WELLINGTON NEWS

Hokitika Guardian, 18 January 1929, Page 2

WELLINGTON NEWS

ECONOMIC CONDITIONS TO-DAY. s> [Special To The Guardian.] WELLINGTON, January 16. The banking returns which were published in the Metropolitan newspapers last week have no doubt caused a wave of optimism to how over the country and this, optimism is well warranted for the economic conditions of to-day are very good. The outstanding features of the returns for the past quarter is the abnormal growth of the fixed deposits. For several years past these have expanded naturally, that is the increase each year has befen a million sterling or more, but this time the fixed deposits show the phenomenal increase of £5,218,536, while the free deposits or current account balances have increased by only £741,413. As already stated the fixed deposits have grown steadily each year with the extraordinary growth in the year under review, but the free deposits show an increase for the first time in three years. It is unnecessary to distinguish between the.two classes of deposits to appreciate the position. Fixed deposits so far as the owners of the money are concerned are frozen assets, for the money is lent to the banks for fixed periods and cannot be used by the owners until expiry of the periods. The free deposits or current account balances are available for immediate use by the owners, for they can withdraw their funds from the bank by cheque. When free deposits expand it shows that the owners of free deposits intend to use their funds and therefore keep them liquid. Usually the free deposits exceed the fixed deposits—they did so in the past, and for the December quarter of 1926, the free deposits amounted to £23.121,103, and the fixed deposits to £21,105,547, that is the free deposits amounted to £22,179,748, a decrease of about a million as compared with 1926. Why is this so? The growth of the fixed deposits by over £8,000.000 in two years reflects a mass opinion or sentiment and the basic reason of the enormous growth of fixed deposits is want of confidence. Last year and the year before the owners of money were apparently too, afraid to make use of it and preferred - to'lend to the banks at a. small rate of interest because such funds would be safe with the banks. It is not too much to say that had confidence existed there would not have been an unemployment problem. The country has not been using its surplus capital, as it should have been used m the development of the resources. It may be argued that the. banks will, make use of the money entrusted to them, and ho doubt they, will for that is their business. It is« apparent however that the banks cannot find full use for all the funds. In the Decembei* quarter of 1926 the banks had out in advances and discounts a round sum of £51,000,000, and in the bank returns just published the advances have fallen to £48,000,000. The position is that the banks hold about £7,000,000 more in free and fixed deposits than in 1926, while their advances have fallen by £3,000,000. Money is in plentiful supply in the Dominion, but a plentiful supply of money if not used or cannot be used is no gain to the country. But of course such a state of affairs cannot continue indefinitely or even for very long. Today there are more lenders than borrowers, that is disclosed by the hank returns, and that being so, lenders, to get their money out must offer some inducement to borrowers to come along, and so it is evident that, bar outside influences, money should become cheaper. But before all else confidence must exist. Confidence is a blend of optimism and prudence, but at the moment prudence is paraded and optimism neglected. According to one authority, capitalists, mindful of the difficulty that followed the after-war boom, were still wary of investing in anything but gilt-edged securities. So great had been the demand for these, and so costly had they become, that the return from them now offered very little margin over bank deposit rates. ]n some cases it was lower. This merely emphasises the fact that prudence has been carried too far and requires to be tempted with a little optimism, and until this happens there will not be much improvement in trade, commerce, and industry. It is absurd to say that only stock exchange securities are available for investment, although at the moment that is the •opinion of the capitalist, consequently the values of the so-called gilt-edged securities are inflated. How far the Government can help in restoring confidence is quite another subject.