Money Reform for Canada

[Albert Opstad Edmonton]

I have appreciated reading some of the comments under the title: Banker/Wall Street Governance, Wake Up Or Die, but I sensed that we should discuss Canada's money policies under what I consider to be a better title. I'm just learning how to operate on websites such as this, so don't get too critical if I don't do things in a top level way. Albert Opstad Edmonton

[Jerry J. Fortin]

Provided you have an open mind and a reasonably logical mind I would be happy to discuss the problems with our monetary system! I am no rocket scientist, but I have a fair grasp of the realities of the system. So lets begin to address the issues.

Government has only regulatory authority over the monetary system.

System designed to utilize government to ensure profitability

Central Bank has no obedience to government.

Where to begin? I think the basis of the problem can be understood with a quick study of C.H. Douglas who seems to have come to the same conclusions I have except for the fact that the man died before I was born.

[Riverwind]

Government has only regulatory authority over the monetary system.

Governments only have regulatory authority over most parts of the economy - that is a good thing. Government exists to facilitate the free market and to counter act its excesses. Governments should not be delivering services or selling goods unless there is no other way.

System designed to utilize government to ensure profitability

Why is an unprofitable financial system a good thing?

Central Bank has no obedience to government.

That is also a good thing. Politicians cannot be trusted to use the central bank power responsibly so all countries with modern economies ensure that the gov't cannot interfere with the central bank. However, that does not mean government has no power. The elected leaders can appoint anyone they want to the position as governor which means they can change the policy direction of the bank over time.

[PolyNewbie]

Riverwind has never read a single thing about any of this stuff and has written more on this forum than he has ever read on the subject. He passes this litmus test for fools with flying colors. Its about time for me to ignore him.

[Albert Opstad Edmonton]

Provided you have an open mind and a reasonably logical mind I would be happy to discuss the problems with our monetary system! I am no rocket scientist, but I have a fair grasp of the realities of the system. So lets begin to address the issues.

Government has only regulatory authority over the monetary system.

System designed to utilize government to ensure profitability

Central Bank has no obedience to government.

Where to begin? I think the basis of the problem can be understood with a quick study of C.H. Douglas who seems to have come to the same conclusions I have except for the fact that the man died before I was born.

Thank you for the reply. I have studied C.H. Douglas. I'll start with a few facts and we can go forwards or backwards from there. In the Government of Canada (GoC) budget plan for 2006 we see that the GoC budgets 15.0% of its 2007-08 expenditures for interest on its debt. Can we reduce this? I say yes! All that the GoC has to do is to transfer all of its debt to the Bank of Canada (BoC) and the GoC interest costs would become 0.0% because the BoC would give all of the interest charged back to the GoC as profit, except for perhaps a small cost of BoC operations service fee. If one looks at the BoC Annual Report for 2005 you can see that the GoC had borrowed 46,411.0 million dollars from the BoC and the BoC gave the GoC 1,732.4 million dollars in profits. Most of the cost to operate the BoC is to keep track of the present multiplicity of private money lenders and to keep the problem of inflation down to 2%. The BoC gives its profits to the GoC while the other lenders (private ones) do not. The major problem with our existing money system is the interest charged at the new money creation level. We have to have new money created and issued interest free. 96% of our our newly created money is created as interest bearing debt by private bankers. This new money is sometimes referred to as Bank Created Money (BCM). Money created by the BoC is interest free because it gives its profits to the GoC. This new money is sometimes referred to as Government Created Money (GCM). I offer these comments/recommendations as a place to begin and we can proceed from here. Albert Opstad, Edmonton, T:(780)453-2011, Email:<[email protected]>

[Riverwind]

that the GoC has to do is to transfer all of its debt to the Bank of Canada (BoC) and the GoC interest costs would become 0.0% because the BoC would give all of the interest charged back to the GoC as profit, except for perhaps a small cost of BoC operations service fee.

