Evening Star Newspaper, September 29, 1936, Page 10

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Look in your Va-tro-nol pack- age for full details of Vicks Plan—a mnul home lundc to greater freedom In clinic tests among 17,353 peoplc this Plan cut sickness from colds more than halfl Follow Vicks Plan for Better Control of Colds ‘| money” in the private financial lockers ENDLESS BURDEN IN ANNUITY PLAN Sweeping Economuc Effects Hit Financial Structure Many Ways. The far-reaching eflects of the new social security program, now & leading topic in the national po- litical fleld, are discussed here in the tenth of a series of articles based on a first-hand survey of the operation of the system in seve eral States, as well as of the cen~ tral administration in Washington. BY BLAIR MOODY. This proposal to pile up a $47,000,- 000,000 “paper” reserve fund in the United States Treasury, theoretically to finance a system of old-age annui- ties, has so many sweeping economic ramifications, hits so many sectors of the Nation's financial structure so hard, as to make you want to laugh— or shiver. Accumulation of a large “savings ac- count” by the Government might at first blush seems to be a conservative, confidence-inspiring move. Would that not give the Government something it could always fall back on? Would it not give the people a sense of security? Would it not be a relief to feel that Uncle S8am, instead of being “broke” and mortgaging the taxpayers’ future to the hilt, had huge resources he | could call on in an emergency? The answer is that, instead of being | conservative, this reserve idea is the most radical move by far ever made by the Roosevelt administration. In- stead of promoting security, it would promote extravagance. Instead of bul- warking stability, it would completely disorganize the delicate financial mechanism on which the Nation now operates. It would, for example, “pay off” the national debt, by taking it out of pri- vate hands, but in reality it would| freeze the debt at a level higher than the present one and saddle the tax- payers with a perpetual annual inter- est charge of nearly $1,400,000,000 for | this purpose alone. Currency Revolution. It would revolutionize the currency system of the country and shake the banking system until its teeth rattled. It would raise havoc with the in- vestment portfolios of private xmur-l | ance companies, stimulate the flow of | { both private and Government funds | into all sorts of new enterprises and | be & perpetual, enticing temptation to | spend and inflate. An sadministration which has bit- terly criticized the piling up of re- serves as a check on recovery and a walling-up of purchasing power— and based its tax policies on that theory—would itself be creating in perpetuity, on paper, the greatest walled-in reservoir of potential pur- chasing power ever collected in one place. As the Government is getting all this money (if it does) it can do one of three things with it. It can pur- chase outstanding obligations in the open market. It can put Government bonds directly into the fund, take the money and spend it. Or it ean issue special obligations to the fund and take the money. ‘The first plan would “retire” the national debt by bringing bonds privately held into the hands of the | Government. The secand or third schiemes would merely give Congress the money to do with what it pleased—balance the budget, finance the deficit, boost the benefits, or just | spend it. | Now consider what will happen | when and if the Government chooses to pay off its debt that way (and even | | 8 Government would have a tough time trying to “just spend” forty- | seven billions). First, it would serve as the greatest “open-market opera- tion” in financial history. At the | present time, the Federal Reserve Board inflates the Nation's credit structure, when it seems desirable, by buying in Government bonds. This procedure releases a flow of cash to be used for other purposes by those | previously holding the bonds. Operation in One Direction. The building-up of this reserve fund would be one long