BANK BAILOUT -— CREDIT CRUNCH — INFRASTRUCTURE RENEWAL
The $75 billion bank bailout has been justified by the Minister of Finance, James Flaherty, as necessary to ease the credit crunch facing Canadian banks and make consumer and mortgage loans cheaper and more available. It does nothing to help those who have lost their jobs or whose jobs are in jeopardy of disappearing. Even those with "secure" jobs are thinking twice before going further into debt.
Instead of buying $75 billion of bank-held mortgages, it would have been a far better use of the $75 billion to invest it in upgrading the nation’s infrastructure – including such things as roads, bridges, sewers, water treatment, health services, education, housing and environmental restoration. Invested in this way it would result immediately in good paying jobs for thousands of workers – from construction workers to engineers, accountants, managers, office personnel, nurses, doctors, lawyers, teachers, scientists and others. The wages received by these people would quickly find their way into the banking system, easing the credit crunch by providing the money base which banks need to make loans. As Mark Carney, Governor of the Bank of Canada said, the solution to the credit crisis is to get more capital into the banks. The money would also end up in the local grocery store, car dealer, theatre, clothing store etc, further stimulating the economy.
Municipalities are facing a $130 billion infrastructure deficit. The government’s current plan for upgrading infrastructure consists of $33 billion spread over seven years – less than $5 billion per year – and two billion of that would be absorbed by the annual increase in the deficit. Compare that to the $75 billion for the banks which could go a long way to erasing that deficit, especially when coupled with provincial and municipal funds.
And where did the $75 billion come from? Was it borrowed, and if so from whom? It could have been borrowed from the Bank of Canada at zero interest cost, but the government has maintained for years that to do that would cause inflation. Without information to the contrary (information which has been requested) I have to assume that it was borrowed from the market – part or possibly all from the banks themselves. If even part of the money was borrowed from the banks then the banks would be making money on the interest received by first creating the money (which they do with the stroke of a computer key) and then lending that newly created money to the government so it can buy the mortgages from them. The billions of dollars in interest which would subsequently be paid to the banks every year is the real bailout, and it goes on without end. So the tax payer is on the hook for ever – unless a government is elected which reforms the system. So far, none of the current crop of parties holding seats in parliament has shown any interest in reforming our financial system.
Faced with high unemployment, unions should be pressing for reform of our financial system. This would be good for their members and for the community as a whole. Their strength is needed to press government to invest the $75 billion (or what is left of it plus more as required) in infrastructure renewal, and to borrow the necessary funds from the Bank of Canada – not the chartered banks – to do it. The Bank of Canada can create money as easily as the chartered banks can, and it won’t be inflationary as long as it is invested in assets of equal value such as the infrastructure. In contrast, money borrowed from chartered banks is inflationary because it carries an interest charge which is added to the cost of everything.
– from Economic Reform, December 2008