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Hokitika Guardian, 12 April 1922, Page 2

The dearness of money just now is the subject of a good deal of comment. Speaking to a high banking authority tlie other day a Timaru “ Lost ” iepre. sentative inquired as to the likelihood of a fall in the overdraft rates of interest in conformity with the easier tone of the money market in London. The banker replied that the Government had fixed the rate of interest in the Mortgage Moratorium Act at 6f polecat for three years and this rate of interest carried with it first-class security. ()n the other hand, hanks lent a large portion of their money without security, and therefore he thought they were fully entitled under the circumstances to get a half to one per cent more than the secured lender. He further stated that the banks in this country had ample use for all the funds at their command. The indications, therefore, were that there was no immediate prospect of rates of interest falling. It would appear therefore that the high rate at which bank overdrafts stand, is attributable to the Government action. The old policy of cheap money has gone by the board, another reason for regret that a Liberal financier is not at the helm. The latest Government action indicated in the provisions of the Local Bodies !<'»_ nance Act, will also have an lindniabl tendency to firm lending rates. Local bodies are now going on the market seeking money to pay off their own overdrafts. This is going to strain the money market quite unduly and will tend to keep up rates or interest. The days of cheap money are far distant unless the country sends intv power a government which will recast the financial policy of the Dominion. The present trend of legislation is all in favor of the lending institutions, but it would appear if the Government has the power as exercised already to fix interest retes under the Mortgage Mora, torium Act, they have equal power to fix rates of interest for local bodies.

Local body indebtedness is not handled as effectively as it .should b e - At present the local bodies go on the money markets In a go as you please manner and are competitors with the Government for the cheapest money available. The local bodies have loans now of fully twenty five million, whereof seventeen have been raised in Now Zealand. The interest payments run into a million and a quarter, and the average rate of interest, up to 1920 was slightly over 4$ per cent. Up to 1920, the rate of interest ranged from under 4 per cent to 6J per cent, hut of late the rate has mounted up. In several cases there have beep Goyeminent guarantees behind these local body loans, hut th e Government has now ceased to guarantee being advised that the guarantee was impairing the prospects of the coming New Zealand loan on the London market, There is no doubt that under a regulated system of guarantee by t*‘e Government, the local bodies could secure cheaper money. Apart from the

large sum now required to pay off overdrafts and deposits with local bodies, a larger sum is required for public works by local bodies. It would be an advantage if the Government were to extend in a radical way the advances to local authorities, so that the latter might have the advantage of cheap money, and not he competing with one another, or be in opposition to the State on the money market, In the past ten years the Government has loaned iess than four millions to the local bodies and the

profit and loss account shows a cr e dit of over £25.000 with £33,000 cash in hand. The repayments in the period have been £400,000. It would be a profitable business all round if Government controlled both the borrowing and lending markets for local body loans. Great economies could be made every year.