GERMAN FINANCE.

Pukekohe & Waiuku Times, Volume 5, Issue 179, 2 June 1916, Page 4 (Supplement)

GERMAN FINANCE.

Frequent references have been made in newspapers and magazines to the extraordinary means whereby Germany has raised her internal war loans, and to tho great decline in her fiiusxeial credit abroad. One of the fullest and clearest explanations of the facts that has yet been published appears in an article on the finances of the belligerents, written for the ' Fortnightly" by Mr. J. M. Kennedy. Down to '.he end of last year Germany had floated three loans, totalling £1,275,000,000, and, during the first quarter of the present year, a fourth was announced. The loans represent, according to Mr. Kennedy, not genuine credit, but inflation —paper money for which in ihe main there is no tanglibla equivalent. Before issuing its loan, the German Government prepared the way by opening special war banks, the notorious Darlennskassen. Thes«i institutians iacilitated subscriptions to the loan by advancing money on securities. On securities liko British Consols which could no longer bo negotiated in Germany they lent money up to 40 per cent, of liiD nominal value, but the money was paper, a species of notes (lJarlehnskaisenscheine). On German :-'! cs.sir.:i bonds and on the stock of important Gorman companies the Darlehnskassen advanced larger amounts of their paper money, in somo cases as much as 75 per cent. The Darlehnskassen notes were also advanced on goods intended for export, but kept at homo by the British blockade. Special war credit banks (Kricgskreditbanken) wont further dill, making arrangements whereby in particular cases investors could pledge property, household effects, and instruments of trade, so that almost every family in Germany might have mortgaged comething or other to the Government through the war banks, and, in addition, tho savings banks ref.ised to pay nut money unless the payee signed a guarantee to put the results of his savings into the war loan. By this method uo money actually changed hands, but a number of small investors appeared among subscribers to the loan. The second loan was financed in much the samo way, except that bonds of the first loan were accepted in par*, payment, and the actual amount of fresh capital obtained has not been made known. When the third loan was issued in September last, it was largely financed on what Mr. Kennedy calls "tho principlo of promissory rot OS." Industrial undertakings contracted to supply goods to tho Government of a specified value, :.nd received in lOturn war-loan stock. Tho notes of ti c Dailehnskassen and Kriegskreditbanken wore paper money without a gold backing, and it was evider ly the original intention of the German Government that they should form an entirely separate issue from the ordinary Reichsbank (Imperial Bank) but the German public showed no hesitation at first about accepting these notes, and, in its anxiety to prevent neutrals from seeing that the Darlehnskassen were suspected by the German people, the Government instructed tho Reichsbank to issue its own notes against the Darlehnskassen notes, Jius the new notes were officially secured on the Rcichsbank gold reserve. This made Uio notes -acceptable v.iihia tho German Empire, but tho outcome was disastrous abroad. Tho result was a vest overissue of notes for which tho Reich*, bank was responsible, and without a sufficient gold reserve to meet claims. Matters becamo worse still when later on tho Reichsbank was made responsible for the advances made Ly the special War Credit Banks on property, etc. By Government authority, therefore, the Reichsbank refused to cash any of its notes in gold, and the Government made frantic effort to collect gold from every available source. Gold trinkets and ornaments found their way to the Reichsbank in exchange for mora notes. According to the Reichsbank return of December 23, 1915, the notes in circulation represented on that dato a value of £'313,000,000, but this apparently included only the orthodox Reichsbank notes and the notes of the Imperial Darlehnskassen. In addition, there were the note issues of the State Darlehnskassen and the War Credit Banks. Against t:.is largo note issue the Reichsbank held gold to the amount of £122,000,000. .lust before* the war its note issue was £5)5,000,000, and its reserve £60,000,000. Not counting the other note issues referred to above, it had increased its note cinuhtion by £218,000,000, and its reserve by only £60,000,000. It is, observes Mr. Kennedy, this fact as much as the almost complete stoppage ot German exports which accounts for the heavy decline in Germany's credit abroad. F<von with all this inflation, the German Government was at last obliged to state a short while ago that new taxation would have to bo imposed to square the Budget, and then the press and public began, as far as it was possible, to criticise! tho Government finance. Prices have go:in up in spite of severe restriction by authority, as a natural result of currency inflation. Tho internal loans c.-.n go on as long as tho people will stand the inflation, but there are no means of meeting Uic paper money. la one of his early speeches tho German Minister of 1* mance announced that tho Darlehnskassen and Wai Credit Bank - ;' -lotos would be met out of war indemnities. It is now recognise.l that no further reference must Ito mado to these imaginary indemnities, bill no German venture.-, to say where the money is in co--.;.- from that will liquidate tho imfo-i issued, and still to be issued, during the v. sir. j