Non-interest-bearing debt is better equipped to fulfill two of the three main functions of money�as a store and as a mea�sure of value. The value of previously existent debt that bears interest moves up when inter�est rates go down. If interest rates go up, pre�viously issued near-money will go down. Be�cause you can buy a new bond with the higher new yield, the old bond that yields less will sink below par. Shifts in interest rates will similarly offset the value of our currency.

Despite its handicaps for the traditional functions of money, interest-bearing money exerts a fascination on those well-endowed with the stuff. That is because it comes with built-in roulette wheels. Its movements have an inverse effect on the market-price of fixed-rate securities, and a direct effect in the short-term on the exchange rate of our currency�a higher yield attracts loose�footed money from abroad.

The shift from non-interest-bearing gov�ernment debt�government debt held by the central bank�to interest-bearing bonds government bonds held by the private banks has thus gone far to transform the financial sector into a casino.

How Our Banks Elbowed Out the Needy at the Head of the Breadlines

By the end of the 1980s the banks throughout the world were once again in deep trouble. For a quarter of a century, piece by piece, the restrictions imposed on them during the Great Depression had been dismantled. The combination of their powers of money creation and access to every variety of stock market games allowed them such dizzy leverage that the largest banks soon lost more than their entire capital�in Japan and the United States and probably in Canada. To help them cover their losses they were allowed to load up with government bonds without putting up any money. It was out of the question for a government to perpetrate a scam like that in the light of day. Accordingly, the amendment of the Canada's Bank Act that phasing out the reserves was slipped throughout Parliament in 1991 without a debate or even a press release.

And just a bit earlier the Risk-Based Capital Requirements Guidelines of the Bank for International Settlements declared the debt of OECD countries risk-free requiring no extra capital for banks to acquire. For holding government debt in a mere physical sense, our banks have since 1994 raked in the interest paid by the government on it. In this way our banks were not only gotten out of their previous losses, but positioned to gamble bigger and better and get themselves into even greater trouble.

Like all miracles, money creation can turn to charlatanry when any government, or any bank pushes it beyond the money supply needs of the economy. Filling that institutional vacuum is a highly lucrative privilege. So valuable is that privilege that it is not to be given away to private institutions. It must be carefully shared with them by the government in return for a enforced quid pro quo in their providing financial services vital to the economy.

Can we trust our government to create money?

Since governments throughout the world have bailed out their banks more often than once each decade, it is strange that this ques�tion should even be asked. But though ours is termed an "information age," the technol�ogy of information lends itself equally well to spreading misinformation. And on the matter of banks, governments and money creation, the public mind has been under a pressure of decibels that has led it to accept nonsense as patented truth.

In actual fact the dependence of the government upon money traders for its financing was contrived by the very Bank of Canada. It was the core of the come-back campaign begun in the 1950s to lift the banks out of the austere regime imposed on them in the mid-1930s when they teetered on the verge of bankruptcy.1

By 1994 Canada's chartered banks had acquired an extra $60 billion of federal debt�about three times more than what it had held three years earlier. Depending on what the current interest rates were, that amounted to between $5 and 7 billion dollars a year, and of course the amount grew with the economy. It was not a one-shot affair, but an entitlement, recurring every year. Viewed as the equivalent of a perpetual bond that never falls due, it amounts to a capital value of about $100 billion. In 1991 that was about 30% of the entire federal debt. Simi�lar bailouts of banks occurred at the same time throughout the world.

How the 111-Conceived Bailout of a Decade Ago Further Upset the International Financial System

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