FINANCIAL CENTRE

Greymouth Evening Star, 12 September 1924, Page 2

FINANCIAL CENTRE

LONDON OR NEW YORK?

The United States is the richest « ■oStrvTthe world. has accumu ated in the reserves of its banks mohan half the world’s st ° c^ n g° ld, _ ind more gold m paymenu for Amen 111 produce and manufactured goods at the rate of ijOOO OuO lolhrs a day. Last year the influx f gold into the United States reached 00 000.000 dollars, and, according to freaisury officials of’that country, tins iX Will again be reached in 1924. Tlie primary factor.in making Ameiica so P rich has, been the war. lhe Allies paid America enormous sum stuffs ImSicXuld take in’radW*. S g tlS Europe is gold, and America is . addl 7=2? vast hoard of the precious, ' An) This accumulation of wealth in Am erica has made money cheap for boi rowers, with the result that some countries which were accustomed to boitt London, for -love schemes, hove been »®‘ing ‘he Kw York money market. It was lecentij stated in Die New York newspapers, on the authority of “high Treasury officials.” that New York is grad ua becoming the financial centie-of the world, because of the low rates in the United States, backed by the largest stock of gold ever assembled in any country. But London financiers, Lvo h=v» “‘'"‘VZ to handle the flotation of foreign loans for many years scorn the idea of New York sunplanting London as the financial centre of the world. And Wall Street financiers are not prepared to endorse the view of American Treasury officials that London will soon pl«.y a subordinate part to New York in financing foreign loans. Financiers in New York and London are agreed that owing to America’s great wealth she will probably take a larger share m financing foreign loans than she has done in the past; but they recognise that under present, conditions,, the American investor will prefer to invest his money in American securities instead of in foreign countries. “For generations England has practised and fostered international finance and banking, and attained acknowledged mastery in that field, states Mr Otto Kahn, a wealthy American. banker, who holds that New York will supplement, not supplant, London as the market for foreign securities. discount, acceptance and credit markets, the methods, system and routine of the--facilities which she offers to foreign commerce and the foreign borrower, have developed to a breadth and a perfection of functioning which have no parallel in any other country. Her merchants are admirably trained in foreign trade, intimately acquainted with the ways and habits of foreign countries, and have established an enviable reputation throughout the world'. Her investors are accustomed to place part of their funds in foreign countries, and are nominally under a potent inducement to do so. The geographical position of the country in relation to the world’s established, trade routes, and the intrinsic character and natural tendencies of its commerce, are strong elements in determining the degree of its potentialities as an international financial centre. These natural elements are distinctly more propitious in the case of England than in that of the United States.” Great Britain’s foreign trade, which has been built up through the course of’ years, is much more extensive and more ably organised than the foreign trade of the United States. Trade and finance are interwoven, and to ,a considerable extent the foreign loans which London finances are spent in the purchase of British goods. A very large number of British companies are engaged in trade and development en. ternrises in foreign countries. But the United States is mainly a self-contained country. It is still in the process of development, and offers unlimited scope for the employment of capital. The vast protected home market of the United States, with its population of 110,000,000, overshadows in importance the accessible foreign markets. Therefore, there is little disposition in America, to invest abroad. Politically, Americans take very little interest in foreign countries. The national policy for many years has been one of detachment, and it will be many years before this mental attitude is (changed. Until it is changed, America will not provide a receptive market for the flotation of foreign securities.

Moreover, the wealthy American finds it is more profitable to invest his money in his own country than in foreign countries, even though the rate of interest offered by" foreign loans is much higher than the return from American securities. Under the constitution of the United States, every competent State, every county and every municipality, has the right to issue bonds, which are wholly free from income tax and super taxes. As the super tax in America reaches a maximum of 40 per cent on large incomes, it is obvious that tax-free bonds are a most attractive form of invest ment for wealthy men. A tax-free bond yielding 4 per cent brings approximately the same return to an investor in the highest super tax class as an 8 per cent bond which is not free from taxation!. And, from the point of view of absolute security, no foreign bond can surpass, and few can equal, that which is offered by American States or municipal bonds. There are over £3,000,000,000 of such secur ities outstanding in the United States, and new issues are being placed on the market almost every week. While such conditions continue, it is not likely that the American investor will look favourably on foreign loans, and until the American investor finds that foreign loans are more profitable to him than local bonds, New York will not supplant London as the financial centre of the world.