THEODORE PLANS

Nelson Evening Mail, Volume LXIV, 24 February 1931, Page 8

THEODORE PLANS

ATTEMPT AT INFLATION BANKER S SHARP CRITICISM REDUCED CAPITAL RETURNS <* DIFFICULTIES OF BORROWING INCREASED “It is a pity that Australia’s national necessities are being viewed bv the Federal Government from a purely party political standpoint instead of being grappled with from a common sense point of view,” said Mr C. IT. Tranter, general manager of the Commercial Bank, who is chairman of the Associated Banks of Victoria, when questioned regarding Mr Theodore’s plans outlined to the Premiers’ Conference at Canberra on 7th February.

“ft is very difficult fo understand exactly what Mr Theodore is after,” Mr Tranter proceeded, “but it is evidently nn attempt nl inflation, and is due lo a desire not to face the obligation of pulling lho house in order. Unemployment, high rales of interest, and many of our other troubles follow from (he Government’s failure (o get its own financial affairs in order. Its action is causing lack of confidence, in the re-establish-ment of many of our industries and businesses. Instead of taking steps to live within its income the Government desires increased credit, which is only another term for more borrowing. ’ Notwithstanding Mr Theodore’s assurance that the banks can create credit at will bankers as a whole have some doubts on this point. There is little demand among business men Generally for increases of credit under present conditions, as they are finding it difficult to earn a return on the amount of capital already in their business. They aro not likely, therefore, to be seeking further moneys to put into unprofitable businesses. The only desire for increased credit, therefore, comes from the Government to save itself from having to face up to the real position. Once the Government shows that it intends to live within its means, even though it might take two or three years to achieve the purpose, confidence will be restored, business will begin to re-establish itself, unemployment will begin to decrease, and one will he able to say with safety that the bottom of the depression has been reached. The unemployment position is a very difficult one and it will have lo he dealt with apart from the general financial position of the Government. It will require some special means, but should not be made a part of any policy designed to place Australia’s finances on a proper basis. “It is not fair for Federal Ministers to endeavour to make it appear that- an onslaught is being made on wages, leaving other forms of income untouched. Mr Theodore’s statement cannot obscure the fact that rents, many forms of interest charges, profits, and dividends, havo come down already. These reduced returns from capital are following the usual course. In times of prosperity they are more or less satisfactory; in times of depression they are among the first to be affected. Mr Theodore speaks as if all these forms of income have remained intact, while wages alone have been asked to bear the burden of the depression.

OBLIGATION TO BONDHOLDERS “Neither does Mr Theodore fairly put the position regarding the obligations of Australia to bondholders. He admits that the interest which tlie Commonwealth lias contracted to pay is ‘an obligation,’ but he. appears to advance the extraordinary argument that, because the amounts payable as pensions are controllable, therefore the, Commonwealth lias the right to alter the rate of interest on war bonds at any time when the Commonwealth feels that it cannot go on paying for its extravagant borrowings of the past. As cost of living rose wares and pensions were increased, but there was no increase in tlie interest the Commonwealth contracted to pay the bondholder. The value of his security depreciated, and if lie sold his bonds lie would have to accept a much lower amount than ho paid for them. If it was fair to increase wages and pensions it should, on Mr Theodore’s argument, have been just as fair to increase correspondingly the interest paid on bonds. Only last December the Commonwealth floated a loan of £28,000,000. Subscribers paid at the rate of £IOO for each £IOO bond. The 6 per cent, bonds are now procurable on the Stock Exchange for £94 10s net. Thus the holders are showing to-day a loss ol £5 10s per cent, of their capital. Mr Theodore, in order to give service to the parrot-cry ‘reduction of interest,’ overlooks these sacrifices which are he ing made by capital. “Mr Theodore’s support of Mr Scullin’s veiled attack on interest charges on national loans is the best way of destroying that confidence which these Federal Ministers profess to be so keen on restoring. This confidence can be restored by a sound programme on some such lines as those framed by the experts in their three-year plan which has received such short shrift by Federal Ministers. What shallow talk it is to say that because the hanks ‘released credit’ to the extent of £283,000,000 in (lie war period they can do it again. The banks did not do this, but in any case the circumstances now arc entirely different. Mr Theodore admits that the banks can only grant credit on ‘sound security.’ But the banks cannot advance twice on the same sound security, and it should not he overlooked that one of tlie factors in our present-day depression is the interest we still have to pay on (lie war-time borrowing which Mr Theodore wants us to repeat. This amounts lo about £15,000,000 a year. . If those war loans had been paid off it might bo possible to-day for the bunks to assist in raising another substantial loan, but where is the ‘sound security,’ as per Mr Theodore, for such a large sum to day? It exists, according to Mr Theodore, in the Commonwealth Bank.

“INFLATION OF WORST POSSIBLE TYPE” “Mr Theodore siiys that the trading banks could ‘obtain their advances from Iho Commonwealth Bank and the Commonwealth Bank would rely upon its ability to create additional currency.’ That' would be inflation of the worst possible type and would load to greater evils than those intended to be cured. The banks will not permit themselves to he made use of for inflation purposes, but will be glad. to assist in any scheme designed to bring about national rehabilitation on sound lines. When you get repudiation talk like that of Mr Lang there is very little chance of anybody lending the Government anything at all. Mr Lang sees fit to make his announcement of ‘policy’ of repudiation of obligations and reduction of interest on Government loans at a- time when the Federal Government is talking of a loan of £6.000.(X)0 to assist farmers. This talk will make it almost impossible to float a loan either in Australia or England. People take up Government bonds and accept on them a lower rate of interest than they could get in other investments because they believe them to be safer. People who lend money on second mortgage want 10 per cent, because the risk is much greater than that on Government bonds. Interest may be regarded as rent of capital plus risk. Some investors in these 10 per cent, second mortgages have doubtless lost their .money. They took the risk and lost.

“Sometimes,” confided Mrs Stillwced (o her intimate friends, “I think my husband is the patientist. gentlest, liestnatured man that ever lived, (imes I think it’s mere laziness!” T-7 ~~ ~ “ ' But when investors put- their money into Government, securities they regard it as an insurance fund certain to come back. Who is likely to lend money to Australian Governments when the Premier of the most populous State openly advocates the breaking of contracts between the bondholders and (lie Government?"