The Rural Voice, 1980-06, Page 25A matter of principle
The price of money
BY CARL HEMINGWAY
Interest rates are coming down, a little! I wonder why?
We farmers are quite familiar with the statement "supply and
demand must rule the market." It seems to be quite true at the
farm gate but beyond that point the "ancient law" seems to get
lost.
About a year ago 60 pound feeder pigs were selling for up to
$75 each. A hundred of these pigs would cost $7500 which the
purchaser probably borrowed at under 10 percent.
This spring 60 Ib.pigs were selling for less than $30 each. A
hundred would cost $3000 which the purchaser probably
borrowed at 18 percent.
Since the demand has been cut in half why did the price of
money almost double? What happened to the money supply?
We can only conclude that there is "supply" control in the
money market.
We farmers know the great opposition there has been against
farm marketing boards, particularly those marketing boards with
"supply management." To date I haven't read or heard of
protest about the "Supply management"of money in order to get
a profitable "price" for money.
If the "price" of money had followed the same pattern, the
price of market hogs interest rates would be 6 percent or less.
The brightest hope for farmers is the fact machinery
companies are offering loans at 14 percent instead of over 17
percent.
There is no way that a farmer can make a profit on land that
costs $2000 per acre (and we hear of land selling for more) at 15
percent interest. At 6 percent he just might make it pay.
A BIG QUESTION
There is however a big question as to whether the reduced
demand for loans and the over -supply of money is the reason for
the reduction in interest rates.
Some time ago the government decided it could induce
Canadians to buy government bonds at less than the current
interest rate by making them cashable at face value at anytime.
With the remarkable increase in interest rates over the past
year temptation has overcome national loyalty and a great many
government bonds have been cashed and re -invested at much
more attractive interest rates.
If interest rates had risen higher, or even remained where they
were the government would have been faced with real difficulty
in reds e ming their bonds. This probably was the real reason for
the recent cautious reduction in interest rates on loans.
Can inflation be beaten without returning to the thirties?
How long can manufacturers etc. go on cutting production and
increasing prices?
There are a lot of wealthy people who will buy new
merchandise and drive their cars, boats, etc. etc. regardless of
cost but can these people buy enough products to keep industry
solvent?
END OF THE LINE
Somewhere there is an end to the Zinc.
In some of our cities, currently those dependent on the
automotive industry ,therc has been a big increase in houses for
sale and apartments for rent.
Where have the people gone and where arc they going?
The answer I got from one small apartment owner was that
people are moving in with parents, friends and neighbours.
Many are finding that necessity makes it possible to live in
much less spacious housing.
REPAIR PARTS
An automotive parts store reports large increases in the sale
of repair parts. People are finding out the old car can be
repaired. Even though repairs and labour are expensive, they
are much cheaper than a new car.
It is going to be extremely hard on those who can find no work.
Those who have jobs will be forced to accept lower wages but
prices will be lower so they will not suffer much.
Maybe some day Canada will become practical and
manufacture using our own natural resources.
The argument that we don't have the money for industry is
pretty hard to accept when according to a recent TV program
many of the US states are forumulating legislation to restrict
Canadian investment in U.S. industry.
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THE RURAL VOICE/JUNE 1980 PG. 23