Prince Edward Island Rustico Farmers' Bank Scrip

A Submission to the PEI Pre-Budget Consultations 2016

by Dave Patterson, January 2016

Dear Members of the Legislative Assembly on Budgetary Consultations 2016 -

(Note - if you're in a hurry and don't want to bother with 'background' stuff, as the first part of the submission deals with, you can jump here and get to the main proposal)

I have a proposal that will address your concerns concerning the 'budgetary deficit' the PEI government faces in 2016. It is a very much 'out of the box' idea, but sometimes you have to think creatively.

Let me begin with a couple of background questions, that provide some essential context to my proposal, a couple of facts that most people do not seem to be aware of, but that, if understood and considered in your budgetary considerations, could make a very significant difference to the way the Island economy is currently structured.

1. Are you aware that commercial banks create almost all of Canada's money? - they do this by creating loans. When anyone - private citizen or government - goes to a commercial bank and requests and is granted a 'loan' ('bond issue' for the government of course) - if the application is accepted, the banks simply punch numbers into their computers, and new 'credit' is thus entered into the Canadian economy - credit which can, of course, once it is in your account be transferred to another account in payment for something, or even exchanged for 'hard cash' at your bank teller or nearest ATM for most of us, so the statement 'the banks create money' is, if not 'directly' true as they cannot, of course, 'print' the 'legal tender' bills or coins we carry in our pockets, true for any practical purposes. (this is a 'fact' as I said, check it anywhere you like, nobody who knows about 'reserve banking' will dispute this fact - currently we have about $80 billion dollars in actual 'currency' in Canada, and about $800 billion in 'demand deposit' bank accounts that is technically withdrawable as 'cash' (check the figures here if you want, or any Bank of Canada or Stats Can figures) - this does not need to be a problem in and of itself, I am not going there, just pointing out how banks effectively create money)

2. So, given this fact - When a government has a financial deficit - why would it allow a commercial business, as in a privately owned banking cartel, to create credit-aka-'money' which it then borrows, at interest, creating debts and deficits for not only current but, with the wonders of compounding interest and 'interest on interest' on credit-mistakenly-believed-to-be-'money' created out of thin air, future generations to deal with, when, as the supreme and sovereign power of the land, it could simply order the creation of exactly the same credit-'money', through exactly the same process, by itself, through a government bank or similar organisation - credit-'money' which need not be created as a loan, and need not bear interest, but just created in a bank account and spent into the economy?

(and noting that in our not-too-distant past, the federal government did just that, used the Bank of Canada for some of its needs, from the 1930s when it was formed into the 1970s, during which time the Cdn government financed the second world war, massive post-WWII Canadian infrastructure development, the establishment of many 'social programs' Canadians wanted such as old age pensions and national health care - all without running up massive debts such as we have today, when commercial banks are allowed to create all of our credit-aka-'money', including creating credit-'money' for the government to borrow when it has a shortfall, as the PEI gov has now, and has for many years in the past. For a revealing look at what has happened to Canadian national government debt the last 40 years since the feds stopped using the Bank of Canada for the purpose for which it was created, and some hard questions about this policy change - Bill Abram The Crime of the Canadian Banking System)

Leading to the larger question of course - who's running our country and provinces here - do the democratically elected people's representatives (aka 'government') tell the banks what they can and cannot do via regulations made in the interests of a stable national economy, as a 'sovereign' government would be expected to do - or are the banks telling the governments what they can and cannot do??? Why are banks creating 'money'-aka-credit out of thin air and loaning it to governments at interest when the government could and should be creating that credit itself, both 'debt' and interest free? I won't get into the details here, but given the above facts, it's a pretty revealing question, if you think about it. (and there is a lot of information available now on the international internet library for those interested - some places to start looking, for any interested, would be

• Positive Money UK (they lay out the situation of how banks create money well, I don't entirely agree with their proposed solution though) -
• - a very strong talk by a lawyer named Rocco Gallati, talking about a lawsuit by a Canadian Monetary Reform organisation (COMER) to try to make the Bank of Canada and Gov of Canada revert to creating some Cdn money themselves, rather than letting commercial banks run our money and country - )
• Oh Canada the Movie
• The Money Masters
• - my own longer paper from a few years back, What Happened, laying bare the Great National Debt Scam, with lots of refs.

