Promises, Promises, but where will the money come from?

Richard Priestman

A cynical person might suspect that the billions of dollars for services and tax cuts promised by our politicians during this election campaign will not be forthcoming. After the election the party in power might simply ignore their promises or suddenly "discover" some unforeseen event which "prevents" them from keeping their promise – not their fault, of course.

The main reason given for not keeping a promise is that there is not enough money, but if not, where did it go? During the great depression we had the same problem; money was very scarce.

To overcome this problem, Prime Minister Mackenzie King knew that it would be necessary for the government to take control over the issue of currency and credit. This was accomplished in 1938 when King nationalized the Bank of Canada, and control of the issue of currency and credit was assumed by the Government of Canada. The government borrowed from the Bank for WWII and the post-war development, thereby helping "to avert the depression that had been widely expected" after the war. Instead of a depression, the Bank's monetary policy "ushered in the most vibrant period in Canadian economic history" lasting until the early 1970s. Great social programs like Medicare and pensions were started, and money was available for housing, education and infrastructure.

However, step by step, banking regulations were removed after 1950 (not just in Canada, but throughout the western world) and the government once again parted "with control of its currency and credit."

From 1975 on, the government's long-term debt was borrowed almost entirely from the private sector. When interest rates went sky high in 1981, so did Canada's debt. From confederation to 1974, our federal net debt amounted to $18 billion, and that included the debt of two world wars. By 1997 the federal net debt had climbed to a peak of $588 billion, an increase of over 3,000% in 23 years.

et debt for the provinces and municipalities amounted to more than $400 billion, for a total public net debt of over $900 billion. Interest at one point amounted to $77 billion a year. It is now down to about $65 billion a year (which is 650 times bigger than the $100 million sponsorship scandal that everyone is bothered about, and it goes on year after year after year). Ninety-three per cent of the debt came from compounding interest – not from government program spending.

Resources for programs and transfer payments to provinces have been diverted to the debt and to the interest on the debt. There is not enough money for health, education, municipal infrastructure, the environment or anything else.

To get out of the financial hole we are in and have the resources for the things we need, we must once again take back control of our currency and credit. To do this, the government needs to return to using the Bank of Canada for its long-term debt. Some say this would cause inflation, but this did not happen during the 30 years (1940 to 1970) when the government used the Bank of Canada in this way.

Question for the candidates: Will you support using the Bank of Canada to carry some of the government's long-term debt and will you lobby your own caucus to do the same?

Richard Priestman

Committee on Monetary and Economic Reform, Kingston Chapter

– from COMER, October 2010