April 12 2003
THE BIG QUESTION
by Ian Woods
Why does the Canadian government give away 19 billion dollars each year to the chartered banks, free of charge, when this money could be used to balance the books in one year, without any more cuts, and later be used to pay down the debt?
Why should a government with the Constitutional right to create 100% of the nation’s money, give over 95% of that privilege away to a private monopoly of banks ... then borrow that same money back AT INTEREST ? This question was asked by G.G. McGeer of Graham Towers, the first Governor of the Bank of Canada, in 1939, and still has not been adequately answered by any party-in-power since then. Let’s discuss how this is possible and why the politicians-in-power refuse to answer this question with any degree of logic. But first let’s go back to where this money comes from ... namely, our Constitution.
1. DOES THE CANADIAN GOVERNMENT HAVE THE CONSTITUTIONAL RIGHT TO CREATE 100% OF THE NATION’S MONEY SUPPLY ?
The Canadian Constitution, Section 91 under Powers of Parliament states:
“ ... the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next hereinafter enumerated; that is to say, — ... 14. Currency and Coinage. 15. Banking, Incorporations of Banks, and the Issue of Paper Money.”
2. DOES THE CANADIAN GOVERNMENT GIVE 95% OR $19 BILLION WORTH OF THIS MONEY CREATION PRIVILEGE AWAY TO THE PRIVATE BANKS ?
In the quarterly publication entitled the Bank of Canada Review - Winter 96/97 - Page E1, it shows how that the Canadian money supply (M2+) has increased by approximately $20 billion per year over the last three years:
M2+ as of October 1996 $ 632.210 billion M2+ as of October 1993 — 572.677 billion --------------------------- = $ 59.533 billion increase in 3 years or Approximately $ 20 billion per year is added to the money supply.
Of the $20 billion dollars that is added to the money supply each year, the government of Canada creates less than $1 billion through its own central bank, The Bank of Canada ... The figures on Page B1 show how the Bank of Canada, in fact, created only 2/3 of a billion dollars each year over the last three years in the form of Bank Notes and Bank of Canada’s Holdings of Government Debt:
Bank NotesTotal Holdings of in CirculationGovernment Debt ----------------------------------------- December 1996 - $ 29.109 billion$ 25.380 billion December 1993 - 27.237 “ 23.437 “ -----------------------------------------
3 year increase in Bank of Canada notes $1.872 billion 3 year increase in Bank of Canada holdings of government debt $1.943 billion 1 year average amount of government created money = 2/3 of a billion dollars
The balance of the Money supply ... or about $19 billion per year ... was therefore created by another source. It was either a huge counterfeiting scheme or some other source. That source was revealed by the illustrious Graham Towers, the First Governor of the Bank of Canada. Towers was asked a series of questions in 1939 during a federal Banking and Commerce Committee meeting which plainly reveal who creates over 95% of our money:
Question: 95% of all our volume of business is being done with what we call exchange of bank deposits — that is, simply book-keeping entries in banks against which people write cheques ?” Towers: I think that is a fair statement.”
Question: When you allow the merchant banking system to issue bank deposits — with the practice of using cheques — you virtually allow the banks to issue an effective substitute for money, do you not ?” Towers: The bank deposits are actually money in that sense.”
Question: But there is no question about it, that banks create the medium of exchange ?” Towers: That is right. That is what they are for ... That is the banking business, just in the way that a steel plant makes steel. The manufacturing process consists of making a pen-and-ink or typewritten entry on a card or in a book. That is all. Each and every time a bank makes a loan (or purchases securities), new bank credit is created — new deposits — brand new money. Broadly speaking, all new money comes out of a bank in the form of loans.”
Question: Then we authorize the banks to issue a substitute for money ?” Towers: Yes, I think that is a very fair statement of banking.”
(References: Pages 76, 113, 223, 238, 285, 287 and 459 - Banking & Commerce Committee Meeting Minutes 1939) So therefore, the Canadian government has given 95% or $19 billion worth of money creation privileges away to the private banks each year for the past 3 years.
3. DOES THE GOVERNMENT THEN BORROW, AT INTEREST, ENOUGH MONEY TO COVER THE ANNUAL DEFICIT ?
1996/1997 BUDGET: TOTAL REVENUE = $ 135.5 billion (from taxation & investments) — TOTAL EXPENSES = 154.5 billion (of which 45.5 B is interest) (Source: Ministry of ---------------- Finance of Canada) = THE DEFICIT — $ 19.0 billion (amount gov’t plans to borrow)
So therefore, the Canadian government will borrow ... that which it could create itself ... (namely 19 billion dollars), back at interest, which will simply increase the National Debt.
