A VITAL FINANCIAL PROBLEM

Evening Star, Issue 20135, 27 March 1929, Page 3

A VITAL FINANCIAL PROBLEM

THE WORLD’S SUPPLY OF CREDIT As conditions are to-day. many nation-: need still greater quantities "1 credit it (hey are to continue to purchase as much as they are now buying, and of her nations need to grant credit, still more freely if (hey are to maintain their ability to sell i licit- products.’'—>ir George’ Paish. ■' .Hul already the power of American and British bankers to grant additional credit is becoming exhausted, and we arc now within sight of its ultimate limits. ’’ so writes Sir George I’aisb, in the ‘ fV-ople s ‘l car Cook.' (be animal of the Lnglisb ami Scottish Go-opeiative Societies, ]929. the amount, of credit already created iy so fabulous that almost tlie whole of tin- immense reservoir of new credit created both in America and in England has been utilised. " When it is fully utilised, mil ions "’HI be lace to face, with the problem of how to meet, the obligations they have, inclined, and at the same time of bow to purchase what t hey urgently need to buy without the aid of credit. H they are to meet, their obligations, and to buy what they require, they must be able to sell their own goods and services in order to make the payments they require to make. “When it is borne in mind that, cerlam nations, which are not selling nearly enough of their products to pav for what they are buying, and, consequently, are still buying extensively on credit, must (I) meet their debts by the sale of their own goods: [2\ must pay for whatever they need to buy in their own goods and services, instead of by credit operations, and (d) in some cases must make n-p,nation payments in their own goods and serve e,. instead of by fresh loans, the d i iiiciilt ii-s of the problem become obvious. As. matters now stand -it is ahiuniauily clear that, unless tlie mil ions completely change thru- present policies, the debtor nations will neither be able to maintain the, present level of their buying power nor meet their obligations, whether they be for interest, principal, or reparations. “At tin; present, time the creditor migjuiis arc strongly opposed to receiving from the debtor nations goods and serviee.s in payment of their obligations, m' even in payment for the products they still continue to sell to them. And while tins altitude continues how will it lie possible for the debtor nations to meet their obligations, or to continue to purchase from the creditor nations when ne-.v credits are not forthcoming? Moreover, how will il he possible for internal credits, granted both in Amei|ra and in (beat Britain, to be met. if nianntael urns, farmers, and others cannot continue to sell their products in anything like the present volume? Ihe liberal grants of credit by America and Great Britain have caused tho currents of trade to be. maintained in all parts of tho world, more particularly in South America, Australia, Canada, and the Far East. These currents will also be greatly reduced as soon as this credit is not forthcoming, and nations which have hitherto purchased so freely on eredit can no longer do so.'

Thus the danger of a world breakdown of credit and of trade is now by no means remote, and will rapidly approach unless steps arc taken to apply the remedies urgently required. “The first step demanded is an impartial and comprehensive diagnosis of the whole situation, and more particularly the credit and trade position, both international and national, in all im-’ portant countries. , Beyond this, investigation needs to he made of the economic effects of reparations, not only upon (he countries called upon to pay (hern, and those entitled to receive them, but upon other countries as well. “ This explanation should discover the

extent to which the nations that are indebted for loans, or for reparations, are unable to meet their obligations by the, sale of their products, owing to the unwillingness of the creditor nations to purchase them in sufficient quantity. “Further, the examination should indicate the maimer in which fresh credit can he created for opening up the new countries to settlement, and bringing about the necessary inci-ea.se in world consumption that will enable trade to be maintained at a high level. “Lastly, the nations must be made to understand the necessity of readjusting their political and economic policies in order that they may promote and not destroy trade if the danger to which they arc all exposed .is to he averted or overcome.

“While I lie .-iuintion t liruughout (lie world is full uf danger, it is particularly dangerous in the United Stales and on the (.’out incut. of Europe. In America mi much credit has been and is being created, both foe home ami foreign borrowers. that tiie supply cannot M* ma hit a hied. ami the stoppage nf new credit will involve a very great collapse. Ixith m trade and in prices, with eonI sequences which cannot he measured, I having regard to the oxer-borrowed conIditiou of the country. 'the Continent of Europe has now l obtained’ far more, credit than it enn hope to repay unless world policy is completely changed. In pre-war days Europe 'MIS a creditor continent, and entitled lo receive great quantities; <>l produce in payment for the interest and principal upon credits granted to the rest of the world, and more particularly to the United States and .Russia. Now it is a debtor continent, and must export its products, or perform services to pay interest and principal on .sums Iwrrowed as well as to pay tor all the products it needs to purchase From outside count ides. “But these outside countries, and more particularly the United Mates, Canada, and Australasia, have deliberate! v adopted a policy of excluding the goods of Europe by high tariff and other harriers. At present Europe is buying from those countries on credit granted I,v the United Stales and (treat Britain, a ltd 1 1 itlievi it y is already arising in obtaining these credits. What will lie the situation in Europe when the supply <d new credit ceases, and it endeavours to meet the interest and other obligations already incurred in goods that cannot be sol’d, and what, will be the situation in the United Slates, Canada, Australasia, and in other countries when they cannot sell their products? “ Were Russia in a position to supply Europe with the food and raw material it requires, the situation would immediatelv become less difficult. as Russia needs to purchase till the manufactured goods she can obtain, either in exchange for iter products or by credit operations. Hut the statesmen of Europe, of this country, as- well as of Russia, are unwilling to pursue the policy which will restore Russia to prosperity. and which is urgently ca-Jed lot hv a most difficult situation. lienee, in view of the fact that the nations not only show no willingness It) take the measures demanded in order to prevent a breakdown of both credit and of trade, but moist upon pursuing policies u bicb, il continued, will icndet the, breakdown inevitable, it is of great moment, that the whole situation should be most, carefully reviewed so (hat when the breakdown does occur, it may he repaired with the least possible delay, and with a minimum of suffering, by the adoption of those measures which, had I Inw been taken when the peace treaties ’were drafted, or in the Jong period that lias since elapsed, would not milv hax'e prevented the crisis, but would have restored the world to prosperity,’’