And I should add just a quick 'pre-emptive' aside here - if you put these questions to bankers, they will quickly respond thusly:

1: oh nononono!!! the banker will say - governments creating money is inflationary speak no more of it my silly naive children!!! But really? Why is it 'inflationary' for a government to responsibly decide it needs, say, a billion or a hundred million dollars, and then just order the appropriate financial department to create that credit in the appropriate accounts interest free, which will then be entered into the economy as 'new money' through normal government spending - but it is NOT inflationary for the same government to, instead of creating the credit-money itself, go to a commercial bank, and ask it to create exactly that same credit-'money' through exactly the same process, but as an interest-bearing loan????? Hmmmmm. No answers occur immediately .... but your banker will then follow up this not-very-compelling argument with the next not-very-compelling idea:

2: oh butbutbut!! the banker will say - silly, economically illiterate and venal politicians will create huge amounts of money to buy votes, and cause inflation, so nononono silly children speak no more of it, we bankers are experts in the field of money management and are only looking out for your own good with our learned management of your money!!! - but how contrary to 'lived reality' is that idea when you challenge the banker and just examine it a bit in the light of recent history? Look at all of our 'major' finance ministers the last 30 years (federally, Wilson, Martin, Flaherty, primarily, all provincial ones cut from the same cloth (and, one might note, certainly at the federal level not people you'd normally call either 'economically illiterate' or 'venal')), all standing tall as Great and Determined Debt Fighters!!! Cut spending! Pay down the debt! Cut spending!!! - has been the battle cry of all - and cut cut cut!!! they have all done! And, something again not many people know, at the federal level, these finance ministers have had the power all of this time to create whatever money they wanted through the Bank of Canada (and provincial governments the right to ask for nominal-interest loans) - the Bank of Canada is nominally 'at arm's length' from the government certainly, but it also *is* a government body, and at the command of the government of the day - if the government chooses to instruct the Bank of Canada to create credit, the Bank must do so. Period. (as they did from the 1930s when this institution was created until the mid-1970s as noted above, helping finance WWII, and the great advances in infrastructure and social support systems Canada enacted following WWII, with, by the 1970s, nothing more than small, easily manageable debt - the huge debts that we have today all accrued following the policy change begun in the 1970s to no longer use the Bank of Canada, but instead use commercial banks). The very idea that one of these Great Debt Fighters would 'create money irresponsibly to buy votes!!' is simply ludicrous - AND MOREOVER!!! - for the last 40 years, as mentioned, all major western governments have allowed commercial banks to create money-aka-credit at will - and look at the state of the world economy now - on the brink of total financial chaos, for one reason and one reason only - the commercial banks have been using their power to create credit virtually regulation-free (there are 'regulations' in theory of course, but obviously not enforced) and created huge amounts of credit not for growth and investment, but for massive financial speculation - it is hard to imagine that a democratic government controlling this credit creation power for the good of the people could have done any worse. So beware PEI MLAs, or anyone else for that matter, when listening to bankers trying to get you to believe only they should be allowed to create credit-money - they rather obviously have a big stake in the discussion, and their words may not be entirely honestly offered ... }}}

So, given that brief intro, the 'out of the box' idea for dealing with not only this current deficit the budgetary committee is holding its hearings on, but all past deficits, via the rapid paydown and eradication of the current past-deficits-accumulated ~$2 billion dollar provincial debt eating up some $100 million dollars of interest per year, and all future deficits.

Currently the standard 'same old same old' answers for 'dealing with the deficit' are all that is on the table: Some combination of three unpleasant choices: cut spending, raise taxes, borrow. All three are, as noted, things most people don't want to do - so let's have a big democratic discussion about how best to arrange these unwanted but necessary deck chairs.

The thing is - people don't need to be in this situation, of choosing some combination of 'evils' to deal with this 'deficit' - all of these three disagreeable 'choices' can be avoided entirely, if we simply stand back a bit out of the box, and think about who is running the place, and what options that might add, and put a 'new' and less disagreeable, even attractive, chair into the mix.

