BORROWING IN LONDON

Otago Witness, Issue 2895, 8 September 1909, Page 17

BORROWING IN LONDON

SIR JOSEPH WARD'S MISSION. STRICTURES BY AN ENGLISH EXPERT. (Fboic Ocb Own Cohbespondent.) LONDON, July 9. The opinion amongst financial experts in London i.s that Sir Joseph Ward will certainly take advantage of bis visit to the metropolis to raise a - considerable sum of money for tlie Dominion exchequer. Mr A. J. " Wilson, editor of the Investors' Review, and a veteran critic of the financial methods of the Dominion, told me the other, day that he was certain Sir Joseph would be raising money in London within a few weeks, and t-here was no doubt as to his success. Just now the market is favourable, but "the Dominion will have to pay a little more for its money than it has been accustomed to pay of late. As a matter of faot, New Zealand has besn raising a considerable sum in London this year in the form of shortdated Treasury bonds- On one occasion the sum of £600,000 was raised in this man-rier, and Mr Wilson believes that the whole amount Taised privately- in London this year already exceeds a million pounds. BAD FINANCIAL METHODS. Talking of New Zealand finance generally, Mr Wil&on was very emphatic in his opinions. " You ' have "one of the most beautiful •countries in the world/ he declared, " tint yon are mortgaging arid mortgaging until the very air you breathe is hardly your own. Sir Joseph Ward's policy of piling up the debt is certain to lead to embarrassment eventually. The last evidence of that is the financial stringency you have just experienced. Suppose, for example, that your crop and clip in a normal year are valued -at 20 million pounds ; we will just take that figure as an illustration. Now in a bad season your prices for wool and hemp and mutton fall so that the season's product is. worth only 15 millions. That cuts down the resources or your banks and your merchants and cvi yoody else to that extent. The banks c;>ald not possibly give credit to the same extent as if you had a good season. But. in spite otthat, you have the steady pull of your numerous debts, particularly the public debt, which is constantly drawing away money to meet the interest charges here. These two things together naturally made the stringency more intense than it would otherwise have been. Sir Joseph Ward's policy has got you into this fb- : that if for any reason — such as a great- political upheaval — the London money market should suddenly be required to provide an enormous amount for the Home Government', and should, therefore, be unable to lend New Zealand any money, you could not pay the interest on your deb"t. That might very easily happen ; in fact, that is the danger aheid. ' • TWO PROPOSALS CONDEMNED. I mentioned to Mr Wilson two of the suggestions tiiat were made with a view to obviating a possible recurrence of the financial stringency in the Dominion. Both he regarded as utterly unsound. Neither dealt with the root of the difficulty. With regard to the suggestion that other banks should enter into business in New Zealand, Mr Wilson said that, of course, any bank that wished to enter the field and could give the necessary securities in the way of capital, should not find anything in its way in going there. But at the same time he did not think any nwnJber of banks would make such a stringency less severe. The very fact that the strinSency arose from falling prices and iminished crops shows that it was a natural result. It was not in any way the fault of the banks. No bank could give indefinite credit. PAPER CURRENCY. The suggestion that the Government should issue paper currency to make the market easier and money more readily available Mr Wilson considered would be fatal. " What is it to be based on?" lie asked. "What would be the security? 'AH the Government property is pledged already. That has been my standing quarrel, not only with New Zealand, but with other colonies. They are over-inorf, gaged now, and consequently they have e/j real security to offer. It is like offering a second or third mortgage. Had a paper issue ever had satisfactory results any Tvhepe.? -Unrestricted paper money had

never been issued in England since the days of the Napoleonio wars, whinh brought this country to the verge of ruin. For a few years specie payment was sus p ended by the Bank of England, and the experiment had to be resorted to. But it was a disastrous one, and the paper was resumed at the earliest possible date, I think about 181 S." THE BANK RESERVES. In answer to further questions, Mr Wilroji said ho did not know whether the financial position in England at the time he spoke of was any better than in New Zealand to-day. The New Zealand banks, "judging by their balance sheets, kept a fair amount of cash in reserve, more by comparison than the English banks. In England the position had much improved in this respect during the last 10 or 20 years, buifc even now the reserves were too small. This disadvantage, however, was counterbalanced by the fact that England ib a creditor country, whereas New Zealand is a debtor country. England had: money let out in vast sums ; New Zealand owed largo suras, and that made all the difference. England had only to sit still when times were bad, and the money must come in, whereas New Zealand had to produce something to sell in. order to" meet her obligations abroad! But even wealth will not- cure a monetary stringency. " We have it here," continued Mr Wilson. "Look at the pressure at the end of 1907 " and the beginning of 1908 ; when the bank rate went up to 8 per cent. TKere was no remedy for it.- There -was a tremendous demand for money. People found securities falling, and they had to provide more margin, and money was becoming very dear. These things occur, and nothing o»n possibly be doiie- to prevent them. No number of banks will make any difference." As for the Dreadnought off#r : " It is perfectly shameful," said Mr Wilson, " to talk of making arrangments to pay eft the cost hi one generation, New Zealand never having paid off a penny of her loan?."