Debt, Credit, and Recovery

Report Outline
Administration's Attitude on Debt and Credit
Public Debt Increases and New Loan Facilities
Debt Reduction and Reorganization Measures
Credit Expansion V. Debt Reduction as Recovery Aid
Special Focus

Administration's Attitude on Debt and Credit

The Drive for economic recovery initiated by the Roosevelt administration has led to government spending on a scale never before attained in time of peace. The large borrowings necessitated by this program had. before the close of the fiscal year 1934, wiped out substantial reductions in the federal public debt effected since the war and raised the total of that obligation to a new all-time peak. Not only did the federal government undertake huge expenditures on its own account, but through the public works program it induced states and local governmental subdivisions to in cur additional indebtedness for the purpose of providing work for the unemployed. Federal funds were likewise made available for a wide variety of other purposes, enabling government agencies to make new or increased loans to banks, railroads, industry, and farmers and other individuals, while authorization was given for creation of various new credit facilities directly or indirectly under government auspices.

The administration's program of liberal spending and liberal provision of funds for other than governmental use, resulting in new public and private indebtedness, was accompanied by measures designed to reduce the amount of existing debt commitments and ease the weight on debtors of both old and new obligations. Amendments to the bankruptcy laws made possible reorganization and composition of debts of municipalities, rail roads, corporations, and farmers. Several enactments opened the way to alleviation of the mortgage burden on many hard-pressed farm and home owners. Devaluation of the dollar was carried out in the hope that it would raise prices and thus enable payment of old debts in a unit of value more nearly equivalent to that prevailing when they were incurred. Other policies of the administration, in so far as they might speed general recovery, were also calculated, directly or indirectly, to improve the debtor's lot.

Reconciliation of Conthadictoky Debt Policies

An apparent contradiction was plainly visible in the aforementioned debt and credit policies. On the one hand, the administration plunged the federal government more deeply into debt, stimulated borrowing by lesser governmental units, and readily acceded to demands that it open the channels of public credit to private individuals and interests. On the other hand, it adopted policies and set up machinery to facilitate reduction of semi-public and private indebtedness and encourage eventual complete retirement of certain types of debt previously ordinarily contracted on an un-amortized basis.