DEFLATION POLICY

Hawke's Bay Tribune, Volume XXII, Issue 155, 16 June 1932, Page 7

DEFLATION POLICY

RAISING OF EXCHANGE RATE URGED SHOULD BE NOT LESS THAN 30 PER CENT. PROFESSOR BELSHAW’S VIEWS. By Telegraph—Press Association Auckland, June 16. Declaring that the process of economic deflation in New Zealand is still far from complete and that as a policy it is fraught with extreme danger, Dr. Belshaw, in addressing the Economic Society, urged that exchange rate should be raised to not less than 30 per cent, and maintained at that level until overseas prices become more stable. In emphasising the gap which still existed between export prices and internal prices, Dr. Belshaw said that on the basis of 1928 the continuance of deflation would require further reductions in award wages of, say, 30 per per cent, and in interest and rent of, say, 20 per cent.. Nevertheless, the burden of fixed charges and taxes would still remain unduly heavy and the continued fall in internal prices would result in persistence of low profits or no profits and heavy unemployment. Further, the Government’s adjustable expenditure would require to be reduced from £14,000,000 to £4 000,000. Clearly, the Government was faced with an impossible task in balancing the Budget at such a level of national income. It would be unwise to expect relief from a rise in export prices.

He added that he expected the exchange rate to go up when the pool was abolished, and suggested than an exchange control board be set up preliminary to establishing a control bank.