PRUDENCE, NOT PESSIMISM

Evening Post, Volume CIX, Issue 26, 31 January 1930, Page 8

PRUDENCE, NOT PESSIMISM

Great Britain and America have experienced financial difficulties from which they are now recovering. Australia is feeling the effects of the depression, added to the problems which are peculiarly her own. Aj message from New York to-day refers to "a somewhat steady downward pressure" on Australian credit. This is reflected particularly in the prices of Commonwealth stocks and the difficulty of se'euring the transfer of funds owing to bank balances being exhausted. The recession of stocks is less important thanthe fund transfer difficulty, unless Australia should decide to turn again to America for loan money. Unless London proves even more difficult this recourse is improbable. More embarrassing is the downward movement in London. Though , Mr. Fenton, Commonwealth Minister of Trade and Customs, may do his best in the intervals of the Naval Conference to induce a more favourable tone, it is undeniable that the pros,pects are far from bright. The change of Government has not strengthened confidence, and the part taken by the Federal Government in the coal dispute is not.calculated to allay misgivings. Yet to London Australia must go and face conditions even less favourable than New Zealand faced last year. The foresight of Mr. Downie Stewart and Sir Joseph Ward lessened New Zealand's difficulty in the conversion negotiations. Australia may not be so fortunate. Certain measures appear inevitable. One is a curtailment of imports, especially from America, so that the drain upon! funds may be checked. ' The other is a moppingup of internal credit for Government purposes so that dependence on London at an unfavourable time may be reduced. How far a Government which is committed to free expenditure will co-operate in such measures is questionable. Popularity or stability is the choice. As New Zealand felt the effects of the London stringency, so too she will have some experience of the Australian problem. ' A keen demand for funds in the Commonwealth will help to harden money prices here. For two years at least there has been a flow of funds for investment from New Zealand to Australia, and this flow will be checked only by an easing of the Commonwealth demand or by stronger local competition for money—involving a hardening of the interest rate. In view of this possibility it would be imprudent to select this time for heavy capital expenditure. There is no call whatever for alarm, but there is need for caution. Returns from exports are likely to be lower this season, but against this must be set the fact that we have had three good years, in two of which substantial trade credit balances accrued. With reasonable caution the reserves thus established should enable the Dominion to tome through a period of difficulty with her resources unimpaired. Care is essential, but care does not mean pessimism or the adoption of panicky retrenchment measures.