Canada's Central Bank: Is there hope for Canadians?
Canada's Central Bank: Is there hope for Canadians?
[Editor's Note: The following letter and preamble by Richard Priestman is a welcome addition to the ongoing debate surrounding Canada's overall economic situation with respect to our nation's growing debt to private banking consortiums.]
Preamble to letter by Richard Priestman
The attached letter shows how much the interest on public debt is costing each and every Canadian, and how we pay these costs through taxes, cut-backs in services, deteriorating infrastructure and lost jobs. It shows how these costs could be reduced, the influence of the financial sector on government policy decisions and what individual Canadians can do to change things by demanding a commitment from electoral candidates to support a specific policy in order to get their votes. If, in a given riding, no party candidate will make such a commitment community members could find and support an independent candidate. To this extent it would be "reinventing democracy".
This letter along with the attached is being sent to as many as possible with the suggestion that they forward it to their contacts and ask them to forward it to others with the same suggestion. If enough participate it could "snow ball" and reach millions of Canadians in time to affect the next election.
Would you be interested in sending it to some of your contacts?
Is There Hope For Canadians?
The way things are
Canadians paid $165 million per day in 2010 in unnecessary interest on federal, provincial and municipal debt.
We pay these costs through taxes of all kinds and fees for public services.
We pay in kind through cut-backs in public services such as education, health care, and support services.
We pay through the deterioration of infrastructure such as roads, sewers, water lines and affordable housing.
The 1.5 million unemployed pay through the loss of their jobs.
Public debt interest amounts to a little under $5 ($4.85) per day for every man, woman and child in the country. For a family of four that’s about $20 ($19.40) per day or $136 per week, every week, all year long.
(These figures are easily verified by Statistics Canada, Canadian Economic Observer: Historical Statistical Supplement; http://www.statcan.gc.ca/pub/11-210-x/2010000/t008-eng.htm Table 1.3-1. You will see there that interest on the public debt in 2010 amounted to $60.2 billion or $165 million per day.)
Could this be changed?
The federal government could reduce the interest paid on public debt by borrowing more from the Bank of Canada, at near zero cost, and less from private sources. This would lead to a reduction in the profits of the commercial banks and less income for holders of government bonds, but most Canadians would benefit. More importantly the savings could be used to reinstate those services which have been cut back and to create good jobs for at least some of the 1.5 million Canadians currently walking the streets looking for work.
So, why aren’t we doing this?
Government's indebtedness to private financiers gives that sector undue influence on government policy decisions. The federal government is up to its neck in debt ($519 billion, March 31, 2010) and when you owe that much it’s not so hard to choose between the wants of your creditors and the needs of ordinary Canadians. It is not in the interests of banks and wealthy bond holders for government to borrow from the Bank of Canada, and because government has become dependent on private sources of capital for most of its financing it gives precedence to their opinions.
There is hope, but only if we reduce the influence of private financiers by voting for politicians who support using the Bank of Canada for financing public debt to invest in public services and infrastructure. It is up to each one of us to act.
Richard Priestman President,
Committee on Monetary and Economic Reform
Misinformation leads to lower quality of life!
The Minister of Finance believes that government borrowing from the Bank of Canada causes inflation, but is he right? In a letter to Len Skowronski, Leader of the Alberta Social Credit Party, Minister Flaherty says (July 11, 2011),
" .... the Bank of Canada could create the money that it loaned to the Government (by printing currency for that purpose or by creating new deposits for the government at the Bank of Canada). While this would help to finance government spending, it would do so in just the same way that printing and spending new money does. As a result, this method of financing is inflationary.
“International experience has demonstrated time and time again that low-interest lending from the central bank to the government erodes the value of a country’s currency. Other nations that have relied extensively on low-interest credit extended from central banks or printing money have experienced very high inflation and its costs.”
