LOWER BANK RATES

Dominion, Volume 26, Issue 28, 27 October 1932, Page 9

LOWER BANK RATES

Professor Belshaw’s Views ECONOMIC SITUATION Address to Farmers’ Union Reductions In the bank rates on overdrafts and deposits were advocated yesterday by Professor H. Belshaw, of Auckland University College, in an address to the Dominion executive of the Farmers’ Union. Professor Belshaw described in his address the development of slump, the present position, and particularly the position of New Zealand. Those in favour of a high exchange rate were at the moment defeated, he said, but there was no reason why bank rates should not be reduced in an attempt to improve conditions in the Dominion. It would be agreed, said Professor Belshaw, that the purpose of those in charge of currency and credit policyshould be to free the stream of product in the hope that prices would return to better levels. He described the various causes—illbalanced gold distribution, reparations, war debts and other matters—which had contributed to the development of the present world situation. V ith the fall of prices there had been a tendency for countries like New Zealand to reduce imports disproportionately to the reduction of exports, in an effort to meet debt commitments. This had been a factor, he said, in the diminution of international trade. Other factors contributing to the present situation were the growth of short-term lending and the re-orientation of international trade consequent upon various countries stabilising at different levels. The crisis had actually been precipitated bv the Stock Exchange boom in the United States, Professor Belshaw said. The result was an import of gold which led to other countries restricting credit. On this depression, which began about 1929, was superimposed a financial crisis due to the failure of a very large Austrian bank, which had eventually caused Britain to go off the gold standard. The drastic fall in price levels had been the result of the financial crisis. Removing the Causes. The return to higher price levels could be made only by removing the causes which had contributed to the slump, Professor Belshaw said. He enumerated some of the steps which might he taken, including the removal of causes of international friction and political Insecurity, economy in the use of gold and the cancellation or drastic reduction of war debts and reparations. It was unfortunate, he said, that the Ottawa Conference had not done more in the direction of tariff reduction. Two suggestions which had been made to improve conditions were that the main financial centres should favour cheap money on both short and long terms, and thati international lending should be resumed, at least temporarily, on a large scale. The chief difficulty seemed to be lack of confidence among lenders. Professor Belshaw’s own suggestion, which he had made elsewhere, was that Britain and the Dominions should float an Empire reconstruction loan. Mr. J. M. Keynes had remarked that the plan deserved consideration, and Sir Josiah Stamp had said that as an economist the scheme had his approval, although a® a banker he had thought that there would be Immense difficulties facing it New Zealand’s Position. Referring more particularly to NewZealand conditions, Professor Belshaw said that it was important to realise that no measure that could be adopted in New Zealand Itself to reduce the loss which had occurred as a result of the fall in price-levels could be successful. Another loss had occurred through internal disparities in price-levels. The problem would be solved either by reducing money costs of production or by increasing money incomes. New Zealand still required at the present a rise of 50 per cent, in export prices to make its price situation right. But he was doubtful at the moment whether further legislative action to decrease costs would be a good thing. Raising the exchange, however, was in the best interests of New Zealand, and not only in the interests of the farmer but in the interests of the rest of the community as well. But he did not entertain any hopes that a higher exchange rate would be adopted. The supporters of a high exchange had to admit themselves defeated at the moment by the banks, the Treasury, and the Bank of England. What should be opposed was any move in the direction of parity or any deflationary measures. Lower Bates Suggested. He suggested that in New Zealand there was no reason why the overdraft rate should not be lowered to 5 per cent and deposit rates to 3-31 per cent, provided the rates in the Savings Bank and other competitive institutions were reduced proportionately. At the present time it could not be said that New Zealand was suffering from a shortage of capital. His view was that there was a considerable customary influence on rates for overdrafts and deposits. Dealing with the proposal which was sometimes made to effect reconstruction in New Zealand by interna inflation, Professor Belshaw saJ<l some measure of Inflation by deficit fiance might be unavoidablei forl93£ 34 and to some extent in 193--33. He thought it extremely unlikely that at the present exchange rate or even a higher one that the budget would be balanced in 1934. It was necessary that bank credit should be maintained, and it was wrong to assume that th stoation would be met by an increase in internal credit. The better plan was to raise the exchange and to adopt a policy directed to better of internal price and cost levels. The way out was not by internal inflation, said Professor Belshaw.