I am not suggesting in the bill now before the committee any provision in the way of bond issues to meet this estimated deficiency for 1918. It seems clear to me that until the new revenue measure is passed it would be useless to take up that deficiency, and that we could do it with very much greater satisfaction after we get the new revenue bill and know just what additional amount of bonds will have to be issued to meet the deficiency, which will then be a more definite item. It is now, of course, an entirely uncertain one. That is the reason I am suggesting no additional bonds on account of our own operations in the bill now before you.

I may say with respect to the credits to foreign Governments authorized by the act of April 24, 1917, that $2,000,000,000 of the $3,000,000,000 have been granted, leaving still $1,000,000,000 under that bill available for such loans. At the present rate the foreign Governments have been asking us for loans, that authorization will be exhausted by the 1st of November. Their requests have aggregated more than $500,000,000 per month-that is, counting Great Britain, Belgium, France, Italy, and Russia-and, then, we have made a small loan to the Serbian Government. The amount of the Serbian loan is $3,000,000. If the requirements continue at the same rate for the remaining eight months of this fiscal year after the exhaustion of the first authorization, my own judgment is that we ought to have authority to lend those Governments $4,000,000,000 more if the war continues that long. That would be at the rate of $500,000,000 a month. If we can hold the credits down to that amount, it would amount to $7,000,000,000 of loans to foreign Governments since the outbreak of the war.

The CHAIRMAN. Up to the end of this present fiscal year?

Secretary McADOO. Yes; that is, up to the 30th of June, 1918. Of course I do not know whether their expenditures are going to be held down to that amount for the remainder of the fiscal year. The requests which they have submitted up to the present time have exceeded $500,000,000 a month, but our loans have not exceeded that amount on an average.

I am going to submit for the record here a statement of the loans made to the allied Governments up to August 24, 1917, under the act of April 24, 1917, and the moneys actually drawn by them against these authorizations of credit. The total of credits to date-that is, up to the 24th of August, 1917-is $2,066,400,000.

The CHAIRMAN. All loans made up to August 24, 1917?

Secretary MCADOO. Yes. I shall submit a tabulated statement showing the amount of credits to each Government and the loans actually made against these commitments. The $2,066,400,000 represents our commitment to those Governments, and against that they have drawn up to date $1,730,500,000.

The statement referred to follows:

TREASURY DEPARTMENT, Washington, August 25, 1917.

MY DEAR MR. KITCHIN: By direction of the Secretary, and in reply to the verbal inquiry of Mr. Walker, clerk of the Committee on Ways and Means, for information as to the amount of loans made to the allies to date and the countries to which the same were made I have to advise you as follows:

Loans to foreign Governments to August 24, 1917, inclusive.

Secretary McADOO. When we establish a credit for one of these foreign Governments we, of course, charge that against the authorization and then the foreign Government draws from time to time as its necessities require.

Mr. FAIRCHILD. Mr. Secretary, for my own information, will you tell me what it is that regulates the demand for loans and the granting of loans?

Secretary McADOO. Yes; I shall come to that if you will allow me to answer a little later, so as to preserve the continuity of my state

ment.

Mr. FAIRCHILD. Yes; of course.

Secretary MCADOO. Therefore, on the assumption that I have just made of $500,000,000 average per month, we should require an additional authorization from Congress of four billions of dollars to meet the requests of foreign Governments for loans up to the 30th day of June, 1918, if the war continues that long.

I may say in this connection that up to the present time I have tried to limit the loans we have made to them to their monthly requirements.

In answer to your question, Mr. Fairchild, these credits are determined largely by the representations made by the different powers as to their necessities for carrying on the war.

