WELLINGTON NEWS

Hokitika Guardian, 3 February 1931, Page 2

WELLINGTON NEWS

I»A BA L LED D EPP ESS rON. (Special Correspondent.) WELLINGTON, (February 1. How long the present depression will last is viewed variously in other countries, and has scarcely received any consideration in Australia or New Zealand tor the very good reason that we are suffering too greatly at the present time. In the United States there exists the opinion that the beginning ol recovery will be noticeable in A lay, but that the recovery will be very slow. American forecasts must be accepted for what they are worth for they have been at fault almost on every occasion. The duration of the present depression is beyond the ability of any man to predict, but it can safely be said that it will hold for some time although the basis of recovery is now being paid. The nearest- or the closest- parallel wo have to the present depression is the out* we had in the early nineties of J ,l/o last centurv.

That earlier depression was due to what is known as the Baring crisis. This great banking firm became tangled with foreign securities but eventually the tangle was unravelled, the Bank of England taking a prominent part in straightening out matters. How severe this crisis was may he judged from the fact that it was reported then that the late W, H. Smith, who was n- member of the British Cabinet, offered to contribute £IOO,OOO of ills private fortune to avert the crisis. The Baring crisis occurred in the autumn of 1890, and the Bank of England discount rate, which has been

’S *° r years the world’s barometer, finang oinlly, was on November 7th., 1890, a ( j Friday, raised to 0 per cent. rt is significant that this change was made on it Friday for it is usual ro alter the rate on it Thursday when the “Governor and Court” of the Bank of England meet. But that high rate was not maintained very Jong, for by tlie end of January in the following year it was down to 3 per cent. But this did not mean that confidence had been restored, on the contrary, theriwas a great lack of confidence. The Bank rate oscillated between 4 per cent and 2 per cent, still the needed ! confidence was wanting. There was no demand for credit, for credit could not, he used profitably. Eventually, on February 22, 1894, the Bank was reduced to 2 per cent per annum, and from that date until .September 10. 1896, that is for a. period of over 31 months, that low rate was continued. That crisis was not felt- out here in its full severity until 1894. and those amongst us old enough to recollect some of the events of that dreadful period will recall the drastic effects. Many hanks in Australia closed their, doors, there was a considerable amount of unemployment and soup kitchens had to he established to prevent actual starvation. Commodity prices were very low, much lower that they are now. yet we pulled through, and from 1897 there was a set in of prosperity that was not disturbed until 1908 when the banking crisis in the United States upset things. Not only did we have a 2 per cent Bank rate during that crisis, hut the lack of confidence was so pronounced flint gilt-edged securities ascended to giddy heights. The 3 per cent British Consols were selling then as High ns £ll3 and seven-eights. What was happening then whs that money was being held and the hanks had so' much credit available that they did not know what to do with it. Money was exceedingly cheap because there were no borrowers or if there were many they could not furnish adequate and acceptable semirity. In that period of depression the foundation was bc:n..-. m>-. ,-ecoverv, and that foundation v. a tbr abundance of cheap money. Tbo mors of this money had to find nays and means of making use of the funds, and gradually confidence began to germinate and the swing of the pendulum was towards prosperity, j That depression took fully six years | to show signs of lifting and many mistakes of the past had to he corrected, nnd many sacrifices made to bring about the change. The present depression shows some symptoms ot ! that earlier depression. The present j one is the outcome of the collapse of ] tbp New York Stock Exchange. High Bank rate has given place to the low rate of 3 per cent which was imposed ) on May 1, 1930, and still holds. There j is an obvious lack of confidence j throughout the world, and efforts are j, being made to correct the errors of the boom period the chief of which has | been extravagance. Money is chono in the principal monetary centres and is y likely to remain cheap for some tune, g

Tints the basis for recovery and ult.rnaio, prosperity is now laid, but it will be years, perhaps five or six, before we reveal in prosperity. We have a great deal to do. FLIGHT OF CAPITAL. WELLINGTON, Febi 'uarv 1. A prominent business man was heard to say the other day that after reading his daily paper be found it very difficult to maintain the optimism that lie has endeavoured to cultivate, because day after day the commercial and financial news Is most depressing. Exchange rates keep on ascending, and produce prices keep on descending and the unemployed continue to increase. The exchange position is certainly very distracting and hard to

i’olfow. Our exchange rates are affected by Australian conditions. There is an obvious flight of capital from Australia, and those- desirous of moving their money out of the country are almost ready to pay any price for the chance of doing so. 'Flic exchange rate in Australia and London was raised a few days ago to £125, that is to say a man in Sydney wishing to obtain £10!) in London would have to pay £125 in Australia for £IOO in Hritiish notes. Now the hanks are charging ,£lco 10s in Australian notes for £IOO in London, and if is explained that the movement is merely an adjustment to bring the rates in line with quotations in the outside market. This development affords an indication of the extent to which the exchange business is going past the banks. The banks are being blamed for putting up the exchange rates while all the time it is the outside exchange brokers who are forcing up the rates.

Australian capital is scared and appears to have every reason for flight, and it is doubtful if even the present high rates will stop the flight of capital ; and the capital is not particular where it goes so long as it can find a temporary refuge. Because of tin's there have been strong efforts made to exchange Australian pounds into New Zealand money, partly for the sake of temporary safety and partly for the purpose of buying exchange on London through the banks if possible, if not in the open market. An Australian desiring to obtain £IOO in New Zealand must now pay £l2l in Australian money. Capita! is destitute and is extremely anxious to get out of Australia. The exchange rate of £l5O Australian money for iGIOO British money Is not likely, nor is a rate of £l4O Australian money for £IOO New Zealand money an impossibility,

So long as there are people in Australia anxious to transfer their funds out of the Commonwealth there is no knowing to what heights exchange rates may go. The banks have no control over the exchange rates neither have they the monopoly over the exchange business. Jn any case with the fall in the price of export products Australian and New Zealand funds in London and elsewhere have been diminishing and that in itself would have been sufficient- to cause rates to advance, hut the flight of Australian capital has complicated the matter. Exporters, or a good many of them, are doing their own exchange business which means that the banks are not getting it. Confidence in Australian securities and Australian bank notes are at a very low ebb, and it is a question as to what extent the Federal Government is risponsible for allowing matters to drift. Sir Otto Neimeyer told Australia exactly what she muflt do, and the consequences if she failed to follow the course mapped out for her. The nebulous thing known as the standard of living has stood in the way. Australia is to-day bankrupt, her pound note is not worth more than 15s fid in British money, and it is on the cards that she may have to seek a moratorium. The New Zealand authorities have an object lesson in Australia. There has been a certain amount of drift in New Zealand, hut allowance has had to he mnde for that owing to tlpv absence of the Prime Minister from the Dominion. Our position is being examined by Uh; Ministers and it is to be hoped that they will come to a correct decision. Our troubles are economic, and not political, therefore drastic economic remedies must he applied and not political poultices. Ope thine is certain and that is,the whole community must make sacrifices for the welfare of the whole.