INCREASING MONEY STRINGENCY.

Akaroa Mail and Banks Peninsula Advertiser, Volume LIII, Issue 5529, 17 September 1929, Page 4

INCREASING MONEY STRINGENCY.

| Ever since l August 1 8 when the New York Federal 1 Reserve Bank discount rate was raised from 5 per cent, to 6 per cent., the stringency of the money markets has increased week by week. In July the 1 'Barak of England lost a considerable amount in gold, and it was feared thart the bank rate would go up. But the banik has so far refrained fro.m, such a gesture notwithstanding that the reserve of the yellow metal has fallen about £>14,000,000 below the minimum envisaged by the Cunliff'e Commission. One must assume that the Bank had l special and good reasons for not disturbing the discount rate, and we think the chief cause was the meeting of the Powers at Ths 1 Hague to deal with the Young Plan of Reparations. A hardening of money rates then would probably have caused son>e consternation in European 'financial circles. That part icular incident is now ended, and all factors point to an early advance in bank rate. iSuch a movement will, of course, make a difficult position more difficult. The iLondom and 1 for that matter, all 1 money markets have been in a state of nervous tension clue to the inordinate speculation on the 'New York .Stock Exchange, and the hiigh: rates, ruling for call money. NTeiw York thus dominates the situation. At this period 1 of monetary string-

e ency the Commonwealth Government ?- has found it necessary to appeal to l-I the' Londo- market for funds, and has f, j just placed £5,000,000 of Tieasui'y 2, j Bills with a year's currency at an d, average discount of £6 3s. per cent. d ( This is a big .price to pay, but relatd ively it is no more than other county. ries have had to pay for accommode ation. Thus the British Government d paid £5/7/6.49 per cent, on average y lur £40,000,000 Treasury Bills of three d months, and on July 19, for a similar e volume of bills, the rate rose to £5 e 8/0.37 per cent, and a week or so ago r, the price rose to 5% per cent. Apart ,t from this there is no doubt the credit t, of the Commonwealth in London is [. very much impaired, because of the n consistent heavy borrowing of Aust:s ralia. It will'be remembered that.in .r 1926, just prior to the assembling of e the Imperial Conference, two London il stockbrokers, Messrs S. R. Cook and e E. H. Davenport, issued a pamphlet •- in which they severely critised' Aust--8 ralian finance andi the incessant bo-r----0 rowing. Within the last few weeks the stock brokbroking firm of Messrs /. Schwab and SnelM-n-g, in a circular to their clients, advised selling Australn ian stocks. The firm attacked the 0 loan issues of the Com iron,wealth, e largely on the ground of the di-spro- - portion between the increase in debt d and the increase in population. It is :1 significant, too, that the £8,000,000 j tj-of 5 per cent, stock raisel by the 3 Commonwealth of Australia on Jan- - uary 16 last, for which issue the price was 98, at the end 1 of June was quoted' at 96, and on August 8 at 945. The stocks of other Governments have also declined, but not to the 1 same extent as the Commonwealth stocks. | The .issue of Treasury Bills in London by the Commonwealth Govern- ' ment, and the high discount rate, has ' helped to focus 1 the attention of bus- ' iness men in Australia and New Zea- ' land on the serious position of world • money markets. The Commonwealth 1 Bank, in its half-yearly report, points ' to the probability of an increase in the bank rate. The report refers to " [the unsettled conditions of the American money -market, and emphasises the fact that although- the Bank of 1 - England rate remains at 5 1 /? per cent. ' .opinion ds speculating upon the possibility of a hardening rather than a ' reduction- of ' the* bank rate.. The ; Commonwealth Bank are no ; doubt speakingly? the bool|3ior as a 1 central-.- "'btMn close touch with the Bank of England, and so fully aware- of the trend of the London money market. A further j advance in the bank rate must be reflected in Australia and New Zealand,

but the worst feature from our point of view, is that clear money will lower the prices of our primary export products, curtail the income of the people, and, perhaps, lead to an increase of unemployment, unless full play .is given to the economies of wages and production. During the rest of the year the money markets are bound' to be severely strained, with money dear throughout the world.—N.Z. Mercantile Gazette.