THE H.B. TRIBUNE WEDNESDAY, DECEMBER, 4, 1935 AMERICAN BOOM FEARS.

Hawke's Bay Tribune, Volume XXV, Issue 299, 4 December 1935, Page 6

THE H.B. TRIBUNE WEDNESDAY, DECEMBER, 4, 1935 AMERICAN BOOM FEARS.

The abundance of lending money in the Old Country is well instanced in the terms upon which, as cabled to-day, the British Government is issuing two loans. The first of these a “cash” loan of £lOO million, redeemable at any time between February 1939 and February 1941, will provide an over-all return of £1 8/5 p.c. p.a. to the investor. The other of £2OO million, designed for “funding” portion of the country’s still heavy floating debt and repayable at any time between February 1956 and February 1961, will give a return of £2 13/10 p.c. p.a. At the same time wc have President Roosevelt carrying out similar finance operations in the United States and on terms almost identical. The rates in his case range from £1 10/- p.c. p.a. for short-term bonds to £2 15/- p.c. p.a. for long-term. The issues consist of a “newmoney” loan of 900 million dollars (about £lBO million sterling) and a “redemption” loan of 418 million dollars.

It would thus appear that “easy” loan money is available for the Governments equally in both countries. There is, however, a very great difference between the general position of Government finance in the two countries In the first place, through all the process of recovery the British Budget has each year been scrap ulously balanced. In the United States each year has seen a heaver deficit than the one preceding it. Then, Britain has added little, if anything, to the Public Debt. In the United States it has gone up by leaps and bounds of billions, not millions, of dollars each year, until now it reaches the stupendous amount of 30) billion dollars, which, however, Is still substantially less than the figure to which the National Debt of the United Kingdom was raised by the Great War. For some time the President lias been warning the people that this vast expenditure of Govern ment loan money must be brought to a close, and it is by way of tapering it off that he is now ask ing for only 900 million dollars’ worth of new spending money, a relatively modest amount when compared with earlier operations. As a result, or at any rate fol lowing upon, President Roose volt’s immense inflationary move incuts there is admittedly at least an appreciable improvement in the industrial and commercial activities of the country as a whole. American financial authorities are, however, greatly exercised over the thought as to what is going to happen when the vast accumulations of private capital, bottled up pending the stoppage of the flow of governmental inflation, comes to be let

loose on the money market. The question is discussed at length in the November issue of the monthly bulletin of the National City Bank of New York and the conclusion reached is that there is great danger of “a revival of the boom spirit at a time when there is so much inflationary fuel lying about.”

It is pointed out that within two years the monetary base of credit has been lifted to levels more than twice as high as at the time of the great stock market boom of 1928-29, followed by such disastrous consequences. At the present time, It is also said, there is an immense reserve of private capital in the hands of the banks that has had no chance of finding profitable use in competition with the easy money with which the Government has drenched the country. The fear is that, when the Government stops its inflationary operations, this may emerge with something of a burst that will result in another boom of still more disastrous character. Evidences of some such movement pending are detected in the risky investments to which a very considerable volume of this stored-up credit has recently been committed. It is admitted that, under legislation passed during the last two years, “effective means exist for combatting a credit conflagration, if the au thorities are prepared to employ them with vigour and determination.” The question is, in the first place, as to “whether governmental authorities will recognise inflation when they see it” and, in the second place, “whether they will have the courage to do anything about it.” It is truly said that “putting the brakes on a boom is about the most thankless job a control body can undertake,” and it will certainly be none the easier when it follows closely upon a long period of seemingly hopeless depression.