Call for Renaissance of the Bank of Canada
We, the People, citizens of Canada, and civil society organizations, who work for public welfare in Canada, depending heavily on dedicated volunteers, are constantly frustrated in our efforts to obtain government funding to meet urgent human and environmental needs. We are repeatedly informed that there is never enough money available, and that now we are entering a period of inescapable austerity required to overcome growing public debts. We are told that public funds – essential for infrastructure repair, for health and medical care, for education, for poverty reduction, for social justice, and for environmental protection – not only cannot be increased despite urgent unmet needs, but must be cut, and public assets for providing public services, must be privatized.
We are deeply concerned about government deficits and debt, and also about the heavy personal debts borne by Canadian citizens. Indeed we believe that governmental and personal debt should be taken far more seriously, and dealt with by far more radical means than the usual austerity programs involving cuts to social programs and privatization. Such measures have already been experienced as profoundly unjust. They shift debt burdens to individual Canadian citizens, especially to the most needy, bankrupting and impoverishing many.
Meanwhile, we see that wealthy individuals and corporations receive tax cuts they do not need, and that they often use tax havens to escape such taxes as they do owe. Lowering taxes for the rich is regularly justified by the argument that they invest their savings to create employment, but we see little evidence to support this claim. We see further that our federal government makes billions available for a controversial war, for expensive, inappropriate new weapon systems, and for unnecessary new prisons, while poverty and environmental damage continue to increase. A just tax system, wisely spent, could go a long way toward promoting the human and environmental welfare to which we are committed. But changes in our tax system are not enough to deal adequately with our debt problems.
Crucial to our governmental debt problems is the fact that our governments at all levels borrow from private banks and from other private money-lenders, and pay interest on these debts. Each year governments across Canada presently pay some $60 billion in interest on their debts, and as these debts increase, with interest rates probably rising, this enormous annual burden for taxpayers will increase. But this interest expense is not necessary.
Through our publicly owned Bank of Canada, which was established in 1935, the federal government has the power to borrow money in huge quantities essentially interest-free, and to make such funds available not only for its own use, but also for provincial and municipal expenditures. Such borrowing helped Canada to get out of the Great Depression, and to finance its participation in World War II. Continuance of this practice until about 1975 played a key role in creating Canada’s post-war prosperity and in making possible its social programs.
As federal governments, which control the Bank of Canada, increasingly catered to the private commercial banks, this practice greatly declined. Governments at all levels throughout Canada increasingly had to resort to borrowing from the private banks and other private moneylenders, including foreign sources. Moreover, the Bank of Canada in the late 1970s began raising interest rates as its primary tool for fighting inflation, driving the economy into recession in the early 1980s and again in the early 1990s. These changes from the original mandate of the Bank of Canada, combined with tax reductions for the wealthy, rapidly increased the debts of governments at all levels, and served as an alibi for implementing major cuts to social programs. Following some recent federal government economic stimulus in the current recession, the stage is now set for even more devastating cuts to our valued public services.
In line with policies pursued through the Bank of Canada during its first four decades, our federal government could revive the powers of the Bank of Canada to replace gradually interest-bearing debt carried by governments at all levels with interest-free debt, and could make available interest-free loans for new projects. This change in monetary policy, combined with changes in tax policy, would make available each year tens of billions of dollars urgently needed for actions, which can only be taken by governments, to protect our environment from such dire threats as global warming, to rebuild and to improve our public infrastructure, and to strengthen social programs meeting human needs – notably medical care. Through such interest-free loans for infrastructure, for example, our governments, instead of paying for interest that could double or triple their investment expenses, could be paying only for the principal, thus freeing tax income for other programs. Moreover, government-funded construction would create jobs, stimulate additional economic activity, and significantly increase tax receipts.
Those who oppose the revival of this monetary policy invariably charge that it would be inflationary, even though it was managed in the past without significant inflation. As the government through the Bank of Canada creates growing quantities of our money supply, the power of private banks to create money needs to be restrained, as was possible until 1991, when the reserve requirement for the private banks was surreptitiously removed from the Bank Act. This provision to the Bank Act needs to be restored to prevent inflation, as can readily be done.
We, the People, citizens of Canada, and civil society organizations, who work for public welfare, call on our federal government to revive the powers of the Bank of Canada to provide funding to all levels of government in Canada, largely with interest-free loans, as was done between 1935 and 1975 with very low inflation, enabling our nation to break out of the Great Depression, to fulfill extraordinary responsibilities during World War II, and to prosper while building our infrastructure and highly valued social programs during some thirty post-war years. We Canadians now urgently need a renaissance of these powers of our Bank of Canada.
Endorse the Call: comer.org/projects/form.htm
Note: Our understanding of what is meant by “civil society organizations” will be interpreted broadly to include not only non-governmental organizations working for such causes as social justice, environmental protection, health and medical care, improvement of education, poverty reduction, and peace, here in Canada and abroad, but also to include unions, whether private or public sector, religious organizations, and even municipal councils, provincial governments and political parties. Through unifying our many voices in the “Call”, all of us are strengthened in efforts to pressure our federal government to implement the urgently needed changes in monetary policy. We encourage each endorsing organization to post its support for the “Call” on its own website, with a link to the COMER website. Indeed we would be happy to have any other endorsing organizations, especially those at the national level, also to list all endorsers. The more visible the “Call” becomes, the more effective it can be.
