WELLINGTON NEWS

Hokitika Guardian, 16 August 1929, Page 5

WELLINGTON NEWS

MONEY', CREDIT AND RATES

(Special Correspondent.)

WELLINGTON, August 14,

For a long time the Federal Reserve Board of the United States, lias boon endeavouring to check *he intense gambling that has been m operation on the New York Stock Exchange but with very little success. Towards the end ol' 1927 the Fedeial Reserve Bank of New York reduced its rate to 34 per cent, and tho object of cheapening money was to help Europe to recover and expedite currency deflation. Tim re was thus made available in the United States an abundance of credit, and this credit expansion was much in excess of commercial requirements, and'naturally overflowed into the Stock .markets. That started the speculation in New York which increased in intensity as prices advanced and huge profits were made overnight. The Federal Reserve authoritm--bocame alarmed and raised the rate to 4 per cent, then to 4J per, -enc, and finally 'to 5 per cent. These movements failed to check the latiou which became nation wide, and call money on the New York Stock Exchange fluctuated between Q per cent and 20 per cent. These high rates instead of crippling the speculators rather helped to maintain the fever, for money poured in from all sources including foreign countries to take advantage of the high interest rates. There have been numerous breaks but the speculation soon re ; vived. Thus in February 7 last the Bank of England rate was raised to 54 per cent, there was a' repercussion in New York for the Federal Reserve announces a stringent policy of credit curtailment.

But the slump was only a temporary affair for on March 1 there was what was described as a “Hoover inaugural market,” a sensational “bull”' demonstration .'being staged .with advances in many instances of 15 per cent to 25 per cent. On March 15 there was another sensational rise in share values. On March 25 call money in New York soared to 14 per cent rising to 20 per cent the following day. Tli© Stock Market crumbled under the avalanche of selling orders and sales for the day totalled over seven million shares for the first time in the history of the New York Stock Exchange. Since the call money rates have oscillated between 6 per cent and 15 per cent. On August 1 the rate was 12 per cent.

Now the Federal Reserve Bank of New York has raised it's 'rate to 6 per cent which makes money unusually dear in New York and the rate is 4 per cent above Bank of England rate, and it will be very necessary for business people to keep a very close watch upon the-’ movements. Last year, although t.the : -Bank of England , rate at 4 per aent was 4 per cent below New York it was able to carry on quite easily, indeed the dollar exchange was in favour of London and the Bank was able to strengthen its gold reserve. It is evidently the belief of the Governor of the Bank of England that at present there is no need to ‘alter the rate, but all will depend on the rate of exchange.

On August 9 ' it - ' was 4.85 dollars to the £. The gold point is calculated at 4.84,828 dollars, so that if the rate declines another per cent gold will leave London for New York. The position must be one of extreme anxiety for the central banks -of Europe and particularly the Bank cf England. It is a favourable factor that the bank rate has not gone up notwithstanding the heavy losses of gold by the Bank. Mr Reginald McKenna, Chairman of the Midland Bank, the biggest of the “big five” in Britain, remarked recently that the Bank rates determined within fairly narrow limits the rates for short term money and before the war was generally regarded as a reliable guide to the suitability of existing conditions for making long-term issues. But whatever its validity in pre-war days, it was not now so significant. , For many months past the high call rates in New York had influenced he might say almost dominated — the money market in London and most other important financial centres. In consequence no man careful of his reputation had been willing to venture a prophecy as to monetary conditions even a short time ahead. The unknown factor —the dulraticyn of the American speculative boom—had outweighed all ordinary data on which any judgment could be formed. What the next few, weeks or even days may bring forth it is difficult to “ say but one thing is obvious and that is that monetary conditions in the Northern Hemisphere will be stringent for the remainder of the year. The usual autumn demands will begin next month and as things stand at present, that is if money is cheaper in London than in New York a great deal of the financing will fall upon London but that will be profitable business. What the Bank of England authorities will seek to avoid is raising the> rate and making money dear and thus hindering trade. The Bank however may be forced to take action to protect its gold reserve and those who desire to keep in touch require to keep a close watch on the foreign exchanges. The situation is so uncertain that a little caution will not be amiss.