THE FINANCIAL CRISIS

Otago Witness, Issue 2809, 15 January 1908, Page 53

THE FINANCIAL CRISIS

VIEWS OF A GREAT BANKER. (Fmox Ov* Owh CoßKESPoirosirr.) LONDON, Noveniber 29^ Sir Felix Schuster, president of the Insti^ tute of Bankers, delivered his inaugural address to the members, at the London " -Institution yesterday evening. Dealing ; yritU > tH& principal .ereats affecting bcrakiag and commerce- generally v during the. past year, the President said that -England had been- passing" through a period full" of-in-- - terest and" full ;of lessons, which, ie hoped,wouidj not.soon.rberforgptten. . The London r .- money -market fiad-beenisubjected to cori'z iditiohs and to a" rate im the value of money -that Inaa-.not'"beeV"i'witnessed' : for 34 years.. -All the Etfrbpeafi-imoney : markets, no lees tKan'our own,"'had ■'been" influenced- by the -event 3 .that tootj"plaoe_"on-th"e other side ,6f the „ Atlanfic— events,"; which . were* not,- or ought not, -to have been entirely, unforeseen, although their magnitude - was difficult realise rbeforehand. , He thought they might claim "that our market _had Btood the test well ;,: that the "fears and the feeling .of nervousness, which -not unnaturally rose at times, had not been justi-. fied, and -that the , developments of thefuture might -"be awaited with confidence". . The -great' activity-of. "trade -throughout; the country,. had, "on the whole, continued." v The " ;Boaxd- pfl Tiade-^returns bore a" welt _ .x>me~ testimony" to. the" fact, .showing, as.- - ;they=did,~W increase for. 10 months in- the Timporte of £35,000,000;. or" 7 per cent:,' as ~ compared' Iwith" last year, ana. in. the exports of- £35,000,000,r.qr _14i -per,, cent. The returns of the" London clearingr house, too, showed unpreoedentedly" large "figures,- andean up to the middle of November. of about £72,000,000.- Of course, the high prices, ruling -for commodities were,- to_ "a great, extent, responsible for the large increases • but "it- could "be. said the country^ -had done- a large, and, it" was to be hoped, profitable^ trade^-But what a- contrast to. .- the satisfactory^factors-that prevailed was. -thej-existing state : "S>f . in. Lombard - streets "and on the" Stock" Exchange*. -A higher Jjarik Tate.^ind lower .prices than the present had ever- witnessed ; and-" " pessiniisni~sncb,2as-was not experienced ' ia , ,the darkest.dayV of theSquth African" war. -_- It "would-be -too- much to .ea.y that the. ~ .American crisis was_ entirely "to blame ""for ' -;.this -' situation" as regarded" values on-" the Stock- Exchanges : - Other" causes had con- I tributed. to the value of money having been - for some"- time- past maintained at a fairly i JriglT level, _and to the low "price of invest-J ment securities. We- were at- the present i - time --passing through a, poriod'-which was Hhe- exact antithesis of that of 12 or 13' -years ago, when the* bank-rate remained ; - for - upwards- "ojf. two years and a-half '_at. 2 per -cent.-, wheni^the prices "of commodities •were- low,", trade - : slack_--and depressed, -and! the, money which _ in- -normal '-times woulcl , - have "been -.employed .in- our-; manufactureshelped. >to^ raise -the price. J of- gilt-edgedi" / securities cto'-an extraord inary r'extentVV ' > -Remarkable-^activity^- 4n' : -trade" arid-h igh* prices- for-- coinahodities; such -as had pre- , vailed . alL^bver 'the' world;- could-- not- be" without their effect. ->Thi» activity, engendered after .the termination^ of "the South -V-Afriean ' arid-" Russo-Japanese -^wars/ r and fostered' by ■sneculation^-brought about^ an „ abnormal rise- in- the price of. raw materials. - =" -Coal,"~copper,- tin, steel,-" lead,- wool, cotton — - all of -these had Isustained material increases : > in. price -during-the -last- year or two, and especially "during the -year ended- in July last^-The conseQuenoes " to' our.;-mariufac-_-turers. had been of great importance. Work- - ing* "expenses .had'""so "increased : that '-many* -.had -been- compelled to-. -put' alji ; available" profits into their business,- -or" to" sell invest- - merits",- or -had • been' sforced "-to borrow heavily. There' had such a demand: for money -from." the manufacturing and - "industrial classes, that the" amount" available - for , Investment -purposes- had.'Jbeen much " -smaller ; than in normal " times; while the. "creation of new "investment- securities had been on so abnormal a. scale/ although in this country last year-had.witnessed a con"eiderable .diminution in this l:esp&ct.^ The - opnditioris-thus-iiesbribed had prevailed not vorilyin this but" jri "all countries.--The' average _ price ,of consbte; had been" steadily ■ faUingVsince 1897, ;erid the prices -of -"commodities . had -.been" .as steadily .-rising. - To. give ell "the reasons why the " market- in. our." premier- security .should be -I so far 'different-- from' what .it used to be. in .the "old days, when, dealings" in-- very, large amounts hardly -affected. the-- price at all,, ;- they must go -back to -the time/of, the'co&- _ yersion>- which;- induced" a 'great J many\ " genuine investors" to "-part.Twith their hold- j . ing" and - to* invest -*in~ securities - paying . a - higher -_rate of "interest. -" -When the - in- . ""-"^vestment powers ,q{ trustees; were enlarged . - ho "as ~to include "colonial' Securities/ the -f channels- .of "investmerit\were -yet. further, -^diverted.- from -consols ;" and - when" - the turn" ,/ in = the- money" market came, -the character _" of . the- holding- had.-; entirely : changed. ", - r Then" came"-the war, the Suspension .of the. - sinking -fund, large issues of-iGovernriientr : stoclcs,-- including -thej Irish land stock, and -' simultaneously-Ti.'.vastr creation of "pal and other trustee stock.-" It was; to be . hoped, "that" the" permanent', investor was now --again_~_ coming' in r a&d~. absorbing -- quantities - of floating "• stock. r .-The "coni--sara,tive- steadiness" of the price, "indeed; "- seemed to"- point v~in "this .direction, while "-»t- the .same time ;the," sinking' fund was ,_ -also- beginning to. 'make itself' felt, and_ - would _probably "do. co-""to a larger- extent in - a very shortfltime. ' .. As^to the. outlook of ."-".trade, the; ;iridica.tions' c pbinted "to restric- . - "tlori-.-Tather "than jexpansion, not only iri: ..-"this:- country,! but all -over -the" world. "_A. period of- 'extraordinary was in- _. "variably followed-rby- T 'a" reaction/- and "_eign3i.were_ not wanting that such a'-reaction " was -at "hand. Our commerce had -done -"-"more- than boldj^its s>wri," andi-there seemed ■ no reason to fear- that"- iK would.- not- con- - tinue to "do so — in fact, he believed altered "conditions, especially lower" prices of raw " materials, ..would", benefit lour, .trade. But . hard - times elsewhere must make, them-selves-felt here also "and in- addition to other "reasons which made a reaction probable. -•■---_• - ~ ' As to the crisis itself, like every othercrisis, it -had arisen out of over-confidence,, brought ahout , by an -'-aDnornially prosperous state _of affairs. * The strain up^jn - 'European gold reserves "Bad been so great* as to interfere seriously the normal ■course, of business, and; each*- nation h"adj as" "it "were." been- thrown"- "-on "its< own- resources. That .the", United" States would - - ultimately 'out*- of- their "own -resources over- ■ * come tfieir-Tpresent 'troubles did not, to his "riiind. admit 'of any doubt." 'As for 'this country, while we might congratulate oursolirtfi that -the conditioi of trade .was on

