﻿104

WAR BORROWING

to the principal of the funded loan, and there is a
popular growing appreciation of the fact that under
the prevailing system a Liberty Loan is actually
spent before it is subscribed. Fiscally valid though
such procedure may be, it can hardly be doubted that
the reaction upon the public mind will be to some
extent unfavorable.

A second danger to which any sound fiscal pro-
vision for the immediate future may be conceivably
exposed by certificate borrowing is closely connected
with the inherent defect of the short-term loan as
an habitual device in war financing — descent to
renewal and refunding. As long as the anticipa-
tory issues are completely funded into or redeemed
out of the succeeding Liberty Loan, the way is left
clear for a renewal of the process. If however the
popular absorption of the Loan falls short of the
volume of outstanding certificates of indebtedness,
the Treasury is compelled either to renew or refund
maturing certificate issues or to load up the banks
with long-term obligations or to have earlier re-
course to another Loan. Similarly, if the proceeds
of the Loan be applied to current expenditures
rather than to the redemption of certificates the an-
ticipatory issues partake of the nature of inde-
pendent short-term loans that must upon maturity
either be renewed, or be liquidated from other
sources.

In both of these respects the actual experience of
the Treasury, while up to the present exempt, has at
least shown tendencies that may not be safely
neglected. In the Fourth Liberty Loan not only
was the ratio of outstanding certificates to the nom-