A CALL FOR PRUDENCE.

Taranaki Daily News, 5 February 1930, Page 8

A CALL FOR PRUDENCE.

The decision of the banks doing business in New Zealand to increase the rate of interest on overdrafts and the charges for the services they perform in relation to the buying and selling of goods overseas has been the expected outcome of recent conditions. Great Britain and America have been experiencing financial difficulties of some magnitude, from which happily they are now recovering and the repercussions of the influences which have affected them have begun to be felt in this country. Australia also is feeling the effects of the depression, and in her case difficulties are intensified by her own peculiar problems. Through the banking systems of Australia and New Zealand the economic conditions of the two countries become closely related, and this Dominion has to suffer to some extent for the difficulties of its neighbour. Dearer money is the natural result. The banks must charge more for the accommodation they provide for their customers, and at the, same time they must try to augment their resources by offering a higher return to customers who are able to deposit surplus funds with them for fixed periods. The action of the banks, of course, influences the money market as a whole. It was anticipated in this country by the Government’s recent issue of stock at a higher rate of interest than that ruling previously. Coming at a time when the returns from exports, especially wool, are lower than they have been for some time past, and the purchasing power of the people is consequently restricted in some degree, the hardening of the price of money is,a summons to the people to be reasonably cautious. The action of the banking institutions unquestionably and intentionally is in the nature of a disciplinary measure. It indicates that, although the aggregate results of the Dominion’s trade during the past two years have been eminently satisfactory, the financial authorities consider that immediate curtailment of imports is necessary as a precaution against the influence of the lower prices now ruling for exports. The course thus set by those who guide the ship of finance is simply one of prudence. The favourable trade balances of the past two years have established a reserve, the conservation of which will help the country to meet the less favourable conditions of the present season. There is lio occasion for either pessimism or panic; in fact, hasty action would only prevent the natural restoration of equable conditions. By way of illustrating this point we may mention Mr. W. J. Polson’s suggestion that the Government should counteract the effect of the increased overdraft rate upon farmers by lending them money at a cheaper rate to enable them to hold their wool for better prices. The unwisdom of holding wool has already been discussed in these columns, and it is only necess 1 ary to say that the Government would be very unwise if it lent itself to Mr. Polson’s plan. The demand, upon the financial resources of the State would probably be so great that the scheme would break down under its own weight, and, of course, "the Government’s search for the necessary funds would merely have the effect of further increasing the cost of money and diverting it from more useful purposes. If the prevailing conditions are accepted calmly and reasonably, and both the State and the people exercise prudence, industry and thrift the Dominion will come through the period of difficulty with unimpaired resources.