GOLD, PRICES AND DEBTS

Hokitika Guardian, 4 November 1930, Page 2

GOLD, PRICES AND DEBTS

(Wellington Dominion.) The appreciation of gold as shown in tho still rapidly falling level of world prices is disclosing serious strains and stresses in the economic and financial mechanism of the world. If it proceeds much further it may force a reconsideration of certain questions that, before the recent price debacle, were thought settled. Among these a-i’e the German reparation problem, and the European debt to the United -States. There are indications in the news that Germany is preparing to raise again the question of her reparation liability, with a view to its further modification, A recent cablegram also states that the United States Ambassador to France, Mr Walter- E. 3%0, has gone to Washington to make a special report to President Hoover on a tentative proposal that the United States should grant to the European Governments that are its debtors a five years’ moratorium. The broad reason . and basic cause

behind these movements are the same

in principle as that lying; behind the agitation carried on in some, quarters in Australia for a reconsideration of the war debt to Britain. It is plain that this movement lias a considerable body of public opinion behind it. The underlying factor is clearly the effect on public finance in debtor countries of a falling price level; or, in other words, of the appreciation of gold. The present trend of gold values is moving to the point where, with the best will in the world,, some dobtor countries may find the burden intolerable, and not merely difficult.

External debt and the interest- on it are measured in gold, but paid in exported commodities. The problem of the debtor country is to export goods, turn them into gold values in the world market, and apply the realised proceeds in settlement of interest. As prices fall gold values remain the same, but represent an increasing volume of exportable commodities. This means that the effective interest rate rises beyond the nominal rate originally contracted for.

In the case of the United States and its debtors the position is -somewhat complicated by the American tariff arid banking policy. There is no doubt that the policy of the Federal Reserve -System in sterilising r portion -of accruing gold supplies i contributing to the appreciation o’ gold, and to the additional burden on the debtors of the United States. Or. the other hand the American tariff policy is making it increasingly difficult for debtors to pay in goods at all, and there is no other practicable medium in which international debts can he finally discharged.

America is both making the burden of her debtors heavier by artificially moron;iiig the value of the world unit in which debts are measured.

and also by her tariff policy making it equally difficult to pay at all. II she brings down the whole apparatus of debt payment with a crash she will not only be the chief sufferer, but will also have the doubtful consolation that she is herself mainly responsible for the collapse.