CREDIT IN AUSTRALIA

New Zealand Herald, Volume LXXII, Issue 22193, 21 August 1935, Page 7

CREDIT IN AUSTRALIA

TREASURY BTLL ISSUES PROPOSALS FOR FUNDING CONSEQUENCES DISCUSSED In 1930 Australia's credit had fallen to a low ebb. Oversea loans were unobtainable, even at the high rates of interest then offering. Incomes of Australians had decreased very considerably, mainly because of the drop in wheat and wool prices. Taxation receipts had seriously receded and, to make matters worse for the Governments, it was found increasingly necessary to spend money to relieve the growing unemployment. Although expenditure was greatly reduced, it was impossible to square Government accounts. In those circumstances there was no other alternative for Australian Governments but to borrow by means of Treasury bills —a form of 1.0. U. payable in a few months. These bills are now an insignificant feature in Dominion finance, but are still fairly extensively used in Australia. In Australia, as in New Zealand, they were taken over by the banks at a fraction below their face value. In other words, for a very small charge the banks made money available to Governments, accepting Treasury bills as security. Two benefits were conferred by this operation. In the first place the Australian Governments received funds to meet the essential expenses of administration and the heavy pensions bill. In the second place the banks received an addition to their liquid assets, which enabled them to increase advances and thus to aid recovery. The issue of Treasury bills was regarded by many of its sponsors as a'

purely temporary measure to tide Australia over the worst stages of depression. Suggestions, therefore, have been made that they should be paid off as soon as possible. This could be achieved by issuing a long-term loan and applying the proceeds to wipe off the Treasury bills. The operation, known as "funding," would mean that, instead of Governments owing the banks the total face value of the Treasury bills, they would owe the same amount to the public. On the face of it, this would appear to hare no bad effects, but in its latest circular the Bank of New South Wales sets out a strong case against funding:. It points out that such action at the present time would be strongly deflationary, and would thus check recovery at a critical stage. The bank claims that funding would reduce the deposits and liquid assets of the trading banks. This would entail a restriction of advances, whereas some expansion of bank credit is necessary until recovery is complete. The funding of Treasury bills held by the Commonwealth Bank of Australia, states the circular, would have a strong depressive influence on the community's economic activity. It would most certainly "hamper recovery." Bub "the funding of Treasurv bjlls held by the trading banks is, of all Treasury bill operations, the most | dangerous and the most likely to check I recovery." A further ill effect of funding, the I bank contends, would be a tendency for | interest rates to rise. "This increase in ! interest will spread to all parts of the : money market; private borrowers as well as Governments will be forced to pay higher rates. Private investment ! wili be checked, and the reabsorption S of the unemployed into private enter- | prise will be slowed down." The circular concludes that "The I essential thing (in Australia) at the i present juncture is that the fear of i deflation be removed, and this would be best achieved by the bank an-

nouncing that it would not press for funding of Treasury bills, but would be prepared to let the trading banks have all the bills they need, so long as the general business situation is sound." ' NEVIS DREDGING DIESEL COMPANY'S FUTURE VALUES NOT CONFIRMED [bt TELEGRAPH—OWN' correspondent] DUNEDIN, Tuesday It was decided at the annual meeting of the Nevis Diesel Electric Dredging Company last night that, as the values of the bores put down had not been confirmed, the, dredge and other plant should be sold. In the words of the chairman, Mr. D. S. Mackenzie, this virtually means that the company will "go into liquidation." It was stated that the liabilities of tho company were £3BOO, but should the plant be sold this amount would- be liquidated, and there might possibly be something over for tho shareholders. Tho directors were asked to report on the possibility of working the Bailey's Hill portion of the claim by sluicing, nnd the future of tho company will depend on the nature of this report. Tho company, which was formed in 1933, has a paid capital of £39,000, while there is also a debenture issue of £SOOO. BEET SUGAR FACTORIES PROFITS IN BRITAIN LONDON, Auj?. 19 The profits of British beet sugar facories totalled £851,000 in the year 'tided March 31, says an official return. >nly one company showed a small loss. GOLD AND SILVER QUOTATIONS IN LONDON (Received August 20, 7.35 p.m.) LONDON, Aug. 19 Fine gold is quoted to-day at £7 0s !Jd an oz., compared with £7 0s 4d on Saturday. Silver is quoted at 29d an oz. spot nd 28 15-16 d forward, compared with 19 3-lCd and 30 Jd on August 14. The quotation for silver at per fine z. is 31 5-16 d, same as on August 15. The following is a summary of the uctuation in tho price por ounce of mo gold in 1935: Highest price. March 6 .. 7 9 4 Lowest price, Aug. 14 aud 15 7 0 1 Ai'R. 13 7 0 3^ A"*- if 701 ; Aug. lo 7 0 1 Aug. 16 7 0 24 Aug. 17 7 0 4 1 Aus. 19 70 21 j QUOTATIONS FOR WHEAT LONDON AND LIVERPOOL ! LONDON, Aug. 19 Wheat.—Cargoes are quieter. Par- c sis are quiet at 3d to 9d decline. Fut- < res. London: September, 23s 7d a 1 larter, new terms; February, 22s 2d £ lverpool: October, 5a 4|d 'a cental j c ecember and March, 5s 3jjd. \