WORLD DEPRESSION

Hokitika Guardian, 24 January 1931, Page 6

WORLD DEPRESSION

CAUSES TRACED BACK

HOW AUSTRALIA SUFFERS

The causes of the present worldwide depression are traced in an article .in the “Wild Cat” monthly hack to the immediate post-war period; and tire article then shows how this first cause has come to he father of the evils, which beset the Commonwealth at present.

The event which ushered in the world slump was the collapse ol commodity prices or, what amounts to the same thing, the appreciation in the price of gold, which is the sheet anelioi of the world’s currencies. The results threaten to shake the very foundations of society. It is neeessaiy, theiefore, to look at the basic causes, so that we may approach the problems of the new year with a confidence ■born of understanding.

EUROPE COULD NOT PRODUCE

“The trouble began from the war, which prevented Europe from producing a surplus of capital goods. Her production and trade was further affected by post-war political and social disturbances and instability ot exchange rates and prices arising from unbalanced budgets and excessive note issues (as in Germany). In 1920 the Brussels Conference recognised the necessity, as a preliminary to the restoration of stable world-trade conditions, for the devaluation of many currencies. The first essential in this direction was that the inflation of credit and currencies should 1* stopped. Circumstances ultimately compelled those who paid no heed to the warning, t>ut continued along " hat looked the easy path, to decide upon a new 'monetary unit' at the old money par and in some cases to establish a fixed ratio between the new and the old ’ unit. Thus were citizens robbed of their savings, or a substantial part of their savings, largely for the purpose of financing budget deficits.

CURRENCY CATASTROPHES

\ “Following these currency catastropheSj which were attended by an almost total loss of credit for the countries concerned, came the general return to the gold standard about five years ago, notwithstanding the supplies of metal in the hands ot ready sellers were inadequate for the needs of the moment. All this produced nervousness, especially on the part ot the central banks, which resulted in further credit restrictions.

"The post-war reconstruction, the rapid development of the time payment system, Government borrowings and speculative activity, all helped to keep prices up, thus stimulating production and inflating incomes ami profits, despite the action taken by various currency authorities. In this way the value of Australian production as measured by the Common wealth Statistician, which is about two-thirds of the national income, grew from £221,000,000 in 1913 to £453,000,000 for the twelve months to July 30. 1928. Prices, especially for wool and metals, had begun to fall before that, but our (Australian) borrowings and increased production had offset that, The old conditions, however, have gone and are not likely to return.

•Still, there is thus far no- evidence of any attempt to deflate either credit or currency in Australia. Indeed, emitting the Bank of New Zealand, the associated hanks in Australia have increased their advances from 92.5 per cent of the deposits for the June qarter of 1929 to 10t per cent for the September quarter of 1930. Over the same period their, ratio of casli to deposits dropped from 16.4 per cent to 13.5 per cent.

GOLD STANDARD AND STIFFENED

LENDING

The more urgent needs of post-w;u reconstruction having, been satisfied, greatly affected the mining industry—and Europe’s purchasing powed was much impaired by the inevitable consequences of the currency collapses already referred to, and a general stilfening of th© terms of lending which followed the return to the gold standard. Early latst year there was a sharp break in prices for all commodities, and wool, wheat, hides and metal suffered severely. Thus world conditions have caused Australia to suffer sudden and heavy loss of income, which has been reflected first in the export industries, and then in the secondary and distributing trades. This has resulted in a general reduction in the spending power of the community, rapid .growth in unemployment, and immediate deflation of profit and capital values. Ihe Commonwealth position lias been further complicated by lavish Government borrowing, which of recent years has averaged about £30,000,000 annually, and has now completely stopped. Moreover, a larger proportion of our exports is now required to meet overseas debt charges. (Note the l-ec-ent action of the associated Australian banks with regard to th© Australia-En gland exchange rates in this connection.) This is°to say, the money value of our overseas interest bill has risen; at the same time the taxable capacity of the people has been reduced.

to come through the difficult times ahead with a minimum of suffering and loss.

Broadly the two factors which gov ern production are prices and costs. There iA nothing in sight upon whirl .o has© hopes for a recovery of prices. Immediate problems, therolore, arc those which concern costs. Given good management these depend primarily upon internal prices. The overseas interest bill calls for about £30,000,000 annually, and pending adjustment of the trade 'balance, Australia has had to ship over £33,180,000 of gold during the 10 months to October 31st last mainly to meet interest payments. With prices and costs as they are, the present volume of export production is not likely to bo maintained unless the man on the land has adequate relief from his burdens. REDUCTION IN INTEREST. With the shrinking in capital values many have lost part or all of their equity in their property without gaining any relief whatever in respect of interest charges. Unless some solution of this part of the problem is early arrived, at it seems likely that a nuinbci of holdings will fall into the hands of the mortgagees. Only hv the most careful control of this phase of the process of deflation will serious financial disturbances he avoided. One way to relieve the interest pressure, suggested by Professor Copeland, of Melbourne, is to divide the loss of capital value between the owner and the mortgagee. Perhaps a stronger case will he provided by a straight-out reduction in interest.