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NEW Social Contract - Canadian Bank Reformers NEW Social Contract - Canadian Bank Reformers

UP AGAINST A BRICK WALL

As a result of globalization with its race to the lowest common denominator, and allowing the privately owned banks to establish a monopoly to create our “money,” Canadians find ourselves up against a brick wall. There are only two ways for their needs to be met: raise taxes, which are too high already and raising them slows economic growth, or borrow the money and repay it with interest. The latter choice, however, is mathematically impossible because no one creates any money with which to pay either principal or interest.

A number of countries are searching for new approaches like creating “Positive Money” being discussed in the U.K., and “Helicopter Money” recently suggested by former Fed Chairman Ben Bernanke to the Japanese, using debt instruments called “non-marketable perpetual bonds with no maturity date” – bonds that can’t be sold or cashed out by the central bank and that bear no interest.

Canada is blessed by being ahead of the curve in preparing for this dilemma of the century. A few years ago some people who had anticipated the problem got together and produced a plan that would (A) provide governments at all levels with sufficient cash to meet their immediate needs and possibly pay down some debt over a 7 year period,

(B) provide a smooth transition to a stable, recession proof system, (C) reduce bank leverage to a figure that is morally tenable, (D) change the balance of power between the richest 1/10 of 1% and the 99% in the long-standing war between the rich and poor – a move that Nobel Laureate Joseph Stiglitz rates essential to maintain capitalism acceptable to the majority.

This plan, which we labelled “A Social Contract Between the Government and People of Canada,” was endorsed by 40 very concerned Canadians. I have read most of the alternate plans being proposed elsewhere and I am convinced ours if the best by far.

A SOCIAL CONTRACT BETWEEN THE GOVERNMENT AND PEOPLE OF CANADA

In view of the fact that our present banking and financial system is unstable, unsustainable and basically immoral, we the undersigned, on behalf of all Canadians, demand that the federal government use its constitutional power over all matters pertaining to money and banking by forthwith taking the following action to benefit all Canadians

  1. The government of Canada should print fifteen non-transferable, non-convertible, non-redeemable $10 billion nominal value Canada share certificates.
  1. Simultaneously the Justice Department should be asked for a legal opinion as to whether the share certificates qualify as collateral under the Bank of Canada Act. If not, legislation should be introduced to amend the Act to specify their eligibility.
  1. The government should then present the share certificates to the Bank of Canada that would forthwith book the certificates as assets against the liability of the cash created, and deposit $150 billion in the government’s bank accounts. The federal government should immediately transfer $75 billion to the various provinces and territories in amounts proportional to their population, with the understanding that they would help the municipalities, as appropriate, so there would be no need to cut back on essential services, or sell valuable assets.
  1. Amend the Bank Act to reverse the 1991 amendments that eliminated the requirement for the Canadian chartered banks to maintain cash reserves against their deposits and provide the Minister of Finance, or someone acting on his or her behalf, the power to set the level of cash reserves for banks and other deposit taking institutions up to a maximum of 34%, provided the increase, beginning in fiscal year 2016/17 is not less than 5% per annum until the new 34% base has been established in 7 years. This will ensure that there will be no inflation resulting from the government-created money.
  1. Repeat the action prescribed in Sections 1 and 3 for six additional years until bank cash reserves reach 34% of deposits.
  1. In each fiscal year following 2022/23 the amount of GCM spent into circulation will be 34% of the desired increase in monetary expansion for that year, with the remaining 66% to be the prerogative of the chartered banks. N.B.  The great advantage of changing the system over a 7 year period is to allow all levels of government the certainty of a cash flow adequate to complete projects once begun, and to facilitate a smooth transition to the new stable and sustainable system.
  1. The amount of GCM created during the transitional period should exceed prudent budgetary requirements in some cases, so governments at all levels should take advantage of the opportunity to pay off significant amounts of their outstanding debt. It is estimated that the federal government could reduce its net debt by as much as one-third, providing further relief to hard-pressed taxpayers.

Transferring 50% of the government-created money to the provinces and territories on a per capita basis, with no strings attached, will produce near miraculous results. It will help resolve the century old problem of federal-provincial relations and give the provinces greater freedom to manage their own affairs. Infrastructure projects can be launched without federal approval, except in rare cases where the outlay is so large that federal help would still be required. The proposed squeeze on transfers for health care spending would no longer pose a great problem. But the greatest advantage in promoting economic growth and job creation would be a three or four hundred percent acceleration with fourteen governments making decisions rather than just one. The idea of using share certificates as collateral instead of bonds is... (continue to tab 2)

(a) to conform to the technical requirement of the Bank of Canada to have collateral to book as an asset equal to the cash it creates that is booked as a liability; (b) bonds are no longer expedient, as they were in the early post-World War II years when gross debt was insignificant. Today, when we already have too much debt on the books, to add hundreds of billions or a trillion dollars in bonds, even at a zero interest rate, would distort the optics of the real situation grotesquely. So let’s avoid it. As Thomas Edison, inventor of the luminescent lamp said when discussing the question of GCM, “Any government whose credit is good enough to create a bond can create a bill.” The division of the money-creation function between governments 34% and banks 66% (as opposed to the current 97%) is a carefully reasoned estimate of what each requires to do its job adequately. (continue to tab 3)

