FROM HAMILTON TO BASLE.

Waikato Times, Volume 117, Issue 19596, 7 June 1935, Page 7

FROM HAMILTON TO BASLE.

(To the Editor.) Sir, —A cynical critic In one of his books upon “More Net Profit” stated that auditors are persons employed by directors of limited companies to produce intricate accounts whereby the mistakes of directors may be covered up. It would be interesting to know bow many keen business men know how to read a balance sheet. An interesting document is the balance sheet of a bank. The description of certain items look com-mon-place. Legal tender is_ generally shown as “Cash and deposits at the Central Bank.” The next item is generally "Deposits," and these deposits are divided into “Advances” and “Securities.” The meaning of these terms are, as under: Cash, legal tender money in, the till and strongroom.

Deposits at the Central Bank are loans from the Central Bank given to private banks and secured by “collateral” —that is, Government bonds and gilt-edged securities. Deposits at the Central Bank count as cash in the sense that they can be changed j immediately into legal-tender money. , Gash and deposits in the Central Bank , are really one and the same thing. There Is a difference between them. Cash is cash. It is legal-tender money. ‘ Deposits are loans from the Central Bank, promises-to-pay money. It can call up Us loans and shorten -sail, like , all oilier banks. The effect of this ( action is to reduce the private banks’ deposits and by so doing curtail the advances by the private banks. Thus Die system by which private , banks borrow from the Central Bank enables the Central -Bank to control the private banks by increasing or decreasing Die amounts of their legaltender money. The international bankers control the exchange or balance between the imports and exports of numerous countries, and upon their demands the Central Bank retires | notes and is forced to reduce loans. To sum up the financial system, we have: Employment and profits depend on the price level; the price level de-

pends on the quantity of money; the quantity of money depends on private . bankers’ loans; private bankers’ loans ( depend on deposits at the Reserve ( Bank; deposits at the Reserve Bank depend on Reserve Bank loans; Re- , serve Bank loans depend on the move- ( monts of gold or foreign exchanges, ■ foreign exchanges can be made to de- , pend upon Die operations of the inter- i national financiers through Die Bank ] of International Settlements. Advances arc loans of promises-to- | pay money to industrialists, farmers, , etc. Securities arc war loans or other | Government securities bought by private bankers when the industrial ; market is unsafe or insecure- In good times the advances are increased; in had times securities are increased; meaning that in bad times it is the Government that borrows from the bankers, and up goes Die cry, ‘We | must balance the budget, and prob- , I ably imbalance everyone else s budget. I ‘ —I am, etc., FINANCIER. I Hamilton, June 5, 1935. |