Canada’s parliamentary budget officer, Yves Giroux, recently estimated that the federal deficit incurred from funding pandemic virus relief measures — now about $260 billion — could soar as high as $900 billion by this time next year unless curbed long before then.
“Temporary measures…will have to be temporary,” he cautioned, adding that if they are maintained at the current high rate of 12 per cent of GDP (going into 2021), the country will be sliding down a dangerous fiscal path that would be unsustainable.
He did not explain that the main reason for such a looming fiscal catastrophe is that these billions of dollars are being borrowed from the private banks at relatively high interest rates.
A similar steep rise in federal government spending occurred after the end of the Second World War. That’s when several huge construction projects were undertaken, including the St. Lawrence Seaway, the Trans-Canada Highway, and the construction of modern airports and seaports. Major social programs were also provided or improved at that time.
If such a massive and costly expansion of services and infrastructure were to be launched today, our federal government would incur costs running into many billions of dollars, as it now does for its pandemic relief spending. Back in the post-war period, however, the total cost of all these economic and social projects resulted in barely a minimal increase in the federal debt.
Why? Because the federal government didn’t borrow money from the private banks at that time, as it does today. All the funding came from the Bank of Canada in the form of interest-free “loans” that were “repaid” to the Bank of Canada. The government thus avoided large debts and deficits for public infrastructure projects.
The Bank of Canada Act, passed in 1934, gives our publicly owned central bank the power to make such near-zero interest loans to Canadian governments for infrastructure and healthcare expenditures.
That power, however, was sharply rescinded in 1974. That’s when the World Bank, the Bank for International Settlements, the International Monetary Fund, and a variety of corporate think-tanks persuaded most countries, including Canada, to do their borrowing from the private banks instead of their own central banks.
Since then, the capitalist economic system has spread destructive wealth inequality and environmental havoc across the planet. Canada’s federal debt incurred from private bank borrowing has skyrocketed. Over the years, we have paid nearly $2 trillion in interest to these private lenders — most of which could have been avoided if our federal government had continued to borrow from the Bank of Canada.
Theoretically, that could still happen. The provisions in the Bank of Canada Act that originally authorized the Bank to fund public projects have never been deleted from the Act. The Bank could therefore resume that beneficial function any time a federal government directed or permitted it to do so.
However, given the right-wing neoliberal stance of both our Liberal and Conservative parties, that’s highly unlikely.
The Toronto-based Committee on Monetary and Economic Reform (COMER) has been pushing for a reactivation of the Bank of Canada’s original mandate for the past 40 years or more. It even filed a lawsuit against the federal government’s refusal to do so. The Supreme Court, however, refused in 2017 even to hear the case, with government lawyers claiming Bank of Canada issues “not for the courts, but for the electorate” to decide.
While Justin Trudeau was speaking at a town hall meeting on economic matters a few months later, COMER’s Herb Wiseman shouted out: “Use the Bank of Canada!” To which Trudeau promptly responded: “That doesn’t work.”
It was a stunning remark, blithely ignoring and denying 35 years of Canadian history.
Had he the time, Wiseman could have referred Trudeau to the situation in Japan, which, unlike Canada, has continued major borrowing from its central bank. As a result, as Ellen Brown has pointed out, instead of increasing its debt and interest payments, “Japan has been cancelling its debt at the rate of $720 billion per year. How? By selling its debt to its own central bank, which returns the interest to the government. An interest-free debt owed to oneself that is rolled over from year to year is effectively void.”
It would be possible for Canada to follow Japan’s example — and immensely beneficial financially to do so, given the colossal amounts it will otherwise have to repay with interest on further private bank borrowing.
Unfortunately, unlike Japan, Canada has become a puppet of the prevailing capitalist economic system. Our current political leaders would never dare do anything that would impair big business profits. They will continue to coddle and subsidize the banks and corporations rather than improve Canadians’ standard of living.
Economists are already warning that the federal government’s voluminous pandemic-induced borrowing amounts will eventually have to be repaid. This portends a bleak future for most Canadians, since it entails the imposition on them of higher taxes and substantial cuts in public services. That will ensure the private banks keep hogging the lion’s share of a dwindling national income.
It’s a painful price that all but the rich will have to pay for our government’s self-imposed decision to keep borrowing from the private banks instead of the “People’s Bank.”
Ed Finn grew up in Corner Brook, Newfoundland, where he worked as a printer’s apprentice, reporter, columnist and editor of that city’s daily newspaper, the Western Star. His career as a journalist included 14 years as a labour relations columnist for the Toronto Star. He was part of the world of politics between 1959 and 1962, serving as the first provincial leader of the NDP in Newfoundland. He worked closely with Tommy Douglas for some years and helped defend and promote medicare legislation in Saskatchewan.
Image: Brent Eades/Flickr