THE Temuka Leader. THURSDAY, APRIL 26, 1894. THE DEPRESSION.

Temuka Leader, Issue 2651, 26 April 1894, Page 2

THE Temuka Leader. THURSDAY, APRIL 26, 1894. THE DEPRESSION.

Many people are of opinion that the money-rings have entered into a conspiracy to discredit the present Government, and that the depression in a great measure is due to this. We are not disposed to assert that this is true, but we shall place the evidence in support of it before our readers, and let them draw their own couclussons. In the first place we all know that the Conservative party prophesied that great distress would result from a change in? the incidence of taxation. They said that owing to having to pay more taxation they would not be able to carry out improvements, and that in addition to this capital would leave the colony. It was necessary for party purposes that this prophecy should, be fulfilled, but how was it to be done 1 The companies and private individuals whose capital was invested in land could not remove it. How then could the prophecy about capital flying out of the colony be fulfilled ? The way was found. The banks had capital in a liquid form, and they sent it over to Australia. It is a rather dangerous thing to say this, for a paper which has already said it has been boycotted presumably for doing so. The March number of the N.Z. Journal of Finance contains a notice withdrawing the advertisement of the Bank of New South Wales, and refusing to subscribe to the paper. Thus the Bank of New South Wales has at any rate shown its displeasure at having been found out, and this is evidence of its guilt. The Journal of Finance showed that the deposits received by the banks exceeded the advances by about one and a half millions, and from this it is presumed that the money has gone to Australia. In order to understand this it is necessary to remember how the banks work. Deposits are taken by the banks at 5 per cent, per annum, that is, the public lend the banks the money at 5 per cent., and the banks in their turn advance it to their customers at 8 and, 9 per cent. This constitutes the profits of the banks, and it is quite plain that they cannot pay 5 per cent, for money to let it lie idle. Now the banks have borrowed from the people of New Zealand one and a-half millions more than they have lent, and the question is, what became of this 1 For instance, the Union Bank borrowed over one million more than it has lent. Is there anyone so simple as to think that this bank is paying nearly £54,000 in interest on money which is lying idle in its coffers ? We hope not. The money is without a doubt gone to Australia, but hepp an extraordinary fact stares us in the face. The deposit rate in Australia is 4J - cent,, while here in New Z 'aland it is •'»nt. A low rate of interest 5 per c - mo "«v is plentiful, a high indicates that moi.., f p, , , , rate that it is scarce. >e fact that the rate in Australia js lower than m New Zealand shows that money is ful there than here. In taking money to Australia therefore our banks are ((carrying coals to Newcastle,” they are carrying it from a country in which it is dear and scarce to a country where it is cheaper and more plentiful. In connection with the fact that the rate of interest is higher in New Zealand than in Australia, there is food for reflection. Until recently a compact existed between the banks under which the rate of interest used to be the same all over the colonies. Wheu the deposit rate was 44 per cent in Australia it was the same in New Zealand, and when it rose to 5 per cenl. it was the same everywhere. For some reason, however, this compact has been departed from, and the deposit rate has been kept at 5 per cent, in this colony while it has been lowered to 44 per cent in Australia,, This is a n ore serious matter than many may realise at first sight, because the price of money generally is regulated by the deposit rate of interest. When the banks borrow at 44 per cent, they lend at 7# aiJ d P el cent., and when they borrow at 0 per cent, they lend at 8 and 9 per cent, Thus the deposit rate regulate;; the overdraft and discount rates, but it dots more, regulates th ■ pi irate lender’s rafo also. The private lender’s rates fall and riiO m sympathy with the deposit rates, for the rgason that many j)e ■;>’ i withdraw their dt'-WvSf-JS when the r low mid seek other iuvts ior iWhim tho banks give them 5 per eo>;t they are satisfied, but when tho rate falls it> it percent, tho depositors look elsewhere for invektmont. Mark now tho effect a high rate of fixed deposit .has (1) It kills enterprise by preventing speculation, for if depositors got only 44 per .cant, they would invest it in some other pursuit.; (2) Dear money crushes industry by rendering it unprofitable, and thus the development of our resources is handicapped; (3) For the re;isuiiß already given the field of labor is narrowed, and want of employ meat ia

the result. In removing the money out of the colony and in keeping up the rate of interest the banks are largely responsible for the depressed condition of the colony, but whether they have done this to discredit the Government or to suit their own convenience is a matter on which we cannot offer an opinion. Under any circumstance they are guilty of a cruel wrong to the people of this colony. They have borrowed our money, and taken it over to Australia, while we in this colony are much in want of it. A State Bank would not do this.