We face an emergency. Marching across the face of Europe move the mechanized armies of Nazi Germany. Poland, Czechoslovakia, Denmark, Norway, Holland, Belgium, France, Yugoslavia, Greece, all have fallen. We are not immune. Directly or indirectly, our way of life, even our independence is threatened.

Our task is to make ourselves so strong that we can not only defend our nation, but defy dictatorship wherever and whenever it dares to challenge us.

This need has come suddenly upon Our peaceful country. It is regrettable that we must turn from the preoccupations of normal living to the stress and strain of armament. But there is no choice in the matter.

We must maintain and equip an Army of 2 million men and be ready, if necessary, to double this figure. We must build a 2-ocean Navy. We must build merchant ships, planes, tanks, motorcycles, scout cars, contact cars, troop transport cars. We must produce more munitions, more guns, more textiles for uniforms. We must construct buildings for additional plant capacity, and at the same time supply adequate housing for troops and civilian workers wherever needed.

The towns and cities which are springing up, where men are being trained for military service, where workers for newly constructed plants must dwell, have to be equipped with necessary facilities. There must be publicutility services, stores, bakeries, cold-storage plants, laundries, hospitals, schools, recreation centers, and motion-picture theaters.

dollars.

Such a figure is better understood when it is considered that a 35,000-ton battleship, such as the U. S. S. North Carolina, costs 70 million dollars; that it takes 50 million dollars to build an aircraft carrier; 20 to 30 millions for a cruiser.

A single four-engine bombing plane costs nearly half a million dollars. We need large numbers of these flying fortresses, as well as lighter bombers, dive bombers, pursuit planes, and still other types of aircraft, for defense against present-day methods of aggression.

The Government is also financing threefourths of the new plants needed to fill defense orders.

How Funds Will Be Raised

The Government can raise this money either by taxation or by borrowing, or both. The Secretary of the Treasury has recommended that we meet the larger part of expenditures out of current revenue. Higher tax rates, applied to the larger national income as a result of defense spending, will greatly increase the Government's revenues.

This should make it possible to finance the major proportion of defense requirements on a cash or pay-as-you-go basis.

Additional funds needed can be borrowed either from banks and other lending institutions, or from private individuals. The Government has decided to go directly to the people for a substantial part of the money it needs.

Why Borrow from Savings

Financing expenditures in large part by borrowing directly from the people will result

in certain definite advantages, as follows: Every individual will have a chance to do his part in the Defense Program.

Every individual will have available a ready means for systematic saving to meet future needs.

Well-distributed holdings of Defense Savings Bonds will serve as a safeguard to the entire country in the period of adjustment which must eventually follow the reduction of defense activities and the return to a normal peacetime economy.

Reduced earnings and some unemployment must be anticipated during this change. Holdings of United States Defense Bonds, redeemable for cash on short notice, will act as reserves quickly available in time of need.

By lending to the Government all that can be spared from current incomes, people will not only provide funds urgently needed for Defense expenditures, but will also minimize a tendency toward rising prices by curtailing their buying in competition with the Defense Program.

Curtail Unnecessary Buying

As industrial production expands, the employment of employable workers and of plant capacity will approach 100 percent. We shall be producing all the goods and services of which we are capable.

Of this maximum possible production, a substantial amount must go to the Government for national defense: Cotton, wool, and other textiles for uniforms; lumber and other building materials for barracks, for homes for industrial workers and for plant construction; coal for fuel and power in defense industries; food for the Army and the Navy; steel and chemicals for guns and munitions.

So, although production will be greatly expanded, there will be available for current consumption, that is, for consumption by individuals as opposed to consumption by the Government for defense purposes, less than might otherwise be the case.

Payment for the full amount of production, however, will be made directly through wages and salaries, or indirectly through dividends or interest on investments. Total purchasing power will thus expand as production in

creases.

Taxes of course will take a part of the increased income received, but even with higher rates, taxes will not absorb more than a small part of it. Increase in the quantity of goods actually available for private consumption will not keep pace with the increase in total purchasing power.

The result of this situation might well be to raise proportionately the prices of everything we buy. Higher prices would increase living costs and the cost of defense preparations. Thus a portion of earnings would be taken away by higher prices, leaving little or nothing to show in its place.

