From: "Richard Priestman" <rdpriest...@gmail.com>

To: "Richard & Dolores Priestman" <rdpriest...@gmail.com>

Subject: Bank of Canada lends $4B to ease credit crisis

18/3/08

Below is an article pertaining to the credit crisis.

Bank of Canada lends $4B to ease credit crisis

  The federal government refuses to borrow from

the Bank of Canada to finance education, health

care, housing and infrastructure, but has not

objected to the Bank lending $4-billion to our

commercial banks "to stave off a credit crisis". (Kingston Whig, 12/3/08).

  Our government is so steeped in the free-market

ideology that even though its efforts to

privatize and deregulate everything in sight has

led to crumbling roads, a weakened health care

system, students in debt up to their necks and

people sleeping on the streets in sub-zero

weather, it still balks at borrowing from our

central bank to finance needed public capital

expenditures.  It prefers to borrow from the

private sector at a cost of about $33-billion a

year for interest.  And that's only half the cost

because provinces and municipalities are paying an additional

$30- billion a year in interest on top of that!

  It wasn't always like this.  From 1939 to 1974

the federal government used the Bank of Canada to

finance a significant portion of its debt without

serious ill effects.  Inflation went up and down,

but the rate was almost the same in 1971 (3.0) as

in 1951 (2.8).  Beginning in the late seventies

it borrowed almost entirely from the private

sector, and since then public debt skyrocketed

from $19-billion in 1975 to $588-billion in 1997

along with huge interest costs.

  During the years 1939 to 1974 banks were

constrained by regulations brought in during the

depression. They were shown to have issued too

much credit without adequate collateral, which

contributed to the depression.  Governments of

the day, starting with the American government

under FDR, agreed to help the banks get back on

their feet providing they agreed to certain

conditions, e.g.:  they would limit their

interest rates to a maximum of 6%; they would not

get involved with insurance, stock brokerage or

mortgages, and they could not own property other

than that necessary to carry out their banking business.

  After the end of WWII banks began to lobby

governments for changes.  At first it was just to

lift the 6% interest limit.  Then they were

allowed to get back into mortgages and brokerages

and to own property.  The move during the 1960's

to extreme free market ideology supported their

lobbying for removal of regulations.  Then, in

1974, when central banks decided that governments

should borrow only from the private sector for

their long term debt, creation and control of

money was effectively privatized.  Bankers and

financial traders became very wealthy, while the

income of most of the population remained the same or was reduced.

  The crisis of confidence in our banks exposes

the weakness in a deregulated financial system

which depends on the system to supervise

itself.  Re-regulation is needed as is also the

need for government to take back control of the

nation's money creation by borrowing from its own

Bank to finance public capital works.  This is

not something the current government or

opposition are inclined to talk about - not the

Conservatives, not the Liberals, not the Bloc,

not even the NDP.   The latter is surprising

since one of the fundamental principles of the

NDP's parent body, the CCF, was the "control of

finance" and the provision of capital for public

works "free from perpetual interest charges", as

can be done today through the Bank of Canada.

  One way to change the situation is to vote in

the coming federal election for candidates who

support using the Bank of Canada to finance public capital works.

Richard Priestman, 604 Aylmer Crescent, Kingston, 613-634-0237

Kingston Chapter

Committee on Monetary and Economic Reform

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