open-market operation—always in one direction. ‘The Government would rarely sell bonds, as the Reserve Board now does to check inflation. If it did sell, the reason would probably be that in hard times collections from the pay roll taxes had not been enough to keep the old age annuities going and under that situation the sale would merely accelerate the depres- sional spiral. The release of all these funds, now held in “governments,” would mean that the private investors would have to find & new place to put them. It would promote the issue of new securi- ties and a “bull” stock market. It would expand the Nation’s industrial plant by new construction. It would, with a vengeance, release the “pent-up of the Nation. The only trouble with that side of it would be that, as we found out in 1929, “the higher they go, the harder they fall.” Now in April, 1936, Federal Reserve banks had 45 per cent of their loans and discounts in United States bonds or bonds guaranteed by the Govern- ment. When Uncle Sam bought them in, where would the money go? The banks' favorite method of keeping their position flexible is by borrowing from the Federal Reserve on their own notes secured by Government obliga- tions. That will be impossible if the Government owns all its own debt! The currency of the country is based, through the Federal Reserve banks, on the holding of Government bonds by the Reserve banks, and theo- retically, on the need of business for expanding or contracting amount of money outstanding. If the Govern- ment holds all the bonds, it must change this system entirely, or issue money directly against its own bonds held by itself, which is now consid- ered the rankest sort of inflation. Other Government Bonds. A large proportion of the invest- ments of insurance companies and other savings institutions also are in Government bonds. What will be con- sidered a sound insurance portfolio when (and always if) these bonds all gravitate to the Treasury “Reserve?” In short, the thingy that have al- ways been considered inviolate in our financial structure would, by the very existence of this huge reserve, be torn up by the roots. And the economic echoes of the scheme would 2xtend far beyond this financial skele- on of the Nation. Its huge tax bur- ‘en, totaling 9 per cent of pay roll ‘or annuities and unemployment in- surance, would the eost of v THE EVENING STAR, WASHINGTON. living. The fact that a person would have to retire before receiving an an- nuity would tend to create more jobs for the young to succeed the retir- ing old. A somewhat ironic factor is the steadfastness with which all politicians on all sides of the fence seem to avoid a “sales tax” for balancing the budget lnd whipping the Nation’s financial house into shape. Yet they placidly accept what amounts to a pyramided sales tax masquerading under an- other name, like the pay roll taxes and the A, A, A’s invalidated process- ing taxes. It's a case of a rose by another name smelling sweeter. In discussing the reserve fund, we have referred to what it “would” rather than what it “will* do, be- cause Congress, if it is to be continued, must appropriate for it every year, and can drop it any time it pleases. ‘There is nothing in the law which requires Congress to do anything but finance the annuity system by some method “computed on a reserve basis in accordance with accepted acturial principles.” It is up to the Secretary of the Treasury each year to recom- D. C, TUESDAY, SEPTEMBER 29, 1936. mend how much should be laid aside. And it is & fair guess that, when and it the trust fund mounts to a dissy do, | height, Congress may balk at piling it up still higher. But there’s another angle that has not been generally considered, which is the ace-in-the-hole argument of those advocating the reserve plan. They ponit out that, by taking the national debt out of private hands, the government makes it unnecessary to pay interest except to itself. By going to & pay-as-you-go plan, the taxpayers would eventually have to e LAST 2 DAYS OF e /4 STORE-WIDE THE furnish an amount equal to from 10 to ]2 per cent of