We have made loans to the foreign governments thus far on short-time or demand obligations similar in form to the Treasury certificates of indebtedness issued by our own Government, and these obligations will be in due course converted into bonds of the same maturity as the liberty bonds. I am suggesting provisions which will give us a little freer hand in determining the form of these obligations. I do not think it is wise to have the Government of the United States tied so securely to a provision similar to that in the first bill. That makes it necessary ultimately to take their obligations of substantially the same form and maturities that we issue to our own people. Our experience thus far has convinced us that we ought not to be tied in that way. We ought to have a freer hand in determining not only the maturities of the loans that we make to

them, but also in determining the substance and general character of the obligations that we shall take from them.

Mr. MOORE. Are those foreign securities brought here by the foreign commissioners?

Secretary McADOO. These loans are made always with the representative of the country; that is, the representative authorized to act for the foreign government, generally the ambassador or minister.

Mr. MOORE. Would you care to suggest the method by which the United States is protected by the actual control of these obligations? Secretary MCADOO. We take the obligations of those governments in due form in each instance. They are the obligations of the government concerned to pay back to us the amount of money advanced to it.

Mr. MOORE. They are preparatory to the delivery of their bonds? Secretary McADOO. They are short-time or demand obligations, which will be converted into bonds.

Mr. MOORE, And they remain in the Treasury Department here at Washington?

Secretary McADOO. Yes, sir.

Mr. MOORE. It is not done through the Federal reserve banks? Secretary McADOO. No, sir. In other words, for every dollar of loans that we have made to those governments we have in the Treasury of the United States their obligations, duly executed by their representatives. In the case of each government, the Secretary of the Treasury first receives assurances from our own State Department as to the authority of the foreign representative to execute the obligations on behalf of his government.

Mr. MOORE. It is really a condition precedent to the final delivery. Secretary McADOO. While it is a demand loan at the moment, it will be converted into a long-time bond in due course.

The purpose of the new bill is to authorize $4,000,000,000 of additional credit to these foreign governments, and that, with the $1,000,000,000 of the remaining credit, I hope will carry them through the fiscal year. If any further authorization should be necessary, if the Congress grants this one, I should, of course, come back again and ask for further assistance and state the facts.

I should like to read, if I may, a memorandum I have prepared dealing with this matter section by section of the bill, and then I shall leave it for the record:

Section 1: It is proposed to increase the amount of bonds authorized to be issued by $4,000,000,000 over and above the amount authorized by the act of April 24, 1917, and not yet issued. The amount of bonds authorized by section 1 of the act of April 24, 1917, was $5,000,000,000, and by section 4, $538,945,460. Two billion dollars of bonds having been issued and approximately that amount having been advanced to foreign governments, there remain issuable under the authority of the act of April 24 bonds to the amount of $3,538,945,460, of which $1,000,000,000 remains available out of the appropriation of $3,000,000,000 made in section 2 of the act of April 24 for credits to foreign governments and the balance, $2,538,945,460, for the United States.

Mr. HULL. Does that include any of the Panama bonds already issued?

Secretary MCADOO. No, sir. It includes the unissued Panama bonds and also about $63,000,000 to meet some maturing obligations of the United States next year.

Mr. HULL. Two billion dollars of bonds having been issued?
Secretary MCADOO. Yes, sir.

Mr. STERLING. Why cover the $3,538,000,000 in this bill? You were duly authorized in the other law to issue those.

Secretary McADOO. Yes, sir. I am proposing to change the rate of interest and the rate of taxation, and if you adopt those suggestions it will be necessary to destroy the authorization under the other bill and reauthorize it in this bill.

Mr. COLLIER. Your idea is to issue these bonds at 4 per cent?
Secretary MCADOO. Yes, sir.

Mr. COLLIER. As our other bonds were oversubscribed, I should like to have you explain that.

Secretary McADOO. I will explain all of that when we get to that section of the bill. I think we will get better results if we do it in that way [reading]: While the question of the amount to be raised by taxation is undetermined, it is not practicable to fix definitely the total amount of the bond issue necessary to meet all the requirements of the United States for the fiscal year ending June

30 next.

