RISKS OF CHEAP MONEY

Southland Times, Issue 22489, 25 January 1935, Page 3

RISKS OF CHEAP MONEY

PRODUCTION AND FINANCE BRITISH PROTECTION AND DOMINION TRADE. In his address to shareholders at the annual meeting of the New Zealand Loan and Mercantile Agency Company, Limited, in London, on December 13, the chairman, Mr Harold G. Brown, touched upon a number of subjects of interest and importance to New Zealand producers and business men. Commenting, for instance, on the glut of money and the fall in interest rates Mr Brown said:— The phenomenal rise’ which has recently taken place in this country in the price of gilt-edged securities has served to focus the attention -of the public here on the glut of money which now exists in this country. The competition for investments is such that a rate of interest which can now be obtained on long term British Government securities has dropped in the last two years from about 3J per cent, to 2J per cent., and Treasury Bills were recently being placed on the basis of about 5/- per cent, per annum. Much the same conditions prevail in Australasia. Up to date the principal effect of this glut of money has. been to enable the Governments here and overseas and municipalities and businesses to refund existing loans at much lower rates of interest, but so far it is not easy to find signs that this cheap money has fostered new business to any great extent.

Presumably, if and when trade revives generally, we shall see interest rates rising again as this surplus money is absorbed, but the intervening period is an extremely difficult one for companies like ours, banks, and other financial institutions. »I venture to think that unless the utmost care is observed by all parties concerned, the result may be to foster rash and undesirable borrowing and speculation, and the making of unsound advances against insufficient security owing to the fierce competition which exists to find some remunerative employment for this idle money.

British Protection and Dominion Exports.

Later in his address Mr Brown turned to the question of Britain's "i policy of protection with regard to her agricultural industry. He pointed out that Britain was no longer an open market for the world. On the contrary it was now Britain’s recognized policy to look after her own producers, primary and secondary, first, and history showed that once this policy was adopted it was extremely difficult to go back. The tendency all the time was to increase, rather than reduce, the measure of protection afforded. Mr Brown went on to say:— In view of their own past history, it would be difficult for the people of Australia and New Zealand to question the right of any country to endeavour to protect its own producers, and I think that they must admit that the home Government is entitled to place the interests of farmers in this country first, but they will claim, and do claim, that the Empire producer should have the first cut at the remainder of the joint. As chairman of the company I hope that the oversea authorities may succeed in convincing our Government that their arguments are sound, but, as an individual, I cannot help speculating how countries like Denmark and the Argentine are to fulfil their obligations to investors in this country if they are merely offered such scraps of the joint as may be left after satisfying the appetites of the Mother Country and her daughter states. This difficulty may not be one of moment to the oversea authoritites and peoples, but it is obviously one which politicians and economists in this country cannot ignore, as it is a matter of very vital interest to a large number of investors in this country.

There can be little doubt that the capacity of the farmers in this country to produce perishable foods, such as butter, eggs, and meat, can, under a system of protection and remunerative prices, be enormously increased. It is therefore impossible to rule out of our calculations the possibility of restriction being imposed and gradually increased on the importation of these articles, even from the dominions. In existing world conditions it is difficult to see where the surplus of these products will be marketed or what may be the effect on our clients if production has to be seriously curtailed. It is easy to say, as many have already said, that the only sound and lasting solution of the difficulty is to increase the size of the joint—in other words, the capacity of consumers the world over to consume.

Those responsible for the government of this country may be pardoned if they hesitate to adopt many of the schemes which we are assured would quickly cure the glut of commodities and almost by a wave of the wand bring effective demand up to capacity to supply. The result of a mistake or miscalculation on the part of these magicians in a highly industrialized country like ours is too horrible to contemplate, and would make the present lot of our unemployed, bad as it is, seem like heaven itself. Look where one will, one can see little sign at present of any agreement among the nations of the earth. Turning to markets, conditions and prospects for primary produce, Mr Brown gave an instructive survey from which the following extracts are taken: Wool. As is now well known, the market was strong and looked like remaining so, until about the end of January when some hesitation began to manifest itself. Then in March came the suspension of German purchases and the Italian decree in April, with the result that prices broke and the market remained weak until quite recently. The June sales in Brisbane and Sydney were postponed, which no doubt to a considerable extent accounts for the increased carry-over. The outlook now is somewhat more favourable. Flocks in Australia show a decrease of some 1,160,000 head on last year’s total, whereas New Zealand shows an increase of about 794,000. Owing to the drought it is estimated that the decrease in South Africa is in the neighbourhood of 9,000,000 head, although no actual census has been taken. Dairy Produce.

Trade in dairy produce during the year has been disheartening, both to the producer and to the distributor. Production of butter and cheese expanded in both Australia and New Zealand. New Zealand, with an increase of some 15 per cent., took the first place as an exporter of butter to the United Kingdom for the first time in her history, a position previously held by Demnark. Prices realized were considerably worse than the previous year, and must have resulted in losses

to producers. Low prices ' for butter have certainly stimulated demand, and all quantities forwarded to this side are absorbed, but the price has suffered. It is a matter of vital importance to New Zealand that prices should be improved and that the market should not be restricted. Lamb and Mutton. Next to wool, frozen meat has been one' of the most satisfactory markets, New Zealand lamb making over 7d a lb on the average and Australian about 6jd, while the price for frozen mutton has averaged around 5d for New Zealand and 4d for Australian. Present Conditions. As to present conditions we have recently received a cable from New Zealand stating that they have experienced a reasonably good winter followed by a seasonable spring, the feed position being exceptionally good and stock in good condition, lambing being rather above the average. There is a good demand for all classes of stock except dairy cattle. Wool is in good condition, the quantity being about the same as last year. The outlook generally is fair, but not equal to last year s prospects. With regard to Australia you may have seen accounts of recent very heavy rains, with flooding in Victoria and New South Wales. There have been considerable losses of stock, and the crop yield is likely to be reduced considerably in those districts which were affected.

New Zealand Mortgage Corporation. You have doubtless noticed reference in the Press recently to a proposal to establish a Mortgage Corporation in New Zealand under Government sponsorship. It has not yet been possible to obtain more than a general outline of the scheme, but the proposals appear to be far reaching and may have effects upon our business and upon private enterprises generally which cannot be foreshadowed at the present . time. Pending receipt of further particulars I think it is probably wise to refrain from commenting on this scheme. Prospects. You will have realized from what I have already stated that the immediate outlook is not very bright. It is, I fear, inevitable now that the current year’s results should be considerably less favourable than those of the year just closed. I am, however, not pessimistic about the future of the company. I hope that I have made it clear that the company has a strong financial position. It is very liquid and, more important still, we have a keen, loyal, and efficient organization and staff in London, Australia/New Zealand, and South Africa, to whom our thanks are due for their devoted services during the last few years of stress. This country, and Australia, New Zealand, and South Africa, have undoubtedly come through the crisis of the last four years in better shape than most other countries.

When addressing you this time last year I pointed out that conditions were adverse to any revival in international trade. During the year which has elapsed little has been done to ameliorate this state of affairs, and a great deal has been done, or happened, to aggravate it. Yet trade and conditions in this country and in Australia and New Zealand have undoubtedly improved, and this is none the less encouraging because it is astonishing. (Applause).