TOO CHEAP MONEY.

Auckland Star, Volume LV, Issue 172, 22 July 1924, Page 4

TOO CHEAP MONEY.

The five million loan floated in London in May has been followed by a privately placed loan of a million on the same terms. New Zealand credit therefore remains high. A great part of the larger loan went to the Advances Department, and it is intended to use this new million for the same purpose. For the present, however, owing to the high rate of exchange, the money will be invested in London. The cost of the loan, the cost of bringing out the money, and the terms on which money has been advanced by the Department to settlers, raiso an important question. The Government has been lending money at 41 per cent, but the war loan and this new one return slightly over £4 IS/ to the investor. When flotation expenses and exchange are added (thn exchange rate to-day is 2 per cent) the cost to the Government is higher, and there is a considerable difference between what the borrower pays the State and what the Slate pays for the money it passes on. The Now Zualander whom the Ktate so thoughtfully helps has actually been gettirig money at less than the cost to his benefactor-—a fact of which in many cases he has been ifmorant. This was not the original intention behind the policy of cliean money. The system was so arranged that while the settler got •■•heap money he paid enough for it to cover the State's interest bill and its expenses of administration. Indeed, the Department became a profit-making roncorn. It is probable that what is lo&t on this loan money borrowed at more than tho 4i per cent charged to the Department's customers, is more than mado up by the profit on the Department's other business, but the principle is wrong. Save for very exceptional purposes money should not be lent by the State at a mto below what it costs. It is therefore not surprising that the Prime Minister yesterday should have doubted the ability of the Department to continue to lend at 4\ per cent.