'MONEY SQUEEZE' IN GERMANY.

Manawatu Times, Volume LXV, Issue 1903, 24 April 1913, Page 2

'MONEY SQUEEZE' IN GERMANY.

A SIMPLE TALE. (By a Financier in the Daily Mail. Nations in "heir financial affairare often like individuals. It is common experience for a man who has resources locked up in good se curities to be short of ready cash, and if there dops :<ot happen to be any demand for his particular securities he has to realise them at a depreciated price. This happens occasionally with countries, especially in the great financial centres'tliat are sensitive to everj r vicissitude of trade, politics, and speculation. What is happening in Berlin at the present time ned in far more acute forms in London in 1857, 18fi3, and 18C>(>. anil in New York in 1893 and again in 1907.

These and similar conditio* of recurring stringency are due t ' a variety of contributory causes—to adverse exchanges, to lock ups of capital, to over speculation, to tr;ide "booms'' aud high wages, to international political unsettlement, and to consequential gold hoarding. Anything, in fact, which brings about a contraction of the supply of gold puts up the rates for short loans, and when rates become abnormally high a feeling of apprehension is engendered; financiers draw in their horns; bankers restrict their advances, stocks have to be sold wherever any sort of a market can be found for them, and every expedient is frantically adopted that will check the drain of gold and protect bank reserves.

THE POSSIBILITY OF PANIC. The Berlin stringency is traceable to the unsettled conditions on the Continent, acting upon a financial position already strained by economic causes. The industrial development of Germauy and the growth of its population and production have necessarily involved an increasing demand for gold currency. Large sums of money have, moreover, been invested in commercial and manufacturing enterprises, for tne fruition of which time must be allowed. Much the same sort of tiling, only in a far more serious form, took place in England in ISfi*?, when as a consequence of the scare caused by Napoleon the Third's bellicose utterance, following on huge lock-ups in railway projects, mouev was practically unobtainable, and one big house after another had to put up its shutters. We are not suggesting that there is any immediate fear of a German commercial panic; we are only pointing out a similarity of kind", but different in degree, to the disastrous experience of 18(56. For there can be no question at all that the rival armament preparations of Germany and France have produced a state of nervous tension of which the gold scarcity is a natural though unpleasant expression.

Two things always follow scares of this character; some people hoard their gold and others make haste to sell their securities, the latter because they either actually want the money or are afraid that prices will drop still lower. The political uncertainty of which the military and fiscal measures of the Imperial Government are the culmination has now lasted for some time, and it is estimated that from £15,000,000 to £20,000,000 in gold has been hoarded in Germany since the outbreak of the Balkan War The ordinary requirements of the Government, coming last week at a time of stringency, made that stringency more acute. This has been emphasised by the forced sale of international securities on German account, resulting in a heavy fall and a reacting depression on Continental and American exchanges. NEED FOR MORE GOLD.

What Germany wants in order to relieve the situation, at least temporarily, is more gold, Between February 22 and March 7 the Imperial Reichsbank lost over two millions in gold and silver coin and bullion, although in the week ending March 7 there was an increase of £141,150 in the gold coin and bullion. The next return may perhaps show a further improvement, for bullion to the extent of £300.000 was bought in London on Berlin account this week, and more of the shipments due here will probably be secured by the same and gold is also going to some extent from New \ T ork. The heavy selling of Canadian Pacifies on German account, due to the prevailing stringency, should also do something to relieve it. The great point at which the Reichsbank is aiming is to fortify its own reserves and concurrently those of the other Berlin banks, so that an advance in the official minimum rate may be avoided. Fluctuations in the bank rate are the barometer of the present Situation, as they always are in times of financial crisis. In 1857, following on a heavy depreciation of American railway securities, largely held in this country, the Bank of England reserve sank as low as £581,000, and its rate rose to 10 per cent. We were then on the very edge of a banking panic, and only prompt Government action in suspending the Bank Charter Act tided over one of the most serious crises ever known. If the Berlin rate should rise above its present point of 6 per cent, the difficulty of, raising money will be intensified, the financial disorder will become more acute, aud a commercial crisis will be within the bounds of probability. The question, therefore, is whether Germany will succeed in obtaining enough gold to counteract the heavy pressure on the money market which threatens to prevail during the whole month of March. Towards the end of the month there is due the first instalment of £(1,000,000 in connection with Government loans, and this will have to be found. The Prussian Government, too, will require large sums about tlie same time, and this may necessitate the assistance of financial institutions that are usually at the disposal of the public market. It is said also that Russia lias drawn heavily against its balance in Berlin banks. PARALYSIS OF TRADE. These factors combined may be ! efficient, in conjunction with the hoarding already referred to and tlie alleged transfer of German money and securities to Switzerland, to neutralise tlie beneficial effect of the eager purchases and borrowings at high interest of gold in London and New York. Am- exacerbation of the existing tVv ' -h symptoms must inevitably have an adverse ; tendency for the German

industrial enterprise. Now capital is not likely to be asked tor. still, less to be found, as long as the at-1 mosphere is clouded with uneasiness and distrust. Very dear money prn-filvses trade and compels even non corporations to stand still aud ■ Mirk time. And until the strenu- - •!!•;•' ••••%• propnrutions and startl'X]u . iture now going on have given place to a feeling of reassurance it is idle to expect a return of confidence and 111< • releasing of private hoards for investment. The crux of the situation is that, except in a few Far Eastern countries, the financial fabric of the world, with its vast system of credit, bills of exchange, notes and cheques, all rests upon the one standard of value—the only asset that is invariably liquid at its fixed worthnamely, gold. In normal conditions the worlds gold supply suffices for the world's necessities, but with the continual growth of population, the tendency of wages to increase, and other influential factors, the danger of abnormal pressure on weak spots will become increasingly frequent and increasingly difficult to handle. Germany is not a good producing country; on the other hand, her production of iron and steel is goiug up by leaps aud bounds, and that is wealth, even if it is not a medium of exchange. The financial wakness that now menaces the country is only temporary. Itis but comparatively few years since Germany adopted a gold currency, and although that fact has no direct bearing on the present monetary squeeze, except as regards the requirements for coinage, it accounts in a measure for the industrial expansion and productive enterprise, accompanied by speculative activities, that make money crises more possible where the ultimate basis of credit is limited and inelastic.