Placing the Blame

"I think the very flat refusal to take care of the matter of our long-range financing is one of the most serious things that has happened to the United States in my time." Thus President Eisenhower last week criticized Congress for its failure to raise the 4 1/4% ceiling on long-term Government bond rates (TIME, Sept. 21). Raising the interest the Government pays on such bonds, argued Congressmen, would only be an open invitation to all other money rates to go up, would cost the Government more to finance its debt. Last week interest rates were going up anyway without an invitation, and the Government was paying close to--or more than--4 1/4% on its new securities.

When the Treasury auctioned off its latest weekly offering of 91-day bills, the interest rate averaged 4.166%. On six-month bills, the rate hit a record high of 4.796%. Meanwhile, the yields on already issued Government bonds soared to new highs. Their prices had dropped so much that nine issues were yielding 5% or better, the fattest yields on Governments since 1921.

Congress' refusal to raise the ceiling on the long-term end of the Government bond market has forced the Treasury to do all its financing in the inflationary short end. Between now and Jan. 1, the Treasury has to refinance almost $12 billion in old debt and borrow $7 billion in new cash. So much money borrowed in the short end has created a strong pressure to shove all interest rates higher. The process is already operating. Last week, as the 91-day bill rate went up to nearly 4.2% from 3.979% on the sale a week before, it easily jumped over the new 4% discount rate set by the Federal Reserve to stop banks from taking advantage of the lower discount rate.

The President's hope is that the public will soon see that Congress did it no favor in trying to keep interest rates under the 4 1/4% ceiling, which now has turned out to be no ceiling at all but rather a prime cause of higher interest rates. Once the public is educated to that fact, said Ike. "Congress will feel the heat of truth about this matter and do something." At week's end the public was about to be educated. In Washington, the Federal Housing Administration prepared to raise the home mortgage rate from 5 1/2% to 5 3/4%. a step expected to drain off financing for G.I. home loans, still legally limited to 5 1/4%.

Meanwhile, the cost of consumer loans was sharply rising. In New York, First National City Bank posted a new schedule of charges keyed to the rising cost of money. A representative change: the buyer of a car hereafter will pay the equivalent of 7.8% interest for a bank loan instead of 7.2%.

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