The Dominion. TUESDAY, MAY 12, 1908. THE FINANCIAL OUTLOOK.

Dominion, Volume 1, Issue 195, 12 May 1908, Page 6

The Dominion. TUESDAY, MAY 12, 1908. THE FINANCIAL OUTLOOK.

The London, Paris, and Berlin money .markets are displaying an easier . tone, and mail advices sMow that in New York money is comparatively, cheap. | In Neiv t Zealand money is becoming dearer, an-! the local stringency is now causing concern. , Various reasons are assigned for the stringency, and while all agree 'that there is no occasion for alarm the general advice is that it is necessary to be cau 7 tious. The " New Zealand Herald," la dealing with the subject, seeks to minimise the'stringency by showing that the deposits in the Post Office Savings Bank have increased abnormally, but unfortunately the .figures taken for comparison are those for 1901-1906, when, money was plentiful in New Zealand, and there wa3 no suspicion of any stringency. The figures for 1907 arc not yet available, but the returns for the 'December quarter have been published, and comparing the figures with those for the corresponding period of previous years we get the following:— , 1 • Excess of ' • Deposits Withdrawals Deposits £ £ £ 1904 ... 1,361,253 . 1,310,373 50,880 ■ 1905 ... 1,538,235 1,422,576 115,659 1906 ... 1,989,920 1,690,052 299,877 1007 ... 2,240,446 . 2,011,036 234,910 .

It will be noted that there "was a shrinkago* in the December quarter of 1907, although at that time the adverse movement scarcely affected i\ r ew Zealand. It will be the figures for the current year that will disclose the difference, and it is-obvious that the Government expects a falling off, hence the desire to cultivate home banks. Other writers and speakers have blamed the Government for borrowing too largely in the local markets,. and thus mopping up the money that would otherwise be available for the trade and commerce of the country. This phase of the position has, perhaps, been exaggerated. The Government, it is true, has borrowed in New Zealand by the issue of shortdated debentures, and this may have ha.l some effect on the market, but only to a limited extent, the larger portion of the sums borrowed being obtained in the. Commonwealth. The Government, however, has hampered the situation by its action in the past in attracting deposits to the Post Office Savings Bank. The private banks have suffered from this "competition, and 'in self-defence have been obliged to advancc their deposit rates, and necessarily their ratos for advances. This, of course, means dearer money. The .borrowing on the part of local bodies has, no doubt, been an important factor in.' the situation. The true cause of the stringency is- mainly tho decline-in the values of bur staple products. First of .all' if wc can account for tho unparalleled prosperity enjoyed by New Zealand during the past two ir " three years, wis : will be able to appreciate the causes of tho present unfavourable conditions; The primary causcs of our prosperity were: ' 1. The' extremely high prices for ! practically all our produce. " 2. Government borrowing, interest earning and otherwise, been on a much larger scale than , previously. . For the seven years' to March 31, ' 1907, the average yearly increase of ( ■ the public debt was £2,200,000,. while the average for the previous seven , . years was only £1,200,000. In addi- . V tion to this expenditure of iborrowed ■ money, several millions of'.money ob- , tained by taxation have been spent on . public' works. 3. The. extraordinary expenditureop the part of-local bodies. -There 1 is scarcely a City. Council, Borough Council, County; Council, Harbour- . Board, Road Board, or Town Board; 1 that has not borrowed money. From these three chief sources originated the- prosperity of New Zealand,- and the prosperity, brought: about fictitious land Rvalues, extensive, and very possibly excessive, building opcrati'ons, and' over-in-dulgence in luxuries by all classes of the community. The good times lasted ?o long that many believed that prosperity was to be perpetual. - : Now many are perturbed to find that our income j from the exports .of produce, is quite £3,000,000 loss-than it was a year ago; There is that much less to spend. The local bodies are being forced to curtail borrowing or f to, cease borrowing altogether. We -/still have Government borrowing to rely upon, and many largo undertakings are > under ..way, \but it .cannot /expected" that the Irate of borrowing indulged in can con-' tinue unchecked. / The reduced-prices for produce-have, affected/land ■•values'; and that has Reacted on building. operations and so on. The 'question is,-have we reached 1 bottom—has the pendulum swung far enough tiie other wqy? It.is difficult to answer the question off-hand, for- the answer depends upon a variety of circumstances. The outlook'appears to iiidica,te that-things will be worse, before they are better, and 'it is because of that, \ve advise care and caution in all business affairs.- : - /-. ■ ' \