NATIONAL CREDIT.

New Zealand Herald, Volume LXIX, Issue 21142, 28 March 1932, Page 8

NATIONAL CREDIT.

The way in which the handling of national finance can have immediate and very important effects on private and commercial credit is illustrated by New York messages describing what has followed the defeat in Congress of taxation proposals presented by the President and the Treasury. That leaves the question of balancing the Budget indefinitely postponed, and the outlook is for borrowing to meet serious and recurrent deficits. Two results have already appeared. The dollar has fallen heavily in terms of almost every currency quoted in New York, with sterling showing the greatest comparative appreciation. This recalls that in Britain's crisis last year, often described as the "flight from sterling," it was the disturbing effect on foreign opinion created by the May Committee report, about which the then Government showed no disposition to do anything, that proved the final precipitant. A similar flight from the dollar, less extensive in character perhaps, but already sufficient to have made the New York financial world eager to sec the Budget situation taken firmly in hand, has undoubtedly begun. How long it will continue, or how serious it will prove is impossible to forecast, since so many factors are involved. The second result has been a weakening of the bond and stock markets. This is not a happening that concerns only financiers, brokers and speculators. Neither does it simply affect the outlook for future Government issues or conversions that may be contemplated. A recent authoritative survey of the financial situation, after remarking that public issues were the backbone of the bond market, proceeded : "An improved market in Government bonds is a necessary preliminary to breaking the deadlock in the new capital market and reopening the channels supplying funds for all kinds of long term corporate financing, without which the making of capital expenditures is at a standstill." Thus, demonstrably, both external credit and domestic recovery are affected by the prospect of an unbalanced Budget, as they must be in any country with a financial reputation to maintain.