Global Research/Professor John Ryan: Monetary Policy, Money Supply and The Bank of Canada

Global Research
    Monetary Policy, Money Supply and The Bank of Canada
The Bank of Canada Should Be Reinstated To Its Original Mandated Purposes
By Professor John Ryan
Global Research, March 29, 2018
Canadian Dimension 21 March 2018
Region: Canada
Theme: Global Economy, History

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Few people understand the Canadian government’s relationship with the Bank of Canada or the nature of the Bank’s original raison d’être. Back in 2011 a lawsuit had been filed in the Federal Court by the Committee on Monetary and Economic Reform against the Government of Canada and the Bank of Canada. The lawsuit attempted to:

    [R]estore the use of the Bank of Canada to its original purpose, by exercising its public statutory duty and responsibility. That purpose includes making interest-free loans to the municipal/provincial/federal governments for ‘human capital’ expenditures (education, health, other social services) and/or infrastructure expenditures.

After nearly five and a half years of contentious litigation, after five court hearings resulting in contrary decisions, on May 4, 2017 the Supreme Court of Canada declined to hear the appeal case, in “deference” to the political process, i.e., their decision was that the matter appeared to be more of a political issue than a judicial one. However, strong arguments can be made to the contrary and further court procedures may still take place. But in the meantime, since it appears that the issue at present cannot be resolved through a judicial process, there is now an urgent need to deal with this in the political arena.

The Bank of Canada was established as a private bank in 1934 under private ownership but in 1938 the government nationalized the bank so since then it has been publicly owned. It was mandated to lend not only to the federal government but to provinces and municipalities as well. To help bring Canada out of the Great Depression debt-free money was injected into various infrastructure projects. With the outbreak of World War II, it was the Bank of Canada that financed the enormously costly war effort – Canada created the world’s third largest navy and ranked fourth in production of allied war materiel. Afterwards, the Bank financed programs to assist WW2 veterans with vocational and university training and subsidized farmland.

For the next 30 years following World War II, it was the Bank of Canada that helped to transform Canada’s economy and lift the standards of living for Canadians. It was the Bank that financed a wide range of infrastructure projects and other ventures. This included the construction of the Trans-Canada highway, the St. Lawrence Seaway, airports, subway systems, and financial assistance to a corporation that placed Canada in the forefront of aviation technology – a project that was scuttled and destroyed by a controversial federal government decision. In addition, during this period seniors’ pensions, family allowances, and Medicare were established, as well as nation-wide hospitals, universities, and research facilities.

The critical point is that between 1939 and 1974 the federal government borrowed extensively from its own central bank. That made its debt effectively interest-free, since the government owned the bank and got the benefit of any interest. As such Canada emerged from World War II and from all the extensive infrastructure and other expenditures with very little debt. But following 1974 came a dramatic change.

In 1974 the Bank for International Settlements (the bank of central bankers) formed the Basel Committee to establish global monetary and financial stability. Canada, i.e., the Pierre Trudeau Liberals, joined in the deliberations. The Basel Committee’s solution to the “stagflation” problem of that time was to encourage governments to borrow from private banks and end the practice of borrowing interest-free from their own central banks. The effect of such a change would remove a powerful economic tool from the hands of democratic governments and give such control to a cabal of foreign bankers. This was one of Milton Friedman’s radical free-market ideas.

At that time Prime Minister Pierre Trudeau, under influence of fellow Bilderberg attendees, somehow accepted this partisan flawed logic from the world’s top banks and allowed the function of the Bank of Canada to be dismantled. Worse still, without informing Canada’s parliament, Canada’s government then secretly and immediately stopped borrowing from the Bank of Canada. This was such a fundamental change of policy that it should not only have been debated in Parliament, this should have been put to a national referendum. Strangely, even when this became known, this was apparently never questioned by the opposition parties, especially the NDP, and never revealed in the media. Strange indeed.

Since then, Canada has lost sovereign control over its monetary policies and money supply. As a result, Canadians have been saddled with government debt at all levels – debt that has risen exponentially since 1974. During the time that the Bank of Canada provided additional money, interest-free, to federal and provincial governments when it was needed, according to data supplied by Jack Biddell, a former government accountant, the federal debt remained very low, relatively flat, and quite sustainable during all those years. (See his chart below.) In fact, in 1974 the country’s debt totalled only 18 billion dollars. When Canada stopped relying on its own bank it launched the country on a staggering deficit accumulation path. In 2016/17 the combined federal and provincial debt was $1.4 trillion. It’s estimated that perhaps half of this is the result of compound interest charges to private banks.

Image: A history of Canada’s debt, using or not using the Bank of Canada. Photo by Jack Biddell

Biddell’s chart, although dramatic, understates the actual reality since it shows a debt of $523 billion in 2005 – in 2016/17 the debt was more than twice this figure, being $1.4 trillion.