First off, the interest paid by the GoC does not go into a black hole. Most of it goes back to Canadians via their pension funds and their insurance policies.

Secondly, the BOC buying back all of the existing debt would significantly increase the money supply - this would lead to inflation. To counter act the inflation created by absorbing government debt the BOC would have to raise real interest rates. This means that interest rates on private loans and mortgages would go up significantly.

Lastly, our currency trades on a global market. Requiring the BoC to absorb the Canadian government debt would undermine confidence in the currency and lead to a significant drop in the dollar.

IOW: any 'savings' interest paid of the government debt would lost by increased real interest costs paid by Canadians and higher costs for imported goods. I don't see any benefit from such a trade off and see significant risks because inflation could spin out of control if the checks and balances that exist today are discarded.

[PolyNewbie]

Albert,

Do you think CAP is correct when they say 28 % of your income tax goes to private central bankers ?

Also,

I think Greenspan was a gold standard guy before got paid off by globalists but argued that the electronic money system does not mix well with a gold standard, one can imagine why. Galbraith says that 100 % money leads to 30 % interest rates. Others have said this and that why I support a 50 % BCM money scheme. Bankers pay taxes on profits just like everyone else. The government should of course be 100 % financed by BOC at 1-2 % interest to cover transactional fees.

Riverwind:Lastly, our currency trades on a global market. Requiring the BoC to absorb the Canadian government debt would undermine confidence in the currency and lead to a significant drop in the dollar.

This is a good point and thats why monetary reform has to be a global effort and its why we don't have it. If North American Union did that then we would be at war with Europe. People need to be informed of the issue all over the world before we go knocking on government doors. Flaherty knows whats going on. If he cared he wouldn't be there. Its like McKay thinking he is too important to call families of dead soldiers from the Afghan drug war.

[Riverwind]

Do you think CAP is correct when they say 28 % of your income tax goes to private central bankers ?

Here is a report by the gov't that lists exactly who holds gov't bonds. If you scroll down and find the table called:

Reference Table IV (cont’d)

Distribution of Domestic Holdings of Government of Canada Securities

PART B —Treasury Bills, Canada Bills, Bonds,1 and Canada Savings Bonds and Canada Premium Bonds

For the year 2003:

Life insurance companies and pensions funds hold 23.30%

Persons and unincorporated businesses hold 5.10%

Chartered banks hold 15.54%

68% of the Canadian gov't debt is held directly by Canadians (via savings, pensions and mutual funds), by the government itself (CPP, QPP), the BOC or by insurance companies. In all of these cases the interest paid by the gov't directly benefits a broad cross section of Canadians.

IOW: the claim that 28% of our taxes goes to 'private bankers' is completely false.

[Riverwind]

Galbraith says that 100 % money leads to 30% interest rates. Others have said this and that why I support a 50% BCM money scheme.

You don't really understand why increasing the reserve ratio increases interest rates - do you?

Money that banks hold in reserve earns no interest yet they have to pay interest to the deposit holders. They have to make this money by charging more for loans.

Furthermore, such a system would be great for wealthy people with cash because banks would be deperate to get deposits so they would have to pay much higher interest rates which in turn requires banks to charge even more for loans.

IOW: it is unlikely that a 50% reserve system would provide loans at anything cheaper that 30%.

[PolyNewbie]

Riverwind:You don't really understand why increasing the reserve ratio increases interest rates - do you?

No, I don't. It sounds really wrong though. You can explain it to me.

Riverwind:Money that banks hold in reserve earns no interest yet they have to pay interest to the deposit holders. They have to make this money by charging more for loans.

Banks are always happy to hold your money and pay you interest so they are happy to do it. They need it for reserve requirements to make loans.

Riverwind:IOW: it is unlikely that a 50% reserve system would provide loans at anything cheaper that 30%.

Thats what I mean by speaking from your rectum.

[Riverwind]

Riverwind:IOW: it is unlikely that a 50% reserve system would provide loans at anything cheaper that 30%.

