The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY; NOV. 8th. 1980.

Hokitika Guardian, 8 November 1930, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times. SATURDAY; NOV. Bth. 1980.

GOLD AND CREDIT. In the previous issue there was a reierenco to gold and prices as analysed by a New York ,financial journal. Pursuing the question further, the paper comments on gold and credit, remarking that the large accumulations of gold in New York and Paris, since 1914 have resulted from abnormal conditions having their origin in the war. In this sense it is a maldistribution of gold. The two countries have more than they can advantageously use and other countries have less than they might advantageously use. iln the United States the additions to the; bank reserves furnished the base of the great speculation in stocks, and to a great extent the new supplier of credit were absorbed in this manner. Few persons will now dispute the proposition that the country would have been better off with less gold and less available credit. The old story of credit inflation has been repeated onco more, but this time based upon gold and seen in shocks rather than commoditigs. Real estate has had a. share. The present distribution of gold therefore, is something for which nobody can be said to be responsible, except as some, body may .be responsible for the war. The situation cannot be changed rapidly, for it may be questioned whether in proportion to the share of the world’s business done in the United States and the amount of bank credit outstanding here, the gold reserves ot this country are any larger than those of other countries. It hardly can be doubted, however, that, with the present banking organisation and a normal use of credit, the business of this country could be handled efficiently, safely and without any pressure upon

prices, with very much smaller gold reserves. Anyway, it is safe to say that the normal growth of industry, trade and general business will not require more gold, on net balance’, for a good many yeans to come. This, however, does not signify that more may mot come. The distribution of gold, however, is not controlled by any authority. It is not a governmental function, or controlled by the banks. The currents of trade and finance which are set in motion by private enterprise, control distribution. In the years when we were buying foreign securities freely gold irrjiortations ceased or fell off and when we ceased to buy foreign securitiils gold imports were resumed, but foreign securities are sold to the investing public. International trade and financial dealings tend to settle themselves, with’ moderate movements of gold back and forth to settle balances. Economic conditions of themselves tend to maintain an equilibrium, and the central banks which head the banking systems of the several countries, bv changes in their discount rates, tend to adjust- the volume of credit to economic conditions and thus restrict the gold movements All countries are interested in maintaining the stability of economic conditions. Large movements of gold disturb credit conditions both in the countries from whence they are taken and the countries to which they are transferred. Goods, services and securities should practically balance out and in from year to year, and with a growing volume of internationally known securities regularly bought and sold in all markets, arid readily moving from one to another, the necessity of large gold movements ternlte to bo further reduced. This tendency to settle the exchanges of the world by tlie clearing process which already lias been carried so far in both do-, mestio and foreign trade, means diminishing demands upon gold .reserves and a* possibility of reducing the reserve percentages which in the past have b®en thought necessary. On the other hand, \yhilo this is the normal tendency in international intercourse, abnormal events, such as war, with the sudden creation of great international debts, or legislation affecting trade, may disturb the world

equilibrium and cause gold movements which affect the state of credit everywhere;. If in our rjtoroouriJ'' with the world we insist upon policies which will give a continuing balance of payments in our favour, we will either get more gold, lose trade, or be obliged to lend abroad to furnish the means of settlement. Somehow the balances must be settled. If we have or get, more than our share of the world’s gold, world trade will suffer, as it is suffering now, and we will have our share of the suffering. It is obvious that a maldistribution of gold will have the same effects in the countries which fail to get their proper share as a shortage in the world supply, nnd as these countries experience the ill effects, and are 'limited in 'purchasing power, other countries will he affected also.