The Wanganui Chronicle MONDAY, OCTOBER 19, 1936. THE GOVERNMENT LOAN

Wanganui Chronicle, Volume 79, Issue 247, 19 October 1936, Page 6

The Wanganui Chronicle MONDAY, OCTOBER 19, 1936. THE GOVERNMENT LOAN

HUE first loan which the present Government has floated on the domestic market will test the market, firstly as to the willingness of the. investors to lend to the Government, and secondly as to the sufficiency of the interest rates. Unfortunately these two factors cannot be divided. There will be those who will deem it to be unwise to lend to a Government which is likely to overspend its income, and there are others who arc quite satisfied with the security offered but who do not consider that the rate of interest, namely, 3 per cent, for short term, and 31 per cent, for long term, is sufficiently remunerative. The world is in for an expansion period, and interest rates arc likely to harden in the not distant future. Indications in Australia all point in that direction, but the expansive movement may not develop with the same tempo in New Zealand. First, the building boom may be cut short by the intervention of the Government in this field; and second, the absence of metals among New Zealand’s exports, and their presence among the exports of Australia, will tend to make a difference between the two countries. The steady improvement in the wool situation, however, points to a large increase in the national income of New Zealand during the coming season, and if there is no avenue attractive to the investor this very absence of opportunity may cause the investor to turn to the Government issue. The Government is doing the right thing in trying out the market at what appears to be current rates for such class of security. It is the business of the Terasury to secure its funds at the lowest possible rate. There is nevertheless a danger to lie guarded against, and that is the encouragement to speculation which is engendered by the continuance of low interest rates. Undesirable speculative booms have ever been preceded by an era of cheap money. Investment in Government bonds used to be regarded as the surest method of securing a moderate but. dependable income. This attraction is no longer present for, in recent, years, the solemn contracts of Governments have been less satisfactory than many of the unpromised dividends of the frontrank insurance, industrial and trading concerns. Interest reduction on Government stocks was an easy and convenient operation, but it is possible that the reactions will be registered in the attitude of the public to new issues. However, the reception which will be given to this loan should provide interesting evidence as to how investors arc reacting* to present-day conditions.