Paying More for Money

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federal bankruptcy laws. Moreover, the recession itself, by forcing up unemployment, is also adding to the bankruptcy rolls. Nonetheless, in Oakland, Calif., Bankruptcy Expert Steven Flander argues that excessive mortgage payments have become a whole new menace that is forcing more and more people into insolvency. He adds that while his clients used to be primarily lower-or lower-middle income, "now there is really no classification. We see doctors, attorneys, real estate people."

Local Government Financing. States, cities and counties traditionally raise much money for public works by selling bonds. The costs of doing so are becoming staggering. One index of interest rates on such municipal bonds shows them averaging around 13%, almost exactly double the rate in 1979. That is a truly astonishing rate, because the interest on these bonds is exempt from federal income taxes; for a buyer in the 50% tax bracket, a 13% municipal-bond yield is equivalent to a 26% yield on a corporate bond. Moreover, states and cities are incurring these costs at a time when the recession is crimping tax receipts and the Reagan Administration's budget-cutting efforts are curbing the flow of federal grants-in-aid.

Unwilling, or even unable, to pay the towering bond market rates, many localities, like corporations, have begun borrowing in the short-term market. Now, however, some are reaching the limit of their ability to do so. Bade County, Fla., which encompasses Miami, has run up $200 million in short-term debt, and county commissioners believe that is about as much as the county's taxpayers can afford. As a result, if rates do not ease back to more tolerable levels, the commissioners may wind up having to pick and choose among a long list of public projects, from seaport and airport expansion to water and sewer projects and roads, deciding which to shelve and which to go ahead with. Says Stacey Hornstein, the county's capital improvements coordinator: "I can't tell you we won't stop any project."

Agriculture. Farmers traditionally borrow heavily in order, among other things, to finance planting and machinery purchases, paying off the loans when they sell their crops. For some, the costs are becoming ruinous. In northwest Wisconsin, Walter Betzel grossed $100,000 last year from his 350 acres of corn and oats and his 30 milk cows. Some $19,000 of the amount went right off the top for interest payments. After his interest and other operating expenses, Betzel had $5,000 left to spend on his wife and three children. Says he: "We're sick of it. We don't go out to any movies, we don't go out to eat."

Interest costs have set off a kind of chain reaction in the farm lands. Food processors rely on short-term financing to stock up on the raw goods that they package, can and otherwise process into food. But to hold down interest costs, the processors are now slashing inventories and buying less from their farmer-suppliers. Those cutbacks are coming precisely when the farmers need every penny to pay their interest charges. The squeeze on the farmers is forcing more and more of them to try to cut back on their interest burdens, and many are doing so by postponing the purchase of tractors, combines and other farm equipment. The retrenching simply passes the interest-rate misery on to the farm-equipment manufacturers, which