BANKING

Otago Daily Times, Issue 21987, 23 June 1933, Page 7

BANKING

TO THE EDITOR.

Sir, —On the 15th inst., in a communication from Wellington, it was stated that the banka of New Zealand are continuing to do their utmost in assisting the Government and country generally. Mr Grose said they had afforded the Government assistance on exceptionally generous lines, despite the inequitable taxation which was imposed on them. This gentleman is chairman of the Associated Banks and is speaking on behalf of these banks—a private monopoly controlling the Government of New Zealand and the destinies of its people. The latest edition of the Encyclopaidia Britannica says: “The banks create credit out of nothing. Practically every business transaction it settled’by cheque—i.e., by a series of ledger transfers (book entries), notes and coins being but the small change.” It is true, of course, that a percentage of cash, notes, and coins is required by the banker to meet demands for cash, but, besides a comparatively small amount of silver and bronze coins in New Zealand most of our cash consists of dirty and crumpled bank notes, which are legal tender by Act of Parliament up to any amount and not convertible into gold since 1914. According to the banking returns published in the daily press shortly after last March the deposits in the commercial banks operating in New Zealand were in round figures, £52,000,000. In the same returns notes were given as £6,000,000 in round figures and coin and bullion as £5,000,000. It ia clear that as against £52,000,000 of deposits there are only £11,000,000 of cash. Of what then does the balance of £41,000,000 consist but of figures in bank ledgers? And how did these deposits originate? According to Mr Reginald M‘Kenna, chairman of the Midland Bank, himself a banker,\the amount of money in existence varies only with the' action of the banks in increasing or decreasing deposits. Every loan or overdraft creates a deposit, and every repayment of a loan or overdraft destroys a deposit. By granting loans, allowing money to be draw on an overdraft or purchasing securities, a bank creates money. - “It is but just to state,” Mr Grose said, “ that the Government has recently passed legislation permitting the banks to deduct from their taxable income bad debts actually written off, a relief long sought and hitherto denied, though it has always been enjoyed by other trading companies. It is hoped that further legislation will be passed to put the banks on the same footing for income tax purposes as other trading companies, so that a bank’s taxable income will be its actual income and not an arbitrarily arrived at, fictitious income as is the case at present.” The banks deal in money as a commodity because under modern conditions of credit it can be created with little cost. The direct wage cost upon a loan of, say, £1,000,000, is only the salary of the clerk who enters the figures during the time he takes to put pen to paper. The overhead charge is possibly heavier, since amongst other items there is the depreciation charge upon the magnificent bank premises. The banks raav contract bad debts. They are lucky in being able to write off such losses with little difficulty since loans are not made out of cash, but out of credit. The source out of which banks make loans is not savings of the banks, but the credit of the public. The public is taxed directly for all drafts upon its own credit; individuals and enterprise are at present admitted or refused access to public credit according to the decision of the bankers. Bankers create drafts by public credit and lend these drafts on their own terms. A rate of interest has to be paid to the banks during the period in which the individual or firm is permitted to draw upon public credit. The total sum lent is treated by the banks as their property and has to be repaid to them. The banks have no producing power themselves, no credit. But they have the privilege of drawing upon public credit, of lending this credit to individuals and firms, and requiring these latter to collect from the public the sum lent and to repay it to the banks. Thus, with every loan the banks appropriate public credit. In New Zealand we are not in a position to play any great part in questions of magnitude, but we must live within the national income, the real purchasing power of which has been narrowed down by forces beyond our control. Says Mr Grose: “The people must keep their heads.” Mr Forbes says “ the people have the stamina to puli through.” Both are sailing in the same boat, but Mr Grose, representing the banks, is in command. Banks exploit the fact that the life of the nation is dependent upon money. The Mayor of Auckland is credited with making the statement that the depression is artificial, for the currency contraction and deflation were deliberately initiated, and the distress which has ensued throughout the world in consequence is essentially artificial in that this distress exists in the midst of a capacity to produce abundantly all the necessities and luxuries of life. , A quotation from Ruskm in conclusion: “And this is the race, then, that we know not any more how to govern, and this is the history which we are to behold broken off by sedition, and this is the country, of all others, where life is to become difficult to the honest, and ridiculous to the wise; and the catastrophe, forsooth, is to come just when we have been making swiftest progress beyond the wealth and wisdom of the past. Our cities are a wilderness of spinning wheels, instead of palaces, yet the people have not clothes. We have blackened every leaf of English greenwood with ashes, and the people die of cold; our harbours are a forest of merchant ships and the people die of hunger. Changed conditions of the times under which wo are forced individually, and ns a nation, to suffer needless financial poverty surrounded on every side by stupendous real wealth.” —I am, etc.. Britannia of the Market. June 21.