European financiers was that the United States, when the excitement of the war had spent itself, and the pressure of taxation only was felt, would be impatient under an unaccustomed burden, and would incline to rid themselves of it, or at least to lighten it at the expense of others on the first available opportunity. Never was there a miscalculation of motives more unjust, and at the same time more consistent with ordinary experience. The truth is that the European financier wholly misapprehended the view of the National Debt that was taken by the mass of the American people. The American view was simply this,—we almost quote the words in which an eminent American citizen once expressed his individual conviction :—" We are as impatient of this Debt as your European peoples are of taxation. From our childhood we have been taught to believe that a heavy national debt is an oppression, a monarchical, a European institution, and we cannot bear to contemplate it as a permanent imposition upon American society. It is contrary to our political ideal, and we intend to pay it off, however hard the task may be. We feel it as a private gentleman feels a crushing mortgage on his estate." In this spirit the Americans and their Government faced the difficulty of the Debt ten years ago. Its magnitude and the rapidity with which it had been piled up might have appalled the most stout-hearted of financiers. In 1860, when the national balance-sheet was made up, a few months before Lincoln's election, the whole of the Federal liabilities were stated to be about £12,950,000 ; two years later, after fifteen months of war, the Debt had been multiplied more than eight-fold, and stood at 514,000,000 dollars, or £103,000,000. The average annual addition to the Debt during each of the four years following was close upon £120,000,000 ; and in 1866 the total burden was not less than A783,425,879 dollars, or nearly £580,000,000 sterling. The greater part of this immense Debt bore interest at 6 per cent., and its actual pressure was therefore considerably heavier than that of our own indebtedness, though the nominal capital was about one-fourth less. The Americans, however, were not going to submit, as we have said, to such a permanent imposition upon their national energies. The reduction of the Debt became one of the principal and most popular elements of the Republican policy. During the first three years succeeding 1866, when the policy of paying off the Six-per-cent. bonds was initiated, the average yearly diminution of the burden was over £26,800,000, and in July, 1869, the aggregate Debt was a little under £500,000,000. In the following six years the rate of reduc- tion slackened, the average amount paid off yearly being from £5,000,000 to £6,000,000. Towards the close of last year the debt was computed to be something over £450,000,000, showing a gross reduction since 1866 of about 140 millions sterling, or £14,000,000 a year. And this reduction is seen to be a much more considerable effort than at first appears, when we look at the section of the Debt with which only it was concerned. Of the whole of the American Debt, as it is generally stated, the note-issues and other secondary obligations make up about one-quarter in nominal amount, and upon these neither the policy of repayment nor that of refunding has worked. The Debt, of which the interest is payable in coin, is the mass at which the Washington Treasury has unflinchingly and doggedly quarried away, and with the most notable results. After 1869 the Debt bearing interest was £520,000,000, and now about £335,000,000, of which over £180,000,000 are six-per- cents., and the rest five-per-cents. At the close of the war almost the whole of the interest-bearing Debt consisted of six- per-cents., and it was not until 1870, when the character of the American Government for honesty had been established by its large repayments and its exactitude in meeting current obligations, that refunding began to be thought of as a practi- cable measure.
At that time, however, it seemed certain that the securities of the United States could be placed upon the European mar- kets at or above par, and that, by a judicious financial policy, these bonds might be substituted, within a reasonable time, for such of the Five-twenties as would not be paid off. Legislative power was given to the Treasury to issue £100,000,000 of 5-per-cent bonds, payable at the pleasure of the United States Glovernment after 1881 ; £60,000,000 of 4}-per-cent. bonds payable after 1886, and E140,000,000 of 4-per-cent. bonds payable after 1901. The first issue under this legislation is well known in all the European money- markets as the American Funded Loan, and its Five-per-cent. bonds have lately attained a very high price. Some ten months ago the Secretary of the Treasury disposed of the last portion of the authorised five-per-cent issue, calling in an equivalent amount of six-per-cent Five-twenty bonds. The Five-per-Cents. Loan now established themselves as one of the soundest of investments, and the Washington Treasury Depart- ment was lately advised by the highest financial authorities in the United States that the issue of the 4f-per-cents. might be profitably undertaken, in the present state of the' money-market. Accordingly, arrangements were made with a " Syndicate " of financial firms for placing the new loan in Europe, and subscriptions have been invited at 103,1, the price at which the Five-per-cent. bonds were currently quoted in Europe less than a year ago. There is little doubt that the whole of this issue of bonds will be speedily taken up, and will replace about one-third of the unredeemed Five-twenties. The credit of the Union will then be near the point at which the remainder of the " Five-twenties " wilI be refunded in 4- per-cant. bonds. This is a magnificent result of persistence in a fixed purpose, for American finance has been wretchedly unscientific, and its only quality which deserved, as it has won success, was the dogged perseverance with which people and Treasury alike insisted that a National Debt should not be a permanent institution.
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