WELLINGTON NEWS

Hokitika Guardian, 30 September 1931, Page 6

WELLINGTON NEWS

MONEY AND MARKETS

(Special Correspondent)

WELLINGTON, September 28

The fact that Britain has slid off the gold standard has given rise to a mutiplicdty of theories, proposals and opinions calculated, to confuse the minds of all but experts. Tire fact that Britain would slide off the gold standard was apparent to those experts who are familiar with the subject. It cannot be too often stated that the trouble is only partly of British manufacture but of foreign countries. British are great lenders to foreign countries for the simple reason that they can. get a better ■ return for their capital. This money is lent mostly on what is known as long-term. The British are also borrowers from other countries. Most foreign countries liave banking representatives in London, and they all maintain fairly large credits in this the world’s great money centre. As a rule Britain’s loans abroad exceed the amount borrowed from, which is usually known as shortterm. Under normal conditions this excess of lending would be hacked by an extension of exports, but this expansion has been checked in recent years by excessive tariffs. The shortterm loans can. be called in pretty ■promptly but this is not the case with the long-term loans which must run their course.

For reasons not yet clearly defined the foreigners became panic-, .stricken; The fact that the British Budget was unbalanced and the alleged mutiny on the Atlantic Fleet are said to., have caused the-panic. At all events they withdrew their credits wholesale and this involved the export of many millions sterling in bar gold. By the Emergency Act passed by the British Parliament on Monday, September 21st. the export of gold was stopped and Exchange transactions were confined to legitimate trade transactions. . The position would not have arisen had it been allowed to move freely, hut owing to high tariffs the export trade was dammed up and trouble was inevitable. A creditor country like the United States with certain fixed large credits to receive each" year could not and should not have a surplus of exports over imports. But the United States gloated over the fact that its exports exceeded its imports by a very substantial sum each year.. The meaning of this excess of exports over imports is that other countries had bought from the United States more than they had sold, which had to be' paid in gold, there being no other iqethod of payment and in addition the United States had to receive the payment of war debts. These two-debts, less whatever may have been borrowed from the United States, bad to be paid in gold, lienee the flo-w of the yellow metal to- , wqrcls America. Foreign countries could not go on indefinitely sending gold to the United States, for after all the world’s supply of monetary gold is. .limited, . . Already that country holds in its vaults half the world’s supply of gold and France holds one-third. Thus there is practically no room for other countries to remain on the gold standard or even on the gold exchange standard. The break was inevitable. The only course open to these countries is to restrict their imports from the United States and France. It was stated the other day that the trade returns of the United States for August showed an excess of imports over exports for the first time since 1926.

The probability is that this will continue and that American business men believe so is shown by the wage cuts recently announced. France too is suffering and is likely to suffer a great deal more. The position to-day is overhung by very dark clouds which no one seems capable of penetrating. But there,is a silver lining to the clouds. President Hoover has invited M. Lavaly-the French Premier, to visit Washington, Why? The United States and France; are the two gold hoarding countries. that have caused . all the trouble. The chiefs of these two coutfcries are to meet and it would be no stretch of the imagination to suggest that the two statesmen will discuss the desirability and the advisibility of cancelling .war debts and reparations.