WELLINGTON NEWS

Hokitika Guardian, 2 April 1929, Page 3

WELLINGTON NEWS

IS A CRISIS PKxNDIMG. (Special Correspondent.) WELLINGTON, March 30. Sir George Pnisli, who is in the front of economists, and whoso opinions are invariably treated witif respect, ventured the olier day in an address at Manchester, to predict that a financial crisis of some magnitude is pending and that the upheaval would occur during the European spring. Some of the big London dailies ridiculed the statement of Sir George, but more recent events appears to* Justify his prediction. The storm centre is undoubtedly in New York, or to be more definite in the Wall Street Stock Exchange. For months a wild gamble in shares has been going on with occasional violent breaks from which the market quickly recovered, and the speculation continued with added zest. The Reserve Board is said to have lost control of the situation. Thero are twelve Reserve Banks, with the Reserve Board at Washington in control. The whole trouble arose from the fact that loans to Stock Exchange brokers, that is call money, is very much in excess of what is considered normal, and is impinging on credit required for the trade of the country. Call money rates have advanced again and last week as high as 14 per cent, which is very nearly a record which is an indication that the end is approaching. The Reserve Board has done a good many things to stop the speculation. It has issued numerous warnings, it has held meetings supposed to have a psychological effect but still the speculation has continued.

In Wall St ret itself it is felt that conditions will run their course regardless of any action that may be taken. The stock market is being supported by individuals and corporations. The influence of investment trusts in sustaining the market at present high levels is very great. By this method stocks are purchased and withdrawn from the market, creating a scarcity which tends to keep prices high. Business on the Stock Exchange has been little hurt, although commercial rates have been rising. The Federal Beserve lias repeatedly issued warnings, frightening holders of stock into selling, only for such frightened holders to see stocks selling higher. The speculators believe that they are living in a new era, in which the class of economics are suspended, in which all financial records are broken, and in which an indefinite continuance of the breaking of financial records may be confidently looked forward. There was a somewhat similar new era with somewhat similar beliefs in the middle of the nineties. This new era continued until the financial crisis of 1907 when banks all over tbe United States were bowled over like nine-pins. Veterans will remember that this crisis had a world-wide influence was was felt in New Zealand in 1908 when there was a rather severe depression. Mr Benjamin Anderson, a lending economist o/ the United States, recently stated that the present new era, loginning in 1921 has been due to an abnormal concentration of gold in the United States alone. Gold, though super-abundant in the United States, is scarce in the world outside. The present new era has seen a good deal of distress, which accounts for the persistent demands of the American farmers for further protection. . Mr Benjamin Anderson says: “New eras spread their force and things become humdrum again. We do not, in in a growing country like tbe United States, cease to make a normal increase in tbe voluble of production and business activity, but we do cease to break financial records for a while, and we have our problems of liquidation and readjustment wlien we correct our misconceptions, revise our plans and consolidate our position.” In effect this means that the so-called era will collapse as did tbe previous one which ended in the crisis of 1907. The physical volume of production continued to move upwards, but the rate of growth in such things is stock exchange prices, prices of stock exchange seats, stock and bond collateral loans etc. slowed down a great deal, and some of them actually declined. This new era, Mr Anderson contends is not so very new in principle, “like causes .produce like results. excessive gold and excessive bank reserves generate bank expansion, and bank expansion running in excess of commercial needs will overflow into capital uses and speculative employments.” When the crisis comes, as it must, it will be staggering to the old world and tbe new.