FULL CONFIDENCE.

Auckland Star, Volume LXX, Issue 113, 16 May 1939, Page 11

FULL CONFIDENCE.

GOVERNMENT LOAN.

DR. H. BELSHAWS VIEW.

WOULD INVEST HIMSELF.

Approval of the now Government loan r"-«P"«als of £4 ( .-,00.000 W as given this morning by Dr. H. Holshaw, Professor of Economics at the Auckland University C'ollojro.

nr»"i,« ' f .° " relating to the fidenT c( ■ ih \ loa " aml " f t;, ° c ""- tl, ♦ I . I>r. Bclshaw said t only experience would toll whether It* f S1 C W "" ld tHk<> "P t,,e loa " to to i, !' • I( " n>as " n f " r reluctance whLV! '"rr!" 10 " 1 Ht ">* present time Hindi would l>o more secure.

J,lh l W(,| " n nmon ? *nc fortunate ones 7ll !Jr~ J* n 7 *" iMV " st X «"°»'<l "«t be ii P T' h , f T throuph any mid f-T T" that . th ° ""voriiineirt IIJ fll * ' 1,,M,, " r I(s obligations to the fullest extent," ho said.

The jinrpofft of the loan, he said, was for public work, and dovelo,,. nient worku in the Dominion, including exi-eml.turo on defence. While he Le" iuTi 1,n c,. tUc in'Provement in the an,lard of living, or even of maintainm« the present standard, would necesei-

tate the transfer of workers from public works to industry, that could not be a sudden process. Consequently, funds would be needed for public works. The alternatives to raising an internal loan were: (a) continued use of Reserve Bank credit; (l>) n compulsory internal loan; or (c) the raising of an overseas loan. Overseas Loan and Interest Cost. _ Looked at from the short point of view, the most satisfactory move would be an overseas loan, but one had to take into account the future trend of prices, which would affect the capacity of the Government to meet overseas interest. "For this reason. , he continued, "I doubt whether it would be wise to rely on overseas borrowing to meet developmental requirements; and, in any case, it appears not unlikely that the Government will be trying to raise some finance in London."

The attempt, he said, should at least be made to raise an internal loan in order to reduce the , extent to which reliance should be placed on Reserve Bank credit, since it would be difficult to avoid an inflationary effect with any large expansion of Reserve Bank credit. "There would, however, be some case for the cautious expansion of Treasury Bill finance as a temporary measure since this would, on balance, tend to lower interest rates and enable the Treasury hills to be funded later at a somewhat lower rate." Voluntary Loan Preferable. Balancing the possible inflationary effects againet the possible effects of lower interest rates in the future, the decision as to whether this course or borrowing on the market should be adopted at the moment, was a complicated one. and the Government could not be unduly criticised for adopting its present proposals, funds would be required either for public works, including defence, or for the development of such secondary industries as would enable public works employees to be transferred to private enterprise.

"I think it will be generally agreed," he continued, "that a voluntary loan of a little over 4 per cent is preferable to a compulsory loan at a lower rate, because the damage to confidence of a compulsory loan might be substantial."

He would discount the view that a lack of confidence on the part of those with money to invest would of itself impair the prospect of a successful flotation.