WELLINGTON NEWS

Hokitika Guardian, 10 August 1931, Page 3

WELLINGTON NEWS

ECONOMIC HISTORY.

(Special Correspondent.)

WELLINGTON, August 7

In the past few weeks events of an economical character have moved rapidly, history has been made and precedents established, all making towards recovery and the goal of prosperity. It was on June 2 that president Hoover caused world-wide sensation by his riioratorium announcement., He intimated at the time that his' 1 hand was forced owing to the serious financial position of Germany. , Great Britain promptly, agreed to the moratorium for it was partly conforming to the policy enunicated in the “Balfour Note.”

Originally Britain offered to cancel all war debts if the United "States do the same, but Uncle Sam declined arid Britain informed her debtors that she would require them to pay her no more than she had to pay America. The Hoover moratorium was not accepted by France, and eventually the Seven Power Conference was held in London.

The point to be remembered in referenc to this conference is that the United States was represnted by two of her ministers, Mr W. H. Stimson, Secretary of State, and Mr Andrew Mellon, Federal Treasurer. Hitherto the United States has been represented by“observers” even in connection with the League of Nations. The departure from precedent by the United States is therefore very significant. However, the result of the conference was riot of a convincing character, for all that was actually accomplished, according to the cable messages, the granting of credit to Germany for £20,000,000 for three months and sending a commission of eminent bankers to look into aiuj advise her on her banking system.

There is no doubt that Germany is suffering from a very severe financed crisis. When the banks of a country are closed by decree of the Government the position must be very serious and we can grasp the seriousness wh n we realise that'the bank rate in Ber’i ’ arid in Hamburg is 15.'. Such rates spell insolvency. When the war broke out in 1914 the Bank of, Epglaiid rose rafridlv from 3 per cerit.jto‘,lo per cen‘ hrit this latter; rate, Ovvris .maintained for "about two days. >lt Will thus be seen that the-Central BariksWf Con* inental Europe were somwliat justified in becoming serf red. In "this peni they called in their foreign credits, and as the Bank of England is the prbtcipal repository of Europe’s foreign credits, this institution was raided for gold. Between July 15 and July 29, n period of a fortnight,. the. Bank of England was drawn upon for the large sum of £31,956,332, reducing the geld reserve from £163,991,026|( t0 £132,034,694, which is the lowest record, over two years. .The .prevailing economic condition's ddid' not';' warrant such action, it was'LTie result of sheer pan jc, and pa'nics are generated by -loss of confidence. The Bank of England was the butt, of this loss, of confidence or panic, but the Bank met all its obligations alfhouglif' it "‘was somewhat fin ancially prostrated. The drain on tlm Bank of England’s gold reserve had reached a very dangerous point and it was obviously necessary that something should be done to restore confidence and put an end to the scramb’e for gold. The .Bank took prompt action and in two successive weeks the* Bank rate was advanced leper cent each week, arid the advance of 2 per cent had some effect in checking the de-, mand for gold. But that was not stiff).cent for there remained the probability of a renewal of the panic. A disturbance in one money market is promptly reflected in others eve" when it is a minor disturbance, h'w much more must he tho, reduction of a major disturbance. The position d veloped in such a manner and to such an extent that the way was left with for close co-operation on the part of the central banks of the lead ng ere dit countries. It was announced . the' other day that the Bankof England; t,lie Bank of" Francejandvthc Federal Reserve of■ the;Bank of New York had decided to co-operate,-- ’ each providing an emergency credit of£2s,(ro,pb : which could be kirn wh tiphh by any on \ of the three iff Aashff of emergency j

This co-operative movement is easi' v one. of the most important events of 4 the post war period. Such co-operation has been urged again and a train by leading world professors like Professor Cassel and Keynes. The scramble for gold with its resultant mald.i c tributio'i of the metal has been held to be one o c tlie principle , causes of the depression of prices, and the co-operative hanking moveinent will tend to prevent this, furthermore it will prevent violent fluctuations in the exchanges and above all it will create that measure of confidence which . i.s so necessai-y for the free flow of world commerce. This L about the most stimulating and encouraging incident of the post-war period, and there is more narrant for confidence and optimism to-day than ever before. “'