Even the world's most resource-rich
country has now been caught in the debt trap. Its
once-proud government programs are being subjected
to radical budget cuts - cuts that could have been
avoided if the government had not quit borrowing
from its own central bank in the 1970s.
Last week in Ottawa, the Canadian House of
Commons passed the federal government's latest
round of budget cuts and austerity measures.
Highlights included chopping 19,200 public sector
jobs, cutting federal programs by US$5.2 billion
per year, and raising the retirement age for
millions of Canadians from 65 to 67. The
justification for the cuts was a massive federal
debt that is
now over C$581 billion,
or 84% of gross domestic product. (The US and
Canadian dollars are a par).
An online
budget game furnished by the local newspaper the
Globe and Mail gave readers a chance to try to
balance the budget themselves. Possibilities
included slashing transfer payments for elderly
benefits, retirement programs, health benefits,
and education; cutting funding for transportation,
national defense, economic development and foreign
aid; and raising taxes.
An article on the
same page said, "The government, in reality,
doesn't have that many tools at its disposal to
close a large budgetary deficit. It can either
raise taxes or cut departmental program spending."
It seems that no gamer, lawmaker or
otherwise, was offered the opportunity to toy with
the number one line item in the budget: interest
to creditors.
A chart on the website of
the Department of Finance Canada titled "Where
Your Tax Dollar Goes" showed interest payments to
be 15% of the budget - more than healthcare,
social security, and other transfer payments
combined. The page was dated 2006 and was last
updated in 2008, but the percentages are
presumably little different today.
Penny wise, pound foolish Among
other cuts in the 2012 budget, the government
announced that it would be discontinuing the
minting of Canadian pennies, which now cost more
than a penny to make.
The government is
focusing on the pennies and ignoring the pounds -
the massive share of the debt that might be saved
by borrowing from the government's own Bank of
Canada.
Between 1939 and 1974, the
government actually did borrow from its own
central bank. That made its debt effectively
interest-free, since the government owned the bank
and got the benefit of the interest. According to
figures supplied by Jack Biddell, a former
government accountant, the federal debt remained
very low, relatively flat, and quite sustainable
during those years. (See his chart below.)
The
government successfully funded major public
projects simply on the credit of the nation,
including the production of aircraft during and
after World War II, education benefits for
returning soldiers, family allowances, old age
pensions, the Trans-Canada Highway, the St
Lawrence Seaway project, and universal health care
for all Canadians.
The debt shot up only
after 1974. That was when the Basel Committee was
established by the central-bank Governors of the
Group of Ten countries of the Bank for
International Settlements (BIS), which included
Canada.
A key objective of the committee
was to maintain "monetary and financial
stability". To achieve that goal, the committee
discouraged borrowing from a nation's own central
bank interest-free, and encouraged borrowing
instead from private creditors, all in the name of
"maintaining the stability of the currency."
The presumption was that borrowing from a
central bank with the power to create money on its
books would inflate the money supply and prices.
Borrowing from private creditors, on the other
hand, was considered not to be inflationary, since
it involved the recycling of pre-existing money.
What the bankers did not reveal, although
they had long known it themselves, was that
private banks create the money they lend just as
public banks do. The difference is simply that a
publicly owned bank returns the interest to the
government and the community, while a privately
owned bank siphons the interest into its capital
account, to be re-invested at further interest,
progressively drawing money out of the productive
economy.
The debt curve that began its
exponential rise in 1974 tilted toward the
vertical in 1981, when interest rates were raised
by the US. Federal Reserve to 20%. At 20%
compounded annually, debt doubles in under four
years. Canadian rates went as high as 22% during
that period.
Canada has now paid over a
trillion Canadian dollars in interest on its
federal debt - nearly twice the debt itself. If it
had been borrowing from its own bank all along, it
could be not only debt-free but sporting a hefty
budget surplus today. That is true for other
countries as well.
The bankers' silent
coup Why are governments paying private
financiers to generate credit they could be
issuing themselves, interest-free? According to
Professor Carroll Quigley, Bill Clinton's mentor
at Georgetown University, it was all part of a
concerted plan by a clique of international
financiers.
He wrote in Tragedy and
Hope in 1964:
The powers of financial capitalism
had another far-reaching aim, nothing less than
to create a world system of financial control in
private hands able to dominate the political
system of each country and the economy of the
world as a whole. This system was to be
controlled in a feudalist fashion by the central
banks of the world acting in concert, by secret
agreements arrived at in frequent private
meetings and conferences. The apex of the system
was to be the Bank for International Settlements
in Basel, Switzerland, a private bank owned and
controlled by the world's central banks which
were themselves private corporations.
Each central bank ... sought to dominate
its government by its ability to control
Treasury loans, to manipulate foreign exchanges,
to influence the level of economic activity in
the country, and to influence cooperative
politicians by subsequent economic rewards in
the business world.
In December 2011,
this charge was echoed in a lawsuit filed in
Canadian federal court by two Canadians and a
Canadian economic think tank. Constitutional
lawyer Rocco Galati filed an action on behalf of
William Krehm, Ann Emmett, and COMER (the
Committee for Monetary and Economic Reform) to
restore the use of the Bank of Canada to its
original purpose, including making interest free
loans to municipal, provincial and federal
governments for "human capital" expenditures
(education, health, and other social services) and
for infrastructure.
The plaintiffs state
that since 1974, the Bank of Canada and Canada's
monetary and financial policy have been dictated
by private foreign banks and financial interests
led by the BIS, the Financial Stability Forum
(FSF) and the International Monetary Fund (IMF),
bypassing the sovereign rule of Canada through its
parliament.
Today this silent coup has
been so well obscured that governments and gamers
alike are convinced that the only alternatives for
addressing the debt crisis are to raise taxes,
slash services, or sell off public assets.
We have forgotten that there is another
option: cut the debt by borrowing from the
government's own bank, which returns its profits
to public coffers. Cutting out interest has been
shown to reduce the average cost of public
projects by about 40%. [1]
Ellen Brown is
an attorney and president of the Public Banking
Institute, http://PublicBankingInstitute.org.
In Web of Debt, her latest of 11 books,
she shows how a private cartel has usurped the
power to create money from the people themselves,
and how we the people can get it back. Her
websites are http://WebofDebt.com and
http://EllenBrown.com. The Public Banking
Institute's first conference is April 26th-28th in
Philadelphia.
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