THE New Zealand Herald. AND DAILY SOUTHERN CROSS. MONDAY, AUGUST 16. 1915. LOANS AND SECURITIES.

New Zealand Herald, Volume LII, Issue 15997, 16 August 1915, Page 6

THE New Zealand Herald. AND DAILY SOUTHERN CROSS. MONDAY, AUGUST 16. 1915. LOANS AND SECURITIES.

Enormous sums of money cannot be raised by national loans upon terms markedly advantageous to the lenders without affecting the market value of all securities which compete for public favour with the state scrip. The inevitable effect of vast war-expenditure is to raise the value of money, an appreciation which cannot be localised when financial transactions are upon a sufficiently huge scale. Consideration of the position in London affords at least a partial explanation of recent decline in xfirstclass local securities, though local \ anticipations have a bearing in this direction. The first British war loan, raised last November, was! limited to £350,000,000 and paid 3i per cent, interest. The recent loan ! carries 4i per cent, interest and is for an unlimited amount. Here we have fundamental proof of dearer money and a primary cause for temporary disturbance in the current price, of first-class securities throughout the world. This high rate of interest was of course a matter of necessity. The first loan had been floated successfully, but it was issued at 05, and even this price was not sustained in the open market, sales being made at £93 16s 3d on the day before the new loan was announced. This clearly showed that the same process could not be repeated, and the Government faced the position by offering a rate of interest that would induce a liberal subscription, accepting the risk of thus depreciating the value of other securities. Provision was made to prevent patriotic subscribers to the first loan from being penalised. By paying up the remaining £5, to bring the issue price up to the £100—at which the new loan was issued —and by subscribing an additional £100 to the new loan, holders of the November loan were allowed to convert their stock from 3Jj to 4i per cent. : holders of Consols could also convert on liberal terms. There is also a guarantee that owners of war stock shall participate in any further advantages that may be offered in future loans. This is an inspiriting provision, as it, immediately discounts the possibility of money becoming more valuable later 6n.

In any loan issued by the New Zealand Government this protection for the prompt and ready lender will no doubt be borno in

mind. At the present moment our banks are in possession of fluids far in exeees of anything they have ever held before, and a large proportion is held in idleness owing to the general belief that sound investment will soon be open. This money, at present, is not even earning bank interest, and the banks cannot utilise it for industrial purposes because it is deposited at call. Another feature of the British war loan worthy of our consideration is the entire breaking away from all precedent in the amount of stock procurable. Hitherto all loans have been subscribed in even 100's, thus generally limiting ownership of stock to people of means. The present loan is issued on the most democratic lines. In addition to the usual arrangements made for the purchase through the Bank of England in suras of £100 and upwards, every Post Office in the United" Kingdom j was empowered to sell £5. bonds or even 5s vouchers. These vouchers are convertible into £5 bonds after December 1, and in the meantime they carry interest at the high fate of 5 per cent, for each coraplet'-o month. This opens the door for' the millions of people who have practically no capital, but can save a few shillings weekly «■ and can obtain from the war loan a most attractive, rate of interest.

There is more in this British offer to the small investor than appears on tho surface. The people of the United Kingdom as a whole are not thrifty. This provision in the loan is a deliberate attempt to inculcate the thrifty policy that has made France remarkable in the world. The peasant population of France found most of the £200.000,000 indemnity paid to Germany in 1871, whereas in Britain practically all investment lias been made by the wealthy. Mr. Asquith urges national economy and national thrift, as means of covering the cost of the war. He has cited four ways of paying the cost; first, the sale of investments abroad, which amount to about £4,000,000,000, a course which would impoverish the country even if buyers could be found ; second, borrowing abroad, which is equally difficult, and would leave the United Kingdom a debtor country to that extent; third, using up the

gold reserve, and so destroying! London's position as the financial centre of the world ; fourth, economising in every possible way, both in labour and material, which would thus be diverted to the great object of bringing the war to a successful conclusion. If war-loans, either in Britain or New Zealand, were subscribed largely from savings, the effect of their flotation upon firstclass securities would obviously be reduced, while the recovery of these securities would more quickly follow.