October 24, 2012.
The psychologist and writer Erich Fromm once remarked that, “With regard to all basic questions of individual and social life…a great sector of our culture has just one function – to befog the issues. One kind of smokescreen is the assertion that problems are too complicated for the average individual to grasp.” Fromm goes on to describe how our reliance upon technical specialists to solve social and economic problems prevents people from doing their own independent thinking about these problems.
Marcus Gee’s unreasoned attack on the public forum I organized on the subject of a publicly owned bank for the City of Toronto brought Fromm’s words to mind. Mr. Gee’s article seriously misled Globe readers, relying on invective and the omission of facts to paint a negative picture in the minds of his readers.
His invective was largely directed at a 12 year old girl, Victoria Grant from Cambridge, Ontario who reprised her award winning school speech on the subject of the Bank of Canada. The YouTube version has over a million hits.
But Mr. Gee is not a fan. “How much better it would be, she said, if the government could just ask the Bank of Canada when it needed funds. The Bank would simply create the money, pay back the commercial banks and the national debt would be wiped out. See. Easy.”
Except that Ms. Grant is right. The Bank of Canada was used to fund government spending, from 1939 to about 1974. It would be easy to recreate, if the political will was there, and if more Canadians understood their own recent history.
The first Governor of the Bank of Canada, Graham F. Towers, was questioned by Mr. Gerry McGeer, a Depression-era mayor of Vancouver, later an MP and senator at the Canadian Government’s Committee on Banking and Commerce, in 1939.
Mr. Towers explained some facts which still apply today. He said, “Each and every time a bank makes a loan, new credit is credited – new deposits – brand new money. Broadly speaking, all new money comes out of a Bank in the form of loans. As loans are debt, then under the present system all money is debt.”
When Mr. Towers was asked, “Why a government with the power to create money should give that power away to a private monopoly, and then borrow that which parliament can create itself, back with interest to the point of national bankruptcy?” He replied, “If Parliament wants to change the form of the banking system, then certainly that is within the power of Parliament.” Towers led the Bank of Canada for 20 years.
I shared academic legal research and the committee transcripts with Mr. Gee prior to the completion of his column. Unfortunately he chose not to even reference the information. Readers should ask him why.
Mr. Gee omitted other pertinent facts that if included, would not have supported the entirely negative slant of his narrative. Our Forum was supported by the Wellesley Institute, the Centre for Civic Governance, MaRS Centre for Impact Investing; and that our keynote speaker was Marc Armstrong, the Executive Director of the U.S. -base Public Banking Institute. Mr. Armstrong holds a MBA from UCLA and is a former IBM Finance executive with clients including Bank of America and Wells Fargo.
Mr. Gee describes the Public Banking Institute as “obscure.” Perhaps to Mr. Gee it is. But it’s an appeal to ignorance. The notion of a publicly owned bank is not obscure to Germans, where Landesbanks finance many local German businesses, or to South Americans, where publicly owned banks were able to provide financing throughout the recent financial crisis. China is driving its economy forward using publicly owned banks.
Founded in 2011, the Public Banking Institute is a non-partisan think-thank, research and advisory organization, dedicated to exploring and disseminating information on the potential utility of publicly-owned banks. Last April, I attended their inaugural Public Banking in America conference in Philadelphia and met elected officials, economists, policy makers, bankers and ordinary citizens who came together learn more about public banking. I learned a lot.
Twenty states in America are now actively considering some form of state banking legislation. North Dakota has operated a public bank since 1919. Its return on equity is generally higher than that of Canada’s Chartered Banks.
Nor is public banking new to Canada. Much of our nation’s post-war economic growth and infrastructure development was funded by our own public Bank of Canada, which is authorized under Section 18, Article C to purchase municipal bonds and other securities at a nominal interest rate. The Bank of Canada was created so that our national government would not be burdened by debts that could compound endlessly and render democratically elected governments the servants of their creditors.
But this is unfortunately exactly what happened after 1974 when the Government of Canada abandoned its previous policy under pressure from the banking lobby and the “free market” think-tanks which have apparently influenced Marcus Gee. Our massive national debt is the direct result of the compounded interest from the practice of public borrowing from private banks at compound interest. Nothing to see here.
In 2001, when the City of Toronto requested that the federal government provide nominal-interest Bank of Canada funding for the construction of the Sheppard subway – as the law says they can – the then Liberal government refused. During the last municipal election, Mayor Rob Ford promised the good people of Scarborough, “subways, subways, subways” and yet his close personal friend Jim Flaherty, who holds 100% of the Bank of Canada shares in trust as Finance Minister didn’t offer him any Bank of Canada financial assistance. Mayor Ford has yet to propose a realistic means for financing new subways.
The law need not change. Rather our elected officials need to reassert the power that voters placed in their hand. If they’d rather see Canadians crushed under ever-increasing burdens of unnecessary interest payments for a service – the creation of credit – that governments could easily manage themselves at a far lower cost, then it will become clear to citizens who our elected officials, and apparently Globe and Mail columnists, really serve.
The City of Toronto is currently contemplating the most efficient way to eat its own tail by contracting out public services and by attacking the livelihoods of public sector workers. Our leaders are talking seriously of casinos, not about taking back democratic control over the power to issue credit, a power, which if assumed, would render the current debate irrelevant and obsolete.
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