CHEAP MONEY: ITS USE AND MISUSE

Dominion, Volume 28, Issue 81, 29 December 1934, Page 10

CHEAP MONEY: ITS USE AND MISUSE

Mr. Coates was justified in drawing attention at Auckland yesterday to the importance of cheap money as a factor contributing to trade recovery. He might with advantage have added 'a sentence of warning against the foolish use of cheap money. To a very large extent the improved tone of business and public confidence in this country is due to the Government’s settled policy of reducing interest charges—on its own borrowing, on borrowing by local authorities, on mortgage loans, and on bank advances. In every case except that of the banks these reductions have been the outcome of official Government action. Negotiations with the banks have been private and to some extent unofficial, but.the influence of Government policy and the representations of Government leaders have been intimately connected with the downward trend in the price of bank accommodation. So far, the legislation covering the mortgage situation is' temporary only, but the main business to come before Parliament upon its resumption in February will be that of recasting the mortgage system of the country to provide for a permanent cheapening of this class of borrowing. An essential detail in the Government’s proposals —already published—is the provision to prevent cheap mortgage, money from being used-as a lever to force land values above their true level. If only that can be made effective, we shall have built one bulwark against a.srecurfence of recent hardships in New Zealand farming. But farmers are not alone in misusing cheap money ; .there has been in the past a good deal of foolish'vapital spending in the towns as well as in the country. In order to get the full benefit of recovery from low interest rates, everyone who borrows will need to. be constantly on the watch to see that he does not repeat the blunders of the last 20 years. ■ And this applies particularly to the Government and local bodies. New Zealand is going to be prosperous again before long, but not with boom prosperity; therefore boom notions of public spending are due for drastic revision.