“ALL IS NOT GOLD.”

Gisborne Times, Volume XXVI, Issue 2314, 6 October 1908, Page 1

“ALL IS NOT GOLD.”

STRINGENCY OF MONEY market.

WHAT AltE THE CONTRIBUTING " CAUSES?

COMMERCIAL AND FINANCIAL VIEWS.

Until a few months ago Now Zealand was rovolling (says tho W ollington ‘Tost’’) m a wave of prosperity unon which rode buoyantly noi agricultural, manufacturing, and commercial interests. Money was plentiful and cheap—and the general prosperity reticulated through a thousand channels. All this was altered by the wave of depression which received its first momentum in America, and which played havoc with the prices of most of our products. Now (Zealand is, in consequence, enduring a period of monotary stringency. Iho bank returns toll of straightened circumstances, and of the jn-sistent demands of borrowers. In the shape of advancos and discounts, the banks liare lent,nearly-24 'lhillions, or a imlTidii more than they, hold in deposits. If this vast sum really represented expenditure in dovoloping -tho rosouroes of the country, it would bo an encouraging sign, but does it? The prices of our great staple wool, have dropped 50 per cent. Until that recovers some of its leeway, there can hardlv be any marked improvement in the position. Our imports appear to have boon based on their, earnings during seasons of abnormal prices. Tho process of adjustment is now taking place, and helps tho deadlock. Tho “Post” has endeavored-to ascertain from prominent' banking and commercial men. what are tlio causes of the present monetary stringency and their cure. From the general tone of tho interviews, it will be gathered that there is great diversity of opinion among tho experts. “TIME TO SHORTEN SAIL.”

The head of a large drapery firm, who declined to have his name published, asked: “What good will it do to cry stinking fish? Depression? Undoubtedly there is, and has been for gome time past, a depression in tl-ade all round. I wouldn’t like to venture on an analysis of the causes, and much lass to say ‘when and hop- will this stringency be removed.’ My house has out down expenditure; other houses are doing the same ; at is for the Government to follow. They inust shorten sail with regard to the expenditure of public money, and •then the depression will not last l 0 WOOL PROSPECTS.

Mr A. H. Miles (Murray, Roberts and Co.) observed that ho thought the causes of the scarcity of money “have arisen in a much wider field than this, and are a reaction of the ups and downs of the European and American money markets ,the wane of which we are now beginning to feel.”

“I am of opinion,” Mr Miles continued, “that the congested, condition of the monoj’ market in New Zealand is largely accentuated by the uncertainties’ under which .the trading communities are working. The dilapidated condition of the wool and hemp markets forms, of course, one of the very tangible causes of our trouble. With wool realising—with many qualities of staple—'about onehalf of the market price of two or three years ago, wool-growers have now- only about one-half the money to spend to-day that' they have had. “ONE COG IN THE WHEEL.” “The missing half,” Mr Milos went on, “forms one cog in tho wheel which you will have to piece together for yourself, to find the aggregate of causes of the scarcity of money. The wool sales open to-morrow (Tuesday) in London, and then you will be able to tell whether wo are to have any immediate relief of the existing tension. About those sales there are, in some quarters, gloomy forebodings. I shall be surprised, so far as I am justified in expressing an opinion, if we do not find the better classes of light-condi-tion crossbred wools maintaining tho full level of tho last series of sales of this class of wool.” the hemp outlook.

At jo resent Mr Miles thought the hemp outlook to bo by no means hopeful. Tho immediate future, lie imagined, would largely depend upon the demand for binder twine north of the equator. The low prices which Manila hemp lravo been fetching had caused a considerable quantity of that fibre, of the nice, soft qualities, to come more largely into use than was the case when Manila figures were on a higher level. WANT OF CONFIDENCE.

Mr David Nathan (Joseph Nathan and Co.) expressed himself appalled at the magnitude of the question. “No man in his sane senses,” he said, “could say how and when tho stringency of the money market will be removed. We are trying to solve that problem every day of our lives. As for the causes, they are innumerable. I assign the principal cause to. want of confidence on the part of the investor. Look at this country, what security is there for money? The fear of an increase of the mortgage tax destroys confidence in mortgages as an outlet for oapital. Do you think I could safely advise a friend, if he asked me how he might invest £IOO,OOO in New Zealand? No; capital has no confidence to-day.

