pdf version: BoC balance sheet COVID
It seems fitting that in the anniversary of its 85th year the Bank of Canada has come full circle and is back to its roots using the same kind of monetary tricks it employed in 1935 to start pulling Canada out of the Great Depression (plus a few new tricks). Neoliberal governments the last 40 years have hoped Canadians forget the progressive past of our publicly-owned central bank aiding the people, but it’s come back to the forefront in a way now that will be hard to ignore.
The $361 billion (and counting) question? WHERE DID THE FEDS GET THE MONEY FOR COVID SUPPORT?!? Well, the answer is as simple as it always has been: where does all money come from? OUT OF THIN AIR!!!
Yes, for those of you reading this information for the first time, it’s true, we live in a debt-based fiat monetary system, pretty much all money is created as debt, and there is nothing backing our money (like gold or silver) other than confidence in our economy. Here is a federal government page admitting to that fact: “Both private commercial banks and the Bank of Canada create money by extending loans to the Government of Canada and, in the case of private commercial banks, lending to the general public.”
When your bank gives you a loan, or line of credit, or mortgage, they don’t lend you their own money, they don’t lend you their depositors’ money, they type numbers in a computer and POOF! New deposit money you can spend, matched by the new debt you rack up, it’s all just numbers on a digital ledger. The flip side is that repaying a loan destroys that new money, and all that is leftover is the interest you pay to the bank. If we paid off the principal on ALL the debt there would be no money left, only the unpaid interest. And so new debts pay off old debts in a never ending spiral of growing debt that grows the almighty GDP.
Well it’s that simple for the government too, our public central bank has the ability to create ANY money the government should require to finance the solution to any problem. Here’s another great quote from the feds themselves about how the federal government can never go broke and will never have difficulty finding funding: “As the nation’s central bank, the Bank [of Canada] is the ultimate source of liquid funds to the Canadian financial system and has the power and operational ability to create Canadian-dollar liquidity [money] in unlimited amounts at any time.” In unlimited amounts at any time.
So, why don’t they create more to solve Canadians’ problems? Well, neoliberal governments serve the profit needs of the private sector first, they don’t actually want to solve society’s problems, they merely want to create the illusion they are helping, just enough to get re-elected. Which is why they never give quite enough money to actually solve anything unless it’s to bailout a favoured supranational corporation.
But in a crisis with such macroeconomic ripples as this, to give the economy the support it needs the government and central bank have no choice but to tip their hand and reveal just how easy it is to turn on the money taps when the wealth vacuum for the elite we call an economy stops functioning. Not only is COVID a threat to the economy, it’s a literal threat to the elite in power, because a virus does not discriminate by socioeconomic status. The elite are immune from poverty, homelessness, hunger, inadequate healthcare, and unclean water, so those life-threatening conditions do not get the funds necessary to solve those problems.
As it turns out, maintaining those problems serves to strengthen the neoliberal system by creating conditions of stress, scarcity, and desperation that suppresses wages and keeps people seeing each other as the competition instead of cooperating. If people are too busy struggling to make ends meet they don’t have time to think about what their politicians are doing, never mind taking action. It’s one of the primary ways elite neoliberals keep as many people as politically disengaged as possible to ensure there is no “excess of democracy“.
The long and the short of it is this: our federal government does not have to “find the money”, it has ALWAYS had the power to create whatever it needs if it so chooses. The only reason they don’t is purely ideological and caters to the needs of the wealthy, our largest corporations, and the financial sector. While there are real world constraints to increasing government spending on the public, we’ve never truly seen what they are because our governments serve the profit needs of the private sector first, and everything else second. We’ve never known how many more problems we could solve if our products, services, and resources were dedicated to improving the public good first (like ensuring ALL Canadians have reliable access to clean water and healthcare or a roof over their heads), instead of being monopolized to ensure corporate profits and being squandered on things like luxury cruise liners and military equipment.
