WELLINGTON NEWS

Hokitika Guardian, 13 November 1929, Page 5

WELLINGTON NEWS

AUSTRALIA’S HARD TIMES

(Special Correspondent.)

WELLINGTON, November ,12

For a considerable tune the Commonwealth lias been living on money borrowed lavishly at home and abroad, aim expended extravagantly so that it cannot understand the present position. Neither the Commonwealth nor the States can borrow in London or New York, and recourse has been had to the issue of Treasury hills and obtaining overdrafts from hanks. New South Wales is or was paying 6] per cent to the Westminster Bank on overdraft account. Good seasons and high prices have combined with extensive borrowing to postpone if or Australia the inevitable post-war financial adjustment.

Instead of making use of the opportunity of putting its financial house in order, it has been made a time of overborrowing and over-spending. This is where the time serving politician has got in his work and he lias worked overtime on the job. For the misuse of opportunity all classes are to blame, and all classes must pay. The Labour Government is not to be envied its task. Tile gravity of the situation is such that all classes must assist the Government in restoring the economic structure, for the trouble in Australia to-day is economic and not political, and unfortunately the remedies must be applied by politicians who have a greater regard for votes than the welfare of the country. Whatever the Labour Government does must cause hardship. If it curtails expenditure on public works and reduces administrative costs it will create unemployment, and if it increases taxation it will cause industry to curtail operations and reduce staffs, so that whatever the Government does must lead to unemployment and hardships of an extreme character. And yet this hardship must he ensured, for the Commonwealth must curtail the expenditure of borrowed money and impose additional taxation. A nation like the individual must pay for extravagant and riotous living.

The Commonwealth Government is issuing a five-year loan in Australia for £10,000,000 bearing interest at 5] per cent per annum. But the loan is being issued at a discount of 2 per cent, that is for every £9B lent to the Government the lender will receive £5 5s in interest and at the end of the term, 1934, he will be paid £IOO for his £9B, so that the return on the investment is more than 5] per rent. The country will no doubt find the money, hut if too large an amount is obtained from the banks the trade and commerce of the country will he very much handicapped. The immediate effects of the Australian position is that the share market is irregular. Shares that are listed on the Inter-State exchanges are quoted at varying prices, and those shares showing a relatively small return are being sacrificed and the money re-in-vested in other securities returning a better rate of interest on capital.

The “Journal of Commerce,” Melbourne, in seeking a reason for the state of depression which has characterised the market recently, says it is necessary to nvestigate the general economic situation, and the Journal adds that the most important factors are: (a) The indications that we must expect a much smaller wooT cheque foi the season. It has been estimated that this will he less than last year by £15,01)0,090 (h) Owing to an increase in the ratio of bank advances to deposits banking funds are limited, consequently monetary contingents are stringent, (c) A decrease in Government loan expenditure which means less purchasing power in the hands of the people, less sales by retailers, less orders by manufacturers and consequently the possibility of smaller profits for many listed companies, (cl) Tjhe unsettled industrial conditions aggravated by the continued coal dispute. (e) The upward trend of interest rates coupled with the big loan conversions falling due next year. Th has a tendency to depress the present value of fixed interest-bearing securities such as Government bonds, (f) Tne state of international finance, (g) The state of Government finance and the possibility of increased taxation. The conditions in Australia are decidedly bad and cannot be improved by the Federal Government mopping up £10,000,000 of local money. New Zealand is a great deal better off in comparison. The wool and meat cheques will he less than last year, hut against that the Government is spending borrowed money rather freely and that should help to maintain the purchasing power. Money rates, however, are hound to advance in sympathy with Australia, for if they fail to do so there will be a migration of capital to Australia to take advantage of the beiter returns to be obtained there which would make inroads on hank money in the Dominion, and the banks would then be obliged to Vni c e the rates. Bankers are no doubt keeping a very close watch on the monetary movements on the other side, and jt would not Ire surprising if rates here do go up. The Labour Government in Australia may make use l of the Commonwealth Bank and insist on its issuing notes in accordance with the legal cover. The Bank must cover its note issue to the extent of 25 per cent, in gold. At present the metal reserve is 40 per cent, so that there is ample margin for note expansion.