Manawatu Evening Standard. FRIDAY, JULY 3, 1931. INTEREST RATES.

Manawatu Standard, Volume LI, Issue 181, 3 July 1931, Page 6

Manawatu Evening Standard. FRIDAY, JULY 3, 1931. INTEREST RATES.

Ix and out of tlie House there are demands for a reduction in interest rates and the Government is being- condemned for having- offered 5i per cent, to local lenders. There seems to be an all round failure to realise that the law of supply and demand applies to money as well as to commodities. Given better prices for our primary products that are sent overseas there would be nothing- heard of the interest charges, even though they remained at present rates—some of which are high, whereas in other cases they are quite reasonable. In view of the universal dissatisfaction with the United Government it is only natural they should be credited with the stringency in the money market and the resultant rate of interest. But is it right and proper to add this to the sins of the Government:' Ministers are compelled by popular opinion to find funds for works and services and if they cannot produce it from taxation they must do so by borrowing- to the extent authorised by Parliament. And we have had ample evidence that English investors are prepared to supply only a portion of our loan requirements, and then at a higher cost to the taxpayers than is paid to New Zealand lenders. According to a statement made by the Prime Minister the cost to taxpayers of the last overseas £5,000,001) loan will be £6 Is 3d per cent, though local loans are being obtained at 5i per cent. It is exceedingly doubtful if the Government could have obtained the money below that figure; they tried to raise it—and did raise some—at per cent, before making- the higher olfer and obviously were not receiving all they required.

It is difficult to understand why representatives of the Banks and commercial men connected with lending institutions should throw the responsibility on the Government and say that it is for the latter to first reduce the price offered for money. Tliosq with loanable funds quite naturally sell their credits to the highest bidder; it is the existingnecessity for credits that creates the demand and if the State cannot secure its urgent requirements at 4A or 5 per cent, then it must bid higher. The only alternative is for the Government to put Socialistic principles into operation and make it compulsory for lending institutions and private individuals to subscribe to loans at the lower rate of interest which so many people are now saying should prevail. Compulsion would cause _ consternation and arouse violent protests; but it is the only alternative to allowing the law of supply and demand to prevail. In

the latter case the rates of interest will ultimately automatically adjust themselves on a lower basis. If the banks think the Government is wrong in offering market rates for money there is no need for those institutions to follow the lead. State requirements must of necessity take precedence over those of other borrowers and, therefore, it does not seem quite reasonable for the Government to be censured for thus securing the money required to maintain the social and other services which the people have clamoured for and still insist should be maintained. In the event of the banks being placed in the position of mopping up all credits it would not be possible for the State to function, unless there were wholesale dismissals from the public service and the curtailment of social services including those obtainable through Public Hospitals. The Government gives 5b per cent, for loans for the reason that that is the local value of loanable money when the security is taken into consideration and no method of reasoning can vary that fact. There are, however, signs that interest rates will in the ordinary course of events ease down a little without action on the part of the Government; and it is best, even for the banks, that the State should not interfere in a matter such as this. In passing, it is of interest to note that amongst those who have most vigorously condemned the Government for paying bb per cent, for local loans are prominent commercial men who have on other occasions condemned the Government for too much interference with private enterprise—too much Government in business. Presumably it is more popular to put the responsibility of interest rates on to a discredited Government than it is to recognise and assert the facts.