A WORD OF WARNING.

Daily Telegraph (Napier), Issue 3083, 14 May 1881, Page 4

A WORD OF WARNING.

"Referring to the present plethora of money awaiting investment throughout the colonies, and the possibilities of its long continuance or otherwise, the Australasian Insurance and Banking Record for April sounds the following note of warning, which is worth attending to—the position in New Zealand is analogous to that in New South Wales and Victoria :—

"We do not often take upon ourselves tho role of monitor to the admittedly abb and experienced body of men who control the financial business of the country, but there are just now palpaole indications and wide-sproad rumors of the undue impatience of bankers under conges'ed treasuries, re suiting in an unwholesome forcing of advances, to which we think it, will not be unbecoming to direct their serious attention Although upon the principle of 'the greatest happiness for the greatest number,' it ough; to be a matter for congratulation that tht borrower, by the assiduity with which he if courted, is now enabled to make almost hi own terms, it must not be forgotten that h> is "likely to bo led into enterprises which would result in disaster, if any serious fluctuations of the financial barometer compelled a withdrawal, or materially enhanced the cost, of his accommodation. That such enterprises aro being entered upon, in the certain expectation that the present value ©f money is likely to be comparatively permanent, and that bankers are lending the' authority of their opinion to that view, there is plenty of evidence; and as last year we predicted the full extent of the present plethora, so we now feel justified in expressing a firm belief that it will not be of that enduring character which is popularly assigned to it. The circumstances which gave rise to the vast and sudden increase in ourmonetary resources have Ibeen fully dealt with in these page? already, but it may be briefly said that the two more potent factors were large and simul taneous Government borrowings, and the launching of financial companies in England for operations in the colonies. Now the praiseworthy intentions of the latter have been entirely subverted by the reduced rates of interest that have come into vogue sinc< their inception. As a matter of fact they Were brought into existence by the tempting 'rate of usance' which prevailed during 1879 and 1880, and practically they cannot make a living while the banks Are lending freely at 6 per cent. Some of them will assuredly retire from the field—a few may hang on in the hope of better times, working on their own capital refraining from the issue of those 5 per cent, debentures which made up large figures in the advertisements of their resources, and only calling up enough capital to keep their shareholders together. As these comjranies retire, the station advances will pass again into the books of the large banks, and the first steps towards a renewed demand for banking accommodation will be seen in the returns The Other main element of disturbance, the Government funds, is essentially an evanes cent' due.' Irrespective of the large balances ori ! ,the" pxiblio account proper, which, owing to' the great improvement in the ordinary sources' 5 of revenue, and the efforts of the sefeet'ors to' pay up arrears of rent out of the decent' harvest, are exceptionally high, the Government of Victoria has on deposit with the feiftiks about £2,500,000 on tho railway loan amount, nearly the whole of which will now be steadily absorbed in the construction of the lines authorised by Parliament, and now being tendered for. A much larger expenditure has just been decided on in _ New Soutn Wales, and though a great portion of these large sums will be distributed in wages, and circulate in the colonies, no inconsiderable portion will be absorbed in the purchase of plant, rails, and raw material from Europe. With the progressive extinction of these two main elements of excess, the relations between supply and demand will rapidly assimilate to their normal condition, and though by themselves they are scarcely potent enough to appreciably increase the cost of money to the borrower, they will effectually disperse that existing accumulation of surplus coin which is a source of present vexation and latent danger to its unwilling custodians. For it is a wellknown fact in banking circles, that the foundations of the most serious losses are invaribly laid in times ef plethora, and if we may rely upon the current reports of numerous large transactions recently entered into, for periods in some cases extending to five years, we say unhesitatingly that the interests of bank shareholders are being jeopardised under the influence of a mild panic that is based upon an altogether mistaken apprehension of the outlook. The quarterly returns to the 31st March will, when published, doubtless show a very large increase on the deposits of the previous quarter, without a commensurate growth in the advances. We predict that those of the two following quarters will progressively indicate the near approach of the end of the plethoric period."