‘Float, and have liquidity’

Press, Volume CXIV, Issue 33654, 2 October 1974, Page 22

‘Float, and have liquidity’

Allow i.,,? free-floating interest rates would be one way to help alleviate the present liquidity problem, according to two prominent Christ- ( church businessmen. They are Messrs P. F Polson, the chairman of Mair and Company, Ltd, and J. A. Dobson, the manager of Marac Finance, who both took part in a panel discussion at a meeting of the Christchurch branch of the Economic Society of Australia and New Zealand last evening. The present ' liquidity .problem — the lack of investment finance as well as cash — was caused by ;people not choosing to save, ‘said Mr Polson. To make it more appealing to save, the wage earner '(must be given higher interest rates on his money, he said. ! The Government controls ion finance, especially that of (restricting the rate of (interest paid by banks and., (finance companies, were, 'causing a serious distortion, (and imbalance in the; i economy, Mr Polson said. Businesses badly needed (funds at the moment and 'these normally came from i banks and finance companies, (which in turn got their funds (from the wage earner, he (said. Mr Dobson said that (because of the lack of medium-term finance many large firms were going to the bills market. A recent Government i report showed more than!

8140 m worth of bills outstanding with the merchant banks, compared with only s79m in September, last year. The present total deposits with finance companies was only s2som. said Mr Dobson. Mr Tizard’s policy of allowing finance companies to try and get finance from abroad might come to nothing, said Mr Dobson Recent events, such as the loss made by a Swiss bank and the collapse of two German banks, were making all world banks develop a “hardnosed” attitude to international lending. Another solution was for the Government to start lending to companies, said Mr Dobson. An excellent source of income could be money! from the superannuation ( scheme. Speaking from the floor,! Mr W. Rosenberg, a reader _

'-in economics at the Universitlity of Canterbury, said that y he supported the idea and it j that the money could also ilicome from increased taxes, i-i Mr Rosenberg disagreed d -

with the proposal to *|| nu . • free-floating interest rates, however The higher interest rates that businesses would have to pay in order to get funds would be reflected in the cost ot goods, thus not alleviating inflation at all. he said A third member ' • panel, the president of the Canterbury Chamber of Commerce (Mr M L Newman). said that businesses should be able to see a period of tight liquidity coming and make allowances before thev were too adversely affected The signs were’ normally there well before the problem arose and companies could take such action as de dining to give credit and pruning their non-profit operations. Mr Newman said. The pruning of some operations might well be undesirable in some aspects for the community, Mr Newman said, but it was mote important that the company remain solvent and still be able to provide service to the community.