Thats what I mean by speaking from your rectum.

I explained why I think a 50% reserve requirement would lead to high interest rates. You are the one who pulled the 50% number out of the air and tried to claim that it would solve the high interest problem created by high reserve requirements.

I will repeat my explaination since you ignored it:

Banks do not earn money on reserves - yet they must pay interest on it. If bank have $1000 reserves and pays 4% interest then it must make at least $20 on its loans to conver the interest costs. If it can only lend $500 then it must charge at least 8% to break even. However, it also has to cover its operating costs and loan losses which means it needs to charge a lot more than 8%.

Furthermore, the high reserve requirements will increase the demand for the deposits which will require banks to pay more for deposits than they would if the reserve requirement was lower.

[PolyNewbie]

Riverwind, If the banks has 1000.00 it can create at the very least 10,000.00 to lend. Thats what the reserve ratio is - of 10:1, ie $11,000.00 is avaliable to be lent.

Riverwind:Banks do not earn money on reserves - yet they must pay interest on it. If bank have $1000 reserves and pays 4% interest then it must make at least $20 on its loans to conver the interest costs. If it can only lend $500 then it must charge at least 8% to break even. However, it also has to cover its operating costs and loan losses which means it needs to charge a lot more than 8%.

That is NOT how banks operate.

[Riverwind]

Riverwind, If the banks has 1000.00 it can create at the very least 10,000.00 to lend. Thats what the reserve ratio is - of 10:1, ie $11,000.00 is avaliable to be lent.

You are over simplifying the process. If the reserve ratio is 50% and a bank has $1000 in deposits then the bank cannot loan more than $500. If that $500 is redeposited into the bank then the bank can loan another $250. The process continues until reaching a theoretical maximum of 1/50% * $1000 = $2000.

Each time the money is deposited the bank has to pay interest on that deposit so their interest costs go up as the money is lent.

Stage 1:

Deposits: $1000 @ 4%

Loans: $0

Interest Income: -$40

Stage 2:

Deposits: $1000 @ 4%

Loans: $500 @ 8%

Interest Income:: $40 - $40 = $0

Stage 3:

Deposits: $1500 @ 4%

Loans: $500 @ 8%

Interest Income:: $40 - $60 = -$20

Stage 3:

Deposits: $1500 @ 4%

Loans: $750 @ 8%

Interest Income:: $60 - $60 = -$0

Stage 4:

Deposits: $1750 @ 4%

Loans: $750 @ 8%

Interest Income:: $60 - $70 = -$10

IOW: Each time a bank makes a loan it ends up paying more interest which increases its costs.

Riverwind:Banks do not earn money on reserves - yet they must pay interest on it. If bank have $1000 reserves and pays 4% interest then it must make at least $20 on its loans to conver the interest costs. If it can only lend $500 then it must charge at least 8% to break even. However, it also has to cover its operating costs and loan losses which means it needs to charge a lot more than 8%.

That is NOT how banks operate.

That is exactly how banks operate. Try reading a text book on banking sometime or taking a economics course.

[PolyNewbie]

Riverwind:You are over simplifying the process. If the reserve ratio is 50% and a bank has $1000 in deposits then the bank cannot loan more than $500. If that $500 is redeposited into the bank then the bank can loan another $250. The process continues until reaching a theoretical maximum of 1/50% * $1000 = $2000.

That effect works in addition to the reserve ratios. In banking, if a bank has $1000.00 in deposit it can instantly create $10,000.00 to lend and that money gets re deposted into the bank by the receiver of payments made by the borrower of the $10,000.00. The amount of money that banks actually make from a $1000.00 deposit is actually well over $10,000 with a 10 : 1 reserve ratio because of the affect you describe as well as the effect (in addition) of what I describe. They end up being able to create about $100,000.00 from the original $1000.00 deposit plus charge transactional fees for people making payments - another $1.50 or so 8-).