THE BANKS. .“As for the banks, I consider they have done yeoman service; but you can see for yourself that if municipalities, not only here, but at Home, embark so largely in industrial undertakings they do not leave room for the employment of private capital. You might say, but wily notemploy it in the extension of manufactures? Very well. What do you find all over the world —in Japan, Turkey, Persia, India, Russia, America, the United Kingdom : intense labor unrest. Can you answer that question; can you say that the unsettled state of tlie labor market inspires confidence in people with money? If you can, I. will answer your question.” VALUE OF LABOR.

“Labor,” continued Mr Nathan, “gives you less value for your money to-d.iy than it ever did. I am connected with an undertaking that is paying £3OO .a year more in wages than it did and is getting less value for its additional expenditure than it ever did.. People who have money to dispose of shrink from investing it where there is so much uncertainty about its return.” Mr Nathan then referred to the stagnation in the flax industry in the Manawatu. Millers could, ho held, sell at from £23 to £23 10s f.0.b., but they cannot do so in the Manawatu and cope with labor demands and lioavv royalties at the same time. No one, he said, could predict with certainty what flax was going to realise on the London- market, although statistically it ought to advance. And

tho same hold good with respect ol wool, which, statistically speaking, ought to advance in unco again. Who could say wlnit influence tlio wheat crop was going to exert upon the money market? Lord Rothschild's utterances upon tlio want of confidence experienced by tlio investor were ns true of New Zealand as of the world at large. Tliero appeared to be no stability at all either politically (in Europe) or industrially. . . Mr Nntlian roforrod to tho British Liberal Government, and observed that want of confidence oil the pari of British investors and Liberal Governments generally synchronisedThe first was tlio natural result of British Liberal administration. AN UNSUSPECTED DRAIN.

A succinct commentator, head of a big commercial house, said tlio trouble was easier to locate than remedy. In addition to tlio decline in prices of wool, ilioro had been a loss of a million and a half caused to New Zealand by moneys sont away for purchase of Waihi. and. Talisman shares.

. Another well-known authority who insisted that lie had no desire to poso as one, and who refined to allowtliis name to bo .printed—a citizen possessed o'f largo commercial and banking oxporienco—said there wore quito a number of contributory causes, but the principal one was tho expenditure by Government in excess of their borrowing beyond Now Zealand. Then there were the necessities of both small and largo settlers, duo first oi all to expenditure for development of their farms made partly in anticipation of good prices which their products failed to realise. Apart from the fallen prices of sheep and mutton, there was the fact that a largo portion of the woo] clips had been held over, and in the absence of monetary returns the holders had had to 1 draw upon the banks. All the banks doing business in New Zealand had experienced this. The last quarterly returns showed it, and tho next quarter’s* would show it even more cloai’ly. It was nonsense to say the banks bail caused the depression by “pulling dn”; for, so far from that, the advances tliig year had’ boen larger than ever they were. Those people who alleged there had been a corner of the banks to embarrass the Government were speaking foolishly. The; banks had their own interests to look to, and nothing so suicidal as a corner would be even contemplated. While the banks’ advances had been largely increased the deposits had fallen off very considerably. How could it be otherwise, w-lien the wool clips had fallen off 50 per cent, in value by comparison with tho preceding year, and mutton was down proportionately? When the stringency was to “take off” was another matter. To tell that was to •prophesy and everyone knew it was not safe to prophesy. No doubt there would be some improvement when the Government negotiated its next loans; 'tho stringency then would be eased to some extent, and the sale of the wool to be held in London would also contribute, but he did not see .how these factors could make money plentiful, for nearly all that money had boon anticipated already by the loan institutions. Tlio only sure remedy -would bo a recovery of prices; until that happened, people must expect money to remain tight. It coil'd not bo otherwise, for tho fall liad been severe. Over pasturage ge- ' norally tliero was a falling off of 10s per acre last year, and in dairying the loss was £1 per acre. THE MAYOR’S VERDICT.

In four brief sentences the Mayor (the Hon. T. W. Hislop) gave his explanation of the tightness of money. (1.) “The revival of industry, in Australia, especially in the agricultural and pastoral departments, undor which tho demand for capital has very much increased for .improvements of properties. (2.) “The continued demand in New Zealand for money to develop localities and properties. (3.) “Public borrowing on the local market.

