NOTES ON THE FINANCIAL OUTLOOK

Dominion, Volume 7, Issue 2218, 3 August 1914, Page 6

NOTES ON THE FINANCIAL OUTLOOK

" The European crisis had an immediate effect on the financial markets of the worlc£ The moment Austria's Note was handed, to Servia and the'contents'were known the Bourses and Exchanges were immediately; depressed. 'In-/Austria tho pinch is being felt very "severely, for Austria has suffered in a marked degree from the effects of ,the. Balkan, war, and tho necessity for maintaining her forces on a war footing ofl the Russian frontier. A moratorium has been declared iti Austria, and the authorities .have been forced to tako_ the extreme step of fixing tho maximum prices, for foodstuffs.

Next .to . Austria, Germany' appears to be suffering a terrible financial strain. The German banks in normal times hold large-Russiani and Frcnch credits, and naturally these have been withdrawn, adding very greatly to the stringency.: Thcxlramatic swiftness with which the crisis developed caught the German bankers and financiers unprepared, with the result that securities of all kinds have been dumped on the market, there have, been numerous failures, and many ruined men have been driven to commit, suicide. .

The crisis is less severe in Fiance, though it is bad enough there. France possesses a vast amount of gold and silvpv -but the Bank .of France will not readily part with its metal reserve. It has certain privileges in this respact conferred on it by law, and the principal trouble in Franco is the absence of ready cash. The Bourse .is closed and jgilt-edged and other securities, especially those of an international character,/ are practically unsaleable?" ».

It is difficult to speak" with any degree of certainty about the i posi l tion in Russia as vary- little information has been allowed to be transmitted, by cable. ' Russia has enjoyeg, some years of prosperity, the Bank of Russia holds a vast .amount of gold, and as the' Muscovite Empire, is a great producer of foodstuffs, there will be no famine or scarcity, there, although prices will b& high." We may take it for granted that money is dear in Russia, that all securities are depressed, and'that the Bourses are closed.

England is bound-, to feel tho strain of tho financial crisis, because England is the only free gold market. 3 ill the world. Early last week,, when it was seen that war was impending, international securities were dumped on the London market in shoals, and at "knock down" prices, becau'so all the European "nations; were anxious to secure credits.in London, ahd.thus bo in a position to obtain gold from the Bank of England. The fall in gilt-edged securities—and it must be remembered that Imperial. Consols fell to £69 155., the record l low pricj in recent years—first hit thoso who were doing business in margins, and there-were several failures'at the outset: the further decline has hit many more, and to prevent a cUbdcle the Stock Exchange has been' clostid. for the first time in its history. This incident alono suffices to show the extreme severity of the financial crisis in Europe, and which must presently affect every corner of the globe. "

The Bank of England rate was reported on Saturday to have been ad-, vanced to 10 per cent., and it • is doubtful, whethor that rate, high as it is, : will prevent the other nations from trying to obtain gold. Tho directors of trie. Bank of England- meot every Thursday morning, when the balance-sheet for tho week . ended Wednesday is presented. 'A copy oi this balance-sheet is sent to the Treasury, and another is posted up in front of the Bank, and an army of clerks, journalists, a and.others is present to make copies of the figures. This balance-sheet is .cabled to all parts of the world, and as our readers know is published in The Dominion every Saturday morning. At the meeting of the. "Governor and Court of the Bank of England/' as it is termed, tho minimum discount rate is fixed. Last Thursday' the rate was raised from 3 to 4 per cent, and now it is stated it has been further raised to 10 per cent. The last occasion on which wc had a Bank rate of 10 per cent, was on May 12, 1866; the rate was maintained for 9G days; and it was then reduced. . All the other joint stock banks follow the lead of the Bank of England, so that foreigners will find it a-difficult matter to obtain the yellow metal in London, while the high rate will euable the Bank, to secure the larger portion of the new gold

The crisis in Europe will bo reflected'in Australasia jm'fc, as tho American financial crisis of 1907 affected us, and already we sec .the Stock Exchanges'depressed. Fortunately for us, our banks , arc in a strong position. According to the ciuai'tevly banking returns, the banks in New Zealand ; hold about £5,500,000 in gold, silvcv, and bronze coins. Furthermore, we have to remember that the banks have greatly strength l 'eiied their resources by adding to their capital. _ Care and caution will be exercised in affording accommodation, but we are informed that regular clients oan expect to hi\ve their legitimate,demands fully met. The State finances, ton, are in a satisfactory condition, but as the. London market will be closed for fresh loans, the Government must necessarily exercise extreme caution for the ore-

'sent. .We have no need to be alarmed, for we have the backing of many years of prosperity to assure us that we can weather this storm.

New Zealand trade is bound to be greatly disturbed. For our food products, such as butter, cheese, meat, and wheat, .prices should be high provided'the waterways, are clear for our ships to transport the goods. At. present this is uncertain. Wool may, probably will, suffer,, because France and Germany are very good customers of our. staple product. We will probably; have higher prices for some import lines, and some goods in nil probability will bo altogether'unprocurable.. No one can really estimate the extent of the disturbance to our import 1 trade, for so many diverse factors have to bo taken into account, but that it will bs very serious'is certain. Care and caution are sound watchwords at such a time.