The Waikato Times With which le Incorporated The Waikato Argue- FRIDAY, JUNE 5, 1931. THE LOWER BANK RATE.

Waikato Times, Volume 109, Issue 18347, 5 June 1931, Page 6

The Waikato Times With which le Incorporated The Waikato ArgueFRIDAY, JUNE 5, 1931. THE LOWER BANK RATE.

Recently, the Bank of England reduced the bank rate In London to 2& per cent., which is one of the lowest rates quoted during the present century. The low bank rate is a sign oi the times and the rate of 2£ per cent, had been reached in the twentieth century only in the depths of the, prewar trade depression which followeu a crisis in America in 1907. The magnitude of the American crisis of 1907 has been dwarfed by the passage of time and the intervention of the cataclysmic events of the war, yet there are many reasons for emphasising its similarity to the recent experience, and this is an appropriate time to review the events of 1907 in the light of present conditions. Abnormal activity of business and speculative inflation prevailed during 19067, accompanied by remarkable development of production. At the end of 1907 there supervened what a contemporary authority styled “the biggest slump in the history of the human race.” Its effects resounded throughout the whole financial and commercial world, creating protracted trade depression. Recovery was slow and hesitant, but it was followed by general trade prosperity which continued until the outbreak of war. From the peak of 7 per cent, in November, 1907," the London bank rate was reduced in seven months, to 2$ per cent. Another record slump was precipitated by the collapse of the American stock market at the end of 1929, and it has taken 20 months for the London bank rate to fall from Gj to 2£ per cent. There is one particular circumstance, however, that distinguishes the present depression from the reaction to the financial crisis of 1907. The natural resilience of trade and commerce, inured by long experience to devastating changes of fortune, has been paralysed by the grave embarrassment of publics finances. Few Governments have been in a position to withstand the inevitable shock to their exchequers of severe trade depression, and the geiieral melancholy which It inevitably produces has been aggravated by the growing demands by Governments for means to straighten their disordered budgets. For a decade before the present collapse, there was particularly in Australia, a constant growth in public expenditure, financed by oppressive taxation and by loans at abnormal cost, During that period, there were Increasingly insistent warnings that such policies were leading to disastrous consequences and now that these forecasts have been fulfilled It 13 an Ironical commentary on the wisdom of the age that so much attention should be devoted to theoretical analysis of the mechanism of currency and credit, while the obvious reasons for stagnation of trade and vast unemployment are disregarded. The official discount rates proclaim an abundance of money for the needs of trade and Industry. “There is no shortage of money,” said the Financial Times, in its review of British banking in 1930, “and this arises from the simple fact that, whereas wholesale prices are back at pre-war, there is £5 in existence 10-day for every £3 in existence in J 913.” The same authority declared that a return to more prosperous conditions “will not come as the result of any juggling with (lie machinery of commerce ... it will result from recognition of Ihe fact that the fall in commodity prices lias gone as far as it is likely to go.” Acceptance of that conclusion should be assisted by the reduction of ofileial discount rates virtually to the minimum. A revival of eonlldence is the first step towards recovery. Beyond that, the most pressing need is a reduction in the rate of interest for capital requirements, as well as for short-term finance. In 1908 and 1909, New Zea-

land was able to raise new loans and convert old debts at about 3J per cent. Excessive competition has made money too dear for remunerative employment under conditions that may now be expected to prevail and full recovery will depend upon the extent to which the Government is prepared to make sweeping and permanent changes in financial policy. Then if the Government . oontinues its efforts at adjustment, and if the other parlies support it, New Zealand, if she so desires, can benefit as before from the low rates of Interest prevailing in the world’s chief money markets. But at that no attempt should be made to float a loan unless such an action Is Imperative and unavoidable.