Out of the box proposal (not a really new idea, but one that has been generally 'off the table' in 'official' circles for the last 40 years, and given what has happened to government debt during those 40 years since this rather major policy change, maybe time to get back on the table) - use the Bank of Canada, or a similar provincial option, to create debt-free credit, rather than allowing commercial banks to create debt-based (and interest-bearing) 'loans' when financing shortfalls in government spending.

Leading to the Key Recommendation of this short submission that anyone looking for something new, in a situation desperate for useful new ideas, should find of considerable interest:

The Rustico Scrip

The Rustico Scrip would be a kind of credit creation by the PEI government to help meet its financial obligations, or, more specifically in the current situation, deal with its current budgetary shortfall.

This is a 'big picture' idea, so I am not going to spend pages getting into specifics, but will briefly outline 'the vision' - everything involved with the details of 'making it happen' can be worked out easily by a small group of smart people who want to make it happen and make it work, if the political will is there to do so.

What I propose is this - use the financial and legislative powers of the Prince Edward Island government to decree that from a given date, a certain percentage (I suggest 10%, could be a bit more, although if much less it gets equally less useful) of all payouts or payins of the PEI government will (payouts) or can (payins) be made in a new government scrip, name to be determined, but suggestions as above - for purposes of this presentation, I'll just call it the RFB Scrip, as the name appeals to me.

This would mean that as of the given date, all government expenses - notably all government salaries and purchases - would, by regulation, include 90% 'Canadian legal tender' as currently understood, and 10% RFB Scrip. This would give the Scrip more or less instant widespread distribution throughout the island, and acceptance, as people used it to pay for government services they had to pay for such as licenses, or taxes (with no limit, of course, anyone who is some kind of 'out in front'-er and accepts RFB Scrip for their business and has lots can pay their full government obligations in Scrip.

One would assume that given this rapid widespread introduction most Island businesses not required by law to accept the Scrip as minimum 10% payment for providing services or goods to the government would also be willing to accept the Scrip for at least 10% of their prices; it would be possible to legislate this, but of course we would prefer they accept it voluntarily - this acceptance would be made more probable by a good 'selling campaign'. Of course, many 'outliers' would quickly accept more than 10% Scrip to encourage more business,

The Scrip would need to be electronic, at least in the beginning, to avoid any of the many problems trying to create a new paper currency would involve; almost all Island businesses are of course computerized now, so all that would be required to enable transactions with the Scrip would be the incorporation of software to create the two part payment system (developed by the Government Scrip Department and provided free to all Island businesses of course) - this should not be a problem, the same idea is involved in creating invoices which separate the various taxes.

Practical figures: The 'expenditures' part of recent PEI government budgets has been in the neighborhood of $1.5 billion dollars - 10% of this would be then ~$150 million dollars of RFB Scrip entered into the PEI economy. One might note that the current projected deficit is something under $100 million, so this would be immediately covered, with much left over to put to other useful initiatives, or even move on to the next step and start retiring that massive $2 billion dollar debt - instead of turning over due debt, retire it.

(And immediate rebuttal to those throwing up their hands in horror at the idea of PEI 'creating' ~$150 million: If it is fine for the PEI gov to go to some combination of commercial banks and have them **create** (pick a number, say) $50 million dollars or more every year and spend that into the PEI economy - then why actually would it NOT be ok in exactly the same way for the PEI government, through a carefully controlled and supervised process, have a provincial credit union create exactly the same $50 million (or $150 million) and spend that into the economy????? (actually, if you start doing a 'pros and cons', you're going to find there are no real cons (well, getting the Big Banks really mad at you is probably a significant somewhat related con, but we can just stand tall like brave Islanders and challenge the bully if we're of a mind, and aside from that ...), and a lot of real pros - Island Scrip users and holders would be encouraged to support Island businesses more, this is not a 'loan' so it does not have to be paid back and there is no interest on it, there will be various business opportunities involved with the management of the Island Scrip, the managing institution could explore making Scrip loans for new Island businesses (interest-free, of course, there is no justification for charging 'interest' on credit you are just creating out of thin air - a small administration fee, maybe, but no interest), and etc))

