LOWER BANK RATE

Hokitika Guardian, 1 November 1932, Page 8

LOWER BANK RATE

PROFESSOR BELSHAW’vS views. ADDRESS TO FARMERS’ UNIOX. WELLINGTON, October 29. Reductions in the bank rates on over-d-raifts /and. deposits were advocated yesterday" by 'Professor H. Belshaw, of Auckland University .College, in an address to the Dominion executive 'of the Farmers’ Union. Professor Belshaw described in hi? 'address, the de•.vetopment of slump, the pre.-e-iit position, and particularly the position of New Zealand. Those in favour o-f-a high exchange rate .were at the moment defeated, he said, but there was no reason why bank rates should nos be reduced in an attempt to improve conditions in the Dominion. It would be aigreed, said Profes'or Belshaw, that the purpose of thor?e m charge of currency and credit policy should be to free the stream of production in the hope that prices would return to 'better levels. He described the various causes—illbalanced gold contributions, reparations, war debts and other matters—which had jontribilted to the development of th° present world situation. With the fall of prices there had been a tendency for countries like 'New Zealand to reduce imports disproportionately to the reduction of e v ports, in an effort to meet debt commitments. This had been a factor, he-.' s?jd-, in the diminution of international trade. Other factors contributing to the present situation, were 'the growth f f short-term, lending and the re-drientation of international trad§ consequent upon various core tries stabilising at different level 5 . The crisis had ac-tu.al"y 1 been preepitated by the 'Stock Exchange boom in the United States, Professor Bashaw said. The result was an- import of gold ..which, led to, other cppnnries restricting credit. On this depression, which *e,gan about 1929, was superimposed a financial crisis due to ; *th« failure of a . very large Austrian bank, which had eventually, caused Britain bo go off the' gold standard. The drastic fall in price levels had .been the result of the financial crisis.

REMOVING THE CAUSES. , Th. e return to higher price 'levels could be made only by removing .the causes which had contributed to the slump, .Professor Bel'haw said. He enumerated some of the which might,, he taken, including the removac of . causes- of international. friction and .political insecurity, economy in the use of gold and the cancellation or drastic reducton of war debts and ..reparations. It was unfortunate, he eaid, that) thei Ottawa* Conference had not done more in the 1 direction of .tarifl reduction.

Two suggestions which had been, niadd to improve conditions were that the main financial centres should favour cheap money, on both ; short and long terms, and that international fending ( should be resumed, .at,. least temporarily, o-n a large scale. The chief difficulty seemed to be, lack ‘of con: fidence among leaden?. Professor Bel shaw’s ; own. suggestion, which he had made elsewhere, was that Britain and the Dominions should float an .Empir" reconstruction loan.,Mr J. M,. Keynet had remarked that the- plan deserved consideration, and Sir Josiah Stamp had said that as an- economist the scheme had his approval, although as a. hanker .he had thought that there would be Immense difficulties facing it.

NEW ZEALAND’S POSITION. Referring more' particularly to New Zealand conditions, Professor Belshaw said, that it -was important to realise that no measure that could *be adopted in New Zealand' itself to reduce the loss which had occurred as a re?ut oi the fall in price-leve'-s could be successful. Another -loss had occurred, through internal disparities in price-levels. The .-problem would be -solved eitner by reducing money costs of production or by increasing money incomes. New Zealand stil! required at the present a. rise of 59 per cent, in export prices to make its price situation right. -But he was doubtful at the moment whether further Legislative .action to decrease costs would be a good thing. 'Raising , the exchange, however, was in the best interest? of New Zealand, and not only in the interests of the farmer but in the interests of the rest of the community as. well. But h-e did not entertain -any hopes that a higher exchange rate would be adopted. TV supporters of a high exchange had to admit themselves -defeated at the moment by the. banks, the Treasury, and the Bank of -England. What should be, opposed <was any move in the direction, of parity or any deflationary measures;

LOWER RATES SUGGESTED. He suggested that in New Zealand there was mo reason why the overdraft, rate should not be hwered to 5 per cent, ‘and deposit rates to per cent., provided the rates in the 'Savings Bank and,.other competitive institutions were (reduced proportionately. At> <the presents.time it could not be said that ,Nen: Zealand was suffering from a •sh rtago of capital His view was that there was a considerable customary influence on rates f°r overdrafts, and deposits. Dealing with the proposal which was, sometimes made to effect, reconstruction in New Zealand by internal jiAßicn, Professor Belsliaw said.th-it some measure of inflation by deficit finance might be unavoidable for 1933.34 n"d to some ovte.it in 1932-33. ITe thought 'it extremely unlikely that at the present exchange rote o" »n * higher '} one the . budget iviuid be

| bifla'iicpd in 1934. Tt was necessary that bank credit should be maintained, and. it iwas wrong to assume that the situation would .be met. by an increase in internal 'credit. The better plan | was to rav* +he eychnmre and to adopt <i policy .directed to better adjustment of internal price and cost levels. The way out 'was not bv internal inflation, said Professor Belshaw.