CONFIDENCE AND CRISIS.

New Zealand Herald, Volume LXIX, Issue 21144, 30 March 1932, Page 8

CONFIDENCE AND CRISIS.

The failure of official plans for balancing the United States Budget has had an effect on the value of the dollar measured in foreign currencies which has already been freely described in cable messages. Another consequence of immediate domestic concern is mentioned by the Washington correspondent of the Times, who says it will exaggerate nervousness about domestic conditions, "increase the distrust of every American for American banks and their managers, and start a flight from the dollar." By doing this it will accentuate that lack of confidence in ordinary avenues of investment, even in the deposit of money in the banks for fixed terms, which has been a feature of the financial and industrial depressions in the United States for more than twelve months. Further, it will help to defeat the two main projects devised by the President and the Treasury to restore trust in the banking system. In British countries, certainly in New Zealand, when commercial and industrial enterprises fall in favour as a medium for investment, the feeling is reflected in the increase of fixed deposit moneys held by the banks. There is confidence in the institutions, and the public will accept low rates of interest for the sake of the safety which they know deposit with the banks gives. In the United States currency hoarding, the actual accumulation of money in some form of storage, without any return by way of interest, has been long deplored. Deposits have been withdrawn in huge quantity in search of safety. In order to meet this situation there were formed first the National Credit Corporation, a body authorised to raise £100,000,000 from the stronger banks to lend the weaker, and then the Reconstruction Credit Corporation, an official creation established to aid banks, railway companies and other enterprises in their financial difficulties. The ultimate aim of both was to strengthen public confidence so that currency hoarding would cease, liquid funds become available for ordinary purposes and the strain on banking resources be eased. Whatever good effects these efforts promised are now threatened by the want of Budget balance. This is an outstanding instance of the degree in vi-hich general financial stability depends upon the proper handling and control of the national finances.