It’s simply the nature of a capitalist economy in a debt-based monetary system: if most of the economy is privately-owned and all money is debt, then if the government doesn’t maintain those private profits the debts can’t be repaid and the whole house of cards comes crashing down. Under this inequitable unsustainable system politicians really have little choice but to support the prioritization of the profits of our largest corporations because if there’s a corporate profitability crisis and companies start defaulting on their debt the economy will collapse. Either that or our “leaders” could, you know, advocate for a system NOT based on making a tiny minority of people exceedingly wealthy thereby empowering those ultra-wealthy to monopolize our resources and direct public policy to their own greedy ends?
But you’re not here to listen to a diatribe about the neoliberal inequality engine we use as the system to run our lives (or maybe you are?), you’re here to learn how the government can create all the money it needs for social good through our central bank. It’s really quite simple….
How it all works:
The Bank of Canada creates money primarily two ways: it can create it to loan to a bank or government (an “advance”), or it can create it to buy financial assets like bonds, treasury bills, and many other kinds of securities. Advances rarely happen, especially advances to governments (here’s a short list), but the latter method happens all the time, if not daily.
I won’t go too deeply into details about the mechanics of all this, because in the aggregate the daily moves of the BoC are quite an intricate dance ensuring stable predictable flows in the financial system. Just look at how even the balance sheet numbers were before the crisis, the BoC works very hard to keep those numbers steady, shuffling assets and liabilities around multiple times a day to get its balance sheet, and consequently interest rates, right where it wants them.
While the government has many different accounts for itself and its various Crown corporations, all the funds for COVID are coming out of the Consolidated Revenue Fund, aka the Receiver General account, at the Bank of Canada. This is where pretty much all discretionary spending by the federal government originates. BILL C-13: An Act respecting certain measures in response to COVID-19 states “there may be paid out of the Consolidated Revenue Fund, on the requisition of a federal minister and with the concurrence of the Minister of Finance and the Minister of Health, all money required to do anything in relation to that public health event of national concern.”
There is one huge caveat to my analysis of the BoC’s balance sheet: one cannot say for sure precisely what is going on because the BoC is incredibly tight-lipped about all of its inner workings, the motivation for the moves it’s making must be deduced from understanding what each of the items on the balance sheet are and why they would change. Central banks are pretty much a black box, one can track the changes on their balance sheet but they’ll never explain precisely why they took a particular course of action each day. Most of the reason is it makes it impossible to criticize them from the outside, whether you are a sitting politician or a business analyst, but it’s also to maintain the mystery of it all and ensure the public have little chance of ever understanding it. Well this is another of my attempts to pull the wool off our eyes and reveal to the public, as plainly as I can, the reality of banking and the monetary system. Welcome to the rabbit hole…
The Balance Sheet:
The opening diagram is of the weekly averages of the balance sheet of the BoC. Every economic entity, including people, are each their own balance sheet of assets and liabilities. Assets are what you own, liabilities are what you owe. Your house is an asset, your mortgage is a liability. To a bank, your deposits are their liability (they owe it to you), but your debt is the bank’s asset (because you owe it to them).
So what you are looking at on the opening diagram is the total of all BoC assets on the top, and the total of all BoC liabilities on the bottom, both measured in millions of dollars. By accounting convention total assets and total liabilities will always balance, which is why they are a mirror image of each other. As you will note, they both soar after COVID lockdown begins, indicating the hundreds of billions of new dollars the BoC created for the crisis.
But don’t expect the BoC to outright admit that’s what it’s doing; they use bankspeak to obscure the reality. Instead of stating clearly they created hundreds of billions of dollars out of thin air, the BoC states “These interventions, which involve acquiring financial assets and lending to financial institutions, increase the size of the Bank’s balance sheet.” A “balance sheet expansion” is simply money creation, they just refuse to call a spade a spade because that would alert the public to the subterfuge. Fortunately I have been studying the BoC long enough to cut through their Orwellian bankspeak so rest assured I will explain everything as best I can.
