BANK CREDIT.

Auckland Star, Volume LXII, Issue 39, 16 February 1931, Page 4

BANK CREDIT.

HOW IT IS LIMSTED

DEPENDS ON SOUND BASIS,

In these days " release of credits " is a elib phrase, and proposals to call upon bank credit arc made as if to imply that credit is in illimitable supply, and may be brought into use at will. Some miseoii; ceptions of the nature and functions 01 credit are removed by Sir George I aish in the monthly review of Lloyds Bank, Ltd.. for December. Having admitted that the creation of credit does in some measure depend upon the supply of gold and upon other physical limitations, Sir George stresses that, however much gold the bankers of the world possessed, they would not, and could not, grant loans if there were any reasonable doubt about their repayment when due. Jt is axiomatic, he points out, that credit Hows freely only in an atmosphere of confidence and certainty, and that it cannot flow freely in an atmosphere of distrust and uncertainty. In the last resort it must be remembered that bank credit is supplied by the public to the banker in the form of deposits, and if the banker were known to be risking the deposits placed in his care for safety, as well as for use, he would soon find, himself without resources. Coming to the question of the cause of present lack of confidence in its attendant trade depression and falling prices; Sir George Paish affirms that the new supplies and the present stocks of gold are not the cause, for, he says, the stocks of gold both in France and in the United States would permit of a very large further expansion of banking credit. Nor is it due to lack of machinery, for it is recognised that the world's credit machine was never so eilicient as it is to-day. Bankers' loans have ceased to expand with their recent rapidity, more especially in the United States, and the investors of the world, including those cf America and Great Britain, have reduced the amounts of new permanent credit and of capital they are willing to supply for much more fundamental reasons than questions of mere machinery. These factors are what demand consideration. Confidence and Soundness. It is sometimes imagined that confidence is a condition thac can be created at will, and that all that «s needed to convert an atmosphere of distrust into one of confidence is for everyone to affirm his optimism. But this is no more possible in the economic world than it is in other spheres. Confidence depends upon the soundness of basic conditions. If the policies pursued by nations, as well as by. indviduals, are sound, confidence cannot fail to be created, but if they are unsound, distrust must sooner or later result. Are the present policies of the nations and of individuals so well considered that they cannot fail to inspire confidence in the minds of those who have it in their power free to grant additional credit, whether, they be bankers or investors, as well as in the minds of those who, given sound conditions, would be willing and able to employ large sums of additional credit? When this question can be answered in the affirmative the clay of trade recovery will not be distant. The present cause of the lack of confidence, witli its attendant trade depression, is an entire absence of understanding of fundamental conditions on the part of those directly responsible for the affairs of the nations. Never were underlying conditions more favourable to great prosperity, and never were the policies of the nations more effective in causing severe depression. Thus the progress of science in farming, in manufacturing, in transportation, and in banking, has given the world far greater powers of wealth production and distribution than it has ever previously enjoyed, and all that is needed : to bring about a very great expansion of trade and of income is that the nations ] should take advantage. But this they are : most unwilling to do. Indeed, this pro- ' gress of science seems to be regarded with i feelings of suspicion and anxiety, and vigorous efforts are made to stultify its 1 consequences. Never did the progress of ' science call as it is calling to-day for a , new system of complete world economy, and never were the nations more deter- 1 mined to maintain the old and inefficient systems of national economy. 11