r the whole satisfactory, and the general position sound, we could not forget that such-- high fates " for money as we had witnessed » lately must be injurious to trader and .must- also to some extent put to the test our position as the great monetary- centre of the world— a position whioh indeed- involved responsibilities and - perhaps sacrifices. The best opinions were that- the worst, of the crisis was now over, and that the drain of gold from here -wduld--.be.- considerably lessened. The events of this autumn had amply proved that? a. sudden change in^ tbe money m»riet of, any great financial centre might bring about demands on our stock of gold --which rendered such precautionary measures necessary as really hindered our commerce. We ought to be able, if necessary* -to spare £5,000,000 ,or £10,000,000 without- having resort to a 7 per cent, bank-rate and fears of -even higher rates. It was true, that- a situation such as -this had not arisen for a great number of -years, and -once .over was. not .likely to ' arise again- very-soon. " Yet it had arisen at a time when the political horizon was clear. ■ Had. it not been*' so, the effect would have been much more serious, and with the "increasing volume" of trade, *with the great number "of. countries "-that were now on a gold basis, -with the hoarding -which .Lord Cromer " told . us recently- was goitfg" on in. Egypt, and which was also ' going.' on in. India.- to "a large extent, temporary demands .oh our stock of gold were, only" too likely to_ occur again." ' He wanted -_ the freedom* of ovjr- gold -market to be - maintained, but^he would only ask ■ whether that was quite so fre^ as they would. like it to be when two "years running, -at -a. time oit, stress,, we had".- had to -go across -the Channel" to" borrow, a- few -millions,-- for" that . was . what -the.-.transac"-,tion came to.v He", thought we might Tiayeexported five or "six- 'millions- of-^-gold^. =* which," compared with, pur- volume * t of "trade, -was-'not'a large -sum,, without hoisting- the" danger signal tso high-'as 7 * per" cent.- -" -V" -- " "" - - " " '"" These remarks" will doubtless, be __ read with" much ..interest^ in New-Zealand bank--,ing .and mercantile -circles, as they^ throw a -good deal_ of.. light.* upon.; the' situation , which ,has~ caused, -. and is" .'still- causing,much anxiety, " if not absolute apprehen"sion. Sir "'--Felix Schuster's somewhat : optimistic view has .already had areassur- - ing- influence. =. - --"-_-