4. DOES THE GOVERNMENT NEED TO BORROW TO FINANCE ITS DEFICITS ?
According to authors Professor Gordon F. Boreham and Richard H. Leftwich, in a University Economics textbook called Economic Thinking in a Canadian Context, (Page 389) there is no need to increase the National Debt in this manner. Keeping in mind, that the money supply needs to grow by a certain amount every year, here is what they have to say:
The printing of new paper money to finance a deficit has the virtue of not increasing the interest-bearing debt of the federal government. It achieves approximately the same results as does borrowing through the sale of government bonds to the central bank; that is, it increases the money supply. Nevertheless the idea of the government printing new paper money to finance a deficit is appalling to most people — primarily because they have seen countries misuse the printing press, flooding themselves with money and creating runaway inflation and financial chaos. The conclusion is that the printing press is at fault when the blame should be placed on those responsible for using it. Guns or automobiles are also dangerous in the hands of irresponsible people.
The practice of actually printing new money when an increase is needed in the money supply is as sound economically as the practice of creating new bank deposits through the sale of government bonds to the central bank and to chartered banks with excess reserves. The soundness (or unsoundness) of either method rests entirely with those responsible for using it — that is, with federal Department of Finance officials, Bank of Canada officials, and Parliament. The direct printing of new money has the virtue of increasing neither the national debt nor the annual interest charges on that debt. Its use requires both responsible conduct and a great deal of knowledge on the part of the Finance Department and Parliament, but these requirements already rest on both.
There appear to be two reasons why many people prefer the debt-increasing method of financing deficits. First, it is not generally understood that the money supply is increased in the process. This reason obviously has no merit. Second, those who do understand the process of money creation hope that adverse reactions to the total size of the national debt will serve to control the extent to which new money is created. The debt itself is thought to force those responsible for increasing the money supply to act with restraint.
Two final observations are worth stressing here. First, over time the national debt could be paid off rather easily if this were genuinely desired. All the elements of the process have been discussed above. Growth in the volume of goods and services being produced in the economy generates a need for a growing money supply. The additional money could be created by the government via use of the printing press and injected into the economy through debt retirement, or the paying off of maturing government bonds, in whatever amounts are consistent with economic stability. Second, this method is not associated with the acceptance of “social credit” economic theory. It is presented solely as an alternative to borrowing to finance budgetary deficits.
5. WHY THEN, DOES THE GOVERNMENT INSIST ON BORROWING WHEN IT DOESN’T NEED TO ?
On May 12th, 1997, The CBC TV’s National Magazine addressed the reason on a special program entitled, The Dangers of Money and Influence ... When corporations donate, do they expect something in return ? On the show were Jean-Marc Hamel, Former Chief Electoral Officer of Canada, Greg Vezina, author of Democracy, Eh? and Joseph Wearing, Professor of Political Studies from Trent University. The program started with a short documentary in which Brian Stewart, the host, explained the following using various graphs:
The 90's have been marked by a surge in corporate donations [to the mainstream political parties]. In the first 6 years, 70 million dollars poured into Liberal and Conservative coffers. Reform and the NDP got only modest amounts from business. And, look how corporate money flows with power. Up to ‘93, the Tories usually raked in about twice as much as the Liberals. But after ‘93, the flow abruptly reversed. And as investment firms and banks are the top contributors, critics say, it’s no coincidence government is following a more right wing pro-business agenda in the 90's.
Stewart: Is there anyone who believes that corporations don’t give lots of money to buy, basically, ‘ influence’ ? Hamel: There is nothing new there. It has always been the case. In fact, in years gone by, it used to be done in a very discreet way, if I may use this term. Now, at least, with this new legislation and with the disclosure provisions, we know who gives to whom. Stewart: Are they able, in fact, to buy influence and access ? Vezina: The lobbyists write the legislation that the politicians pass for the banks. The banks in Canada have more preferential treatment than banks in any other jurisdiction in the Western industrialized world. It isn’t an accident.
2. HOW DOES THE GOVERNMENT GET AWAY WITH SUCH ILLOGICAL ACTIONS AS BORROWING MONEY IT COULD CREATE ITSELF ?
Simply by salting the media with false fears of national disaster, such as: a. calling it ‘printing press money’ which is ‘wildly inflationary’ b. suggesting that the international markets would hammer the Canadian dollar c. claiming that the banks would then have to raise interest rates d. saying it’s best to leave that business to a private body not subject to political expediency.
7.WHY, THEN, DOES THE GOVERNMENT WITH THE POWER TO CREATE MONEY GIVE THAT POWER AWAY TO A PRIVATE MONOPOLY OF BANKS ?
Because a government which is run by ‘party politics’ is easily bribed by the moneyed interests to give away that power. It’s the same old story, “He who pays the piper, calls the tune”.
AND WHY DOES THE GOVERNMENT BORROW BACK, AT INTEREST, THAT WHICH IT COULD CREATE ITSELF, TO THE POINT OF NEAR BANKRUPTCY ?
Because most people are unaware, or too apathetic to care, that a secret ‘private mint’ banking scam is going on behind their backs. And now you know the rest of the story. o
MADE IN CANADA
R.R. # 2, SHANTY BAY, ON L0L 2L0 WWW.MONETARY-REFORM.ON.CA
Well - no big secret why they don't want to talk about this, MPs or newspapers. Criminals generally avoid answering direct questions about their criminal activities in the past.