I do not know whether other countries will make application. If they do, I think we would have to determine whether to lend the money. In all of those cases I consult with the President. This estimate was based upon the larger belligerents involved.

Mr. FAIRCHILD. In determining these loans, have you an advisory board or are those matters determined by you, and then by whom? Secretary McADOO. They are determined by the President and myself.

Mr. FAIRCHILD. There is no board?

Secretary McADOO. No, sir; except as the representatives of the different Governments are advisory.

Mr. FAIRCHILD. I have understood that in the other countries they have a broad financial board composed of men of great financial prominence. For instance, in Great Britain there were representatives of the Bank of England and men of large financial standing who composed the board.

Secretary McADOO. I have not heard of it. Of course, there is the minister of finance.

Mr. O'SHAUNESSY. Is there one man or a board who makes suggestions to the representative here for obtaining loans in the United States? From whom does he get the suggestion?

Secretary MCADOO. From his minister of finance.

Mr. O'SHAUNESSY. And when we speak of the Government, do we mean one man or a board?

Secretary MCADOO. I do not know how these Governments determine their own necessities. Our communications are usually, of course, from the minister of finance.

Mr. FAIRCHILD. According to my memorandum, in England they had what they called the London exchange committee, composed of the chancellor, the governor, and the deputy governor of the Bank of England, and a member of the firm of Baring Bros., for instance, in considering all of the financial matters, and that in considering loans

there always met with the governor of the Bank of England the lord chief justice, the secretary of the treasury, and some recognized financial man, and Sir Robert Chalmers, who was the governor of Ceylon, was always with the chancellor at those meetings. My information is that that was the method of procedure in considering all of the broad financial matters.

Secretary MCADOO. I do not so understand. The London Exchange Committee deals with questions of international exchange. In this country in the flotation of bonds we have the very best talent that we have been able to avail of in every Federal reserve district, the liberty-loan committees, as you know, organized not only in the Federal reserve cities themselves, but in the various cities throughout the district, and we secured also the benefit and assistance of all the committees organized for the purpose of facilitating this loan. I think that is one reason we had such a success with the liberty loan; everybody joined in the most effective and patriotic cooperation from one end of the country to the other. In that way the loan was made successful.

Mr. FAIRCHILD. What I am endeavoring to ascertain is whether we are relying in these great financial matters upon the judgment of one man or a group of men?

Secretary McADOO. In what respect, Mr. Congressman?

Mr. FAIRCHILD. In respect of the action that the Ways and Means Committee may take. For instance, as to the memorandum that you submit to us here, where you require hundreds of millions of dollars for certain purposes; upon whose judgment is that memorandum predicated?

Secretary McADOO. I have explained that already; at least, I thought I had. If you want to continue these interruptionsMr. FAIRCHILD (interposing). I beg your pardon.

Secretary McADOO. I explained that. Let me repeat. My judgment in making these loans to the different powers is determined very largely by what they represent as their actual necessities for the purchase of supplies and materials and other requirements in carrying on the war. If a foreign country says, "We should like to borrow, and we actually need, $185,000,000 for the month of September," I get all the light I can upon the reasons for her necessities, and if I determine that I can make the loan, I then submit it to the President, discuss it with him, and if he approves, I notify them that I shall lend them $185,000,000 for the month of September.

Mr. GARNER. If I understand Mr. Fairchild's question correctly, I think he probably refers to the estimates needed by the Government to conduct this war and not to the amount of discretion which you should exercise in loaning money to the foreign Governments. If the Aviation Board comes along and asks for $640,000,000, you have not anything to do with that, except as a member of the Cabinet? Secretary McADOO. No, sir.

Mr. FAIRCHILD. I was trying to ascertain whether one man has the authority to determine these gigantic financial matters, whether that man is Mr. McAdoo, or whether there is a group of the broadest financial minds in this country working together, and whether / we are getting the benefit of those minds in determining our action. Secretary McADOO. In what respect?