I’m learning over time how incredibly hard this topic is to convey to regular folk unfamiliar with even the basics. Many an ignorant person will claim, “if you can’t explain it simply it means you don’t understand it”, but that’s truly not the case, not for particle physics, not for the monetary system. The topic is simply too esoteric, requires knowledge of far too much unusual and slippery terminology, and explaining the accounting does not translate well into words or even pictures (it requires an animated explanation, one day, one day). I will go through each category one by one so everyone can hopefully understand what it means. If you’d like you can also refer to the Bank’s description of the balance sheet. Or just trust my conclusions and skip to the bottom. Here we go…
As previously mentioned, advances are loans to banks or the government, in this case specifically the banks that have accounts at the BoC. But before you get your hackles up about our banks needing loans, these are not bailout loans to prop up an insolvent institution, these are temporary bridge loans to cover unexpected shortfalls in the large-value transfer system (the LVTS, which is where banks and the government settle up all their transactions at the end of the day). As you can see, those loans are already being wound down, they will likely be the first item to disappear from the post-COVID balance sheet.
The reason these loans were necessary was likely due to unexpected friction between banks settling with each other in the LVTS; one or more institutions fell a little short and the BoC, as lender of last resort, covered them. The BoC charges them the Bank Rate, and we make a little money off the deal. More on the operating band of interest rates later.
The BoC states clearly it will not disclose the names of the banks, and this is for good reason. The average person simply does not understand how central banking works, and if they saw their bank’s name as receiving a loan it would likely undermine public confidence in that bank and possibly cause a run on the bank. So the books clearly show the loan, we’ll just never know to whom it was made unless we dissected the balance sheets of all the banks in the LVTS and pieced together who had loans from the BoC at that time.
Securities Purchased Under Resale:
Securities purchased under resale agreements is when the central bank buys assets from the private banks, usually government bonds, with an agreement to sell them back at a later date, anywhere from one day to three months. This is normally done in order to influence interest rates and/or neutralize government flows.
This is by far the largest change on the asset side of the BoC balance sheet, and it’s the easiest to spot example of quantitative easing (QE), which the BoC is doing for the first time. In a nutshell, QE is when the central bank injects liquidity (new money) into the system by buying existing financial assets from the banks and other entities. The reason for this is because those assets become less desirable for banks and companies to hold, partly because those assets lose value in the wake of the crisis, but also because those assets are not as “liquid” as money, they can’t be spent like money and must be sold first. By making these purchases the central bank is encouraging an easy flow of credit from the banks because they will be less reluctant to lend if they are flush with billions in liquid cash.
(for the wonks only: one can quibble about the semantics of labeling resale agreements as QE as Governor Poloz has, but in Canada’s case it fits, firstly because we actually rarely use resale agreements for monetary policy, opting for transfers of government deposits instead, and when the activity is so unusually large and intended to be ongoing for the crisis, it is no longer a typical resale)
Canada Mortgage Bonds:
Anyone who’s seen the movie “The Big Short” or delved a little into the cause of the 08/09 Great Financial Crisis (GFC) will be familiar with mortgage-backed securities (MBS). These are when a bank bundles a bunch of mortgages into one big security, and then sells that security to investors, and the investors reap the interest payments of the mortgages. Well there’s a reason Canada did not suffer as badly as other nations during the GFC, and it’s mainly because of how we handle MBS.
First off, our banks are not allowed to invest in any MBS other than Canada Mortgage Bonds, which is why they were not exposed to that market when it crashed in the US. Secondly, our MBS can only be made out of Canada Mortgage and Housing Corporation (CMHC)-insured mortgages, so these mortgages are already safely insured and guaranteed by the government. Lastly, our banks only bundle the mortgages, then the CMHC buys them up, then the CMHC itself sells them to investors. So we have structured this market much more securely and with a lot more oversight and accountability than the free-for-all frenzy that happened in the US.
HOWEVER, the government, BoC, and CMHC seem to be making an exception now, and will “allow lenders to add previously uninsured mortgages into the pool of securities eligible to be bought by the government.” So they are opening the door to precisely the kind of dynamic that toppled the US, let’s hope those uninsured mortgages are from solid borrowers, not simply wealthy foreign investors willing to dump their real estate if the market sours.
