I can see but one obstacle in the way of the liquidation of our indebtedness to Mexico, the restoration of confidence, and the procurement of supplies (provided the Upper Rio Grande is kept open): it is the procurement of cotton to meet existing liabilities and purchase additional supplies, and its transportation to the Rio Grande.

I have every confidence, however, in the gentleman composing the cotton bureau, and am satisfied that with their energy and capacity, if uninterrupted, they will accomplish the object.

I regret that my papers are not here, or I would render you a statement in detail of my transaction on the Rio Grande, but as soon as I return to Mexico (for which place I leave in a few days), I will transmit you a correct statement showing the quantity, character, and cost of goods purchased and shipped by me, to whom, &c., also the quantity of cotton received under the 20 per cent. loan, from whom, and how disposed of.

This report is already much longer than I intended, and written in great haste; if it contains any information or suggestions beneficial to the Government, I will have accomplished my object.

In conclusion, I will remark that had the order for the impressment of cotton been carried out in the interior of Texas, as was contemplated by General Magruder's order, and the cotton been on hand to have loaded the Mexican transportation furnished my Mr. Laranberg under a contract I made with him, our indebtedness on the Rio Grande would have been paid; but I find no cotton has been impressed and applied to these debts except what I received at Brownsville, which amounted to about &350,000. The cotton bureau deemed it impracticable, under existing circumstances, to carry out this Laranberg contract, and disapproved it, and I am unable to express an opinion as to the procurement of other transportation in Mexico until my return. I will also remark that up to the day of the evacuation of Fort Brown (November 3), Major Hart's agent informed me that his total receipts were about 1,000 bales, the only portion of which that was applied to the payment of our foreign debts was the number turned over to Mr. Clements on account of the arms of which I have spoken.

My report from Eagle Pass will also show my outstanding indebtedness.

I have the honor to be, very respectfully, your obedient servant,

CHARLES RUSSELL,

Major, and Quartermaster, Provisional Army, C. S.

P. S.-My address will be Eagle Pass, via San Antonio.

HOUSTON, TEX.,

January 1, 1864.

Major J. P. JOHNSON,

Assistant Adjutant and Inspector General:

SIR: At your request, I submit a brief estimate of the financial condition of this district and department.

My office was established as a depository of public funds (other than those derived from my office as collector of customs at Galveston), in June, 1862, and is, I believe, the depository of all public funds collected in this State, with the exception of the revenue from customs at Saluria and Brownsville and the "sequestered funds" collected in the western judicial district of Texas.