The lower figure of 34% each year for government should produce a cash stream adequate to allow governments at all levels to provide essential services with reasonable tax rates and still balance their budgets. At 66% of new money creation banks will still be able to provide service to Individuals and small business, and temporary assistance to big business, but not to finance hedge funds, finance giant takeovers, play at derivatives and other activities that have turned the world financial system into one giant casino. Remember that the people own the patent to create money. The banks do not! They are simply licencees that enjoy the unique privilege of creating what we call money (bank deposits) to the extent approved by parliament.

If you ask a politician or bureaucrat why they don’t support GCM, and they respond, “That would be inflationary” it is because one of their professors told them so, and they repeat it as rote. How do I know it is not inflationary? It is because we Canadians created large sums of GCM for 35 years and our economy was no more inflationary than the average. The Isle of Guernsey has printed money for 200 years to pay for all of its public works. The result has not been inflation! The result has been full employment and no debt!

On the other hand the failure of the present system to maintain the value of money can be illustrated by the fact that one U.S. dollar at the time that the Federal Reserve System was established just over 100 years ago, is worth less than 5 cents today. Talk about inflation! One of the many advantages of the New Social Contract is the fact that it can be applied universally, and should be. There are special problems in some instances. The Eurozone for example would have to amend their treaty to allow the Governor of the European Central Bank to accept shares from the various member countries in exchange for the appropriate number of euros relative to their population.

But it can be done, and the incentive is enormous when such astronomical amounts of cash are required to reduce unemployment to a tolerable level. It has been estimated that E100 increase in public investment would be required to reduce unemployment by one million. So the initial requirement would be several trillion euros, which would be available under the recommended formula. Even more important, solving the liquidity crisis might be the glue that would keep the EU from coming apart at the seams.

The United States would be the toughest nut to crack. It would require a president and congress willing to put the people ahead of Wall Street, nationalize the Federal Reserve System, and eliminate campaign contributions from financial institutions to politicians and candidates for office. It is a long stretch, but they couldn’t afford to let the rest of the world enjoy an advantage that would make them less competitive. In major projects such as the one under discussion it is usually suggested that Canada wait and let some other country go first, to prove the feasibility. In this case we have already been there, done that.

We used copious quantities of GCM and thrived as we never did before, nor since we let the banking cartel rob us of our inalienable rights – a theft that they are attempting to set in concrete with their ingenious dispute settlement mechanisms in the Canada-Europe Trade Agreement (CETA) and the Trans-Pacific Partnership (TPP). So we have to be first off the mark and use the power granted under the Canadian constitution before we lose it. Canada is the only country in the world that I know of that has all of the essentials for quick action and implementation. First, and probably most important, we have done it before. And we can do it again.

Second, the Bank of Canada is publicly-owned. The Minister of Finance holds all the shares in trust for us all. Thirdly, the Minister of Finance has the final say over Bank of Canada policy. The only caveat is that in the case of any differences with the governor, the minister’s opinion must be put in writing and published in the Canada Gazette. And, finally, I am ready, able and willing to assist the minister with the legislation and implementation. I was one of the authors of the original plan, and the only one with political experience. Banking reform has been a passion since college days when my professors were unable to give me an acceptable answer as to whether or not recessions and depressions were necessary.

I had to figure out for myself that they were not. They were phenomena of a highly leveraged, partial reserve system – a system that has been responsible for inestimable human suffering, and there is no end in sight. The whole problem has to be framed in moral terms. Is it moral for a government to borrow money in the market, and mortgage our future when they have the constitutional and legislative power to obtain debt-free money to meet all our legitimate needs? Is it moral for one small group of individuals to lend the same money to 20 different governments, businesses or people and collect interest from each? Is it moral for 62 families to own half of the world’s wealth when millions of people are hungry and in need of life’s necessities?

The world is in crisis on many fronts. It is crying out for a leadership of hope. There is no leader who is better positioned than our own extraordinary prime minister to take the bold first steps on which the future of our planet and species depends. The day the prime minister took the oath of office I wrote to him suggesting he would have to decide if he was going to be just a good prime minister or make the extra effort to be a great one, ranking with the best ever. A unique, once in a lifetime opportunity exists to confront the private money-creation monopoly that has been such a curse for so long with its chains to austerity budgets, and anemic growth.

If he persists with the present budget, and settles for a hundred thousand or so new jobs when full employment is possible, and leaves us with a legacy of an even higher federal debt, when a significantly smaller one is possible, he will have to settle for good, at best. But if he seizes the opportunity of a century, and sets the people free from the bondage of being slaves to debt as a signal of hope for the world, he will rank with the greatest of leaders – another Lincoln.