In this case, the BoC is not purchasing direct from the CMHC as it does for balance sheet purposes, but rather on the secondary market to support financial market functions, another form of QE as direct support for the banks. Prior to the crisis the BoC always held a few of these, now they’ve ramped it up over 1100%.
A banker’s acceptance (BA) is kinda like a post-dated cheque but guaranteed by the bank, not the company writing the cheque, and is used by small and medium-sized corporate borrowers. This is another form of QE by the BoC, as they don’t normally hold BAs, and the BoC is not buying them direct from the companies, but rather from the banks that guaranteed the BA. Once again, it’s not clear which banks the BoC is buying these securities from, nor which companies they are from.
Here’s where things get interesting. Commercial paper is debt issued by companies but also public entities, like provinces and municipalities. But this is not direct support for public entities, at least not on the surface, because the BoC is buying this debt from banks, not from the public entities themselves, and so it is more QE. But the BoC can buy municipal debt if it so chooses, and was able to do so before COVID, they just won’t lift a finger to fund cities unless doing so supports monetary policy (which I would argue in cities like Toronto it does, because the cost of living, and hence inflation, is higher there and would be even higher if we raised taxes to fund our flagging infrastructure).
Government of Canada Bonds:
Finally we have come to the heart of the matter: direct support for the feds by the BoC. But, of course, it’s never quite as clear as one would hope.
Government of Canada bonds are the main way in which the government issues debt. Private banks acquire bonds either by swapping their excess reserves for bonds in the primary market or by crediting government deposits at the banks with the purchase, and then sell some of the bonds to the public in the secondary market. The tricky part however is how much the BoC bought direct from the government in the primary market and how much it bought on the secondary market to support the financial system. When the BoC buys newly-issued federal bonds direct from the government it is called “monetary financing”. This is sort of the other side of the coin of QE, except instead of creating money to buy existing assets, it creates money to buy new assets, injecting the government with new money.
This mechanism of monetary financing is the subject of much debate in Canada (I’ve written a VERY in-depth paper on the subject), as it is proof of how our government can easily use our central bank to create whatever funds it needs without ever paying a dime of interest to the banks. It is monetary financing that kick-started the BoC in 1935 to begin ending the Great Depression, made possible our funding of WWII, and aided the government throughout the post-war economic expansion.
After neoliberalism set in starting in the 70s we curtailed this power more and more, but unlike most central banks that are forbidden from the practice, we actually use monetary financing EVERY time the feds issue new bonds and the BoC snaps up a percentage at auction. Without painstakingly disaggregating the data by poring over the various purchase results we cannot tell precisely how much monetary financing we increased since COVID hit, but it’s somewhere in the $50 billion range.
Provincial Money Market:
This is perhaps the MOST intriguing and encouraging change in the BoC balance sheet. The provincial money market is where provinces issue bonds, it’s their primary market. What makes this so intriguing is that seemingly for the first time ever the BoC is doing monetary financing for provinces. Yes, you heard that right, the BoC is creating new money to buy debt directly from the provinces AND it’s possible the BoC has created new deposit accounts for them too (more on this later).
Alot of the debate about the BoC and Canada’s past funding of public works centered on the notion of the BoC making loans to the feds, provinces, and cities. Unfortunately I’ve had to dispel a lot of myths about this, as it is a misinterpretation of the function of a central bank and the loans the BoC has in fact made. As per the loan provisions of the BoC Act, they are NOT meant as loans to fund projects; just like advances they are temporary bridge financing to cover a shortfall in expected revenues, which is why the loan provision terms are so limited in amount and time frame. But monetary financing is a horse of a different colour, it’s like a back door “loan”, a way to provide funding that uses newly created money and does not require paying interest to the private sector. Another phrase for it is “public money creation”: money created by a public institution for public use.
