A Vital Financial Problem

Dominion, Volume 22, Issue 134, 2 March 1929, Page 17

A Vital Financial Problem

The World’s Supply of Credit

“ As conditions are to-day, many nations need still greater quantities of credit if they are to continue to purchase as much as they are now buying, and other nations need to grant credit Still more freely if they are to maintain their ability to sell their products.’ 5 —Sir George Paish.

UT already the power of American and British bankers to grant ( 8 additional credit is becoming exhausted, and we are now within sight of its ultimate limits,” so writes Sir George Paish in 'I the.People’B Year Boole, the annual of the English and Scottish Co-operative Societies, 1929.

“ The amount of credit already created is so fabulous that almost the whole of the immense reservoir of new credit created both in America and in England has been utilised. “ When it is fully utilised, nations will be face to face with the problem of how to meet the obligations they have incurred, and at the same time of how to purchase what they urgently need to buy without the aid of credit. If they are to meet their obligations, and to buy what they require, they must be able'to sell their own goods and services in order to make the payments they require to make. “When it is borne in mind that certain nations, which are not selling nearly enough of their products to pay for what they are buying, and, consequently, are still buying extensively on credit, must (1) meet thendebts by the sale of their own goods; (2) must pay for whatever they need to buy in their own goods and services, instead of by credit operations, and (3) in some/bases must make reparation payments in their own goods and services instead of by fresh loans, the difficulties of the problem become obvious.

/ “As matters now stand it is abundantly clear that, unless the nations completely change their present policies, the debtor nations will neither be able to maintain the present level of their buying power nor meet their obligations, whether they be for interest, principal, or reparations. “ At the present time the creditor nations are- strongly opposed to receiving from the debtor nations goods and services in payment of ( their obligations, or even in payment for the products they still continue to sell to them. And while this attitude continues how will it be possible for the debtor nations to meet their obligations, or to continue to purchase from the creditor nations when new credits are not forthcoming? Moreover, how will it be possible for internal credits, granted both in America and in Great Britain, to be met, if manufacturers, farmers and others cannot continue to sell their products in anything like the present volume? , “The liberal grants of credit by America and Great Britain have caused the currents of trade to be maintained in all parts of the world, more particularly in South America, Australia, Canada and the Far East. These currents will also be greatly reduced as soon as this credit is not forthcoming, and nations which have hitherto purchased so freely on credit can no longer do so. “ Thus the danger of a world breakdown of credit and of trade is now by no means remote, and wiU rapidly approach unless steps are taken to apply the remedies urgently required. “ The first step demanded is an impartial and comprehensive diagnosis of the whole situation, and more particularly the credit and trade position, both international and national, in all important countries. Beyond this, investigation needs to be made of the economic effects of reparations, not only upon the countries called upon to pay them, and those entitled to receive them, but upon other countries as well. “This explanation should discover the extent to .which the nations that are indebted for loans, or for reparations, are unable to meet

their obligations by the sale of their products, owing to the unwillingness of the creditor nations to purchase them in sufficient quantity.

“ Further, the examination should indicate the manner in which fresh credit can be created for opening up the new countries to. settlement, and bringing about the necessary increase in world consumption that will enable trade to be maintained at a high level.

“Lastly, the nations must be made to understand the necessity of readjusting their political and economic policies in order that they may promote and not destroy trade if the danger to which they are all exposed is to be averted or overcome.

“ While the situation throughout the world is full of danger, it is particularly dangerous in the United States and on the Continent of Europe. In America, so much credit has been and is being created, both for home and foreign borrowers, that the supply cannot be maintained, and the stoppage of new credit will involve a very great collapse, both in trade and in prices, with consequences which cannot be measured, having regard to the over-borrowed condition of the country. “The Continent of Europe has now obtained far more credit than it can hope to repay unless world policy is completely changed. In pre-war days Europe was a creditor continent, and entitled to receive great quantities of produce in payment for the interest and principal upon credits granted to the rest of the world, and more particularly to the United States and Russia. Now it is a debtor continent, and must export its products, or perform.services to pay interest and principal on sums borrowed, as well as to pay for all the products it needs to purchase from outside countries. “But these outside countries, and more particularly the United States, Canada and Australasia, have deliberately adopted a policy of excluding the goods of Europe by high tariff and other barriers. At present Europe is buying from these countries on credit granted by the United States and Great Britain, and difficulty is already arising in obtaining these credits. What will be the situation in Europe when the supply of new credit ceases, and it endeavours to meet the interest and other obligations already incurred in goods that cannot be sold, and what will be the situation in the United States, Canada, Australasia, and in other countries when they cannot sell their products?

“Were Russia in a position to supply Europe with the food and raw material it requires, the situation would immediately become less difficult, as Russia needs to purchase all the manufactured goods she can obtain, either in exchange for her products or by credit operations. But the statesmen of Europe, of this country, as well as of Russia, are unwilling to pursue the policy which will restore Russia to prosperity, and which is urgently called for by a most difficult situation. “Hence, in view of the fact that the nations not only show no willingness to take the measures demanded in order to prevent a breakdown of both credit and of trade, but insist upon pursuing policies which, if continued, will render the breakdown inevitable, it is of great moment that the whole situation should be most carefully reviewed so that when the breakdown does occur, it may be repaired with the least possible delay, and with a minimum of suffering, by the adoption of those measures which, had they been taken when the peace treaties were drafted, or in the long period that has since elapsed, would not only have prevented the crisis, but would have restored the world to prosperity.”