ON PROSPERITY

While not necessarily an advocate of "Republican prosperity" as opposed to "Democratic prosperity," I still must beg to differ with your economic views as propounded in your editorial of September 28. The writer, in pointing out the very true fact that the National Income or Gross National Product is made larger through debt financing, uses this fact to imply that: 1) our prosperity is a mirage; 2) the Republicans are to blame for the debt; and 3) that the Republicans are guilty of deceit in saying that this is an era of unmatched economic well-being. With these implications I cannot agree.

In the final analysis, Public and Corporate debt are based on the faith that America is growing and that in future years we shall need desperately the goods and services toward which this debt is going. In other words, the debt which we are creating today is being created in an effort to plan for what Mr. Stevenson has called our "Greater Tomorrow." ...

However, debt can get out of hand. (But) the writer implies that all spheres of credit have become dangerously overextended, a questionable position in view of the economic projections, and that the Republicans are to blame. In maintaining this point he has completely overlooked the "hard money" policy of the last four years. The Federal Budget is being balanced. The issuance of Treasury 3/4 per cent bonds in 1953 and the subsequent tightening of the money market checked the over accumulation of inventory in that year; in fact, the policy was too successful in that this tightness probably helped to cause the mild recession of 1954. Today the rediscount stands at three per cent and companies with AA credit ratings who could borrow under Democratic administration at 2.8 per cent are now forced to put 4 1/8 per cent coupons on their bonds. The tightness of money is preventing many businesses from expanding. While high interest rates do not usually restrain consumer credit (where the effective rate now reaches 24 per cent) since the size of the payments rather than the effective interest is more important, this credit sooner or later is also restricted since the companies creating it, more sensitive to the money rates than their customers, are unwilling to issue new bonds with which to finance their own lending.

Thus, I suggest, we are in an economy today which is experiencing rapid and sound growth under an Administration which is effectively curbing excesses in credit as they threaten to develop.... Charles T. Wood 1G