MONEY AND CREDIT

Otago Daily Times, Issue 23013, 16 October 1936, Page 8

MONEY AND CREDIT

In a statement relative to the arrangements that are being made for the repayment at par or for the conversion on January 15 of next year of approximately £12,400,000 of a maturing 4 per cent, loan, the Minister of Finance observes that the continued prosperity of the Dominion "is bound up to a considerable degree with the maintenance of interest rates at a low level," and that the success of this issue should have desirable reactions in that direction. There is every reason to hope that the conversion and new issue operations—in addition to the amount of the expiring loan money, £1,530,000 is required for the purpose of retiring the short-dated securities issued in connection with the transfer to the State of the Southland electric power undertaking—will prove sufficiently attractive to investors to ensure a substantial measure of success. There is plenty of money available for investment, and it should be attracted both by the return offered and by the fact that Government securities, as the Minister claims, are generally regarded as the safest and most readily marketable form of investment obtainable. From the taxpayer's point of view an additional reason for hoping for a ready response to the conversion offer resides in the fact that the State stands to effect a saving of something like £ 60,000 a year in interest charges. It is possible, nevertheless, that investors may be a trifle shy of entering into new commitments because the Government's attitude toward credit policy has been so vaguely expressed. There is, for instance, the announcement that £3,500,000 for housing is to be "made available" by the Reserve Bank on conditions that are anything but clearly disclosed, and that another £1,500,000 will be made available to local authorities, also for housing schemes, at 3 per cent. Both of these amounts are covered by the loan authorisations included in the Finance Act, but Mr Nash, as we have said, was not very communicative, when the House was considering that measure, as to the method by which those funds were

to be secured. Concerning the £3,500,000 which the Reserve Bank is to provide, the Minister intimated that the interest chargeable would be sufficient merely to cover the cost of administration. In that event the money would be placed at the disposal of the Government at a figure below _the market rate, and that would be a transaction that would be definitely inflationary in its effects. If new housing is to be so financed, the conclusion is, as one of our contemporaries has pointed out, that the occupants of the new houses will be permitted to enjoy a benefit not shared by those whose housing loans are at the normal market rate. A reason for the Finance Minister's disinclination to be specific in relation to the terms on which new money is to be made available may perhaps be found in the astonishingly frank utterances of the senior Government Whip at Wanganui last week. Labour's actual aim, according to the presumably well-informed Mr Richards, is nothing less than the "abolition of interest." Labour will be prepared to go "ninety-five per cent, of the way toward the goal of no interest." Is it to be taken that Mr Richards, in Wanganui, was speaking the Government's mind? And is it to be inferred that the millions which the Reserve Bank is to "make available " for housing are the first instalment of interest-free, money? If interest goes, as the Evening Post has submitted, rent must go too, and with it private loanable capital. In such circumstances it might also be asked what inducement there* will be for people to save, since there will presumably be no reinvestment market for Post Office savings or for moneys in the hands of the Public Trustee for administration. It is surely reasonable to ask, even in the absence of the Minister of Finance, that the Government should say which of its many voices on credit policy is to be believed. An invitation to subscribe to new loans is certainly inconsistent' with the goal of no interest set by Mr Richards.