CURRENCY AND CREDIT

Rotorua Morning Post, Volume 1, Issue 70, 13 November 1931, Page 4

CURRENCY AND CREDIT

Phrases which the country is likely to hear frequently repeated during the present election campaign are "creation of credit" and "employment of credit." Both will be used in connection with the advocacy of further pnblic borrowing as a means of providing work and wages. Both are examples of the modern political method of calling things by high-sounding ; na.mes as a means of camouflaging their real nature. In more homely language the first, as almost invariably employed, means simply the manufacture of money per medium of the printing J press and history bristles with examples of the results of this | method of meeting economie crises. A temporary and wholly fictitious prosperity, which is the firfet effect of the rise in prices caused by the inflation of the currency, is followed inevitahly by finaneial collapse and national dishonour owing to the impossibility of liquidating with the paper currency debts contracted in terms of real money. The meaning of the second phrase isf more simply and honestly expressed by the blunt but i popular word "borrow" — generally with the implied addition: "As much as you can get." In this case the results are the same as in the other, though they may not develop quite so rapidly. The position of Australia is an outstanding example, the State of New South Wales in particular illustrating the evil results of the over-employment by a country of its credit. Much of the difficulty which to-day harasses the people and Government of New Zealand is directly due to the same thing. As the Finance Minister pointed out in the closing hours of the late session, "nearly half the expenditure of the Consolidated Fund consists of debt charges and any further loan expenditure is a direct factor in the budgetary position. Debt charges are fixed in terms of money and as a result of the fall in prices the relative burden of the existing charges has been considerably increased. That is to say, a greater proportion of the national income is now required to meet debt charges." As by far the greater proportion of the debt referred to by Mr. Stewart is oversea debt and interest and principal are therefore repayable only in

real money — as distinct from local currency — neither the "creation" nor the further "employment" of credit could possibly have any other elfect than to increase the already excessive burden of debt charges under which the country is staggering. One of the chief evils of this debt burden is its inflexibility. It can, perhaps, be increased without a great deal of difficulty, but it can be honourabiy reduced in one way only — by repayments of principal and the State, like the individual, can only repay if it possesses the cash with which to do so. This fixed burden of debt charges therefore, must for some time to come remain one of the chief difficulties confronting the Government. As it amounts to almost half the expenditure of the Consolidated Fund, less than half of the national expenditure is within the reach of the pruning knife. A reduction of the cost of Government is, in the present circumstances, of vital importance. As it is of equal importance that, in effeeting necessary economies, the Government should as far as possible avoid interfering with the social services or further complicating, even temporarily, the unemployment position, its difficulties are apparent. The warning uttered by Mr. Downie Stewart against mcurring fresh loan liabilities without the most careful prior consideration and his policy of scaling down as rapidly as possible further capital expenditure, are worthy of the closest attention. The reduction of capital expenditure, however, must, to achieve its objects, be carried out on sound lines, only undertakings of doubtful productive value being interfered .with. Works which will be definitely revenue producing shonld be pushed ahead as rapidly as possible and new ones might even be undertaken with definately beneficial results, money borrowed for this purpose not adding to the country's burdens, but rather helping to lighten them. But it must be borrowed, if at all, in the regular way, the way the world at large understands, and not as part of any more or less dishonest policy of inflation of either currency or credit. i, . ...... . _ ->