THE WALL STREET CRASH

Taranaki Daily News, 29 September 1930, Page 3

THE WALL STREET CRASH

CHEAP MONEY ONE CAUSE WORLD ECONOMIC PROBLEMS. PRODUCTION AND CONSUMPTION. (Special Correspondent.) Wellington, September 2G. There has been another serious fall in security values on the New York Stock Exchange, and its repercussions will be widely felt, as all previous setbacks in that centre have been felt. America is the largest holder of monetary gold in the world, and the supply it holds is far in excess of the nation’s currency and credit demands. Shortterm money was, and is, exceedingly cheap in New York, for the rediscount rate of the Federal Reserve Bank is-2j per cent., and call money has been ruling at the same rate. What, then, is responsible for such heavy declines in share values practically in the course of a single day? According to the cable message General Motors lost 48 million dollars ( £9,600,000) in market value, American Telephones .56 millions ( £11,200,000) and United States. Steel 34 millions (£6,800,000). It cannot be from lack of credit that these recessions have occurred, so we must look in other directions for the cause. No doubt cheap money stimulated investment and speculation, and some set-back was inevitable, but not the heavy falls recorded. The explanation probably' lies in the continued decline in wheat and cotton prices, and the effects of the disastrous drought experienced in many of the States. Purchasing power of the agricultural section of the community has been greatly impaired, and savings must be less and the surplus available for investment growing less. All markets in the United States have been depressed, corporation earnings have contracted, dividends are reduced and wages cut, and this is the state of affairs in the richest country in the world. This cannot be very encouraging to the rest of the world. When there was the big slump in New York last year the effects were quickly felt everywhere, and holders of shares in Australia and New Zealand know how terribly they were hurt. This -fresh crash in New York, if it does not add to the world’s troubles, will prolong the period of recovery.

The western and eastern nations are both suffering, and the standard of life with many nations is now lower than before the war. This is true of India, China and Russia, embracing 900,000,000 people. : .Jute, rubber, copra, coffee, sugar, tea, tin, silver and cotton, mostly tropical and sub-tropical products, are very much depressed; in fact, the present is an agricultural rather than a financial crisis. The standard of life depends upon purchasing power, and purchasing power depends upon the sales of our services, or the ability and capacity to earn wages and salaries. Millions of people are unemployed, and their standard of life depends greatly on charity, and they have caused a low. ering of the average standard of life. It is. of course, a debatable matter whether the: agricultural crisis now being experienced is due to over production or under, consumption. Both factors are probably responsible, but over prod’- tion is due .directly to the war in respect to some commodities. Sugar, for ' .stance, shows an increase from an average of .19,363,000 tons in the period 1909-14 to 29,970,000 tons in 1929-30. During the war the production of beet sugar in Europe ceased and the world was dependent upon cane sugar, the production of which naturally increased under the stimulus of high prices. But beet sugar is. again being produced, and from an output of 8,823,650 tons it is now 10,249,960 tons. The cane sugar industry is suffering as most of the producers of this sugar have surpluses to export. Cuba, which is the principal producer of cane sugar, is said to be now in the sixth year of progressive depression. In the West Indies sugar production is a very old industry and in Jamaica it, has been found necessary to subsidise the industry to keep it alive. Similar harassing conditions could be detailed with respect to other tropical and sub-tropical commodities. The use of silver as a monetary metal has ceased and the output of the white metal has increased, enormously depreciating its value and ruining Eastern people. The purchasing power in the East has shrunk. This has been felt by Lancashire, as the cotton mills there cannot sell theii - products. This has in turn caused the drop in cotton. But the downward movement of commodities, although it h; j been general, has not been uniform. There is apparent over-produc-tion in several directions, but if trade between nations was allowed some freedom for the next twelve months’ consumption -would soon clear the surplus.