The Guardian And Evening Star, with which is incorporated the West Coast Times THURSDAY, NOVEMBER 3, 1932. BRITISH FINANCE.

Hokitika Guardian, 3 November 1932, Page 4

The Guardian And Evening Star, with which is incorporated the West Coast Times THURSDAY, NOVEMBER 3, 1932. BRITISH FINANCE.

Reviewing the financial position in .Great Britain in a recent monthly journal a writer observes that probably the moss significant feature in the lifting of the disastrous world depression is the cheapness of money, particularly in England! and the United States of America. This condition is one which must hasten a return to better trading conditions, a rise in price levels, long term investment, and, most important of .all, increased velocity of credit. For centuries London has been the world’s financial clearing house, and sterling had been looked upon as the -stabilised currency for the settlement of all International balances. The complete- lack of confidence in the financial and economic position of Great Britain, and the violent fluctuations in sterling strengthened the position of the American dollar, and temporarily it seemed that the majority of foreign settlements would 1 be affected in terms of the latter currency. Britain’s banking structure, however, was able to with- _ stand the terrific financial strain. Faced with a. colossal deficit and overwhelming difficulties, the, British Government, after the historic formation of a National Cabinet, immediately took steps to remedy the many weaknesses in the financial and social affairs of Britain. Drastic economies were effected in Government expenditure, and emergency legislation wias introduced, which increased the already heavily depleted revenue, and within the short space of a few months Parliament had miraculously 1 converted an alarming Budget deficit into an actual surplus.' This outstanding achievement probably concluded one of the most . remarkable efforts in the world’s financial history, and, moreover, marked, a definite turning point in the affairs of Great Britain. The heavy withdrawal of funds has practically appreciated, and frozen capital is now thawing. Interest pates have consistently fallen, large sums of hoarded money have released into circulation, and banking accommodation is now less difficult to obtain. Gilt-edged securities -show definite signs of recovery, interna) trade has revived in keeping with the increased export trade, and uniemployment is less acute. The Bank of England rate has been succei-sivlely and. gradually -reduced, and gold reserves have steadily increased. These conditions have pertained for several months, during the whole of which time the trend of interest rates has been downward. Talcing advantage of the cheapness of money the British Government successfully converted 1 over £2,000,000,000 of war loan from 5 per cent, to per cent., effecting an annual saving in interest of over £30,000,000, reducible to after allowing for ta lower yield in income tax on account of lower interest receipts. The outstanding success of this conversion scheme must be interpreted as -a constructive factor of the first importance. The uniformity >f the response from nearly three million investors at Home, in the Empire, and abroad, virtually attained without the aid of any. compulsion, reveals in a convincing manner the flexibility of the individuals upon whom the whole credit structural is based. The result of the conversion offer has inspired investors with confidence, and for the first, time for over three years long term lending is returning. This is probably the- strongest evidence . that the worst phases of the depression have passed, and unless any unfo-ie-seen developments occur, long term lending will increase, andl many conversions from short-dated funds into loner-dated investments may be expected. Trade .and , commerce;, must benefit from the change in lending policy, and from the ample supply ofj cheao money mow available. Many industries will have the opportunity of eapitdisation on a long term basis which will! provide the foundation for a. complete revival of internal trade. The conversion of short term funds into long-dated investments will provide o-e of the most effective checks upon .flight of capital, which lias been a disturbing feature of recent years. Banking figures v,KI reflect the. change now taking place, and with the conversion of short-dated into lorg-dated deposits increased overdraft accommodation will, bo available, r.nd the large accumulation of banking f inds at present idle should find profitable employment. In this process it will be possible to accelerate credit and effectively increas? public spending. One of the most striking features in the movements of money and slowing

down of credit been the heavy decline in capital! issues. There has .been 1 a heavy fall in every country during the past three years. The present policy of Britain towards a cheapening of money rates with consequent raising of prices and encouragement of investment is one to be commended, and it will not be long before other countries will be forced to recognise that money rates must be lowered, credit accelerated, and long term lending required. When this commences in a general manner, the remaining difficulties in the passing depression will be quickly overcome, and the future of world trade and! industry will be more encouraging than it has been for many years.