ADDITIONAL REASONS FOR SUPPORTING THE CALL
The text of the Call for Renaissance of the Bank of Canada stresses extraordinary prospects for using the Bank of Canada, as was done in our past, for coping with existing government debts while providing abundant funding to meet public needs. But there are additional compelling reasons for reviving these long neglected powers of the Bank of Canada. With our Bank of Canada creating money for public benefit as called for here, we could begin to reverse the entire range of damaging problems which are fundamentally rooted in our presently prevailing destructive money system, and which imperil our future. The changes we seek could not only provide funding to meet public needs, but could also contribute powerfully to ameliorating in other ways the very problems that our civil society organizations are working so diligently to overcome. As we bring to awareness the full range of damaging dynamics operating in our money system, we are enabled to recognize all the more clearly how urgently change is needed.
To begin with, it is essential to recognize that nearly all the money presently in circulation in Canada (and throughout the capitalist world), about 97%, the money all of us must use in order to carry out daily economic transactions, has not been supplied by governments, as is widely believed, but has come into being as loans made by private banks. Without private-bank lending we would have hardly any money at all, and our economy would be virtually paralyzed. And where do the banks get the money they lend? They create it out of nothing! When borrowers are granted loans, the banks create brand new money simply by making computer entries in the accounts of the borrowers. But of course when the banks make loans, they require that we borrowers put up valuable collateral, and if we fail to pay back not only the principal of the loan but also the interest, they take over our collateral – as they are presently doing on a massive scale in the U.S., with little regard for the suffering they are causing. This is the kind of power the private banks have been granted. It involves a highly unjust concentration of power, amenable to prodigious abuses like those which brought on the 2008 financial meltdown in the U.S.
But this is not the worst of it. When our private banks create nearly all our money supply by lending it into existence, they create money for the principal of their loans, but do not create money for the interest that they require to be paid. This is the most fundamental and far reaching of the afflictions with which our present money system plagues every aspect of our society. Its impact is all the more devastatingly potent because it operates silently and invisibly, unobserved and unnoticed, beneath our awareness, and outside our consciousness. Borrowers – individuals, businesses, governments – urgently need money to pay interest on their loans. But money for interest has not been created. We have a debt-money system. Hardly any debt-free money – money free from the requirement that interest be paid – exists. Borrowers are thrown into competition with each other to obtain money which has been created only as principal to pay back both principal and interest, and also to have additional money for their own use. Moreover, those who owe little or nothing are dependent on this same money supply, which has been created as debt, and they, too, join the competition for use of this limited supply of money.
So where can additional money be obtained? One possibility is through the sort of economic growth which depletes the resources of our finite global ecological system. Thus our money system promotes environmental destruction by stimulating a drive toward unsustainable economic growth. Where else can additional money be obtained? Through further borrowing from the banks at further interest, further exacerbating the problem. Some people, especially the economically more vulnerable, those already in or verging on poverty, unavoidably default on their loans, enabling the banks to foreclose on their collateral. Thus our money system promotes ever-increasing disparities between the rich and poor, with manifold, well-known resulting ills. The business of private banking, with its incredible access to the power to create money out of nothing, attracts ambitious careerists who become increasingly ruthless and arrogant as they exploit relatively powerless people, as we have seen in the 2008 financial meltdown.
In our society with its debt-money system, some people may go to heroic extremes to promote and to express charitable impulses. But charity can never be enough to overcome the chronic scarcity within our economy caused by lack of money for interest payments. Indeed, charity cannot thrive in the context of inescapable competition for scarce money. A pervasive economic insecurity intensifies the competition. Our debt-money system fluctuates between inflation and recession. Businesses, in order to gain money for debt payments – interest plus principal – strive in any ways possible to push up prices, and facing increasing prices on top of their own debt payments, workers press for higher wages. Inflation pressures result. As borrowings grow in the quest for money to cover interest, defaults build up and the economy collapses. Only the banks continually prosper, collecting interest while the economy expands and taking over collateral when the collapse occurs. This system constantly undermines impulses toward kindliness and caring.
Recent pressures to pay off growing government debts, in Canada, the U.S., and beyond, appears sensible, but this process brings our society neither solvency nor prosperity. As tax receipts are used to pay off debt, the banks are enriched by the interest payments they receive, further concentrating wealth and power. But the money repaid as principal is destroyed, reducing the money supply, and bringing down the economy. Paying off debt is not a viable solution to the problems of a debt-money system. The only viable solution is to break away from this debt-money system.
For Canada, the direction we need to take is clear. We need to revive use of the creative powers of the Bank of Canada to provide abundant interest-free, debt-free money to meet public needs. This practice can create conditions enabling us to move toward ameliorating the entire range of social and environmental problems endangering our future. Reviving these powers of the Bank of Canada is not a panacea. Pressures inevitably will arise to use Bank of Canada-created money for destructive purposes. The public, largely through civil society organizations, needs to become well informed about monetary issues, and carefully monitor monetary policy to assure that the powers of the Bank of Canada are democratically controlled for public welfare. Working effectively on this issue is crucial to enable our invaluable civil society organizations to progress toward reaching their humane, caring, environmentally sensitive goals.