Wairarapa Times-Age SATURDAY, JUNE 4, 1938. “USING THE PUBLIC CREDIT.”

Wairarapa Times-Age, 4 June 1938, Page 6

Wairarapa Times-Age SATURDAY, JUNE 4, 1938. “USING THE PUBLIC CREDIT.”

RECENT statement by the Prime Ministei* (the Rt Hon M. J. Savage) that his Government had made available for national services over £11,500,000 of public credit, and that more would be available as the need arose, has been criticised by the Dominion president of ‘the National Party (Mr C. H. Weston, K.C.). As he is reported, Mr Weston stated at Tauranga that the £11,500,000 represented money borrowed from the Reserve Bank, the Post Office Savings Bank, the Government Insurance Department and other Government Departments. Under the Reserve Bank Act (Mr Weston added) the six trading banks are compelled to place a considerable part of their deposits with the Reserve Bank, and it is really this, money that the Prime Ministei’ is using when he says he is using public credit. The trading banks are compelled to lend to the Reserve Bank, and the Reserve Bank is for all practical purposes compelled to lend to the Government. The chain of compulsion is complete. Mr Savage has not made any public credit available, but has seized by way of loan moneys belonging to private individuals. In the absence of full details of what Mr Weston said, it may be supposed that the statement quoted was made subject to some rather important qualifications and reservations. / The procedure under which trading banks in this country are required to maintain minimum deposits with the Reserve Bank is in any case substantially on all fours with that ruling in Britain, wherfe the joint stock banks always have very large sums lying to their credit at the Bank of England. What is actually happening in New Zealand evidently is that the Government is undertaking, through the Reserve Bank, an expansion of credit that otherwise might have been undertaken by the trading banks. It is only fair to remember that this policy was inaugurated by the Coalition Government when it transferred to the Reserve Bank some twenty millions of sterling credits in London and redeemed with Reserve Bank, notes the Treasury Bills issued against these credits on which it had previously been paying interest to the trading banks. It must be noted, also, that a substantial part of the credits made available by the Government is not based on existing savings, but on current production. Advances are made, for instance, against unsold dairy produce and, in the extent to which adequately productive assets, are created, credits for housing and other operations fall within a similar category. Apart from any question of an invasion of the field hitherto occupied chiefly by the trading . banks, the Government’s total monetary and financial policy no doubt should be judged by its effect on purchasing power and other vital factors. In an address a week or two ago, the Minister of Finance (the Hon W. Nash) declared that there had not been a shadow of inflation during the year. That assertion, however, is not easily reconciled with a rising cost of living,»officially recorded, and a very general increase in working costs which is giving rise to many complaints. Some saving of interest by the use of the public credit, though that use in itself may be less obviously open to criticism than is sometimes suggested, may prove in the end to be a very poor compensation for troubles of monetary inflation and economic disorganisation brought about by expenditure passing all limits of prudence and entailing taxation of crushing weight.