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(New Issues) CIRCULAR N O . 322 Federal Reserve Bank of New York Offering of $ 5 0 0 , 0 0 0 , 0 0 0 (or thereabouts) U n i t e d S t a t e s of A m e r i c a T r e a s u r y Certificates of I n d e b t e d n e s s Dated and bearing interest from December 15, 1920 Series T J 2—1921, S% Per Cent. Due June 15, 1921 Series TD—1921, 6 Per Cent. Due December 15, 1921 To all Banks, Trust Companies, Savings Banks, Bankers, Investment Dealers and Principal Corporations in the Second Federal Reserve District: T h e Secretary of the Treasury, under the authority of the act approved September 24, 1917, as amended, offers for subscription, at par and accrued interest, through the Federal Reserve Banks, Treasury certificates of indebtedness, in two series, both dated and bearing interest from December 15, 1920, the certificates of Series T J 2—1921 being payable on June 15, 1921 and bearing interest at the rate of five and three-quarters per cent, per annum and the certificates of Series T D—1921 being payable on December 15, 1921 and bearing interest at the rate of six per cent, per annum payable semi-annually. Applications will be received a t the Federal Reserve Banks. Bearer certificates will be issued in denominations of $500, $1,000, $5,000, $10,000, and $100,000. The certificates of Series T J 2—1921 will have one interest coupon attached, payable June 15, 1921, and the certificates of Series T D—1921, two interest coupons attached payable June 15 and December 15, 1921. T h e certificates of both said series shall be exempt, both as to principal and interest, from all taxation now or hereafter imposed by the United States, any State, or any of the possessions of the United States, or by any local taxing authority, except (a) estate or inheritance taxes, and (b) graduated additional income taxes, commonly known as surtaxes, and excess profits and warprofits taxes, now or hereafter imposed by the United States, upon the income or profits of individuals, partnerships, associations, or corporations. T h e interest on an amount of bonds and certificates authorized by said act approved September 24, 1917, and amendments thereto, the principal of which does not exceed in the aggregate $5,000, owned by any individual, partnership, association or corporation, shall be exempt from t h e taxes provided for in clause (b) above. Certificates of these series will be accepted at par, with an adjustment of accrued interest, during such time and under such rules and regulations as shall be prescribed or approved by the Secretary of the Treasury, in payment of income and profits taxes payable at the maturity of the certificates, respectively. T h e certificates of these series do not bear the circulation privilege. T h e right is reserved to reject any subscription and to allot less t h a n the amount of certificates of either or both series applied for and to close the subscriptions as to either or both series a t any time without notice. Payment at par and accrued interest for certificates allotted must be made on or before December 15, 1920, or on later allotment. After allotment and upon p a y m e n t Federal Reserve Banks may issue interim receipts pending delivery of the definitive certificates. Any qualified depositary will be permitted to make payment by credit for certificates allotted to it for itself and its customers up to any amount for which it shall be qualified in excess of existing deposits, when so notified by the Federal Reserve Bank of its district. Treasury certificates of indebtedness of Series T D—1920, maturing December 15, 1920, of Series A—1921, maturing January 3,1921, and of Series B—1921, maturing January 15,1921, will be accepted at par, with an adjustment of accrued interest, in payment for any certificates of the Series T J 2—1921 or T D—1921 now offered which shall be subscribed for and allotted. As fiscal agents of the United States, Federal Reserve Banks are authorized and requested to receive subscriptions and to make allotment in full in the order of the receipt of applications up to amounts indicated by the Secretary of the Treasury to the Federal Reserve Banks of the respective districts. Yours very truly, J. H. CASE, New York, December 8, 1920. Acting The attention described in of subscribers the last is directed paragraph to the of conditions this circular. Governor 3>"7~ Ctf>U^VK^tc/ R e p r i n t of L e t t e r of t h e S e c r e t a r y of t h e T r e a s u r y to t h e P r e s i d e n t s of B a n k i n g I n s t i t u t i o n s of t h e U n i t e d States o n t h e C u r r e n t 5% a n d 6 P e r C e n t . I s s u e s of T r e a s u r y Certificates of I n d e b t e d n e s s . Washington, Dear Sir: About $700,000,000 of Treasury certificates of indebtedness mature on December 15, 1920, about $175,000,000 on J a n u a r y 3, 1921 and about $125,000,000 additional on J a n u a r y 15,1921. On December 15,1920 there will also become payable the semi-annual interest on t h e First Liberty Loan and Victory Liberty Loan aggregating about $140,000,000. T h e greater part of t h e $700,000,000 of tax certificates maturing on December 15 will be covered by the installment of income and profits taxes payable on t h a t date. In order t o meet the remainder of these heavy maturities of principal and interest and at the same time provide for the current requirements of the Government, the Treasury has decided, on the basis of the best estimates available at this time, to offer Treasury certificates of indebtedness in the amount of $500,000,000 or thereabouts, in two series dated December 15,1920, one series designated T J 2—1921, bearing 5 % per cent, interest maturing June 15, 1921, and the other series designated T D—1921 bearing 6 per cent, interest and maturing December 15, 