BUSINESS OUTLOOK

Dominion, Volume 31, Issue 110, 3 February 1938, Page 14

BUSINESS OUTLOOK

American Situation Analysed TAXATION RETARDING TRADE There is reason to believe that business is capable of working out the solution of its problems eventually if it is not subjected to additionaj legislative drawbacks, the Treasury’s finances are placed ou a sounder basis, the taxes on undistributed profits and capital gains are revised, and the international political situation does not become a more serious deterrent, states the Guaranty Trust Company of New York in a review of the current year and the outlook for the beginning of 1938. • “While most competent observers anticipate that the recession will continue well into the coming year, many believe that there is nothing of a purely economic nature apparent at present to suggest that we are entering a depression of the magnitude and duration of the last one,’’ the company states. “But there are some who are confident that fundamental factors are unsound, and that the country faces a drastic corrective movement. “Even though ' considerable recovery should occur during the coming year, several problems will remain that must be solved before business may regard the longer-term future with assurance. Perhaps foremost among these is the need for the adoption of a long-range plan of relief expenditures at times of economic stress, as contrasted with the spasmodic, wasteful and poorly planned disbursements in the past. Along the same line some definite plan for balancing the Budget is needed, such as broadening the tax base and reducing expenditures. When a balance is achieved and conditions warrant, it is essential that a systematic programme be adopted for reducing the huge public debt. “In resjiect to labour, there is an urgent necessity for some approach to industrial problems that will enable the Government, business men, and labour, to consider their differences in a spirit of co-operation. Underlying the foregoing and other problems is the danger in the political philosophy that man-made doctrines can bring greater good to the people of the nation than the operation of natural economic laws. Factors Contributing to Recession. “In view of the fact that the gains during 1937 were widespread, and that the movement was strong enough to overcome seemingly insurmountable obstacles,” the company continues, “many are at a loss to account for the sudden appearance and rapid growth of the recession. “One of the causes frequently cited is the effects of the Government’s credit policies, which, it is held, tightened credit to an extent that made it necessary for the banks to secure funds by selling Government securities. The fact that the sale of these securities by reporting member banks during this year exceeded the increase in loans by about 590,000,900 dollars, and that excess reserves now aggregate more than I,GW,O(Z>,OOOI dollars, indicates that member banks have been liquidating Government securities for reasons oilier, than a need for additional funds. “In the final analysis, business ceased to expand largely because of . a loss of confidence. To the extent that this development was based on the belief that production was surpassing the level canable of absorption by the current level of ""demand, the recession may be regarded as cyclical or ‘normal’ in character. However, there can be no doubt that several other factors exerted a strong influence on the downward course of business, In fact, the confidence of many business men began to ebb as early as February, when the growth of labour disturbances made the outlook for uninterrupted operations highly uncertain. Retarded by Heavy Taxes. “The effects of certain legislation in force in 1937, especially that which increased the tax burden and called for heavy Government expenditures, acted as a constant harassment to business. These laws have had such a strong influence on business sentiment and the course of trade in the last few years that they cannot be excluded from any speculation regarding future prospects. "Even in circumstances where the limited understanding of the factors governing the cyclical movement of business is alone required for guidance, it is always difficult to predict future economic trends. But prognostication under present conditions, with the Government exercising unprecedented control over private enterprise, is particularly hazardous. Opinions based on the soundest scientific devices known could be nullified overnight Is action on the part of the Government under its existing powers, to say nothing of the uncertainty of possible legislation that may be enacted in the future.” TIN BUFFER POOL Possible Revival Of Scheme The revival of a tin buffer pool early this year is considered likely in stock exchange circles in London. A definite announcement, it is believed, may be delayed until the next meeting of the International Tin Committee at The Hague on February 18. The previous tin buffer pool was dissolved a few years ago after huge stocks, accumulated during the depression, had been liquidated. The objects of the pool would be to stabilise the price of tin, probably at £229 a ton. Advocates of the project contend that the last buffer pool, whatever the objections lodged against it, did succeed in preventing the violent market fluctuations which have often aroused market controversy. The scheme for the resurrection of the pool has recently gained further adherents. The “Financial Times” states that, although members of the International Tin Committee are almost unanimous in support of a buffer pool to implement the quota regulations, a section of Malayan opinion is resolutely antagonistic. In market circles, however, although such a move would not be popular, the reactionary price trend of recent months has tended to reduce opposition to a measure which would definitely curb speculation. Tin consumers, particularly those in the United States, which absorbs nearly ■half of the world’s total output, are in favour of market regulation. In addition, the majority of producers support the plan. On the other hand, market opinion admits concern at the deterioration of the tin statistical position. Visible stocks have expanded and invisible stocks have been considerably augmented, particularly in the United States. Under the 1938 quota production lias been calculated at almost 170,000 tons, and consumption has been estimated at about 160,000 tons. Any marked recovery in industrial activity in America, however, would transform the whole outlook within a short period. Should the pool be reintroduced it is understood that its administration would be placed in the hands of one man, independent of the industry. Possibly a small sub-committee would act in an advisory capacity. Colombo Tea Auction By Telegraph—Press Association. * Dunedin, February 2. Mr. L. M. Wright has received the following cabled report on the Colombo tea auction of February I:—The market for common teas was slightly easier, but medium and fine grades remained firm 'it last week’s rates. The quality of the offerings showed an improvement, and supplies coming forward are moderate. One million eight hundred and seventyfivo thousand pounds arc catalogued for the auction next week.