That is how banks work with reserves and thats why the money they create is practically "from nothing". The exact mechanism on which they create money will never be shown on a banker web site.

[PolyNewbie]

I think the idea of taxing stock market transactions would do us a lot of good. Something like 0.001 % would maybe dampen derivative activity.

[Riverwind]

That effect works in addition to the reserve ratios. In banking, if a bank has $1000.00 in deposit it can instantly create $10,000.00

Wrong. Try reading an economics text book for once. The reserve requirement controls what percentage of their total deposits that banks can lend. If the reserve requirement is 10% then then can only lend 90% of their deposits. It does not mean they can immediately loan 1000% of their deposits.

In fact, I am willing to bet that most of your 'books' agree with what I said and that you simply do not understand it. I bet you cannot find one credible source that supports your claim. Keep in mind that you are looking for a source that says a bank with $1000 in cash can immediately create $10000 and then create even more money once that $10000 is redeposited. A source that simply says the bank can create a _maximum_ of $10000 if the reserve ratio is 10% supports my explaination.

Why should anyone take what you say seriously when you get such basic concepts wrong?

[August1991]

Thank you for the reply. I have studied C.H. Douglas.... The major problem with our existing money system is the interest charged at the new money creation level. We have to have new money created and issued interest free. 96% of our our newly created money is created as interest bearing debt by private bankers. This new money is sometimes referred to as Bank Created Money (BCM). Money created by the BoC is interest free because it gives its profits to the GoC. This new money is sometimes referred to as Government Created Money (GCM).

And if I write a cheque, what kind of money is that? Or if American Express issues a traveller's cheque? And how about if I use my credit card, what kind of "money" is that? If I lend you my car for an afternoon, and you promise to return it, is that money or a promissory note? Is there a difference?

Our modern economy uses an endless variety of financial instruments the vast majority of which are privately created and some of which are arbitrarily defined as "money". (For example, you create "money" when you use your credit card.)

But if you guys are looking for a good conspiracy theory about who really controls the system, here's a good place to start to find the secret association behind it all. It even has a Web Site.

And why do I get involved in a discussion with someone who refers to C.H. Douglas? Why do people feel perfectly competent to discuss this despite having absolutely no education? No layman presumes any authoritative expertise about brain surgery or astronomy.

Banks are always happy to hold your money and pay you interest so they are happy to do it. They need it for reserve requirements to make loans.

Like in Switzerland and NZ, there are no reserve requirements in Canada. And, uh, Polynewbie - are you referring to the nominal interest rate or the real interest rate in your reference above?

[Albert Opstad Edmonton]

Albert,

Do you think CAP is correct when they say 28 % of your income tax goes to private central bankers ?

Also,

I think Greenspan was a gold standard guy before got paid off by globalists but argued that the electronic money system does not mix well with a gold standard, one can imagine why. Galbraith says that 100 % money leads to 30 % interest rates. Others have said this and that why I support a 50 % BCM money scheme. Bankers pay taxes on profits just like everyone else. The government should of course be 100 % financed by BOC at 1-2 % interest to cover transactional fees.

Riverwind:Lastly, our currency trades on a global market. Requiring the BoC to absorb the Canadian government debt would undermine confidence in the currency and lead to a significant drop in the dollar.

This is a good point and thats why monetary reform has to be a global effort and its why we don't have it. If North American Union did that then we would be at war with Europe. People need to be informed of the issue all over the world before we go knocking on government doors. Flaherty knows whats going on. If he cared he wouldn't be there. Its like McKay thinking he is too important to call families of dead soldiers from the Afghan drug war.

I'm new to blogs which is what I presume you call this so I plan to answer the posts in chronological order starting with Post #6 by Riverwind.

[Albert Opstad Edmonton]

that the GoC has to do is to transfer all of its debt to the Bank of Canada (BoC) and the GoC interest costs would become 0.0% because the BoC would give all of the interest charged back to the GoC as profit, except for perhaps a small cost of BoC operations service fee.

