TRADE EXPANSION

Hawke's Bay Tribune, Volume XXII, Issue 147, 7 June 1932, Page 11

TRADE EXPANSION

DOMINION’S POSITION. QUARTERLY REVIEW. Credit conditions and efforts to improve them is the subject of the latest quarterly review of the Canterbury Chamber of Commerce. The review is prepared for the Chamber by the Department of Economics of Canterbury College. In summing up its analyses of trade, and banking returns, the department reports:— It is possible that the efforts now being made by easing credit conditions to stimulate trade expansion and price expansion may be effective. If so, they should provide a very welcome stimulus to recovery when next season’s exports are ready for market. • EXCHANGE A BONUS. With regard to the exchange question, the Economics Department remarks:—When the exchange control scheme was established, it was estimated that approximately £14,000,000 would be required in London this year to meet payments for interest, debt redemption, etc., over and above the amount required to pay for imports. The Government has recently borrowed £5,000,000 in London, and this amount, added to the £8,600,000 accruing from the favourable trade balance, gives a total which should approximately cover the commitments due abroad. Under these circumstances the conditions which occasioned the control scheme have been removed. “The Minister of Finance has announced that the scheme is to be abandoned in June, and it will bo interesting to see what effect, if any, its abandonment has upon the balance of overseas payments.’’ The department also holds the view that the premium in sterling has already provided exporters with a bonus of about 8J per cent, on sterling prices. BANKS AND PUBLIC. It is noted in the review that “despite the severity of the present depression, the published banking figures indicate a position somewhat sounder than w-as the case in 1927.’’ Further, “the bank returns give little support to the widely-held view that bank credit has been deliberately deflated.

“They show, on the other hand, that bankers have advanced credit on a liberal scale during the past two years. The decline in advances during 1931, was probably an effect, rather than a cause, of depression.” The returns are taken to show that there has therefore been a very heavy contraction in the amount of funds held by bank depositors in a form readily available for use, and a heavy expansion in the amount set aside in fixed deposits. It is generally agreed that the proportion of free to fixed deposits provides an excellent indication of tho level of business confidence.

“These figures suggest a very low level of confidence in the attractiveness of investment in business (states the department), and a decline in that confidence which, though accelerated over the past three years, goes back several years before 1929. It may be expected that when business enterprise again promises secure and profitable investment, it will attract money from fixed to free deposits, and a change in the trend of these figures will indicate that recovery is under way.” PRICES AND RECOVERY. “At the present time, it is widely considered that the world is unlikely to recover prosperity unless a substantial improvement in prices can be

stimulated. In almost all countries, the abnormally low level of prices has been accompanied by serious Budget deficits, heavy unemployment, reduced production, the freezing of bank assets, and by trade and exchange restrictions, all of which tend to maintain the existing stagnation in commerce and finance.

“In consequence of the realisation of this position, active efforts are nowbeing made in some leading centres to stimulate business activity and to improve prices. . . . The object of both these changes is to ease credit conditions. In Britain tho fall in world confidence in sterling which precipitated the suspension of the gold standard has been reversed.

“Britain is now described as probably the most prosperous of all countries, and the flow of funds to Britain has threatened to lessen the exchange depreciation, and, therefore, to bring British prices doy-n more nearly to gold prices.” The review is concluded by reference to the “abnormally easy money condi-

tions in London and active trading on the Stock Exchange, and rising security prices.” It is noted that “in tho past, improved security prices have usually heralded business expansion and rising prices.” The review' concludes with the quotation as given in the first paragraph of this article.