If, on the other hand, people invest part of their earnings in savings bonds, and there is no appreciable rise in the price level, they will be able to buy approximately the same quantity of goods as otherwise, and have savings bonds as well.

It should be added, however, that the Defense Savings Bonds can accomplish this result only if bonds and stamps are purchased regularly, and out of current income.

Prevent Price Inflation

Financing by means of Defense Savings Bonds will help in still another way to prevent an inflationary rise in prices. When banks make purchases of Government bonds, or when individuals or corporations borrow from banks to purchase Government bonds, demand deposits are likely to expand.

This is true because banks usually pay for the bonds they purchase, not with actual cash, taken from their vaults, but by placing on their books newly created deposits to the credit of the Government. The result is the same if the bank is lending to individuals or corporations for the purchase of Government bonds; that is, demand deposits to the credit of the Government increase.

When the Government draws upon these deposits to defray some of its expenses, the purchasing power of the general public is increased. Hence the purchase of bonds through the creation of new demand deposits has been accomplished without a decrease in anyone's spending, and purchasing power is increased at a time when the volume of goods available

is limited by defense requirements.

Under these circumstances, an inflationary rise in prices, with all its attendant disadvantages, might result. The purchase of bonds out of current savings, on the other hand would not expand demand deposits. It would serve to reduce potential purchasing power, and thus to lessen a tendency toward higher prices.

Defense Savings Issues--General Features

Three new issues of United States Savings Bonds were offered on May 1, 1941. They are known as Defense Savings Bonds, Series E, Series F, and Series G.

All of these Defense Savings Bonds, Series E, Series F, and Series G, are registered bonds, issued only in the name of the owner. The owner's name is written on each bond and it is payable only to the owner, unless he dies or is in some way disabled.

These bonds are not transferable, and may not be sold, or used as security for a loan. The Secretary of the Treasury may not call the bonds for redemption before their date of maturity. The owner of the bonds may, however, if he wishes, redeem them at any time before maturity, after a short initial period immediately following purchase.

Series E for Small Investors

Series E bonds are designed primarily to meet the needs of the small investor who is able to save some part of his current income. Only individuals may own bonds of this series. Holdings are limited to $5,000 in maturity value, originally issued to any one person in one calendar year.

Series E bonds may be registered in the name of one person, with another person named as beneficiary, who may inherit the bond in the event of the owner's death.

These bonds are issued on a discount basis, that is, what the individual pays for a bond is only 75 percent of its face value. The face value is payable at maturity, 10 years from the date of issue. Thus, a bond of this series, bought in June 1941 for $18.75 will be redeemable June 1, 1951 for $25. This is increase of 33-1/3 percent, equal to an

an

annual interest return of 2.90 percent, compounded semiannually.

Series E bonds are issued in denominanations of $25, $50, $100, $500, and $1,000. These are maturity values. The bonds may be bought for $18.75, $37.50, $75, $375 and $750.

Series E Bonds

Series F bonds are intended for larger investors. They may be owned by individuals in the same manner as the Series E bonds. Series F bonds may be owned also by corporations, associations or other unincorporated groups, or by trustees. Banks receiving demand deposits may not own these bonds.

Holdings are limited to $50,000 cost price, originally issued in any one calendar year. This total may be made up entirely of Series F bonds, or may consist in part of Series F bonds and in part of Series G bonds.

Series F bonds like Series E bonds are issued on a discount basis. The issue price is 74 percent of their face or maturity value. The face amount is payable at maturity, 12 years from the date of issue.

A bond of this series bought in June 1941 for $74 would be redeemable June 1, 1951 for $100. The increase in value, paid at maturity, is equal to an annual interest return of 2.53 percent, compounded semiannually.

The denominations of Series F bonds are $100, $500, $1,000, $5,000 and $10,000. These figures represent the value of the bonds at maturity. The bonds may be bought for $74, $370, $740, $3,700 and $7,400.

Series G Interest Bonds

Series G bonds are intended for those who wish to receive a current income from their investment. They are issued at par, that is, the cost is the same as the face value. They mature 12 years from the date of issue. Interest is payable semiannually, at the rate of 2 percent, if the bonds are held to maturity. Like Series F bonds, Series G bonds may be purchased by individuals, corporations, unincorporated groups or organizations, and by trustees. Banks which receive demand deposits may not own these bonds.