Not everyone agrees with Minister Flaherty. According to the Bank of Canada most of our money is created by commercial banks and other financial institutions through loans made to individuals and businesses. "In that sense, financial institutions create, or can create money." (1) “… money creation is money creation – whether by a private bank or the Bank of Canada”. (2) Those who claim it is inflationary when the Bank of Canada creates money, but not when private banks do the same thing should be required to explain why, not simply declare that borrowing from the Bank is inflationary. In fact Canadian history shows that, with adequate controls and regulations, borrowing from the Bank of Canada has not been inflationary.
“When the Bank of Canada was brand new back in the 1930s, it produced most of the money supply from 1935 to 1939, and 62% of new money during the last years of World War II. This policy gave Canada the highest employment rate it has ever had, very low interest rates, and very low inflation. “After the war years and up to the mid-1970s, the Bank of Canada traditionally created enough new money to absorb (or “monetize”) between 20% and 30% of the federal government deficit. Since the bank’s conversion to monetarism in 1975, however, it steadily reduced its share of the deficit and therefore the broadly defined money stock.” (3) The result: three serious recessions, an explosion of debt, drastic cutbacks in public services and deterioration of public infrastructure.
We don’t need to repeat the experience of other nations which have had very high inflation resulting from low-interest credit extended from their central banks. We can learn from our own experience, avoid these problems and use Bank of Canada financing of public debt to improve the quality of life of all Canadians.
There is hope, but only if we elect politicians who support using the Bank of Canada for financing public debt to invest in public services and infrastructure.
(1) Bank of Canada - Backgrounders, Canada's Money Supply “…. bank notes issued by the Bank represent only a small portion of all the money circulating in the economy at any one time. The bulk of the money supply consists of deposits that the public holds at financial institutions.“ "Commercial banks and other financial institutions provide most of the assets used as money through loans made to individuals and businesses. In that sense, financial institutions create, or can create money.”
(2) Harold Chorney, Assoc. Professor of Political Economy and Public Policy, Concordia University, Montreal; John Hotson, Professor of Economics, University of Waterloo; Mario Seccareccia, Assoc. Professor of Economics, University of Ottawa, - The Deficit Made Me Do It, p.9
(3) ibid, Harold Chorney et al, p.9
(1) “If the Bank of Canada had to borrow the funds that it loaned to the Government, it would have to pay whatever interest rate prevailed in the market to get those funds. Accordingly, it could not afford to re-lend the funds to Government at low or zero interest.” Jim Flaherty, Minister of Finance, July 11, 2011
First, it is confusing to talk about the Bank of Canada borrowing funds to lend to Government. When the Government decides to borrow it does so through the sale, by the Bank of Canada on behalf of the government, of interest-bearing Government of Canada bonds and treasury bills. Some of these will be bought by the Bank of Canada, and when this occurs the Government will pay whatever interest is charged, but practically all interest paid reverts to the federal government, the sole shareholder of the Bank, as dividend.
William Krehm, Meltdown – Money, debt and the Wealth of Nations, vol.2, p. 123: “When the Bank of Canada holds federal debt the interest paid on it returns to the government as dividends. For the Government has been the sole shareholder of the BoC since 1938.” p. 162: International Monetary and Financial Economics, Joseph Daniels and David VanHoose, (p. 241): “Most governments have at least partial ownership of their nations central banking institutions. Furthermore, all governments receive at least a portion of the profits generated by central banks.”
(2) Statistics Canada, Summary Tables, Employment and unemployment 2010 http://www40.statcan.ca/l01/cst01/LABOR07A-eng.htm Unemployment - 1,484,100 Rate 8.0 (1.5 million people) Labour population - 18,525,100 (at .08: Unempl - 1,482,008)
(3) Annual Demographic Estimates: Canada, Provinces and Territories http://www.statcan.gc.ca/pub/91-215-x/2010000/t002-eng.htm Table1.1-1 Annual population estimates, July 1, 2010 - national perspective - 34,109,000