THE HUNTLY PRESS. Tuesday, November 17, 1931 INTEREST RATES.

Huntly Press and District Gazette, Volume XVIII, 17 November 1931, Page 2

THE HUNTLY PRESS. Tuesday, November 17, 1931 INTEREST RATES.

ONE of the most difficult and delicate questions requiring solution at present is that of interest rates. The rates established during a period of prosperity and good business, when people were apt to undertake obligations in a lighthearted manner, are obviously excessive and oppressive under the prevailing economic conditions. This will be freely granted on all sides. But the problem of adjusting interest rates to new conditions is a very delicate one. First of all, there is the inviolability of contracts to be overcome, and the results of infractions of that inviolability to be considered. The parties to an interest. contract may mutually agree upon any modification they like. That is their private affair. But to modify the conditions compulsorily by law is another matter. The results of such an action are rather difficult to forecast; but one probable result would be a loss of confidence by investors that would materially lessen the amount of loan money placed at the disposal of borrowers, and a diversion of these funds to public purposes. It would be a serious blow to the industries of the country if the government and public bodies absorbed all, or nearly all, the loose capital in the country. The suggestion has been made that interest should vary with the cost of living. This proposal has much to justify it, because under present conditions the value of interest payable on contracts entered into a few years back has been materially increased by the fall in the cost of living; and a corresponding reduction in the interest rate would leave the lender in his original position, which would be quite fair and just. But those who advocate a compulsory reduction of interest on account of a fall in living costs cannot argue when talking about wages and salaries that there has not been such a fall. This sliding scale as applied to interest is a popular idea at present because it would result in a fall in the interest rate, but if a sliding scale be adopted, it must, to be equitable, work both ways, so that when costs rise interest rises pro rata. This prospect will not appear so pleasing as a downward working scale; but it must be part of any sliding scale scheme. The best way to solve the interest problem would be to introduce the sliding scale system into the original contract, making interest revisable at fixed periods according to the index of commodity prices. This would ensure that the payer and the receiver paid and received in the terms of the original contract. But

we are concerned at present with | immutable contracts, and their modification is the problem. Of course Parliament might follow the example of Australia and compel lenders to agree to a voluntary modification. No matter how it be done, it seems quite plain that there must be some adjust ment of interest rates. The problem is a knotty one; but the “wisdom of Parliament” should be sufficient to provide a solution.