WELLINGTON NEWS

Hokitika Guardian, 25 November 1929, Page 3

WELLINGTON NEWS

CHEAPER MONEY

(Special Correspondent.;

WELLINGTON, Nov. 22

The Federal Bank of New York having reduced its rediscount rate Ironi 0 to 5 per cent'and again to 4-} per cent must result in the Bank of England reducing its rate, and the reduction to ok per cent if not already made will be made very soon. The London rate was raised to the high level of Gj- per cent in order to /protect the nation’s reserve of gold which was being raided by foreign countries particularly iby France and the. United States. Gold movements only take place when the foreign exchange raxes are against London. By advancing the rate the export of gold was checked, and the exchanges now favour London and the Bank of England will thus be able, to replenish its gold reserve Iby buying up the new gold from South Africa.

The !rapid reduction of the New York rate was rendered unavoidable when the intxiey market secured a strangle-hold of the share or stock market, and hurst up all notions 61 a new era in finance. Immediately after the collapse in Wall Street call money was scaled down to 5 per cent, and this drop was due to the lessened demand for short credit and there was no necessity for the Federal Reserve Bank to maintain a high discount rate. Another iactor that helped to bring about a reduction in money rates has Been the fact that there has been a slowing down of business. For a long time the Stock market has ignored high money rates but more recently it became evident that high money has been having a cumulative unfavourable influence on general 'business. The building trade is more dependent than any other basic industry on time money, and it had been evident throughout the year that it had slowed down through high money. Industry as a whole in the. U.S. reported high record earnings for the first half of the year, but recently the signs have multiplied that the slov ing down in the building trade has hat. an lunfavourable influence on the motor industry,, and the slacking in these two ill turn influencing the steel trade. Now it is being, realised that mass production can cause trouble. Mass production . was useful and effective so long as there was a market for the production, and this market yvas obtained largely by creating buying power based on instalment selling 5 . That ->vorked. sq long as, mass production meant lower costs. •With the slowing down first in the building industry, then in the motor trade, then in steel, it has not been so easy to sell goods even on the instalment plan. So far general trade has not felt this slowing down, but that seems inevitable. The .lowering of the Now York rate is obviously intended to help general trade but whether that will ho achieved remains to hovseen. Confidence has been badly shattered, losses have been extraordinarily heavy and it will take some time to recover from this. In the meanwhile goods will bank up unless. there is a very considerable slowing down in mass production. Generally it seems that America must call a'halt to .the ever .increasing prosp^nty,.'There will be some big and complicated problems for the United States to solve, and while that is being undertaken Britain should get the, opportunity of recovering the lost markets.

AMERICA AND WOOL. America has been buying merino wool in Australia and has raised the hopes of wool men .in the Common-, wealth. For some years the use of wool in the United States declined. This year it increased, consumption for the seven months .ending July being 297,000,0001b5, an increase of 15 per cent compared with the same months of 1928. Imported wools showed the greatest gains in consumption, the quantity used in the period mentioned showing a rise of 50 per cent on the previous year’s figures. It is the finest freest merino wool which has recently been bought in Australia for the,United States. Maybe the more moderate cost of fine wool is encouraging manufacturers to tempt the wealthier women folk of America to wear light weight high class woollen fabrics in place of the silk they have favoured for some time.

•Such a development would only be a case of history repeating itself. Silken wear originally was the privilege of moneyed people. Artificial silk has brought practically similar fabrics within the reach of the masses. The popularity of any apparel is its death warrant as far as fashion is concerned. Exclusiveness is the cradle of fashion and it looks possible that the desire to be different on the part of the “Upper ten or five hundred” or whatever phrase may cover select American circles will lead to a revival of demand in that direction for choice Australian merino wool. That inquiry some years ago was a regular feature of Australian sales. In the season of 1925-26 America took 71 ,r<2 bales of Australian merino wool, but in the past the quantity fell to 23,226 ■bales. With the merino production of wool ill the United States it is unlikely that American purchases will again mount to high levels, but there should be some increase on the past two years. • • t, «r-