CHEAPER MONEY AHEAD.

Matamata Record, Volume XIII, Issue 1110, 31 March 1930, Page 3

CHEAPER MONEY AHEAD.

TREND OF BUSINESS. “ There is evidence to suggest that the restriction of credit, which appears inescapable during the next few months, may be less severe than present prospects would indicate, and may be of short duration,” says a | bulletin on the trend of business in New Zealand, prepared by the Canand published by the Chamber of Commerce, an analysis of the banking returns, the authors have concluded ' that, although the trade returns for 1929 showed a favourable balance of £6,800,000, the net result of the year's transactions of all kinds was a loss of approximately £5,000,000, the factors of principal importance having been the'export of public capital, to redeem debt abroad, and a. private capital to discharge obligations or for investment. Elaborating its forecast of early relief from the consequent restriction <of credit, the bulletin says: “The depression which followed the fall in export prices in the 1925-26 export season is still fresh in the public mind. Hence the public may read the signs more quickly, conserve their funds by limiting their expenditure, and so bring about a contraction of imports in time to prevent the development of an unfavourable! trade balance. The action of the]

| banks iri raising the bank rate and setting the exchange rates at a point which encourages exports and discourages imports should help in adjusting imports to the anticipated level of export values, and hence should conserve the limited supply of credit, while the high rates of interest and the restriction of credit in New Zealand should lessen or stop the outflow of funds into overseas investment, and may even stimulate a return flow.” Difficulties are Over. Quoting the opinion of “ The Economist ” that in Britain the monetary difficulties of last year are over, the period of ( dear money past, and the stage made definitely clearer for a period of cheap money and easy credit, and remarking that in the United States the situation is already easing, the bulletin says suen developments promise brighter market prospects for our produce sold overseas. It is to be hoped that the early action taken by the New Zealand banks will hasten readjustments and shorten the period of restriction in New Zealand. ‘But bank action alone cannot solve New Zealand's difficulties, and readjustments are urgently needed over which the banks can have practically no control. “ Despite high levels of export prices, exceptionally favourable trade balances and abundance of credit in New Zealand in 1928 and 1929, the country's recovery from the depression of 1926 and 1927 was slow and

incomplete,” it .continues. “ External conditions during the last two years were such as to make for high levels of business activity, with prosperous and expanding trade. Instead of promoting these conditions, the Dominion’s increased credit supplies were locked up in fixed deposits oi invested in safe -securities. Holders of money found direct investment in production in New Zealand unattractive because the returns anticipated were either too low or too uncertain. Costs Too High. “ The fact is that local costs of production are too high when compared with external prices. Taking 1913 as base, equalling 100, the British Board of Trade wholesale prices index for November last is 134, the U.S.A. index is 139, and these represent about the present level of world prices, which have fallen steadily

' i since 1925. On-the same base, the New Zealand export price index for the December quarter is 134, the imA- . • port price index 135, and the wholesale price index 147. But the cost : of living on the same base is about } 167, and prices of many sheltered | products are considerably higher still. I “ This maladjustment of price . j levels is a prime cause of our ecoj nomic difficulties, for, in the long run, I the level of prices in this Dominion must be determined by those received for our exports and paid for our imports. Until costs of production in the export industries are lowered by a fall in the prices received by sheltered industries, industrial balance and the general prosperity dependent on that balance is unlikely to be restored. Elsewhere monetary changes during the last year 1 have cleared the stage for sound

progress. If the credit restriction which appears inevitabe during the, next few months can clear away some of the factors maintaining high internal prices in the Dominion, it will have removed barriers which have obstructed progress and prosperity for a decade.”