THE CLOSING YEAR

Taranaki Daily News, 5 January 1927, Page 9

THE CLOSING YEAR

DISTURBING FEATURES EFFECT OF GOLD STANDARD. PRICES MORE STABILISED. (From Our Own Correspondent.) Wellington, Jan. 3. The year just closed will be memorable for its many disturbing features which have been experienced in practically all countries. In the United Kingdom the great industrial upheaval in May, followed by the prolonged coal strike, were sufficient to prostrate a much more solid country than Britain. Although the losses were heavy, the sound commonsense of the people, whose love for law and order is traditional, enabled the country, to weather the labour storm with the money and risk to life and property. Among the nations of Continental Europe there have been many disturbances, especially in Italy, Spain, Portugal and the Balkan States and Greece, where dictatorships have been established and various restrictions placed upon the peoples. In France the currency problem has given considerable trouble, but France is now settling down, and the French now know what deflation involves. Belgium, with the assistance of Britain and the United States, is back on a gold basis. Germany, under the Dawes scheme, is gradually recovering, and her recovery will mean a good deal to Central and Eastern Europe. All these disturbances have greatly interfered with international trade, and the raising of Customs barriers has accentuated the position. Perhaps some people may imagine that Euope’s troubles, political and otherwise, have no interest for the people of the Southern Hemisphere, but such a view would be quite erroneous. The coal strike in Britain, for instance, directly and indirectly affected New Z<?aland. The strike dislocated the industries and the general trade of Britain, causing a tremendous increase in unemployment and reducing the purchasing powers of the peoples. This was immediately felt by the primary producers, whose products could not be sold except at low prices, which ultimately meant a loss to us of over six millions sterling, causing unemployment in the Dominion of an unusually severe character. As the effects of the coal strike must be felt for a considerable time, it is hardly likely that we can have any improvement in the value of our produce. EFFECT ON PRICES. Apart from this, the return to the gold standard of an increasing number oi countries must have a depressing effect on prices. For quite a number of years prices have been based on paper currencies, which were readily expanded by the nations with little excuse, and commodity prices rose with every expansion. Now prices have to be regulated by the standard of value set by gold It is authoritatively stated that the general tendency of gold prices will be towards further deflation, and the conclu sion is based on the following broad facts: (1) The ratio of gold reserve* .to note issue in Europe as a whole is Very substantially less than it was before the war; (2) the splitting up of three great empires into smaller economic units has decentralised large gold reserves, and therefore tended to make them less efficient; (3) most of the countries in Europe, and outside that are not on the gold exchange standard, aim ul timately to build up firm gold reserves of their own, and in consequence they are likely to become gold traps for many years to come; (4) the traditional tendency of Continental central banks to regard gold as treasure to be hoarded as soon as acquired shows little sign of being broken (5) the world’s production of gold in the absence of large fresh discoveries, is likely to decline over the next decade, owing mainly to the probability of gradual exhaustion of the Rand; (6) the physical volume of world production and trade is likely to expand over the next decade, and this extension will require an increase in the effective supply of gold or force a fall in gold prices. The position is rendered more difficult by the attitude of the United States, in respect to the war debts. America insists upon being paid, and at the s.-ruie time refuses facilities for payment. International debts can only be settled by the export of goods, or the rendering of services, or both, or in the ultimate in gold. The Customs tariff of the United States cheeks the free flow of goods, and this is where the difficulty comes in.