The Timaru Herald. SATURDAY, DECEMBER 7, 1907.

Timaru Herald, Volume XIC, Issue 13462, 7 December 1907, Page 4

The Timaru Herald. SATURDAY, DECEMBER 7, 1907.

AMERICAN CURRENCY. The downward tendency of the second wool .sale at Wellington yesterday will accentuate the colonial pa«toralistis' interest in any matter affecting the American curiency, for it- seems impossible! to doubt that tlio linaiicial stringency in the United States, witli it.s depressing effect upon tlio trade of the republic itself, and its wider influence'on the money markets of Europe, has been chiefly responsible for the lone of the wool •salts now in progress- on each side of the globe. Tlie extracts which we quote this .morning from tlio annual colonial wool report of Messrs Buxton, Ronald and Company, and from' the foiccast of the " Pastoralists' Review," showing a. considerable shortage in the Australasian and Argentine clips, point to the money crisis in America as'the explanation of j-lie comparatively unsatisfactory returns now being realised for one of our mosib important t-.iu;ple.s, so that anything which promises to obviate ;v recurrence of the vast interference which lifts'!taken pla.ee in the normal courau of trade in the United States has a substantial in tercet, for tlio siheepfarmer in Now Zealand. How vast that interference mud. lia.vo been may be appreciated from the fact mentioned in to-day's cablegrams that it .hits compelled the Italian Government to give fresh .consideration io the problem of the uiKmiployed, whose numbers are expected to be greatly swollen by 'returning Italia.nis thrown out of work in America, bv the financial -crisis there. It .seenHs unlikely that any system of ■•cur* reucy reform iu the Sta-U* would prevent the reaction which inevitably follows such a- period of rash speculation and over- ' trading as Jiave been induced by the remarkably prosperous year* through which America has .passed, buti the eff«Ct«s might bo mitigated if reform in this direction wcr.a accomplished. President Roosevelt ..himself hats apparently -no useful suggestion to make, - for his latest message to Congress liars elicited nothing but expressions 'of disappointment from banking circles and' tiuancM journals competent; to criticise his recommendation for the (Stubliiihnieul/ of -an emergency currency to be js^ued-under heavy taxes. The Lohdou "Times" declared that his nipsiiuge h!icl nothing to'suggest in the way of. real banking reform, while the " Financial Times" said that in a time of crisis, 1 it •was like a. man asking for bread' and being given l a. tract. 'Yesterday, however,- wo were told that a committer of ill© House •of. ■ at Washington wa,s drafting a -Cumnby Bill to meet tlie. (situation, so that an impiovcment: •of ■soiitb sort may be l)opt>d for.' Fiiiancjeri} iii allmoney centres -of !>ny importance will anticipate this improvement. with, relief, for it seeius that the diMtui'banee which has taken placo t.hiw s jj-ear in such an' aggravated form is an ' annual occurrence of in,ore or less severity. Every year the United States se's up' a! tlruih, upon the gold , supply of tJie world', to the.: inconvenience.'-'of the whole financial 'world. - v This i»' diie to the fact tliatj 'owing to tilie inelastic currency of- Anieirica, it 'is ' impossible at . harvest time, .to 1 meet the .demands -of, the western and northern States for payments' in cctoiecr Hum with the movement of the huge wheat and cotTmi crops without drawing npon the reserves which accumulate between in the east. It is estimated that the sums involved in thesii liwiveliients - aggregate forty millions staling.' Under the banking, system of the United States, a i e«erv'e of <25. per - cent, in gold, or its . equivalent, to bfe, hold against duposits by city national :. banks, and 15 per cent. by countiy national ■ banks. The latter, however* are' permitted to keep a substantial portion of their reserves On deposit in tin; banks of Nekv York, and w,lien harvest time is approaching ~the banks in the ; grain arid' cotton-area's: call in their deposits from New York. As has been the case this year, the ! eastern

.•meet this demanicl upon them. ,Mr Javier, a lending financier and member, of Congress, lias fouml that> under this redcporsiting system, the credits out of a n original deposit of £60.000... would expand to six and one-lhird times that amount. If liis calculation i»,. correct, when the necessity.. arose to provide the forty millions required for (lie crop movements, the eastern banks would have to curtail or displace credits of at least two hundred' millions. Thd great contraction "of loans needed to keep the reserves up to the legal limits creates the gjehienis of a public panic, specially when, a« happened "lust year, the Treasury.- withdraws lkrge sums Of -money fronri circulation. As e*>on.iift the crops have been shifted, the . money flpws back to New York, and credit expands as rajiidly as pieviously if/contracted. Hut if for any luason public confidence is impaired, the .gold. is hoarded instead of being allowed to go into circulation. and the \Ncw York. iinancierti arc obliged to obtain gold from abroad in ord'er to save the situation. As a, matter of fact, the American banks are better, off for gold now than they have cvrr bten, tso that Iho .present crisis, .has not ; an sell from an actual shortage of ; currency, ill' W. R. Lawson has compiled statistics' to show that between 1893 and 1905 the specie -held by, the United States banlis increas ud from £80,000,000 to £141,00(5,000, but this increase is. liot all used for currency purposes. It goes into tile vaults as portion of the Irrserve, and is used for capital purposes, because, und >" the 25, per cent, reserve system aguiiwfc deposits, "for every dollar stored the banks can make four dbllars of lov-ns." Under this (system America has developed a, huge system of credit which is peculiarly liable to • shock whenever , loans are colled up to meet an emergency such as the annual demand for gold and other legal tender in the autumn. ..If, iiv addition to the hoarding done by . the Treasury itself, the" people lock up their money-and keep it out of circulation, New York must make a beavy demand upon other financial eentres, London,' of eounse, being livst wyiJealecl toi J ,