ABNORMAL INDEBTEDNESS AND DEBT SERVICE

Low and variable incomes are complicated by mortgage indebtedness as a cause of financial distress in the Great Plains. The volume of indebtedness and the proportion of land mortgaged rose rapidly almost from the beginning of settlement in the Region. This tendency grew inevitably from the conditions surrounding the development of the Plains. Land was bought largely on credit. The extensive speculation in land, to which reference has been made, naturally encouraged this practice as did also the instability of settlers. Constantly in search of better land that would yield greater profits, they moved about, purchased land, and incurred indebtedness freely.

The years of high agricultural prices and the contingent profits made it seem logical to the "Thornthwaite, p. 233.

farmers to acquire control of as much land as possible, even at increasing prices, despite the costs involved in heavy borrowing. High prices brought another evil in their train: overvaluation of the land itself. A further factor leading to the growth of mortgage indebtedness was the purchase of tractors, combines and other power machinery on credit. The effect of this on land utilization has been noted already; its further result was to saddle the farmers with a burden of debt which is a form of maladjustment to basic conditions.

Table 5 shows the estimated farm mortgage debt in the ten Great Plains States by decades from 1910 to 1930 inclusive, and for 1925 and 1935. It should be noted here-a subject considered more fully below-that the decrease in mortgage debt between 1930 and 1935 reflects wholesale liquidation through foreclosures and voluntary deeding of farms to creditors.

LIQUIDATION AND REFUNDING

The widespread tendency to seize what appeared to be an immediate advantage in disregard of long-run probabilities inevitably bore bitter fruit. After the conclusion of the World War, agricultural prices and then land values collapsed. Many banks had loaded their portfolios with papers secured by land at greatly inflated valuations, a wave of bank failures in the States of the Great Plains accompanied and followed the reduction in land values, and renewal of mortgages became impossible.

TABLE 5.—Estimated farm mortgage debt in selected States, January 1, 1910, 1920, 1925, 1930, and 1935

ABNORMAL INDEBTEDNESS AND DEBT SERVICE

Low and variable incomes are complicated by mortgage indebtedness as a cause of financial distress in the Great Plains. The volume of indebtedness and the proportion of land mortgaged rose rapidly almost from the beginning of settlement in the Region. This tendency grew inevitably from the conditions surrounding the development of the Plains. Land was bought largely on credit. The extensive speculation in land, to which reference has been made, naturally encouraged this practice as did also the instability of settlers. Constantly in search of better land that would yield greater profits, they moved about, purchased land, and incurred indebtedness freely.

The years of high agricultural prices and the contingent profits made it seem logical to the Thornthwaite, p. 233.

farmers to acquire control of as much land as possible, even at increasing prices, despite the costs involved in heavy borrowing. High prices brought another evil in their train: overvaluation of the land itself. A further factor leading to the growth of mortgage indebtedness was the purchase of tractors, combines and other power machinery on credit. The effect of this on land utilization has been noted already; its further result was to saddle the farmers with a burden of debt which is a form of maladjustment to basic conditions.

Table 5 shows the estimated farm mortgage debt in the ten Great Plains States by decades from 1910 to 1930 inclusive, and for 1925 and 1935. It should be noted here—a subject considered more fully below-that the decrease in mortgage debt between 1930 and 1935 reflects wholesale liquidation through foreclosures and voluntary deeding of farms to creditors.

LIQUIDATION AND REFUNDING

The widespread tendency to seize what appeared to be an immediate advantage in disregard of long-run probabilities inevitably bore bitter fruit. After the conclusion of the World War, agricultural prices and then land values collapsed. Many banks had loaded their portfolios with papers secured by land at greatly inflated valuations, a wave of bank failures in the States of the Great Plains accompanied and followed the reduction in land values, and renewal of mortgages became impossible.

TABLE 5.-Estimated farm mortgage debt in selected States,
January 1, 1910, 1920, 1925, 1930, and 1935
A. Thousands of Dollars

and not per hundred. Neighbors rallied around farmers who were being sold out, not infrequently forcing the abandonment of the sheriffs' sales. In some States legislative reprieves were extended to debt-harassed farmers in the form of moratoria on defaulted mortgages. Even earlier some State governments-notably South Dakota-had been called upon to extend loans directly to farmers to relieve credit stringency only to endanger the foundations of their own credit in subsequent years. Finally, the Federal Government came directly to the agriculturist's aid in the Federal Farm Mortgage Act. Under the terms of this measure, mortgages held by private creditors could be exchanged for Government guaranteed bonds, the Government taking over the mortgage. Rates of interest were scaled down and properties revalued.

Between May 1933 and July 1934 there was an active demand for this type of Government credit in the Great Plains States (Figure 25).

widespread financial distress and a rapid increase

in the number of foreclosures. It should be noted that the figures in Table 6 are per thousand

Complete data are not available on the amount of private mortgage credit outstanding in the Region, but Federal Land Banks and the Land