First off, the interest paid by the GoC does not go into a black hole. Most of it goes back to Canadians via their pension funds and their insurance policies.

Secondly, the BOC buying back all of the existing debt would significantly increase the money supply - this would lead to inflation. To counter act the inflation created by absorbing government debt the BOC would have to raise real interest rates. This means that interest rates on private loans and mortgages would go up significantly.

Lastly, our currency trades on a global market. Requiring the BoC to absorb the Canadian government debt would undermine confidence in the currency and lead to a significant drop in the dollar.

IOW: any 'savings' interest paid of the government debt would lost by increased real interest costs paid by Canadians and higher costs for imported goods. I don't see any benefit from such a trade off and see significant risks because inflation could spin out of control if the checks and balances that exist today are discarded.

[Albert Opstad Edmonton]

that the GoC has to do is to transfer all of its debt to the Bank of Canada (BoC) and the GoC interest costs would become 0.0% because the BoC would give all of the interest charged back to the GoC as profit, except for perhaps a small cost of BoC operations service fee.

First off, the interest paid by the GoC does not go into a black hole. Most of it goes back to Canadians via their pension funds and their insurance policies. [Reply]: I'm not certain as to how to operate in this new media but I'll reply by the best method that I know how and see how it goes. Yes! Interest paid by the GoC does not go into a black hole, but my point is that the GoC should do its borrowing from the BoC interest free, and also preferably debt free, instead of having to borrow from me, or from anywhere else on a private basis, and on an interest bearing debt basis. The last information that I have from the BoC on GoC debt is for calendar year 2004, and the holding of the Total Funded Federal Debt of 414,502 Cdn $ millions was: BoC: 11.0%, Chartered Banks: 15.9%, Residents: 58.2%, Non-Residents: 13.7%, GoC Accounts: 1.2%.

Secondly, the BOC buying back all of the existing debt would significantly increase the money supply - this would lead to inflation. To counter act the inflation created by absorbing government debt the BOC would have to raise real interest rates. This means that interest rates on private loans and mortgages would go up significantly. [Reply]: As the BoC increases its money creation function, statutory reserves have to be placed on the private banks so that they create less money to keep the overall money supply in balance and at an inflation/deflation level of 0.0%.

Lastly, our currency trades on a global market. Requiring the BoC to absorb the Canadian government debt would undermine confidence in the currency and lead to a significant drop in the dollar. [Reply] I don't see any big issue here.

IOW: any 'savings' interest paid of the government debt would lost by increased real interest costs paid by Canadians and higher costs for imported goods. I don't see any benefit from such a trade off and see significant risks because inflation could spin out of control if the checks and balances that exist today are discarded. [Reply]: Your term: IOW is new to me, please explain what it means. Thank you. We need checks and balances, just similar to what we have today, to keep everything in balance and inflation/deflation at 0.0% +/- 1%.

[Reply] Conclusion: We have to get rid of the interest charged at the money creation level because this is the inherent flaw in our existing money system. With our existing money system where interest is charged at the money creation level there are only two options: The problem of much pain and suffering to get to zero inflation/deflation, or living with the constant problem of inflation, which the BoC keeps in the range of 1% to 3% (2% +/- 1%). The BoC and the private bankers have decided that 2% inflation is the lesser of the two evils because much pain and suffering might awaken more of us to the serious flaw in our existing money system and require changes along the lines that I and the overwhelming majority of world money experts are recommending.

[Albert Opstad Edmonton]

that the GoC has to do is to transfer all of its debt to the Bank of Canada (BoC) and the GoC interest costs would become 0.0% because the BoC would give all of the interest charged back to the GoC as profit, except for perhaps a small cost of BoC operations service fee.

First off, the interest paid by the GoC does not go into a black hole. Most of it goes back to Canadians via their pension funds and their insurance policies.

