Poverty Bay Herald PUBLISH EVERY EVENING GISBORNE, FRIDAY, DEC. 9, 1932. CHEAPENING CREDIT

Poverty Bay Herald, Volume LIX, Issue 17958, 9 December 1932, Page 4

Poverty Bay Herald PUBLISH EVERY EVENING GISBORNE, FRIDAY, DEC. 9, 1932. CHEAPENING CREDIT

A survey of major economic depressions in the past has established clear ly the fact that unusually easy credit conditions have invariably preceded a definite upturn in the business cycle. It; is equally true that high money rates have preceded a fall in business, Without exceptional ease in credit sustained business revival can scarcely be expected and it must be taken as a hopeful sign of the times that in tlie United States, Great. Britain and other iinancial markets .money rates have fallen to phenomenally low levels, whilst in New Zealand, also they are tardily beginning to decline. The associated banks of the Dominion have recently announced a reduction in their lixed deposit rates and presumably this is done with the object of thawing out some of the frozen credit, and possibly to facilitate the investment of funds in Government debentures,, the .Government being urgently in need of strengthened finance. As compared .with other countries prevailing rates are. still much too high and not until the Dominion can borrow at 3 or 31 per cent, as was the case before the war can il la* truly said that money and credit in this country are easy and that a proper adjustment of laud and coin lnqditv values can be brought about. It. is not generally realised linv. great |y the current rates of interest im pose a burden upon the public in the form, of taxation which no single individual can escape. The relentless pursuit of high interest lias been one of the primary causes of our present day troubles and relief can only come by the adoption of a lower standard < f earning power for capital. It is most interesting to note that with the fall of money rates in Britain there has been an appreciation in the, value of high grade securities. The great change for the better that has taken place in these securities in the past l<> months, according to the City Editor of the Times, has been so rapid that many investors apparently find great difficulty in bringing themselves to believe that, the appreciation in these investments, which is chiefly the re-

flection in the heavy fall in interest, is likely to continue, “These doubters,” lie writes, “may be reminded that Ihe price of money is subject to the same law as the price of any other commodity; that is to say it is determined by the relation of supply to demand. With very occasional rallies the prices of commodities have been falling for the past 12 years, the fall amounting to about Iwo-lhirds of the. 1920 level. The Napoleonic wars were followed by a similar heavy Jail in commodity prices and also in Ihe price of money. The. difficulty ol making reductions in cost keep pace with the reductions in price Ims rendered many branches of trade and industry unprofitable; hence bad trade. Thus the demand for money has been reduced in three ways: first, by diminished production; secondly, by reduced prices, since it requires loss money to finance a given quantity of commodity; and thirdly, by the weakened credit of many debtors. Bad trade and cheap money are inevitable in a period of sharp downward readjustments.” In Ihe course id an

analysis of the factors eont ril.iit ing In “abnormally cheap money” in creditor cniiulries the National City Bank, of New York, ventures the prediction that low money rates have (•.ume to slay indefinitely. The rate at which Treasury bills have been taken recently in the world’s chief financial centres is an absolutely low record, not even approached during the long period of exceptionally easy money conditions in the unities of last, century. It seems probable, the bank adds, that the spirit of speculation has been tamed for some time to come Ordinary trade requires comparatively little credit, for trade settles itself. Money is borrowed to carry out; plans for anticipating future needs, and such plans may lag for a time. They are cpiitc sure to do so unless interest rates arc so low as to afford inducements. “If no reckless monetary legislation is enacted involving the standard of value in uncertainty,” the bank circular adds, “existing indebtedness will be rapidly refunded at lower interest rates, and a lower level of Interest rates will go far lo reestablish higher capital values. It was the depression of the nineties which reduced the rate of interest on new railroad bond issues to 3 per cent, and the rate on British consols to 21 per cent., and although securities bearing these rates were not in fashion very long, this was because prosperity came back so fast after 3898 that there were innumerable demands for capital at higher rates. The economic law takes care of these adjustments holler than legislation can do it.” For the reason given it may be counted as a good thing that the price of money in New Zealand is falling, it. may be hard for those who are depending upon the proceeds of investment*, but it will be better for them in the long run, and indeed it is the only hope for resuscitation ol the country that money may cheapen to such an extent, and land values be adjusted accordingly, that there will be a freer flow of capital than exists at present, and money now tied up in fixed deposits will be utilised to fertilise fields of investment and productive industry.