The debt curve that began its exponential rise in 1974 tilted toward the vertical in 1981, when interest rates were raised by the U.S. Federal Reserve to 20%. At 20% compounded annually, debt doubles in less than four years. Canadian rates went as high as 22% during that period. Canada has now paid over a trillion dollars in interest on its federal and provincial debt—nearly twice the actual debt itself. A further example of this is that in the early 1990s, at the height of the media’s deficit hysteria and the demand to cut social programs, 91 per cent of the $423-billion debt at that time was due to interest charges. Our real debt – revenue minus expenditures – was just $37 billion.

Although other points could still be presented, or some matters debated, the essence of this issue has been made clear. What now remains are a series of questions that need answers. Why did the federal government oppose the lawsuit in Federal Court that tried to force a restoration of the Bank of Canada to its mandated purposes? The lawsuit wanted the Bank of Canada to provide interest-free loans to the federal, provincial, and municipal governments, as provided for in the Bank of Canada Act. Why did the government oppose this? Was the government’s opposition to the lawsuit based on an agreement that may have been made by Prime Minister Trudeau in 1974 with Bank for International Settlements to henceforth not borrow money at no interest from the Bank of Canada?

Why did the Bank of Canada oppose the lawsuit that would have reactivated its ability to lend money at no interest to the government as mandated under the Bank of Canada Act?

After its meeting with the international bankers’ Basel Committee in 1974, the federal government proceeded to borrow money, with interest charges, from private banks and stopped dealing with its own bank that had no interest charges. This was done in secret and without the approval of parliament. Once this dereliction of duty to parliament and Canada’s people became known, why didn’t the opposition parties, especially the NDP, complain and make a major issue of his matter?

Why is it that Canada’s mainstream media has never brought any of these matters to the public’s attention? After the Supreme Court declined to deal with this case, citing specious reasoning that this was more of political issue than a judicial one, the media boycotted the story and therefore hardly anyone in Canada knows of this case. Canada’s top constitutional lawyer Rocco Galati who handled this lawsuit has always gotten major media attention, except for this case, which he considers to have been his most important lawsuit. Prior to this, Galati had been best known for stopping the Supreme Court appointment of Judge Marc Nadon, whose nomination had been put forward by Stephen Harper. Although Galati is unable to identify his sources, he states that he was informed that the government instructed the mainstream media to give this case, and prior lawsuits on this matter, limited coverage. And they complied. The story trickled out through alternative news sources.

In the course of five court hearings dealing with this case, Rocco Galati, as the lead lawyer, maintained that since Canada joined the Bank of International Settlements all their ensuing meetings have been kept secret. Their minutes, discussions and deliberations are secret and not available nor accountable to Canada’s Parliament, notwithstanding that the Bank of Canada policies emanate directly from these meetings. As Galati has stated: “These organizations are essentially private, foreign entities controlling Canada’s banking system and socio-economic policies.” As such, private foreign banks and financial interests, contrary to the Bank of Canada Act, dictate the Bank of Canada and Canada’s monetary and financial policy.

During the course of these court hearings, all these matters have been revealed and made crystal clear, but the mainstream media have effectively ignored these proceedings and have never revealed any of this vitally important information to the Canadian public. Why?

Although resolutions calling for a return to government borrowing from the Bank of Canada instead of the private banks have been passed at NDP conventions, it does not appear that the NDP has ever pursued this matter in Parliament. Why is this? This is a fundamentally important question. Has this been the result of lack of sufficient information or has there been some other reason? The NDP should pose the questions I have raised in this article in Parliament, and demand answers.

Since the Supreme Court has refused to hear the case, contending that this is more of a political issue than a judicial one, and before the case is pursued further in the courts, surely it behooves the NDP to pursue this matter. Not just pursue it, the NDP should make this a cause célèbre! Although the NDP is now in a distinct minority in Parliament, they should nevertheless pose questions to the government about its position on this critically important matter. Let the government try to defend its position, which in many ways is untenable and certainly not in the best interests of the Canadian public. The media would then have no choice but to reveal this to the public.

In any case, this issue should become a major plank in the NDP platform. If properly and fully pursued it could be of great help in getting support from the electorate. As it stands, it seems that the international banking cabal appears to have such a grip on Canada’s current capitalist government that it has refused to act in Canada’s best interests. As in the case of getting Medicare enacted in Canada, it may be up to a social democratic party to eventually get the Bank of Canada reinstated as the country’s bank.

John Ryan, Ph.D., is a retired professor of geography and a senior scholar at the University of Winnipeg.
The original source of this article is Canadian Dimension
Copyright © Professor John Ryan, Canadian Dimension, 2018

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Articles by: Professor John Ryan

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