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In writing on this matter your correspondent, J. P. Lomax, is demonstrably incorrect in his major statements. In dealing with the procedure for trading bank investment in Government loans, he states that the trading bank "gives a cheque on the Reserve Bank and the amount is paid out of liquid assets." The facts are:—(l) The trading banks seldom purchase their securities in this manner; (2) Even if they did so, the result in every instance would still be the same as if the securities were purchased on the open market—entirely new money would be created and put into circulation at no cost to the trading banks. What Mvould happen under such circumstances would be a temporary depletion of the "cash reserve" of the trading banks and a temporary increase in the deposit account of the Government with the Reserve Bank. On completion of the clearing cycle in respect of cheques drawn on the Government deposit account, however, both these accounts would be restored to their original level, and at the same time deposits with the trading banks (money accessible to the people) would be increased to the same extent. Finally, may I point out that any reputable public man sucn as Mr. Kelliher does not make statements without due consideration, and in classifying his remarks as "hopeless bilge" Mr. Lomax places himself in the position where an unqualified retraction appears to be a matter of courtesy.


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Bibliographic details

MONEY DANGERS, Auckland Star, Volume LXXVI, Issue 170, 20 July 1945

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MONEY DANGERS Auckland Star, Volume LXXVI, Issue 170, 20 July 1945

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