"HIRE-PURCHASE” SYSTEM.

Hawke's Bay Tribune, Volume XVII, Issue 17, 4 January 1927, Page 4

"HIRE-PURCHASE” SYSTEM.

While we are hearing a great deal officially that is no doubt fairly well justified with regard to the general prosperity enjoyed in the United States, there are still occasional symptoms, even outside rural industries, that show a condition that is not altogether sound. The bursting of the Florida land boom two or three months ago was the result of operations which were probably but little to be distinguished from deliberate swindles and which ultimately involved many thousands of foolishly confiding people. The failure of thirtyone banks in the single State of lowa that followed shortly after had however, nothing to do with this, but had entirely separate causes. Of these one was doubtless the heavy depression that affected the very big farming section of the community. But this, described as “the biggest catastrophe in the financial history of the State,” brought ijeto prominence another feature in the purely commercial sphere which was held to have not a little to do with it, and which is well worth our noting here in New Zealand. According to an American writer, banks in the U.S.A, are divided into two classes, those' that will always take a chance, and those that will never run a risk. The greatest line of cleavage between these two classes is that the latter shun any connection with the hire-purchase system of trading, while the banks who are willing to take chances are always ready to accept business. The extent of the business done on this system is not known with exactitude, but the volume is so enormous as to be giving some concern. Bankers, economists and financial authorities ar e fearful lest if any widespread depression should arise there would not be am even larger amount of the "frozen credit” which the hire-purchase system leads to than was the ease in the slump of 1920-21. While the actual jigures are not known, from statistics which are available it is known that 5,000 million dollars worth of goods were bought in 1925 to be paid f<Jr in 1926, while the estimates for last year certainly showed no diminution in the volume of the same class of business. As a prominent American banker puts it. “this means that 1925 has borrowed 5,000 million dollars worth of business from 1926, and, assuming that 30 per cent of it is paid, it will absorb 3,500 million of the spending power of 1926. If it can be repeated that year all will be well, but it obviously makes the position less sound.” Despite the undoubted prosperity of the United States, there seems ample evidence that by the excessive use of the hire purchase system Americans are buying more than they can pay for, and while this may in the meantime give an appearance of greater prosperity than really exists, the position is not a healthy one. There is obviously a tendency for a speedier extension of the system, in this Dominion than is perhaps wise, and it would be well if the warning of such a disaster as the financial debacle in lowa conveys were taken to heart by traders and purchasers also m New Zealand.