The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News, The Echo and The Sun. WEDNESDAY, FEBRUARY 28, 1940 CREDIT EXPANSION.

Auckland Star, Volume LXXI, Issue 50, 28 February 1940, Page 6

The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News, The Echo and The Sun.

WEDNESDAY, FEBRUARY 28, 1940 CREDIT EXPANSION.

For the cause that lack* attiataneo, For the wrong that reed* resistance, For the future in the distance, And the good that ice canto.

The credit expansion policy which the Government has pursued, and is still pursuing, is regarded by Mr. J. A. Lee as its saving grace. He has been critical of. the Government's financial policy, and is still dissatisfied with its rate of "progress" towards "currency reform," but last night he said in favour of the Minister of Finance that during his term of office the Government had secured from the Reserve Bank some 22 million pounds in advances. This, to Mr. Lee, is a symbol of Labour's progress. To others, it is the symbol of Labour's blundering. By a coincidence, a much more extensive and intensive reference to the subject of credit expansion was made to-day by Professor A. H. Tocker, who shows that there was a considerable export of capital from New. Zealand between 1935 and May, 1938, by which time overseas funds had fallen to £28,100,000. This fall, in part caused by the withdrawal of money accumulated after the exchange rate was raised in 1933, still left a substantial and safe margin; but between May and November, 1938, there occurred a further fall of about £20,000,000, -which was "the direct •effect of the monetary policy pursued by the Government in New Zealand." In the same period the credit expansion on Government account exceeded £15,000,000. And on December 7 (after the election) import and exchange control were imposed.

The net additional credit made available on. Government account

up to the end of 1939 is estimated by Professor Tocker to have been £20,840,000. Of this, nearly £11,000,000 has increased the Dominion's internal money supply, about £4,000,000 going to expand the note circulation and nearly £7,000,000 to increase deposits at the banks. "Without this credit expansion neither over-importation nor the export of New Zealand capital would have been possible to any serious extent, and overseas funds could never have fallen to the critically low levels reached at the end of 1938. It was the excess. credit created, unbacked by saleable goods, that placed in the hands of the community the means to purchase" overseas funds.

The loss of overseas funds, as already remarked led to import and exchange control, which continues. When will that control be relaxed f Professor Tocker apparently sees no hope of it, for "present difficulties will not be remedied while their essential cause continues to operate." "The first step towards the restoration of normal trading conditions and adequate supplies of imported goods is the abandonment of the policy of financing long-term requirements by : the use of bank credit." If the policy is continued it "must result in inflation and depreciation of our money." What is the present position and what are the Government's intentions f On Monday of last week the Reserve Bank's "other" advances totalled £22,110,000, or £2,835,000 more than at the end of last year. Yet the Dominion has been given the impression that public works are being reduced. If they are, for what other purposes are these advances being spent? They have increased this year at an average rate of £270,000 a week—faster than in the corresponding period of last year.