Secondly, the BOC buying back all of the existing debt would significantly increase the money supply - this would lead to inflation. To counter act the inflation created by absorbing government debt the BOC would have to raise real interest rates. This means that interest rates on private loans and mortgages would go up significantly.

Lastly, our currency trades on a global market. Requiring the BoC to absorb the Canadian government debt would undermine confidence in the currency and lead to a significant drop in the dollar.

IOW: any 'savings' interest paid of the government debt would lost by increased real interest costs paid by Canadians and higher costs for imported goods. I don't see any benefit from such a trade off and see significant risks because inflation could spin out of control if the checks and balances that exist today are discarded.

I must have made an error here to reply here without a reply. Albert Opstad Edmonton

[Riverwind]

Interest paid by the GoC does not go into a black hole, but my point is that the GoC should do its borrowing from the BoC interest free, and also preferably debt free, instead of having to borrow from me, or from anywhere else on a private basis, and on an interest bearing debt basis.

Why do you think you can get something for nothing? Would you trust someone trying to sell you an investment that gives you a 20% return and no risk? Or would you presume that there is a catch no matter how compelling the investment sounds? Requiring the government to borrow money on the open market imposes discipline on government. If they borrow too much their costs go up and they face pressure to borrow less. No interest borrowing, OTH, gives the government an infinite supply of funds which will eventually be abused and we will end up with out of control inflation.

As the BoC increases its money creation function, statutory reserves have to be placed on the private banks so that they create less money to keep the overall money supply in balance and at an inflation/deflation level of 0.0%.

Increasing the reserve requirements causes interest rates paid by consumers and businesses to go up. IOW (in other words) - the average person would be much worse off in your system because they would have to pay more to buy homes, cars or expand businesses. Why should the private economy be sacrificed in order to allow the government to spend more?

I don't see any big issue here.

Canada needs a stable currency. Changing monetary policy in the way you describe would likely create an East Asian style currency collapses as foreigners and Canadians move their assets out of Canadians dollars. This would cause interest rates to skyrocket and the standard of living to drop as imported goods rise in price. This would also contribute to inflation and increase the likelyhood of hyperinflation.

We need checks and balances, just similar to what we have today, to keep everything in balance and inflation/deflation at 0.0% +/- 1%.

Governments cannot be trusted to manage inflation. Even the most well meaning politician will never sacrifice short term political gain in order to keep inflation low. The current system limits government's the ability to create inflation by requiring the government to borrow money on the open market. The current system also ensures that the BOC can set interest policy without interference from the government. Those are checks and balances - the system you propose has no checks and balances and depends entirely on politicians to the 'right thing' even if it is unpopular.

I realize that there are some people that think that a little inflation is fine and that persuing 0% inflation is an unrealistic and undesirable goal. However, these people don't understand that inflation can never be controlled precisely and once inflation starts to spin out of control it is impossible to stop without severe economic pain. We are much better off living with the relatively minor pain associated with the %0 inflation target today than risking the much larger pain required to fix a hyperinflation problem in the future. Just like a person is much better off living with the minor pain of daily exercise rather than doing nothing and having to go through a heart bypass operation in the future.

[PolyNewbie]

Congressman Ron Paul talks about the Federal Reserve.

[Figleaf]

Many of the problems identified in this discussion can be viewed as market failures resulting from the central bank monopoly on currency. It is right for the government to provide for a common legal tender, but the laws that protect government tender from private competitive currency should be removed.

Also, as long at Canada's banks are based on a public license to manufacture money, we shouldn't hestitate to regulate them in the public interest.

[Riverwind]

Many of the problems identified in this discussion can be viewed as market failures resulting from the central bank monopoly on currency. It is right for the government to provide for a common legal tender, but the laws that protect government tender from private competitive currency should be removed.

Explain to me what laws prevent citizens from doing business using whatever currency they want? Many Canadians already conduct business in US$ - doesn't the US$ count as a competitive currency?