Business review; Protecting investors

From the national educational radio network here is a Business Review ASSOCIATE PROFESSOR ROSS Wilhelm of the University of Michigan Graduate School of Business Administration presents his views in the comments of business and economic activity. We have over the years heard a great deal in the halls of the Congress and the FCC on the need to protect investors and the need to provide the investing public with adequate information concerning securities and the financial conditions of firms issuing securities. And in the main the limitations which have been placed upon the security business have had desirable effects. However over the years there's been a major security swindle which has been taking place and yet no one in the Congress of the regulatory agencies complained. The reason for the lack of complaints has been that it's been the federal government itself that's been swindling the investing public. What I'm referring to of course is the swindle which occurs whenever the federal government sells bonds to investors insurance companies or other such institutions. The swindle arises because the government borrows dollars from the public to be repaid at some future date plus interest. However the dollars the government

borrows have far greater purchasing power than the government. Then the dollars that repays when the bonds become due. The government has for years been cheating borrowers and government bonds have been are the worst possible investment. The entire experience since World War 2 indicates that everyone who has bought United States government bonds has lost money on the purchase. And when the value of the dollars the lend is compared with the value of the dollars he's received back. This is a swindle by any definition is the worst kind of a swindle because it hits hardest at the people in our society those who are living on fixed incomes the widows the orphans the pensioners who are least able to afford these losses and purchasing power. The simple fact is that the government has been deceiving the buyers of its bonds and encouraging them to invest and so sure to lose securities. For example if you bought a thousand dollar government bond and 1040 for $750 and if one thousand fifty you received back a thousand dollars on the bond you actually lost purchasing power on the money on the deal. To a broken even on the purchase you should have

received back twelve hundred ninety dollars plus your interest on the use of your money. Or if you bought a bond and 1056 to be repaid in 1066 again you lost money on the deal because the dollars you received back were not sufficient to repay you the purchasing power you lent plus the interest which was promised on your money. The reason why government bonds have been a swindle is because the prices of the things your money could buy over the period of the loan rose in the dollars you receive back would not buy as much as the dollars you let. And why have the prices rids. Because the government itself has been inflating the economy and reducing the purchasing power of the dollar. In effect the government has been borrowing good nickels and repaying and wooden nickels. It's time the federal government began to apply to itself the same standards of honorable and moral behavior that it demands of the rest of the society. It's time for the federal government to stop swindling those persons from whom it borrows. The obvious means for eliminating the deceptive and dishonest aspects of government borrowing is for the government to repay back to the borrowers and dollars that will give the same purchasing power

plus interest that was borrowed. The means for doing this would be for the government to sell bonds which would repay an amount at the time of maturity which would be equal to the purchasing power borrowed plus interest. The means for accomplishing this would be for the government to sell bonds the principal amount of which to to be repaid would be determined by changes which occur in the cost of living over the borrowing period. For example if the government borrowed a thousand dollars today and if between now and the time of maternity the cost of living doubled then the government would repay at that time $2000 plus interest on the $2000. On this basis the government would be repaying that which it borrowed and not repaying less than it borrowed as is the case today. There would be other benefits of the society which would accrue if the government were to switch to the cost of living bonds. The first benefit is that such bonds would sell for significantly lower interest rates than do today's bonds and the burden of the interest on the federal debt would be greatly reduced. It's not inconceivable that the burden of the interest on the federal debt could be reduced by as much as 6

billion dollars a year. And this money put to other uses. However the most important reason why we should have cost of living Munns is to place the dealings between the government and the society on an honorable basis and to eliminate the swindle in government bonds. That was Associate Professor Ross Wilhelm of the University of Michigan Graduate School of Business Administration. With his views and comments on business and economic activity Business Review is recorded by the University of Michigan broadcasting services. This is the national educational radio network.