1825 John Quincy Adams - The 1825 Stock Exchange Flop

In 1825, the U.s. public debt was $88 million with a large portion of it due in in 1825 through 1828 at 6 percent interest, followed by payments in later years at rates ranging from three to five percent.  The payment due in 1826 was $19 million, and for some reason, there were no payments due in the years 1829 and 1830, so the House ways and means committee recommended that a new loan in the amount of $12 million be taken out at a rate not to exceed four and one-half percent payable in 1829 and 1830.   In doing so, they were able to reduce the 1826 payments over the next four years and save on interest payments.   Congress obliged and on March 3, 1825 passed "An Act authorizing the Secretary of Treasury to borrow a sum not exceeding twelve millions of dollars or to exchange a stock of four and one half per cent for certain stock bearing an interest of six percent".

Unfortunately, because the rate of return on this stock exchange was so low, the loan turned out to be a flop.  According to the report of the Secretary of the  Treasury, Richard in December of 1825, "The proper measures were taken to execute this act, but have prevailed only to a limited extent.   The operation of exchange, which was first resorted to, took effect to the amount of $1,585,138.88".  In other words the stock exchange only brought in a little more than one-tenth of the amount they expected and was a failure.  The Secretary of the Treasury reported that the causes of the failure were the low interest rate, and the short terms of the loan.

In President John Quincy Adam's 1826 State of the Union Address, he put a nice spin on this when he explained that "at that time so large a portion of the floating capital of the country was absorbed in commercial speculations and so little was left for investment in the stocks that the measure was but partially successful".   In other words, the open market was offering much more attractive investment options and the sales of bonds failed miserably.   Adams suggested that if only the act of last session had given the authority to increase the rate of return to 5% an additional $9 million could have been raised and still saved the nation $90,000 in annual interest payments.

"By an act of Congress of 1835-03-03, a loan for the purpose now referred to, or a subscription to stock, was authorized, at an interest not exceeding 4.5%. But at that time so large a portion of the floating capital of the country was absorbed in commercial speculations and so little was left for investment in the stocks that the measure was but partially successful. At the last session of Congress the condition of the funds was still unpropitious to the measure; but the change so soon afterwards occurred that, had the authority existed to redeem the $9M now redeemable by an exchange of stocks or a loan at 5%, it is morally certain that it might have been effected, and with it a yearly saving of $90,000."

References

Presidency.ucsb.edu. (2018). John Quincy Adams: Second Annual Message. [online] Available at: http://www.presidency.ucsb.edu/ws/index.php?pid=29468 [Accessed 23 Mar. 2018].

Appletons' annual cyclopaedia and register of important events. (1885). 4th ed. New York: Appleton, p.pg. 757.

Peters, R. (1850). “The” Public Statutes at Large of the United States of America. 4th ed. Washington: LIttle Brown, p.pg. 129.