LONDON FUNDS

Wairarapa Times-Age, 23 November 1938, Page 5

LONDON FUNDS

DEPLETION BECOMING SERIOUS ACTION BY THE GOVERNMENT URGED. MR W. J. POLSON'S SURVEY. I (By Telegraph—Press Association.) WELLINGTON. This Day. I Indications were that before very long, probably within the next 12 months, the New Zealand funds in London would be so seriously depleted as to cause grave financial embarrassment to the Dominion, said the president of the New Zealand Primary and Ancillary Industries Producers’ Council, Mr Polson, M.P., at a meeting of the council in Wellington yesterday. This, coupled with the weakness of the Government's finances in the use of Reserve Bank credit, which was really manufactured money and had had a great deal to do with the position which had arisen, must cause all thinking people seriously to consider the situation, he said. It was their duty to examine the position in its relation to the farming community and urge the Government .to take steps to deal with the position before it deteriorated further. POSSIBLE CORRECTIVES. The correctives which could be applied Mr Polson outuined as follows: — “(1) Borrowing in London: Since the commencement of the slump in 1930, we have raised no new loans in Lon- . don. For some years past Britain has not catered for fresh overseas loans for she has enough to' do to maintain her own financial position with the rest of the world without looking for new loan business. An attempt to raise a new loan is not likely to be welcomed in London, and for the Government to go to the British money market for a fresh loan with its London coffers becoming empty and loans amounting to £17,000,000 falling due next year, would be, to say the least, extremely unwise. “(2) A further depreciation of the currency: This would mean that the interest burdens of the local bodies and Ihe Government on overseas loans would be considerably increased. It would also mean the imposition by an indirect method of the wages cuts which the Government has declared itself so strongly opposed to. It would afford only a temporary relief, for it would not be long before the trades unions demanded and obtained fresh increases in, wages which would to a great extent cancel out the benefits. It would prejudice the Government in the renewal of the £17,000,000 of loans falling due next year. AL “(3) Rationing of Exchange: The Government would probably set up an exchange control authority. The necessary legislative powers to enable this to' be done are already in existence. Exchange control means three things: (a) exporters must pay the proceeds of the exports into a. Government named bank: (b) imports cannot be made unless approved of by the control authority; (c) money cannot be sent out of New Zealand without the consent of the authority. PRODUCTION & SPENDING. “Apart from the great dislocation of business which would ensue there would be bound to be a tremendous rise in internal prices and a large amount of labour trouble would follow. So lar as the farmer is concerned this method means an aggravation of the troubles which the farmer is now experiencing—high costs and low prices. Rationing of exchange will not expand the production of the country one iota. Rather, the artificial restrictions on industry will tend to decrease production. “(4) Reduction of expenditure: The Government's policy is opposed to this course, and this method will not appeal to it. Nevertheless, whatever method is employed, it is certain that if the country is to remain solvent, the final result of any acti m whicn is em ployed will be to reduce expenditure. It must be apparent to everyone that unless internal spending is curtailed New Zealand will sooner or later find itself undergoing the unpleasant experience of inflation. “(5) Allowing interest rates to rise: This method will be unpopular, but it is a means by which capital could be attracted back to New Zealand, for if investments in New Zealand can eain as much as investments elsewhere, there will be no incentive to send money out of the country for investment. The action of the Reserve Bank in raising its discount rate from 2 per cent to 4 per cent suggests that the bank is of opinion that this collective should be used. CURTAILING EXPENDITURE. “(6) A stimulation of production in New Zealand: This is a method which must be employed, but in order to do this, the Government must curtail a great deal of its expenditure. Today money is being spent on public works which will not increase the country's production one iota, but which aie rather proving a great drain on industry, particularly farming, by employing on them men who could be much more profitably engaged. It is futile to talk of expanding production while industry both primary and secondaiy is being asked to carry crippling burdens. “It should be evident that there must be a drastic overhaul of our finances if we are to be saved from a serious economic crisis,” Mr Polson said. “Sacrifices must be demanded of all sections of the community and the farming industries will have to bear their share. In view of the fact that the primary and ancillary industries have borne the major part of the burden up to date, hovyever, their share should not, and will not, be so great as that of many other sections of the people. It is my opinion that in the present situation, the primary producers should give a lead publicly, and if the Government is willing to face up to the position and take proper and effective steps to deal with it, we should make every effort to assist them. “New Zealand today is facing a crisis, and our actions should be determined by the knowledge that this is the case. Our first thought should be for the welfare of the country and not for ourselves.” BALANCE NEEDED CANTERBURY ECONOMIST’S SUGGESTIONS. ! SOME POSSIBLE FORMS OF CONTROL. (By Telegraph—Press Association.) | CHRISTCHURCH November 22. j "I think we are going to learn out l

of the monetary experiences of the last few years a few fundamental truths,” said Professor Tocker, professor of economics at Canterbury University College, during an address on the state of London funds to the Economics Society. “We will learn that we cannot consume more than we produce, and that if we create money we only depreciate the value of our money. Since May this year we, have reduced our London funds from £28,000,000 to about £10,000,000. That ought to be a sharp lesson which it is to be hoped the people will take to heart.” After describing the mechanism' of exchange transactions for both exports and imports, Professor Tocker said that London funds were the real reserve of money of New Zealand, in the way that the deposits of a trader at his bank were his real reserves of. money from which he paid current receipts.

The speaker estimated that the fall of about £18.000,000 in London funds from May, 1938, to the present was accounted for to the extent of approximately £6,000.000 by excess imports, about’£ 9,000,000 by the normal seasonal variation in the state of the funds, and about £3.000,000 by export of capital, though this last figure was one which could be nothing more than a wide approximation. There were three methods by which the fall could be counteracted. One was by a rise in the exchange rate, which at present, with prosperity reasonably marked, was not justifiable. The second was some form of control of imports, which had little more to recommend it than a rise in the rate. The third was the orthodox method of cancelling the effects of inflation by borrowing internally, say. £10,000.000 and using the money to pay off the Reserve Bank debt.

A loan would have the effect also of taking out of the hands of the people that amount of money and to that extent discouraging importing. Something might also be done to check the flow of capital by making conditions in New Zealand more attractive to investors. Of the three methods, the loan was to be preferred, but the country would have to live within its income. In answer to a question, Professor Tocker said that he thought the recent increase in the Reserve Bank discount rate might be construed as an indication by the authorities that interest rates generally should rise. When it first announced a discount rate, the Reserve Bank made it plain that it was merely an indication of what it thought interest should be.