Practical details: Virtually everyone has a 'bank card' these days, adding an RFB Scrip card to their wallet would be no problem (you could even, undoubtedly, simply modify the appropriate software to make your current card usable for its normal account or your related RFB account - or just issue a kind of prepaid 'RFB Debit Card' - many ways to handle this, for creative minds who want to make it work). Either the PEI Government could create a 'government bank' by taking over something like the Rustico Farmers' Bank, or form some kind of partnership with one of the local credit unions, to provide the accounting infrastructure for the Scrip (it's unlikely the current major banks are going to be very cooperative in this (perceived) attack on both their right to be the only source of creating money, and the attendant 'windfall' profits ('interest' on money created out of thin air is a pretty good racket), and power that goes with controlling money ...). The Scrip cards would be sent out with the first RFB Scrip payment to all employees of the government, and the program whereby those who receive money from the government for goods or services could be provided with the appropriate information on receiving their Scrip portion of their fees from the appropriate accounts.

Again, many details to be worked out, but this is an opportunity for a creative software development company on PEI to make some money as part of the start up costs. (this needs to be carefully overseen to avoid getting 3rd rate service from some form of patronage contract that will do a poor job and justify calls for the program to be scrapped before it even starts - this will be very important to the island economy, and it is very important that the software development for this program is of the highest quality - a very open and fair tendering process must be used - there are people here who could manage this very capably and we need to be sure these people get this very important job, rather than influential MLA Mikey's brother in law who needs a bit of work, as so often happens here ...).

And that is about it, for the bare bones of the concept of the PEI-RFB Scrip Proposal - this is a very doable idea, if the political vision and will are there to do something truly innovative. And, of course, the 'intestinal fortitude' to challenge the existing establishment, and the bankers who control even small economies such as in PEI at this stage of the world capitalist hegemony. The feds and their banking partners who currently control the 'money supply' in Canada, and derive great profit and power therefrom, are sure to oppose the idea of the RFB Scrip with great anger and indignation and much 'misinformation' through their corporate media if this is tried, but, again if Islanders stand tall and create the political for their government to fight for Islanders rather than continue paying blood money to those who own Canada and expect suitable obeisance through 'interest' payments on the money they create from thin air, they can be held off for a few years as the Island Scrip gets the Island economy back on its feet - there are many lawyers now in the private sector who are very willing and able to challenge the Canadian oligarchy - we could start by approaching, for example, Rocco Gallati, who is currently leading a legal challenge related to this idea - if he's too busy, he would surely know people to recommend.

If you think the idea interesting, and want some more details - I would be happy to answer any questions you have - I have been working on this kind of thing for about 30 years, and have all, I think, of the normal objections covered, as noted above with the two common immediate protests.

And if you have read this far, you must have some small receptivity to 'new ideas', and I would in closing direct you to a paper I wrote some 22 year ago with other ideas about improving the Island economy, the PEI Revival Plan , which has a lot of other suggestions of things that might be done to improve our Island economy - the problems I wrote about 20 years ago are more or less the same problems as today, and as far as I can see, nothing actually 'new' has been attempted during these 20 years, and nothing is going to change if some new ideas aren't brought into the discussion, and new initiatives tried. As one of the smart guys said - If you keep doing what you always did, you'll keep getting what you always got. I think Islanders are getting more and more ready for something a bit more original than the same old same old getting-REALLY-tired old ideas they've been hearing forever - and maybe if one of you MLAs shows a bit of vision and willingness to look outside the box, you'd be surprised at the reception you got.

Good luck to all in 2016 - and of course we all know 'good luck' is more likely to come to those who put a bit of 'hard and creative work' into things first .... we *can* have a better future, I have no doubt of that - but only if we are ready to make it happen ourselves. Continuing the policy of allowing commercial banks to create *our* money as interest-bearing debt is one sure way of staying stuck in an economic past that is great for those who control the banks, very much less so for 'we the people'.

Dave Patterson

(came here from PEI in 94, wound up staying as I had found a job I liked that paid reasonably well which I was far from sure of getting on high-unemployment PEI and I'd rather be working at something I enjoy than either working at some drudge job or trying to survive on welfare, but insofar as thinking of a place to call 'home' in Canada, PEI is it - and I will be coming back some day, and am very worried about what has been happening to my country the last few decades, and have been thinking and writing about it a lot over the years, such as this proposal)