(4.) “The difference in our accumulations, arising from the value of exports', especially wool and flix.” The Government, according to the Mayor, lias been slaking its borrowing thirst too much at the local fountains, and has not left enough of the delicious bevorago to satisfy smaller loan-seekers. “I give this opinion tentatively,” said the Mayor. “It seems to me that for a young country we are loaning too muoh on the local market for public borrowing, and though tliero are large contributions given out of the public purse to local people through the various departments, yot the amount of money which is diverted for general Government purposes must be very great. This must necessarily affect the intercolonial as well as the local market. This fact is evidenced by some of the insurance companies which formerly lent large sums privately. They have now taken up Government debentures, and have practically pledged their accumulations for some months to come. “The Savings’ Bank accumulations -have been very large, averaging considerably over £1 per head of New. Zealand’s population. Though some of this money comes back in the shape of loans through the Gvernment departments, some of it has gone in gilt-edged securities in England, and some is used for general purposes. “The demand for money in the various directions indicated, and diminution in the supply, have brought about the present conditions. A CUBE SUGGESTED. “The pure for it, I think,” continued Mr Hislop, “is to steadfastly determine, as far as possible, that the expenditure of capital at the present time should be upon reproductive works, and works which will increase settlement and swell the volume of those products wliich are likely to find a ready and profitable market. In the meantime wo should try to get our money supplies from, the source. London, where dt is -fairly plentiful at present, and so ease the market ° le ’ THE BANKS’ TACTICS. “I don’t feel inclined to join with those who blame the action of the banks in contracting their advances,” concluded Mr Hislop. “Notwithstanding the fict that they have increased their rate for deposits, I understand that the deposits have not materially increased. Though it would be a disastrous ])<>!icy on tlieir part to press for reductions in any unreasonable -way, it would bo wise of them to watch their advances very carefully. They must, like others, feel the effect of alterations arising from the decrease in certain exports, and they must 'act with that consideration in view. Personally, I have not noticed any undue restriction of advances, although a prudent course may make it a Tittle difficult for people, who in time when money was more plentiful had a freer use of it accorded to them. They find now that it is difficult to carry on

in tlio same way as they havo been accustomed to.” _ THIS PRIME MINISTER. Tlie Prime Minister, when asked his opinion on the subject by a “Post” reporter, declined to go unto particulars, but said that from information in his possession ho felt very confident 'th.it at the beginning of November tho supply of money would bo very much greater. Ho know of very largo sums of money that would come into New Zealand from the Old Country, apart altogether from tho fact that largo sums of money would lie returned to tho banks and londing institutions in tho shape of advances which’’Would corno in irom tho country in the ordinary course.

MR JAMES ALLEN’S OPINION. AVhon asked wliat ho thought of tlio situation, Mr James Allen', M.P. for Bruco, stated that ho did not view matters with any apprehension. Undoubtedly there was, and had been for somo time, a shortage in the supply of money. This was duo to various causes. Fjrfst there was the .American crisis,, and somowhat general brado depression; secondly a considerable volume of looal borrowing both by tho Geveriiment and by local bodies, and thirdly the fall in the price of wool and flax. Tho banks had advanced largely on wool shipments, and the returns though in most cases covering the advances loft comparatively little for expenditure or investment; Some banks still had money available for fresh business, but others liad, as a matter of caution, to reduce overdrafts. As. a result the Advances to' Settlors Office had been deluged with application for money and the Government had lent over £900,000 in a short period. But even this had not checked a general rise in interest rates, which makes tho profitable earring on of business more difficult. “Do you think that was an excessive amount?” Mr Allen was asked. “It is certainly a large amount,” lie replied. “But as long as tlio Government exercises care in the advances made the assistance given will have a good effect.” A considerable amount of tho money lent would no ■ doubt find its way to tlio banks to clear off overdrafts, and in this way would circulate in a sort of cycle. AMr Allen is convinced that the' stringency existing at the present time is more keenly felt in the southern perl ion of the North Island than in the .South Island. In the south part of the North Island a great deal of speculation and/fresh settlement had been taking place, but in the South Island the farmer is. mainly content to reside on bis bolding ancl for some years past has been industriously paying off his mortgages. In the opinion of the member for Bruce the remedy for the existing condition of things is natience and prudence. “This latter virtue of prudence is a difficult one to inculcate, and tlie exigencies of a general election seem to have banished any idea of the exercise of such a virtue. Indeed the growing tendency for years past to lean on borrowed money connot be considered other than dangerous. It is no use ‘crying ‘Stinking fish,” but it would be well if wo really believed and practised somo self-i'eliance.