WELLINGTON NEWS

Hokitika Guardian, 7 January 1930, Page 3

WELLINGTON NEWS

A STRENUOUS TIME. (Special Correspondent ) WELLINGTON, January 4. It is perhaps too soon to indulge in forecasts respecting the year that has just begun, but there are certain factors which give indications that may he noted. There every prospect that the Bank of England discount rate will be reduced from 5J to 5 per cent., if that movement has not already been recorded by the time these lilies appear in print. The New York money market has dominated the position hut since the break on the Wall Street Stock Exchange funds have been returning to London, the dollar exchange has been against New York, and London has been recovering some of the lost gold. This means that the position off the Bank of England has been greatly strengthened and as there are no disturbing factors visible, the Bank will be fully justified in making money cheap. The cheapening of money will be advantageous to British trade.

The purchasing power in practically every country, not excluding America, is now considerably restricted owing to the fall in the prices of commodities, and therefore to bring about an expansion of trade prices of commodities must be reduced, and such reduction would be possible only by reducing costs of production. New Zealand and Australia because of the smaller income due to us from the sale of our primary products will have less money to spend on imported goods, and consequently general trade will be, had comparatively speaking; Mr J. B. Bridges, sometime Professor of Economics at the University of Tasmania, recently wrote on this subject. While his remarks refer directly to Australia they have an interest for us for our economic conditions are , somewhat similar to those of Australia. He writes; “Since it has become evident that Australia is about to suffer a drop of at least £30,000,000 in its income from abroad, developments have proceeded rapidly. Our credits have shrunk in London to such an extent that large exports of gold are becoming necessary. This - is due chiefly to the fact that .although imports have been substantially reduced, they have not been reduced quickly enough. An export of gold is natural in the circumstances, but is is only a temporary condition. The natural check to such a movement is a rise in the rate of interest, which in any case is a better procedure than the rationing of credit, being forced upon the banks because of reduced deposits. Such an increase would be a disadvan-tage-to the banks as well as .to their customers, but if it became uriavoidable it would be merely a sympton of the depression. Unemployment has already increased because of the shortness of funds for public works, and the position is beebming acute.” I

The position in New Zealand is apparently not quite so bad. We are not likelv to lose so Inr-re a sum as Aus-

•nlia, but the relative loss will be substantial. The balance ol trade is

still in our favour. For the eleven months to the end of November the exports exceeded the imports by £6,199,155, but for the whole year the excess is likely to be very much smaller. There are two factors to be taken into account and these are that exports ar» falling and imports increasing. For the eleven months imports increased by £350,081, while exports decreased by £792,290. The expansion in the imports has caused bank advances to increase and the ratios of bank advances to deposits was at the end of October over per cent., and to check imports the banks, as is well known, raised their exchange rates, that is the selling rates on London. Australia has felt the position earlier than New Zealand, because the export season is earlier. A certain amount of gold, about £500,000' has already been sent from N.Z., and unemployment is with us and is acute. With a reduced income we must spend less, that is we must economise, while there is scope for economy in many directions, there is one direction in which economy will be impossible, that is respect o ftaxes and rates. The burden placed upon us through the lavish expenditure of borrowed money in the past will be-severely felt, and it would not be suprising if there is a long and sustained demand for economy in government and municipal administration.

At the same time it is difficult to see how any very great economies can be effected by the Government. Professor Bridges says: “It is sometimes suggested that we should abandon voluntarily the borrowing of monies abroad and borrow in Australia, and we should be able thereby to produce the goods in Australia that have been imported in consequence of the loans. We might do well to borrow less and depend more on our own resources, but the fact that we are now being compelled to do this is partly responsible for our present trouble. Borrowing abroad brings other people’s income into Australia the saving from production elsewhere. We have been living partly on the income and we could not borrow it in Australia. The income available for local borrowing has shrunk because of reduced wool prices, wheat harvests and other local conditions. If we are to abandon overseas borrowing we must live on less. We might very well do this until the present public investments should become more productive, but the experience would be a hard one.” There is very little money in Australia, that the Commonwealth Government can borrow and that has been proved by the flotation of the last loan. According to the Professor ‘ The problem