This is one change the BoC should consider keeping, especially as it can help ease the debt burden some of our provinces suffer under. But federal and provincial jurisdictions are closely guarded, we’ve seen how provinces become the fiefdoms of ideological demagogues (especially Conservative ones) and how the feds will or won’t cooperate with various Premiers (and vice versa). Supporting the provinces in this way would likely be seen as letting them off their fiscal responsibility hook, and so the feds would be loathe to do it for the same reasons they don’t really do it themselves: they cannot appear to favour the public sector and must remain fiscally neutral in the eyes of the neoliberal financial world. This means you do not run deficits without matching the deficit spending with bond issues to the banks, else the neoliberal world will punish you with divestment, lowered credit ratings, lowered exchange rate, and worse comes to worse if you really push the envelope, crippling sanctions.
Treasury bills (T-bills) are simply another form of federal debt like bonds; they just pay out interest differently. The changes in this category are pretty much the same analysis as government bonds: some were likely bought direct from the government (monetary financing), some were likely bought on the secondary market to support the financial system (QE).
All Other Assets:
This category is insignificant, it includes property and equipment, intangible assets and other non-investment items, and did not change in any meaningful way.
On to the liabilities…
Notes in Circulation:
This is cold hard physical cash (notes). As a brief aside, the word “cash” is a prime example of the intentional ambiguity of bankspeak. In central bank terms, “cash” can mean the same thing as “reserves” or “settlement money” or “high-powered money”, it’s basically referring to fully liquid deposits, and usually does not refer to physical notes. Another way to put it is “cash” is any deposit easily converted into actual physical cash. Not knowing this can make reading about central bank actions very confusing.
Normally this is the largest liability on the BoC’s balance sheet and requires the most acquiring of assets to match it. It is demand-driven by the public, meaning the BoC only provides as many notes as the banks are asking for according to the needs of the public. It says “circulation” because the notes are just paper until the BoC officially circulates it by swapping it for reserves with the banks. The government can have billions of notes printed waiting in a warehouse, it does not count as “money” until the BoC circulates it.
The good part is that the demand for notes has barely changed, meaning there are no bank runs or people withdrawing large amounts of notes. Another interesting thing to note about notes (pun intended) is that they are the ONLY access to central bank money the public has. Despite the fact deposit money in a private bank is our primary medium of exchange, it’s not actually legal money like notes, it’s just the PROMISE to pay legal money on demand. Deposit money in private banks is not defined in the Currency Act, it is de facto money, and we have allowed private banks the power to create it at will.
All Other Liabilities and Capital:
Just like “All Other Assets” this is not a significant item on the balance sheet. The “capital” part is likely just the leftover equity after all else has been accounted for. However I would like to know what exactly changed that it decreased in amount.
Government of Canada Deposits:
As yet another example of confusing bankspeak, Government of Canada deposits are also known as the Consolidated Revenue Fund aka the Receiver General Account (RG account). This is where all spending comes from and all taxes go into. That’s why you make your tax payment to the Receiver General, and why all government cheques come from the Receiver General. It’s the government’s account at our central bank.
The change in this account is more or less (in the aggregate) the result of new monetary financing, the BoC bought debt direct from the government and credited this account with newly-created money. And the BoC does this on a regular basis, it just used to do it more (the main subject of my previously mentioned paper).
One might be confused considering the government’s various announcements about financial support of the economy not really jiving with this increased amount. Well, that’s because the government NEVER has on hand all the cash they need for their spending in a year, it’s a daily simultaneous flow of spending going out and taxation going in. The BoC anticipates these government flows and will take pre-emptive action to ensure the RG account has what’s needed for any particular day of government spending, either building up reserves for a big spend, or auctioning them off when they’re not needed.
This also means the federal government does NOT depend on your tax dollars in order to spend on public services (whereas without a central bank provinces and municipalities do depend on tax dollars to fund themselves). The federal government does not need to save up tax dollars first before it can spend on the public, it spends first and taxes later, or more accurately, spending and taxation both occur at the same time every day in varying amounts relative to each other. Point being though, federal government spending is NEVER constrained by tax dollars, if it were very little would happen until after tax time rolled in and the government saw how much they had to spend.
Remember when explaining provincial money markets I said I’d get back to new deposit accounts? This is another case where because of the BoC’s stated policy of “confidentiality considerations” we may never know who exactly owns these deposits, but it seems very possible a large chunk of them is whichever provinces the BoC bought bonds directly from.
