CHOKED WITH FUNDS

Hokitika Guardian, 27 November 1930, Page 2

CHOKED WITH FUNDS

LOW MONEY RATES IN LONDON. In contradistinction to the high discount rates and stringest monetary position which prevailed right into the autumn of last year, unusually low money rates have characterised 1930, says the “Economist,” in a review of the English banking position. Indeed, there has been a plethora of short money, not only in London, but in New York, Paris, and other cen-

tres. The causes of this are not far to seek. A year ago, almost to the day, the Hatry crisis m London and the collapse on Wall Street shook confidence throughout the world qnd precipitated the headlong fall in commodity prices for which the ground had already been prepared by the gold absorptions of France and the United Stat?s. Confidence suffered a shock, and ns each month witnessed a further fall in the world price-level, enterprise disappeared, trade dwindled away and unemployment became more and more intense.

Unemployment affects money ns wel 1 as labour. Thus the nine English clearing banks’ advances which had jpreviously risen from £023 millions at the beginning of 1028 to the peak of £9BB millions in April, 1920, had byAugust Inst fallen to £034 milions. During this latter period, deposits with the exception of one or two- isolated months, only fluctuated within narrow limits, and thus the contraction advances threw money back upon the banks’ hands, and so into the monev market.. Again depressed trade and lower commodity prices combined to, reduce the total volume of commercial bills coming forward for discount. Thus it is not surprising that as 1930 progressed the London discount market found itself choked with funds find, starved of bills, while the hanks in their turn had to invest money, which normally would have been put to other and more remunerative uses in financing industrial and Stock Exchange operations, in Treasury bills and in gilt-edged stock. During 1930 to date the clearing banks’ bill portfolios have swollen in the aggregate from £243 to £279 millions, and their investments (including those in affiliated and sub*, sidiary banks) from £260 to £27G millions.

The effect of these developments upon money rates, both in London and elsewhere, was very marked. At the beginning of 1930, bank rate in London was 5 per cent.,, and the market rate for three months’ bank bills 4 5-16 per cent. By May, bank rate had been reduced to 3 per cent., at which level it has since remained, while by the end of September, market rate was barely 2 per cent. Rates were just as low elsewhere—in New York, for example, at the end of September, the rediscount rate was 2-J per cent, call rate 2 per cent., and the discount rate of 90 days bank acceptances also 2 per cent.—and until trade .revives, and short money can find its normal employment, rates cannot be expected to improve, ,