DANGERS SEEN

Wairarapa Times-Age, 16 December 1943, Page 3

DANGERS SEEN

IN CURRENT FINANCIAL TREND NEW ZEALAND TRADE & PRODUCTION SURVEY BY MR L. LEFEAUX. THREAT OF SERIOUS INFLATION. (By Telegraph—Press, Association.) WELLINGTON, This Day. In an address to the Wellington Chamber of Commerce yesterday, Mr Leslie Lefeaux, former Governor oT the Reserve Bank, rounded off a discussion awakened by some earlier comments he had .made on New Zealand's financial position. Mr Lefeaux said a point he desired to correct and in which there was widespread misunderstanding, related to the holdings of the New Zealand debt in England. A newspaper article had alleged that “the couple of hundred odd million bonds for credits advanced to the Dominion” were held by “the men of the London money market.” The debt was actually £154,000,000 sterling, and included £24,000,000 owing to the British Government on which payment. of interest and capital had been suspended for many years, and £10,000,000 under the Memorandum of Security in respect of the present war. He would say that of the balance of £120,000,000, probably' not more than 5 per cent was held by the “men of the London market.” Actually, the great number of holders were small investors. POSITION IN 1939. Referring to criticism of his remarks that the war saved New Zealand from serious financial embarrassment, Mr Lefeaux recalled the circumstances prevailing in the middle of 1939. Was there not every prospect of the proceeds of butter and cheese exports falling several million pounds short of the equivalent of the guaranteed price paid out in this country? Had not a quota been imposed by Great Britain reducing shipments of mutton and lamb by 3 per cent, and was there not an accumulation of about a whole season’s production of mutton, for Which there was no apparent market? Was not the synthetic wool product causing anxiety as a substitute? Were not the depleted balances in the overseas fund barely sufficient even to cover the much restricted imports under a licensing system after providing for other obligations? Had it not become virtually impossible to borrow any fresh money anywhere outside New Zealand? And was it not impossible to renew the £17,000,000 loan due in January, 1940, except on terms involving full repayment within the following five years? The internal position, particularly in relation to the guaranteed price scheme, public works and housing, was then reviewed by Mr Lefeaux, who summed up by commenting that during a relatively favourable trading period, with the prospect of a diminishing return from exports, more and more money was being poured out in the country with less and less ability' to meet the resulting demand for goods overseas. The prospect was bleak to those who could see below the surface, as well as those responsible for the finances of the Dominion. EFFECT OF WAR DEMANDS. With the advent of the war a market, immediately became available for all New Zealand’s primary produce, including the mutton which had been virtually unsaleable, at prices a long way above what there was any reasonable hope of obtaining had peace continued. Exports and overseas assets rose sharply. Payment for produce exported was made on or before shipment, and New Zealand was also iclieved of the risk of shipment, • payment being received’even if a cargo were sunk. If to this were added the willingness of the people in war time to submit to heavy taxation, to subscribe to war loans, to endure regimentation and to do without many things they would normally demand, a clear appreciation could be gained .of how the war removed many financial difficulties. After dealing with other criticism, Mr Lefeaux gave some observations of a general nature. All would agree, he said, on the need of all people to have every opportunity to earn and enjoy as high a standard of living as was reasonably practicable, for which the prime essential was iiie maximum production consistent with a reasonable degree of leisure. A nation could not in the long run live on more than it produced, or its equivalent, except by drawing on past savings, or by mortgaging its future. It ran the risk of inflation of the currency, which was one of the most easily disguised methods of playing a confidence trick on people. They thought they were becoming better off because they had bigger money incomes, and sometimes statistics even showed that their purchasing power was actually rising, but sooner or later they would waken to the fact that they had been beaten by rising prices and the comparative shortage of goods. Mr Lefeaux said he was gratified to know, from conversations he had had with them, that trade union leaders in this country were aware of this very' real danger to the Dominion as a whole, and specially to those they represented.

“What about the future?” he asked. “We hear about the intention to build 16,000 houses in one post-war year costing, 1 suppose, about £16.000,000, with a continuing programme at a high level How are they going to be financed? If the principle is adhered to that all such houses are to be paid, for by means of advances from the Reserve Bank, I am afraid the consequent inflation will be on a settle which will be most disturbing.

“If, on the other hand, that expenditure and all other of an unproductive nature, is financed out of the savings of the people, or out of taxation, the financial situation may yet be prevent; ed from further deterioration. Expenditure on such a scale after the war has been paid for will almost inevitably mean going without many other things for some considerable time.”