“Other deposits” is a newer entry on the BoC balance sheet, I can’t say for sure without really digging deep, but it’s entirely possible this is the first time the BoC has ever granted deposits to entities other than the federal government and banks. According to the BoC website “These include foreign central banks and international financial institutions, designated clearing and settlement systems, and other domestic federal government agencies.” As this COVID intervention is likely for domestic entities, the BoC likely gave new deposit accounts to smaller banks not part of the LVTS, or possibly even to some of the larger corporations it’s supporting with QE, and lastly, maybe even some of the provinces or larger cities. We may never know.
Members of Payments Canada:
And finally we come to the aggregate result of QE, the increase of deposits of the private banks that are members of Payments Canada. The members are the largest banks/financial institutions in the country, they all participate in the LVTS, and they are for whom most of this hubbub is about. Increasing these deposits (aka “injecting liquidity”) by buying up financial assets from these banks is what is meant to grease the wheels of money markets and bank lending, to ensure continued easy access to credit.
You will note the amount of these deposits is barely visible before COVID. That’s because the BoC has a 0% reserve requirement, since 1994 our banks have not been required to hold any reserve money as a percentage of their deposits, they can lend or spend their excess reserves as they see fit. But keeping reserves at the BoC earns the bare minimum in interest (the Deposit Rate), they’d rather swap them for a variety of government bonds earning various rates of interest for various time periods which they can then sell to investors. So they keep a very specific minimum at the BoC, which did not fluctuate week after week before the crisis.
(wonks only: in a bizarre twist, the BoC is violating its own interest rate operating band. The target for the overnight rate aka the policy interest rate aka the key interest rate (more confusing bankspeak giving everything multiple names!) is a 0.5% band, the policy rate is at the center, the Bank Rate (the rate banks pay on advances from the BoC) is 0.25% higher and the Deposit Rate (the rate the BoC pays on deposits) is 0.25% lower.
So when the policy rate is 0.25% as it currently is, the Deposit Rate should be 0%, we should not be paying banks interest on their deposits. But for whatever reason the BoC is not going to the actual effective lower bound, it’s staying just above it, so all the new deposits we created for the banks are still earning 0.25% when they should be earning squat. Even with all that extraordinary support we’re still ensuring the banks get their pound of flesh).
If you think all this cajoling and bending over backwards to ensure the banks do their job and fulfill their function as providers of credit is a bit of a farce, you’re not alone. The entire monetary system is set up not to control banks and their de facto money creation, but rather to gently influence them, leaving as much to the “free” market as possible.
The BoC does not control the supply of money, at all, it attempts to influence the cost of credit, primarily through its actions in markets to support its intended interest rate. It’s yet another monetary dance, part of the illusion of finance, and it’s the reason I advocate for nationalizing the banking system. Having a fully public banking system would eliminate the necessity and expense of overnight money markets, neutralizing government flows, selling bonds, and doing the specious dance of leveling the central bank’s balance sheet. Money creation should be a public utility, not one of the most profitable private businesses vacuuming billions of dollars from the public every quarter.
WHAT DOES IT ALL MEAN?
Those COVID “funds” are nothing more than numbers in a computer conjured out of thin air, the feds have the power to create as much as they want at any time. Yes, money is imaginary, to say we don’t have enough is to admit we don’t have enough imagination.
It all boils down to this: when Justin Trudeau tells a disabled veteran “They are asking for more than we are able to give right now” he is either telling a bald-faced neoliberal lie to deny funding the needs of Canadians, or he is supremely ignorant of how our monetary system works and is completely oblivious to the fact he’s telling a neoliberal falsehood. That also goes for every politician claiming we need to “find the money” or who foments hysteria around debt or deficits. These are the falsehoods standing in the way of truly improving life for ALL Canadians. Whether lying or ignorant, can such people really be trusted with our collective future?
Adam Smith, 21st Century
14 thoughts on “Where did Trudeau get that COVID cash?”
