Canada is now in recession, its past two quarters of GDP have been headed for Florida, Mexico, and beyond. And in a vain attempt at retaliation at the disloyal economy, the central bank is discussing interest rate cuts. Interesting that this week there would be other news but the Canadian government put a news black out on a recent court case the government lost. The Bank of Canada, unlike the Federal Reserve Bank of the United States, is owned by the people of Canada. The Federal Reserve Bank is owned by the large private banks in the United States, such as JP Morgan, BofA, Wells Fargo, and Goldman Sachs, to name a few. They appoint all of the officers to all of the Federal Reserve Banks in each of the thirteen cities across the U.S. and appoint all the directors the Federal Reserve Board, the President appoints the chairman and Congress approves the choice. But the Bank of Canada is not owned by the private banks and its charter was limited to low interest or no interest loans for public works such as the improvements to the St Lawrence Seaway, and the canals of the Sue Ste Marie. From approximately 1838, when it was nationalized by Canada as part of the scheme to bring Canada out of the depression, it was charged to issue loans without resort to government backed bond issues. That is, there was no allowance for the Bank of Canada to issue its own debt for the purposes of making loans to other entities. This had kept the Canadian government relatively debt free until 1974.
By 1974 Nixon was in his second term and burglars were in the Watergate as inflation headed north to Alaska, essentially causing all manner of economic problems. Canada, unlike the U.S., who at that time had just stopped fighting a war in Vietnam, was still fighting the war on poverty, and the many NASA programs were winding down while the large space vehicles like Discovery were out and about, had relatively little inflation. Perhaps they suffered from Space Shuttle envy, but the results were that the government decided to issue bonds for use in public spending. Now consider that the Bank of North Dakota is the official state bank of the state government of North Dakota and thus issues all interest free loans to the various state and municipal projects. The bank of Canada has always done the same for the various local, province, and federal projects. From 1867 when it became its own country, until 1974 the accumulated total debt of Canada was only 18 billion Canadian dollars. By 1977 the Canadian national debt has risen to well over 500 billion. The debt today is over 800 billion, about 33% of GDP. The price of the average house went from under $20,000 prior to 1974 to as much as (and that is average according to the metropolitan area) $800,000. A little more insult to injury, the interest on Canadian government debt is about $18 billion while money spent on defence is $22 billion. Scary, isn’t it?
Now how was all this made possible? Simple, once you start issuing debt in the form of bonds through your nationalized bank you incur severe problems. But the charter of the bank never allowed it to issue debt or government bonds. So the federal government of Canada was taken to court and a special three judge panel ruled against the government. That decision is headed into the appeals court and thence to the Canadian Supreme Court. Should that decision be upheld there will be hell to pay. Once a government gets use to spending money it doesn’t have and can’t borrow the whole of its financial empire collapses under its own weight of debt. Of course the presses the issue of why we allow our own government to operate on so much debt. And why do we allow those same Congressional and administration officials to exclude from the official government debt all those future obligations such as government pension payments to military and other government workers? And don’t forget social security and the fact that when Congress needs more money they raid the other government agency funds such as the Social Security Trust Fund or simply take the taxes collected under FICA and use for keeping under the “debt Ceiling”. I expect it may take as much as a year for the Canadian bank law suit to play out and it the people win, they still lose, unless they wish to repudiate government debt. People, out own real and true national debt is not a mere $16 or $18 billion, it is well over one trillion dollars and growing. Now understand the we, the people, owe that money. Yes, that’s right, it’s you and me and baby makes three, who owes that money. And what is out total Gross Domestic Product? Oh, that’s right, the Modern Monetary Theory people say government debt don’t mean a thing, doo wap a wap, doo wap a wap. The government can just print more money. Who’s to say that a dollar isn’t a dollar if the government prints a trillion every year? Oh, that’s right, we import goods and services, we have moved so much of our manufacturing off shore that now we pay others to make our stuff for us. It seems MMT only works in isolation, sort of like family. How is that MMT policy working for Argentina? Last I heard they had a shortage of tampons and the women were upset, the country didn’t have enough hard currency to buy a month’s supply each month. But MMT is going great in Venezuela, people are waiting in lines just to be waiting, ain’t nothing to buy anyway. Who needs toilet paper?