SHOULD THERE BE A DECREASE?

Nelson Evening Mail, Volume LXIV, 21 February 1931, Page 11

SHOULD THERE BE A DECREASE?

RATES OF INTEREST WAITING FOR GOVERNMENT TO MOVE “People are being met rijjJit and left, but there is no fixed rule. The source lies with the banks. If they have to pay a high rate on their fixed deposits, then they cannot lend money cheaply.” That statement was made by several men representing large financial interests in Christchurch, when asked by a “Times” representative whether, in view of the depression and the proposed cut in wages, any adjustment had beer, made, or was contemplated, in rates of interest. None cited any general rule that was being applied, or was contemplated, though all said that special circumstances were being taken into consideration. ‘‘No one would welcome _ reduced rates more than we would,” said a director of one big firm, “but we realise that there are many viewpoints. We cannot reduce the rate to our clients when the rate at which we get money from the hank is still high. That would seem that the hanks are to blame for a high rate of interest, hut it would not ho fair to leave if at that. While the Government is offering 5t per cent, for loan moneys, the banks will get ievv fixed deposits if they ask for money at a lesser rate. The hanks have to make their terms at least as attractive as those offered by the Government and the various local bodies. Then when tlioir rate on the deposits is high, they have to charge high rates on the moneys they themselves lend. In. reality, it all boils down to supply and demand.

THE BASIS “I have heard pcoplo about the town ask whv, if 6 per cent, was enough on a loan when prices were high, could not the lender he satisfied with 5 per cent, when prices were so much lower. If anyone says that to you, ask him whether lie would be prepared to pay a higher rate of interest if the prices of commodities had risen? You could guess tlio answer to that one. A refusal to pay the rate of interest agreed on would be repudiation. Of course, that docs not hold where a man, after doing his best, tells his creditor that ho cannot fulfil the contract. In cases like that, some agreement can always he arrived at. “The basis of the whole tiling is the amount of money the Government want and tlio amount available. If the Government cannot get the money thty want at a low rate, then they have to give a higher* one, and the bank rate and every other rate follows. • “There is another anglo from which to view the question of a reduction of interest on Government and other gilt edged securities. A man may, during the boom times, elect to let his money earn a steady and safe 5A per cent, in Government loan rather than risk it in a venture which might pay, say, 10 per cent. He does that first for safety, and then with the knowledge that his income is safe during had times. Would it ho fair to that man to reduce the rate of interest? .

“We would welcome a decrease. A lower rate would mean a big increase in business and a corresponding increase in the production, of the country. With the high rate, people arc afraid, to borrow tlio money to work on It is too expensive for them. When more money is available, and it will he when the country feels the benefits of the proposed financial arrangements, and the effects of the depression begin to wear off, then there will be more money about, and then, in all probability, there will he something general in the way of a reduction of rates of interest.”

“LOOK TO THE BANKS” Another gentleman dismissed the subject tersely. “Look to the banks,” he said, “and then look behind them again. You find tlie local bodies, and then the Government. What they do determines the course the rest of us will take.” In' all quarters there was tho assertion that special treatment was being accorded special cases. Tho finance companies have to cut losses many times, and exercise the keenest judgment. “All cases aro decided on. their merits,” ono man stated. “Where a farmer is- a reliable, hard-working man, he should not have the least difficulty in making arrangements to tide him over till the prices of wool and butter reach higher levels, and that, is already indicated. 'lt is. possible that an occasional mortgagee is compelled to cut his loss, when he has to deal with _ a farm which'has gone back in condition to a very serious extent. “It would be a very grave mistake to shift the adjustment into tho hands of an outside board. Once any control is put into operation to interfere with the friendly relations which should exist between the parties, a moratorium would exist, whether called by that name or riot. Anything savouring of a moratorium, or compulsory intervention of any kind, would be the last straw-. Farmers and workers wanting to raise money for their homes have found that they still have to pay for the moratorium of a few years ago.

ANOTHER MARKET “If compulsory intervention comes again, people with small sums of money to invest in mortgages will he driven, once and for all, to look for another market. It would he a disaster if the return of tlie mortgage market to public favour were damaged by any makeshift, plans. Once private individuals can bo sure that private contracts arc not going to be interfered with by outsiders half the difficulties of the borrowers will be solved. If a inan pays his debts or docs his best to pay them, his credit is generally first class; but if he shuffles, or tries to get any un-British scheme to help him, his chances of obtaining credit are not much better than if he was a bankrupt. \ ‘ “Any alteration in tho interest rate is also a matter of private arrangement. If a lender can obtain 6 per cent. on. an investment, that is obviously the ruling rate, unless another lender car. como forward and offer money at 51, per cent. So long as the Government offers 5£ per cent, for our working capital the farmer lias no chance at all of getting it at that rate. There is no State guarantee behind him, and the collection is harder.

“Tho chief difficulty is that I he working capital of the country is being absorbed by the Government for Government undertakings which, however good in. themselves, pay no rates, no land tax, no income, tax, death duties, Customs duties, or slump duties. This means that tlie farmers’ working capital tends to become non-existent. Yet it is tho farmer, the worker and the business man that pay the taxation. It is another case of killing the goose that lays the golden egg.”