1921. Applications for Treasury certificates of these series will be received through t h e several Federal Reserve Banks, from which full particulars concerning t h e offering may be obtained. Treasury certificates of t h e series maturing December 15, 1920, J a n u a r y 3, 1921, and J a n u a r y 15,1921 will be accepted a t par with an adjustment of accrued interest in p a y m e n t for any certificates of the two series now offered which may be subscribed for and allotted. As indicated in t h e circular letter of September 7, 1920 to t h e banking institutions of the country the operations of t h e Treasury for the first quarter of the present fiscal year, ended September 30, 1920, showed a surplus of ordinary receipts over ordinary expenditures amounting t o $289,224,706.29 notwithstanding actual cash payments t o railroads during the quarter of some $275,000,000 under the provisions of the Transportation Act in connection with t h e return of t h e railroads to private control. T h e Treasury's current operations during the months of October and November show a net current deficit (excess of ordinary disbursements over ordinary re- D. C, December 8, 1920. ceipts) amounting to $357,134,068.15 of which about $112,000,000 represents payments to the railroads under the Transportation Act. T h e Treasury confidently expects, however, t h a t the current quarter ending December 31, 1920 will still show a substantial surplus as t h e result of the quarterly payment of income and profits taxes in December. I n consequence of t h e operations incident to the retirement of the Treasury certificates which matured on September 15, and October 15,1920, and t h e quarterly payment of income and profits taxes on September 15, the gross debt of the Government on October 31,1920, on the basis of daily Treasury statements, was reduced to $24,062,509,672.96, of which about $2,337,000,000 consisted of loan and tax certificates unmatured. On September 30, 1920, the gross debt had been $24,087,356,128.65 of which about $2,347,000,000 were loan and tax certificates unmatured. On November 30,1920, after the issue of $232,000,000 of Treasury certificates on November 15 and the retirement on the same date of about $100,000,000 of maturing certificates, t h e gross debt, on the basis of daily Treasury statements, amounted to $24,175,156,244.14 of which about $2,475,000,000 represented floating debt (loan and tax certificates unmatured). These temporary increases in both gross debt and floating debt will, it is expected, be more t h a n overcome by December 31, 1920 in consequence of the December operations, and both gross debt and floating debt should on December 31 be reduced below the amounts outstanding on September 30. The Government's further progress in retiring the gross debt and the floating debt will depend, of course, upon the relation between current receipts and current expenditures during t h e coming calendar year, b u t there is good reason to hope t h a t , unless new burdens are imposed by legislation, there should be important further reductions in t h e last two quarters of the current fiscal year, provided always t h a t tax receipts are maintained a t a sufficiently high level, salvage operations vigorously pressed, and the strictest economy practiced in Government expenditure. T h e three months which have passed since t h e last quarterly tax payment 3 ^"Z- period have been marked by a still further distribution of Treasury certificates among investors and a further reduction of holdings of Treasury certificates by the banks. The reporting member banks of the Federal Reserve System (about 823 member banks in leading cities, which are believed to control about 40 per cent, of the commercial bank deposits of the country and to have subscribed in the first instance for perhaps 75 per cent, of the Treasury certificates of indebtedness now outstanding) held on November 26, 1920 only about $313,000,000 of Treasury certificates, as compared with reported holdings on August 27, 1920 of about $430,000,000, and on November 28,1919 of about $816,000,000. On December 3, 1920 the Federal Reserve Banks reported t h a t there were pledged with Federal Reserve Banks only about $214,000,000 of Treasury certificates to secure loans and discounts, notwithstanding the preferential rates still maintained in many of the Federal Reserve Districts and the probability t h a t borrowing banks would use Treasury certificates as convenient collateral to secure loans for commercial purposes. T h e Treasury certificates of the two series now offered are exempt, like other Treasury certificates outstanding, from all state and local taxes (except estate and inheritance taxes) and from the normal Federal income tax and the corporation income tax and are admissible assets for the purpose of calculating profits taxes. The certificates now offered are also acceptable in payment of Federal income and profits taxes payable at their respective maturities, and the United States reserves no option to call them for redemption before maturity. With these features, the attractive rates of interest, and absolute security of principal and interest these certificates are extremely desirable investments and should prove particularly attractive to taxpayers having taxes to pay in the calendar year 1921, as well as to persons having idle funds awaiting investment. I n these circumstances, the Treasury believes t h a t banking institutions generally should feel free to enter subscriptions for the two issues now offered with the confident expectation of prompt resale for investment, and urges them, as in the past, t o subscribe liberally for the certificates and devote their best efforts to obtain the widest possible distribution among investors. Cordially yours, D. F. HOUSTON, Secretary.