WELLINGTON NEWS

Hokitika Guardian, 23 May 1931, Page 2

WELLINGTON NEWS

MONEY AND CONFIDENCE <Special Correspondent.) WELLINGTON, .May 21. Eor trade to be active in business and the world enjoying a spell of prosperity money must be in active cii - dilation. 'Money will not circulate freely unless there is confidence, that is confidence in the immediate future. When this confidence exists people spend and lend freely and people are disposed to borrow more freely, because with active trade and brisk business they soe opportunities of usincr borrowed money profitably. There is at-first a- staid level of interest rates, but as the demand for credit increases until borrowers realise that they cannot make a profit, with the use 01 borrowed money. The demand then ceases and there is a tendency for business to. gradually slow down and commodity prices begin a downward move. So long as confidence existed spending and lending existed. The converse is also true. People cannot be expected either to spend or lend freely so long as they lack confidence in the immediate future. That is the position at present, for people are afraid that commodities will witi. ness a further fall in prices and that business will continue sluggish. SpeiiU= ing and lending is curtailed nfld fnOliey is circulating far too slowly which in itself is sufficient, to. account for the fall in prices and depression in trade. When the circulation is sluggish inter' est rates decline, Today money is exceedingly cheap in the chief monetary centres of the world. The.' Bank of England discount rate stands at per cent and there is every probability of it dropping to 2 per cent. In the. period of 1890-96 there was a financial crisis and a trade depression and the Bank of England discount rate . stood at 2 per cent for the long period of 931 days, that is for two years and some months.

The London financial papers nf 1, " period in describing the money market, spoke of money being a drug in

the market

Then as now there was

a complete absence of confidence. To W. ' * ■witness a recovery confluence must be restored in the business world. But confidence is a plant of exceedingly slow growth, and takes years to come to maturity.. In the nineties it .Took about seven years to bring about a revival of trade. The trade depression of to-day is just as severe if, not more : so as the depression of the nineties. The world is more closely knit than it was then, and there is no reason for believing that the present depression Will pass away in less time; These trade depressions follow ti sOmfiwhat similai* course. Because people tvill hot spend or lehd freely money tonds to Accumulate and interest rntoj* decline, So fur as London is concerned money has . not reached its lowest 'level but it, vail net be. long; before it does so. Thd’klow point will have been reached ;."’wh|n the Bank, of England rate “'’"drop! to 2, per cent. The holders of large funds wijl not be content to allow their money to lie idle. They will want their : funds to earn something,

•„ be it ever so little, but their first conr eeriuwill be safety. Hence we are likely to see British Government securities advance, and the Chancellor of the Exchequer will now have an opportunity of funding on a large scale the floating debt, of the country. Giltedged securities will be much favoured by investors and low money rates will be maintained for time, perhaps for close on three years. During that ' period trade will be comparftivelv dull and the world will have to make the adjustments that it has. so far failed to make.

A striking feature of the present depression is that it has carried wholesale prices down far too low, and has left retail prices, Wage's and '• 'costs suspended too far above them. This gulf ha s to be budged, but it is a difficult mattter owing'Kfib the stern reiistancq offered by those interested in maintaining wages and costs at their present comparatively high level. It can be seen, however, that until adjustments are made and the gap is bridged, confidence will be lacking and, as stated -above, the lack of c°nfidence restricts spending and lending, thus causing the circulation of money to become sluggish 'and prolonging trade depression. The economics of the world are in a tangled meßs, some think if the' monetary string is pulled the tangle will be unravelled, while others believe that if the r trade barrier thread. is pulled the tangle will straighten out without trouble.-What-ever is done confidence rnu s t be at the base if success is to be achieved.