IDLE CAPITAL

Evening Post, Volume CXVII, Issue 127, 31 May 1934, Page 14

IDLE CAPITAL

LOW WAGES TAKEN

MONEY IS CHEAP TODAY

"Evening Post," May 31,

The relatively low rate of interest at ■which the latest Australian Commonwealth loan of £12,000,000 •is being offered for public subscription njay.be taken as a sign of these times of large accumulations of unemployed capital", The issue price of £98 10s, redeemable-at par, and the' comparatively short currency of the loan (14 years) should ensure a successful subseiiption. Honey is cheap today. However, the principal loans tailing due in Australia before 1948, when this £12,000,000 loan matures, exceed £234,000,000. They are as follows:— ■ ■ Amount. r.c. Date. Year. £ 3 Dec. 13 193S 6,289,500 4 ;.... Dec. 13 193S 70,843,760 4 Nov. 13 ISMI 03,520,800 3?i Deo. 13 1042 21,282,130 S%' ..*.....; Ails. 15 ' 1943 10,500,000 3 Oct. 13 1914 7,010,000 *„ Oct. 13 1941 '43,167,200 i% ......... Sep. 13 1917 29,826,400 £234,439.790 On August 10, 1934, a loan of £10,720,000 consolidated stock, bearing interest at £4 ■ 5s 3d, falls due, but is convertible on due date in 4 per cent, stock. There is also, the floating debt: that is another story. The response to the new Australian £12,000,000 loan is likely to emphasise the fact—if emphasis were necessary—that the market for loanable capital is in a depressed condition at present. Assuming the role of prophet, Professor Copland, in a recent address in Melbourne, predicted that the interest rate in the Commonwealth would fall to 2% per cent; He held that the capitalist world must have continuous expansion of investment or be destroyed. Twenty per cent, of the population received employment through investments, and. .when the latter;, declined there was unemployment. The depression and unemployment would remain until investment was restored. ! . ; Indeed, the whole economic system was' threatened ; unless this could speedily be clone. The community could not afford to pay the rates of interest that were paid after the war. In plain words, the rate of interest was too high, and the unemployment ratio proved it. History showed thqt in a depression rates of interest ■ must be low. In the nineties the rate for British consols was 2% per, cent., and he believed the Australian rate would yet be lower than that. When this came recovery would be more rapid. '.'. ■ THE PUBLIC DEBT. ; ~ If the lowering of interest rates meant increasing the Public Debt this-must be accepted as part of the price of restora-. tion. ..'.■. . ... . ' ■ . . ■- As a jnatter of fact the bank'deposit rate in Australia is now 2j per cent, for deposits,of three months and 234 per cent, for those of 24 months with rates in proportion for the periods in> between. In 1931 the' Australian rate for fixed deposits for 24 months.was 5Yt per cent., this compared with 2%-.-; per cent, today. The ; trading banks' minimum overdraft rate. is. now 5 per cent. ... Stock Exchanges in New. Zealand .and Australia also indicate '. the downward trend.of interest rates by the high prices/ commanded for gilt-edged and other "safe" investments. For example—to takje' New Zealand alone —the return on certain investments at prices current last •week were as follows:— Rctu'rh per cent., £ s. d. 4 p.c- Government stock (1940) 218 0 4 p.e. Government stock (1946) 315 11 4 p.c. Government stock (1955) 3 7 8 Bank of N.Z: (cum div.) 3 17 8 Bank of N.S.W. (cum div.) .... 3 1 7 Bank of Australasia 3 1 10 Commercial Bank 2 19 5 Union Bank 2 9 9 N.Z. Insurance .. 3 3 3 South British Insurance 3 6 8 National Insurance ....' 3 13 2 Gas shares give roughly about £3 los per cent.; freezing works, £5 per cent.; and breweries about £3 10s per cent. POSITION IN LONDON. In its;recent comments on the unemployed capital funds and the corresponding low returns on prices current for best investments, "The Times" remaiked that "it is the lack o£ usual opportunities for fresh investment -which is the main force driving up the level of security values; and this, affects dividend stocks as well as fixed-interest-bearing securities- The banks, although they have increased their investments by i'some hundreds of millions in-the past, two. years, continue to add to, them because trade requires less bank credit than it has done for years. The Board of Trade estimate of the country's balance of payments for 1933 shows a debit balance for the year of £4,000,000, compared, with a debit-of £56;000,000'in'-J932 and £104,000,000 in the year of crisis;493l. The improvement, while gratifying, leaves much ,to be desired. , '■ ■.

"But until foreign Jgnding is resumed it is useless to expect, a favourable balance, since a favourable' balance; of, payments necessarily implies an import of securities. Not the least interesting feature of the returns is the estimate of net income from overseas investments; • which is put at £155,000.000, or £10,000.000 more than in 1932. ■ This_ estimate willl surprise many people in view of the sharp depreciation in. -the dollar and the repudiation of the gold clause which must > haves reduced considerably the American income of residents in this country." " : . ' , ; CONFIDENCE A LAGGARD.^

Money today stands idle in the market place; not so much for want of employment as for employers in'which' it can have confidence. . The supply seems far in excess of the demand. It is the character of the demand, however, that is taken into account. Hence the diversion of many millions to Government securities and investments other than those requiring the setting of idle manual, clerical, and other labour to work. Confidence is still lagging. It appears to be waiting for more international amity and freer movements in international trade than have been manifest of late years. Its return would be signalised by a quick call for the use of vast capital sums now barely earning their keep. At the moment these seem to have no other avenues open to them but investments in Government securities aud.high grade stocks and shares, and that at exceedingly low returns on market prices. This capital is as widespread as its owner-

| ?'"Pc. **■* 's not all fhe property of wealthy individuals, but is largely representative of savings of the whole community through assurance, friendly, "building, and other societies, and in some cases the funds of trades unions. It also represents savings due to exercise of frugality, prudence, even self-denial. Fears of its loss explain, in large part, its present accumulation and idleness. .Certainly money is cheap today, but it would be better for industry and trade if, instead of piling up in millions in the banks, it were set to work. No doubt it would work and that with its coat off, if it could find a better job than one with the Government—any Government. At the moment capital seems chary to take any other job, poor as the pay may be. But this attitude is not in the best interests of industry and commerce. Its correction and adjustment appear to be with Governments and leaders in industry and finance working together.