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Mr. Johnstone asks for plain answers to two questions. Here they are: Every advance or purchase of securities by a trading bank results in a corresponding increase in deposits. The former are bank assets and the borrower's liability, while the latter are bank liabilities and*at the same time an asset of each depositor. On the one hand, therefore, the banks secure at no cost-to themselves an interest-bearing asset, while on the other hand (as Mr. Johnstone contends) this is equalled by an obligation to a depositor. In respect of this obligation, however, the trading banks do not pay interest unless the new money happens to be placed on fixed deposit The second question is typical of the tactics of most apologists of orthodoxy —the weak defence of ridicule. Any roa9onable individual would agree that there is every justification for both an interest charge and a service charge to enabie banks to meet their administration expenses and pay reasonable dividends. The people of to-day are also well aware of the fact that the banks charge interest on money which they create out of nothing, and there is an insistent public demand that banks should lend depositors' money only. That this can be done by a very simple alteration to banking practice is well known to the controllers of such institutions, and their very singular reticence on this point is doubtless prompted by reluctance to give up their most powerful weapon—the means to expand and contract the supply of -money, without regard for the most elementary principles of economic stability, or for the welfare of the great mass of the people. WALTER S. OTTO.

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Bibliographic details

MONEY DANGERS, Auckland Star, Volume LXXVI, Issue 179, 31 July 1945

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MONEY DANGERS Auckland Star, Volume LXXVI, Issue 179, 31 July 1945