GERMAN ECONOMIC COLLAPSE.

Lyttelton Times, Volume CXVII, Issue 17264, 4 September 1916, Page 5

GERMAN ECONOMIC COLLAPSE.

MONEY POSITION EXPLAINED. (By LORD NOETHCLIFFE). ' Tho economic, coliapso of Germany may come soon, and wo hay© it in our power to hasten tho day by a more stringent application of our commercial blockade—that is to say, by refusing the use. of London as the financial centre of tho world to international financiers financing cargoes for tho benefit of Germauy. But tho economic collapse must not be confused with the financial collapse. It is probably this confusion of thought which induces tho dolusivo hope of the •enemy's financial exhaustion within a few months' time. People of an optimistic turn of mind assure their friends that the financial position of Germany will not allow tho enemy to hold out beyond tho autumn, and as this sort of talk tends to encourago us to relax our efforts it should not rest unchallenged. When tho war ends and Germany is forced to pay gold for vital overseas commodities it will bring a tremendous strain on her resources, but we must not mistake the- nfter-thc-war situation for the situation to-day, when Germany as a self-contained organisation is able to exist so long as tho German people have confidence in the stability of the State.' It is possible the financial figures which Germany publishes to the world may-bo " doetoved,"- and wo must bear in mind this possibility, when wo use tho published statistics as tho basis of argument. NO FINANCIAL FAILURE. The qtiestion is one capablo of considerable controversy, but if wo address ourselves to the simplo issue whether there is anything in Germany's borrowings to foreshadow tho possibility of German financial collapso in the autumn we are bound to say "No." Up to June Germany had borrowed 2000 millions under votes of crodit) granted since tho outbreak of war. Of this amount about 18111 millions were raised by war loan, the greater portion of which may be repaid at the convenience of the Government, the balance of 181 millions being made up of short-term credits. As Germany has already received powers to borrow another 600 millions, she should be able to liquidate these short-date credits of 181 millions without any difficulty out of tlie proceeds of the next loan.

Putting off the repayment of this hugo burden of debt to a distant future may be hard on coming generations, but vhe important point is that the capacity of Germany to carry on for many months is not diminished. Of the 2000 millions' borrowed by Germany 1650 millions aro only redeemable when German}' chooses'. Therefore beyond the interest payable on tho debt Germany is involved iu no immediate worry. Just under 169 millions of Treasury Bonds have been issued, and are repayable at various dates ranging from 1918 at the earliest to 1933 at the latest. Thero is nothing in these borrowings to cause German}* to look with concern to the autumn. Until the new war loan is floated Germany will finance the war by shortterm credits or borrowings from bankers in the nature of Treasury bills, which she will repay, together with the 181 millions, out of tho proceeds of tho new loan. There is no reason to think, thou, that sho will have any trouble in satisfying hot' financial requirements until the end of the year, which disposes of the financial collapse-in-the-autumn- theory. It is contended that the very fact that Germany is deferring the raising of her now loan until September argues n strained financial position. The truth is that September and March are the most convenient times for borrowing, lor in September the harvest will have beeu gathered and the agricultural community will be in a better position .to subscribe. ARE THE BANKS SOUND? Are the German banks sound? We hear'a great deal of talk about the failure oil Gorman banks, If thero was anything unsound in tho position'' of tho Reichsbank (which bears a similar rein tion to Germany as the Bank of England does to Britain) thou there might be something in the suggestion that the financial collapse' of Germany i.-j imminent. When wiir broke out the discounts and advances of the Reichsbank iwe from -10 millions to 108 millions.; in June 7 of this year they were 282 millions. On the' other hand, the notes in circulation rose from 95 millions to 195 millions between July 23 and August 7. 1.911; on June 7 of this year they were 335 millions. The notes of the Reichsbank were secured a- week before tho war by 71.7 of gold. On August 6. 19. M, by 37.9.0 f gold, and on Juno 7, 1916 by 36.8 of gold. Wo must remember that tho notes of the Reichsbank are not now payable in gold, which in a great protection against collapse, and we must not confuse the rise in prices which is brought about by flooding the country with paper money with the possibility of ;m----mincut financial collapse. Germany can go on increasing the issue of Reichsbank or other notes as long as tlie German people will continue to be satisfied with the cover.' But if there were any serious drain on Germany's gold reserve, tteu the

