Time to rethink government financing

Mar 27 • Letters to the EditorNo Comments on Time to rethink government financing

Sir: “We’re spending interest each month that does nothing for patient care.” This quote by Rob Devitt is from the front-page article of your Jan. 26 edition, “Cash problems at CKHA.”

Since many of your articles deal with the difficulties arising from lack of financing (even your editorial in this issue is entitled “Budget choices await”), perhaps your paper ought to consider publishing a feature article about money and its creation. Money is an essential commodity, yet few people understand where it comes from.

New money, with the exception of coinage, is created not by our government, but by the private banking system. This happens each time a new loan is issued, as stated many decades ago by Graham Towers, the first Governor of the Bank of Canada.

Because banks operate on the “fractional reserve” system of banking, only a small percentage of outstanding loans are covered by reserves on deposit. In other words, money is created out of thin air and borrowers are charged interest for its use. Nice work if you can get it.

Our central bank, the Bank of Canada, became a publicly owned entity in 1935. The Bank of Canada Act mandates that federal and provincial governments borrow from the Bank of Canada for the legitimate needs of the Canadian people at zero interest. This is how Canada paid for its entry into the Second World War, the St. Lawrence Seaway project and the construction of the Trans-Canada Highway.

The Bank of Canada created or printed the money and the Federal Government spent it into existence!

Around 1975, the Bank of International Settlements (Switzerland), the central bank of central banks, declared that governments under its sway could no longer use their central banks for financing, but instead, had to borrow from private sources. The Canadian government acquiesced, and by doing so, gave private banks monopoly over money creation in Canada.

For a period of 40 years (1935 to 1975), Canada maintained a manageable debt level with modest inflation. Since 1975, its debt has risen exponentially (compound interest) to the point that Canada now pays over $60 billion in annual interest to private debt holders. Our governments tax Canadians accordingly for an expense which is largely unnecessary.

Had our governments thought about finance then, the way they do now, projects like the Trans-Canada Highway and the St. Lawrence Seaway would have been nonstarters. Nor would we have reaped the benefits that these mammoth projects have brought.

Currently, our overstressed health-care system, as exemplified in your front-page article, could use a figurative shot in the arm … of cash. A healthy population is a more productive one.

Let’s bring back the role of the Bank of Canada in government financing again.

More information on this topic is available from the work of Ellen Brown, “Web of Debt,”  as well as former Lester Pearson and Pierre Trudeau cabinet minister, Paul Hellyer, “The Money Mafia.”

Paul Miller

Former Chatham resident

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