16 AUGUST 1935, Page 30


The Rumoured Government Loan

BY the adage that " there is no smoke without fire," rumours of fresh Government borrowing should not, perhaps, be dismissed as entirely without foundation, although it seems most unlikely that any such borrowing will take place in the present holiday season, or that if and when a fresh Government Loan is issued, it will be for the very large amount which has been rumoured in some quarters. On the other hand, it is difficult to see how some of the proposed Government outlays, and especially those con- fleeted with housing, can be carried through or even. begun without fresh, borrowing of some kind. Nor, of course, does it follow that because outlays, as in the case of the housing schemes, must necessarily be spread over a considerable period, Government borrowing might not take place quite early in the autumn. We know that in the case of the £40,000,000 expected to be expended during the next five years on electrification of certain of the railway services in and about London only moderate amounts can be spent at one time. Nevertheless, the London Electric Transport Finance Corporation, which has the responsibility of financing the schemes, deemed it well some few weeks ago to make an issue of no less than £32,000,000, . doubtless because the moment was deemed to be favourable from the borrower's point of view, while the Company took powers to invest such moneys as. were not required for immediate expenditure, and in addition the instalments on the Loan were spread over 'a considerable period. And so later on, with regard to housing and other Government schemes, the authoritieS may well deem it advisable to take advantage of present, conditions of cheap money to raise a inederate-sized loan in the comparatively near future.


Not only so, but if it should happen that the General Election is fixed for the autumn of this year, the ,Govern. 'xi:lent is not likely to be backward in its attempt to con- vince the public that big schemes are contemplated having for their object a further reduction in the numbers of unemployed, and the public imagination in that respect might easily be stirred by the announcement that the Government was raising a considerable Loan to finance such schemes, even though instalments were spread over a very long period. Time was :when expectation 'of -any such large Government borrowing would have had the 'effect of occasioning weakness in existing Government:. securities. Nowadays, however, almost the reverse effect is produced, and at the present moment some part, at. least, of the firmness of Government stocks is to be attri- buted to the very fact of these rumours-of fresh borrowing; the argument is that conditions in the investment', markets as regards cheap money, &c., are likely to be kept favourable if any Loan operation is contemplated.


In some quarters it has been reported that a fresh Government Loan might be raised in connexion with large outlays on military and naval defence. Unless, however, such money Was required in Connexion- 'With a great speeding-up movement, It seems Unlikely that naval and military expenditure would 'be provided for out of capital resources, for hitherto expenditure of that character has always come under the usual .Budget Estimates. In other words, the expenditure has been charged against Revenue. In this matter, the authorities certainly cannot .be too particular, for it' must not be forgotten that no small part of the -recovery which has taken place in public confidence 'here and also in trade has been due to -the determination of the National , Government to present balanced Budgets. Already the National Expenditure for the current fiscal year has been advancing in rather alarming fashion so that up to date the Ordinary Expenditure is 140,000;000 ahead of the figure for the 'Corresponding date of last year, While the Revenue. has ,fallen by il,000,000.

(Continued on page 275.)

(Continued from page 274) INDUSTRIAL ACTIVITY.

There is one further point to be made with regard, to the rumours of Government borrowing which is not without its bearing upon the present activity in the market for Home Industrial shares. Up to a point the, recovery in these securities is undoubtedly justified, l'or in more than one direction, and especially in the Iron and Steel industry, there has been great improve- ment. Nevertheless, the somewhat eager buying of shares at the present time is, I think, connected with expectations that -special schemes-having for -their-object the promotion of industrial activity will be supported by the Government, and will have the effect _of bringing about a further revival in sonic of the big industries during the coming autumn. Therefore, if those expectations are not fulfilled we may possibly see some set-back in Indus- trial shares. On the whole, however, and having regard to the, possibility of an early General Election, we seem to have some ground for thinking that while rumours of GOvernment intentions in these respects may be a little exaggerated, they are not without some foundation.