[SIZE=+1]The Formation of The Bank of Canada[/SIZE]
[SIZE=-1] Until the BoC opened in 1935, The Treasury Board, which administered the Finance Act of 1923, had no responsibility to see that advances made to the banks answered the needs of the economy. The unsatisfactory nature of that arrangement was revealed during the Great Depression. In 1934 Parliament passed the Bank of Canada Act, and the bank itself was founded a year later. Since 1938 the bank has been owned entirely by a single shareholder- the federal government (i.e., Canadian taxpayers).[/SIZE]
[SIZE=+1]The Use of The Bank of Canada, 1938 - 1974[/SIZE]
[SIZE=-1]The 'nationalization' of 1938 perfected the mechanism that allows the central bank to create money to finance federal projects on a near interest-free basis. It may make loans to the Govt. of Canada or any province (BoC Act Article 18 (c), (i) (j) or guaranteed by Canada or any province (c). This is explained fully in our "Article 18" link (see left).Initially, the bank fullfilled its mandate. It was of great assistance in getting Canada out of the Great Depression, financing the war, and building infrastructure and social systems in Canada into the 1970s. But then things began to change.
Next: The BoC 2[/SIZE]
[SIZE=+1]Global Changes in Monetary Policy[/SIZE]
[SIZE=-1]“Until the late 1960s central banks held inflation in check by one or a combination of several tools: (1) by raising rates for overnight loans to the chartered banks to help them meet their net cheque-clearance or other obligations; (2) by raising the statutory reserve requirement - the percentage of deposits made with the banks by the public that the banks had to redeposit with the BoC to back their chequing and other short-term accounts - such redeposits had earned the banks no interest; (3) by “jaw-boning), i.e. Advising the banks of regions or industries where they did not want bank credit increased or even maintained at its present level. [/SIZE][SIZE=-1]In the 70s the monetary policy of Monetarism was adopted; further, central banks worldwide began attempting to control inflation by reigning in the money supply without regard for the inevitable effects on interest rates.(Monetarists hold that the money supply alone determines price- and just about everything else!)[/SIZE]
[SIZE=-1]In mid-1991 a bill was slipped through parliament without debate or press release phasing out the statutory reserves over a two-year period (subsection 457 of Chapter 46 of the Statutes of Canada.) That left higher interest rates the only means of “fighting inflation.”
Interest rates, however happen to be the revenue of money- lenders as the sole way of fighting price rise which conventional economists identify with “inflation”. ( see - the social lien section). At the same time a campaign was launched to enshrine (1) the independence of the central bank from the government, though the BoC Act sets forth that all shares are owned by the federal government; that in the event of a disagreement on broad policy between the governor of the BoC and the Minister of Finance, the latter shall have the right, after thirty days written notice to conform, to dismiss the Governor. If that does not add up to the good old capitalistic definition of ownership, i.e. non-independence, what does?; (2) “zero inflation” a perfectly flat price level was proclaimed essential. Most of Canada’s federal debt was run up in the attempt to enforce these provisions, which contradicted the BoC’s charter. Such contradictions, however, did not deter Mr. Crow, and subsequent BoC Governors, from pursuing like policies to this day!
Next: Unbelievable![/SIZE]
[SIZE=+1][SIZE=+2]Two Unbelievable Facts![/SIZE][/SIZE]
[SIZE=-1]We now consider two unbelievable facts. They are so astonishing that most people simply won't believe them!! Indeed, they really do defy the imagination! [/SIZE][SIZE=+1]Unbelievable Fact # 1: How Money is Created.[/SIZE]
[SIZE=-1]Money is created out of nothing.
Myth: it's based on Gold: Not so! The Gold Standard was abondoned years ago.
-Well....it's not quite created 'out of nothing': it's created out of a faith based on the credit of a nation: otherwise, it would be worthless. If I give you a $20 bill, you believe (have faith) that you can use it as a medium of exchange to buy other goods or services. Moreover, there are two ways to create money (out of essentially nothing).
GCM (Government Created Money), created by the federal government. People understand this method. Most people when asked would say, "well, the government creates money." That's true. But how MUCH of the money supply each year does the government create? About 5%. That's all. So who creates the rest?
BCM (Bank Created Money): the private banking system. How does the private banking system "create" money? Simple! But unbelievable! Bear in mind that MONEY IS CREATED OUT OF NOTHING. So, when you make that $30,000 loan at your bank for a new truck, that amount is typed into you bankbook. Seconds earlier it didn't exist! Now YOU owe that money TO the bank, + interest!
Myth: the money for your loan is somehow "backed" by deposits on-hand in the bank where the loan is made... Not so!
You, as a citizen or a business, don't have a choice. Much though you might like to, you can't create money. You have to borrow your money from the private banks.
[SIZE=+1]Unbelievable Fact # 2: The Government's Choice[/SIZE]
But governments have a choice! The federal government can EITHER create its own debt-free and interest-free money (GCM) OR borrow it AS debt, and AT interest from the private banks (BCM). The provincial and municiple governments can choose to borrow, at low interest rates, from EITHER the Bank of Canada OR borrow from the private banking system at substantial interest rates.
GUESS WHICH CHOICE OUR GOVERNMENTS MAKE??
YOU GUESSED IT! Some 95% of our money is created as BCM
-UNBELIEVABLE!![/SIZE]
[SIZE=-1] You may say, "-So what? Some abstract argument about 'how money is created' doesn't effect me, anyway..."
-Oh yes it does! You'd better believe it!
Next: Believe it![/SIZE]
/http://www.comer.org/