position would undoubtedly be a serious one. What do we find ? On July 23, 1914, the Reichsbank held f 8 millions in gold; on August 6, 1914, 74 millions; and on Juno 7 of this year, 123 millions. "Where is the argument for financial collapso in tho autumn ? THE REICHSBANK Tho liabilities of the Reichsbank consist principally of the notes in circulation and deposits. The percentage of gold to this liability on June 23, 1914, was 47.8; on August 6, 1914, 25.5; on June 7, 1915, 29.1. The position of the Reichsbank on these figures, then, so far from becoming worse, has actually improved. The decline in tho percentage of gold to liabilities from 47 per cent to 29 per cent may not be regarded as satisfactory, but then, we are only dealing with the question, whether German financial collapse is near, and as no disaster occurred when the pcrcentago of gold to liabilities was as low as 21 per cent, what reason is there to believe it will occur when it is 8 per cent higher ? Germany holds a tight hand on her gold for three reasons: — 1. To give greater confidence as to tho ultimate redemption of her notes. 2. To buy vital commodities from neutral countries cheaper than she could at the present exchange rates. 3. To purchase commodities after the war, and similarly save the loss on the exchange fates.' It is asserted that the German hanks wero forced to take up .the war loan, ff that were so, one would expect to find them saddled with this scrip now, but if the last returns of tho Berlin joint stock banks are compared with tho returns of 1913 it will be. found that their investments have increased only three millions and their advances on current account about twenty millions. Tf, therefore, they took up tho loan they have been ablo to offload. On the other hand, deposits and current accounts at these Berlin banks show progress. While in 1913 they amounted to 225 millions, according to the last return we have of them, they were 328 millions. That is evidence, at any rate, that the German public have confidence in the stability of their banks, and in this direction certainly we aro afforded no warrant for belief in the illusory autumn financial collapse theory-

If there is nothing to support this contention it must not bo forgotten that the confidence of the German people in the financial position of Germany and their willingness to subscribe tho expenses of the war have been sustained on victories and by taking the advice of German statesmen to look at the war map as it is to-day and see for themselves what Germany has won. Let smashing defeats of Germany intervene, however, and then wo shall have a real test, not only of the confidence of the German people in the State financial machine, but of the ability of the machine itself to w r eather the storm. Tlie probabilities are that dofeat will shake their confidence, and then for the first time German finances will come into a parlous condition, and wo may speculate with some reason on the possibility of financial collapse. But Germany is not yet defeated, and defeat would hot affect the status of the war bonds or make them any the sooner redeemable, and it is much too optimistic to believe that the next war loan will be a failure, however the war map may bo altered. Tlie subsequent war loan may be a different matter. WHEN GERMANS DOUBT. I am strongly of opinion that Germany's weakness will reveal itself on

the economic rather than the financial side.

If the blockade were tightened so that trade between neutrals and Germany and trade between neutrals and other neutrals which has for its object final trade with Germany were stopped, the effect would bo to lessen the food resources of Germany. The imports into neutral countries from America, ultimately intended for Germany, which have undoubtedly been decreasing, would still further decrease, and the exports from neutral countries to Germany would also shrink. The effect of any perceptible increase in the stringency of the food situation would be to show the people of Germany that the supposed naval victory was a defeat, that the German navy was incapaile of coping with the British Fleet, and, that being so, a large percentage of the German py>p'ulation must ultimately starve to death if the war is prolonged. On the empty stomach the German is going to tire of victories, and once theso lose their tonic influenco he will begin to doubt his Government and the ultimate success of the war, and if he begins to doubt his Government he begins to doubt the Government's capability of redeeming its financial promises, which presently \vill be represented by 2600 millions of war issues, not to mention the funded debt of Germany. Tho German may thon suspect that in order to keep up the interest on the loans to which he has patrioticaKly» subscribed in tho past, heavier and heavier taxation is inevitable. He will remember that notbng now is &id of the huge war indemnities which his financial leaders promised him were to be paid by tho Allies, and that instead fresh taxes are being thrust on him.

Let the confidence of the German be once undermined in this fashion, and there will bo fewer voluntary subscrip-' tions to wax loan issues, and the desire for peace will become overwhelmingly stroug.

It is when Germany is at peace and begins to trade with tho outside world again that her financial troubles will seriously begin. She will have to pay gold for her imports of raw commodities, and at the same timo keep sufficient gold in the country to prevent) the exchange value of her notes still further falling. Will she bo able to do both? The presumption is strong that Germany may be financially less vulnerable in war than in peace.