payrolls to finance the annuities, and would have to pay the interest on the government debt besides. “If you invest the debt in the reserve fund, your interest not only carries the debt but- helps carry the annuity plan,” says Edwin E. White, who was secretary of the President’s Committec on Economic Security. “The 6 per cent payroll tax, plus the 4 per cent that will be paid anyhow on the debt, will do the job. It will make the total cost between 10 and 12 per cent, instead of between 14 and 16 per cent.” Either way, it sounds like a lot of money. ‘The answer seems to be that, so long as the Government tries to go through with a set schedule of “con- tracted” benefit payments as large as those specified in the act, it is heading | for & headache. And since a man | and wife can now draw under the Federal-State straight pension system | $60 a month without making ‘ny\ contribution at all, which- is more | than the average contributing work- | man can get under the annuity pro- gram if he kicks in his payroll tas for 40 years, it would be a strangs move to try to reduce the benefits. (Copyright. 1936, by the North American Newspaper Alltance, Inc.) "and burning of urplu. HHURB'S SENSATIONAL DRASTIC REDUCTIONS IN EVERY DEPARTMENT No Money Down! Up to 2 Years to Pay! NO PHONE ORDERS! BED ROOM SUITES 56950___,;;OPOC FANCY WALNUT FINISH BED 54.00_...3-PC. 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FINISH_. 14.95____LOUNGE CHAIR—RUST OR GREEN...... 795. 16.95____COGSWELL CHAIR 23.95.___LOUNGE CHAI RUG R G OTTOMAN __. 5.93 3.97 8.93 4.95 4.97 9.28 10.48 14.58 9x12 or 8.3x10.6 SEAMLESS AXMINSTER RUGS . 9x12 or 8.3x10.6 SEAMLESS VELVET RUGS 9x12 or 8.3x10.6 SEAMLESS TAPESTRY RUGS 6x9 COTTON CHENILLE RUGS 4x6 AMERICAN ORIENTAL CHENILLE RUGS- 27x45 AXMINSTER SCATTER RUGS..-. Boudoir ‘3.97 Colonial Desk ____ $1 395 NO DEALERS! LIVING ROOM SUI 'ES HOMESPUN TAPESTRY LIVING ROOM SUITE 129.75....2-PC. RAYON VELVET LIVING ROOM SUSE ___ 249.00 .. TINE-SEAV 79.50 2-PC. MOHAIR TAPESTRY (VALEN- 114.75.___3-PC. MOTHPROOF .‘.‘CH‘\\R L\ /xNG ROOM SUITE ————————————————— 78.59 88.75_...2-PC. MODERN TAPESTRY LIV OOM SUITE 149.50____2-PC. MODERN GENUINE KINKIN O 149.75_._.2 ROOM SUITE -PC. MODERN MASSIVE LIVING 10450___3-PC. FRIEZETTE LIVING ROOM SUITE 69.95 STUDIO COUCHES $25.95____MODERN 4250____MAPLE ARM 44.75____BED HITE 32.95_:._CAPITOL BRAND 4250____FOSTER TWIN STUDIO - 46.75____KROEHLER AUTO BED. DESKS & SECRETARIES $9.95__._WALNUT-FINISH SPINET DESK.... 18.95____WALNUT-FINISH KEYHOLE DESK 15.95____MODERN KNEEHOLE—WALNUT FINISH_ 25.95____MHG.-FINISH COLONIAL SECRETARY.... 34.95__._GOV. WINTHROP SECRETARY.... s 32.75..._MODERN SECRETARY < --- 1L.95 8.98 17.68 23.98 23.64 $14.75____GAS COOKER—3 BURNER. .- -ccteeeee 42.75____GAS RANGE—BUFFET MODEL 29.75____COAL RANGE WITH WARMING CLOSET 21.60 6.95____2-HOLE LAUNDRY STOVE 19.75_.._WOOD-BURNING COOK STOVE. 5.95....0IL HEATER 16.95. -OIL CIRCULATING HEATER. 8.50____EGG COAL HEATER 9.95..._OAK COAL HEATER—NICKEL TRIM... 4.49 14.62 3.98 12.93 5.64 6.93 19.95____COAL CIRCULATING HEATER--aeeaaem 13.95 NICELY FINISHED 56 9x12 Felt ALL SALES FINAL! D-DAVENPORT SUITES $97.50____2-PC. 149.75_.__2-PC. MOHAIR SUBRE &= - 139.50____HOM UN DAV 124.75____3-PC. TAP 106.75.__.2-PC. MOD 64.50____SOFA BED F 2 FR 450_"_\‘ /ALNUT- 6.95____WALNUT VE 8.95____WALNUT-F 498____WAI 349____ W 595 _ 1995 . 4295....EL TR c \" S 44.95____ELECTRIC IRO TAPESTRY DA NPORT SU $64.10 -118.00 - 98.50 - 96.50 - 89.50 - 39.80 129.50__._HOT POINT SPIN DRY WASHER. 99.50____HOT POINT WA 3.95..._2-BURNER ELE 1.59____ELECTRIC IRON 2.95____ELECTRIC TOASTER. 2.79____ELECTRIC KITCHEN CLOCK 4.75____WAFFLE IRON 8.95.__.9-PC. HOSTESS S 14.95____5-PC. ENAMEL BREAKF/ oP BREAKFAS' SUITE-.. 22.95 5-PC. PORC. T 5-PC. OAK EXT. 698, _PORCELAIN TOP KITCHEN 895____PORCELAIN TOP CABINET BASE.___. ST SUME. 13.48 - 4.29 6.49 KABLEA 24.75..._KITCHEN CABINET—IVORY G GREEN_. 16.87 4.95____UNFINISHED 1.98____UNFINISHED VI5:..58-PC. SET D 19.75___.100-PC. SET DIS ¥7.75____53-PC. SET DISH 4.98__..CHILD'S BASSINE DROP LEAF TABLE_. 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