Business: Tight-Money Trouble

The tight-money squeeze sent business borrowing costs to their highest level since 1931. Banks all over the nation raised their prime rate to 5% after the pace-setting First National City Bank of New York boosted its prime rate from 4½% to 5%. Since the 5% applies only to top risks, the increase means that smaller businesses will probably have to pay 5%½ or more.

The competition for available funds has been intensified by the crisis in Treasury borrowing. Since the Treasury, restricted by the 4¼% interest-rate ceiling on long-term bonds, can no longer sell such securities, it has had to compete against consumers and small business for available funds in the short-term market. Last week the Treasury’s borrowing costs for short-term money rose to 3.979%, up from the 3.889% paid four days earlier, and the highest since the 4.25% paid during the bank holiday of 1933.

To help the Government out of its troubles. Congress last week took a tiny step. While it has turned down the President’s plea for authority to raise the 4¼% ceiling on long-term bonds, the House approved a bill to permit the President to raise interest rates on E and H savings bonds to 3¼ from the current 3.26%. Cash-ins of E and H bonds during the first eight months exceeded sales by $759 million. The House move, which is expected to win Senate approval, was immediately labeled “inadequate” by Treasury Secretary Robert Anderson. He emphasized that the lifting of the ceiling is even more important today than when it was proposed three months ago.