A Time to Borrow

The U.S. has more cash lying around than at any time in years. Consumers not only are spending more, but saving more. Corporations are pulling in record earnings, and keeping much of it in their coffers. Even the Government, while setting spending records, has more money than usual in the till.

One result of all this is that money is piling up in banks, insurance companies, pension funds and savings and loan associations to an extent that gives them trouble putting funds to work both safely and profitably. Last week the U.S. Treasury took advantage of this situation to stretch out the national debt. It offered holders of $33 billion of federal bonds a chance to exchange them ahead of time for new bonds with much longer maturity dates and much higher interest rates. At week's end, indications were that more than $26 billion worth would be swapped.

Competitive Edge. Savers are also seizing the chance to get better terms. Since the Federal Reserve Board boosted the limit that banks can pay for savings and time deposits in November, about half of the nation's 14,000 banks, including all major banks in New York City, have lifted their savings rates from 31 to 4% . At this level, banks are not only generally competitive with the recent performance of the stock market but also with their traditional rivals, the savings and loan associations.

The bulge in cash savings began as small investors stayed out of the stock market after the 1962 break, but savings have picked up speed since last year's income-tax cut. In the first nine months of 1964, Americans saved 7.3% of their disposable income v. 6.7% in the same period a year earlier. U.S. families, calculates the Home Loan Bank Board, have now accumulated an average $7,800 in savings, $2,000 more than in 1960 and nearly double the 1950 level. Barring an outbreak of inflation, most money analysts expect the trend to continue.

The biggest reason that institutions are so stuffed with money to lend is a dwindling demand for mortgage loans on new housing, which soak up more money every year than any other form of investment. Mortgage costs are falling too. New home mortgages in November carried an average interest of 5.75% v. 5.82% a year earlier. While banks can and will switch part of the new flood of savings into other kinds of loans--some of them riskier than usual--S. & L.s are far more locked into the mortgage field. Says Eugene M. Mortlock. president of Manhattan's First Federal Savings & Loan: "We can't invest any more money than we have now."

Defying Gravity. As long as housing fails to gain, this year should be an easy one in which to borrow mortgage and other long-term money. Though inventory buying in fear of a May 1 steel strike is increasing demand for commercial and other under-a-year loans, most bankers see little chance that short-term rates will rise any time soon. But a coming squeeze on bank profits could easily lead bankers to tighten up later in the year. After all, no one can indefinitely defy the economic laws of gravity by paying more for money and lending it for less.

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