Thank you so very much for your concise and clear explanation of what the hell is (and always has) been going on. I hope this goes a thousand times as viral as the current pandemic. If that helps blow the lid off this neoliberal bs, then that may eventually be the silver lining of some very dark clouds. We could live in such a better world that it almost defies believability, but “I’m a believer” and I hope soon many millions more will be as well. Thanks again.
Thank you so much, we’re trying to get the word out, but this topic tends to shut people’s attention down, their eyes glaze over when it comes up. Please share it far and wide, and more importantly, start conversations with people, get them asking questions about WHY a country as wealthy as Canada has issues with poverty, homelessness, and clean water?
it is our imagination that has created this world we live in, at the behest of, the consequence of, interest.
Have you folks ever heard of The Myth is Canada? Do you realize the governments at every level in Canada are De-facto governments, because they are, since 1931 they had no right or power to rule us. If you do not know what I am talking about, I suggest you go get a very informed education an this subject at https://www.themythiscanada.com/
and go to brighteon.com, in the search engine there, type in ‘The Myth is Canada’. Once the page shows watch the 2 videos explaining the Myth is Canada. This is totally legal and above board stuff, we can change Canada for the good if we want.
Oh yes, I am VERY familiar with Doug Force. A week or so after the COMER lawsuit press conference where I met him at Rocco Galati’s office, we spent 2 hours on the phone where he told me conspiracy theory falsehood after falsehood. I spent a bunch of time researching to debunk his info, then realized quickly he’s an ideologue uninterested in anything but his own opinion and I’d be wasting my time. He kinda reminds me of Doc Antle from Tiger Kings, he’s got that budding cult leader vibe. I still have a file saved called “Doug Force bullshit.doc”, the guy subscribes to “Cultural Marxism” for crying out loud! The only reason I’ve approved your comment is for the chance to express how full of it that man is.
As for his theory, it sounds mostly like everything that comes out of his mouth: total conspiracy theory drivel. Now, let’s just say on some level he is correct, that somehow you could legally prove on paper our governments are a fiction, what then? It won’t hold up in court, it doesn’t empower anyone to do anything, it doesn’t dismantle the army or police. The Toronto G20 proved just how easily they can take away our rights, now under COVID restrictions they have officially suspended our civil rights. You only have what rights you can physically defend, if someone can take away your right then you didn’t have that right in the first place. Which unfortunately means, as history has proven time and again, that might makes right.
The change we need to see in Canada will not be brought about challenging the supposed legality of the government in court, that’s a losing battle, and it certainly will not come from the likes of Doug Force and all the dangerous fictions he himself actively spreads. If you want to use your energy improving Canada then don’t waste it on the likes of Doug Force.
First off, thank you for your considerable efforts. You have saved me, and countless others, hours of sorting through volumes of highly indigestible material, that only serve to muddy the waters further.
I look forward to reading through the rest of your offerings, although I confess to being left with as many questions as were answered.
I am hopeful that at some time soon you post on where you see all of this COVID / Green Economy / Great Reset spending taking us, and the likelihood of it being aimed at real economic reform.
Thank YOU for reading. And yes, I do have a follow-up article planned soon. I believe economic reform is inevitable, the folly of the psychopathic growth economy is being laid bare, and CoVID funding is blowing away all the specious neoliberal excuses for austerity. If you have questions, I am more than happy to personally answer them: [email protected]
Excellent! I particularly like how you have described how hard it is to discuss this topic with regular folk. My focus over the years has been on trying to point out what I think is an “obvious” problem with our current system: that the interest paid on “new money” loaned into the economy is not created and so has to come out of the money that was created previously… You touch on this by saying “If we paid off the principal on ALL the debt there would be no money left, only the unpaid interest” but you don’t point out that the unpaid interest wouldn’t exist because it was never created. There would just be a massive debt with no cash to pay it off (and the banks would end up with all the collateral…). Isn’t this a fundamental flaw of a system that loans new money? Interest owing also has to be created through loans. Loans to cover interest on loans to cover interest… This can’t possibly work without periodic adjustments to write off debts that can’t be paid back with the available money in circulation. Aren’t we seeing the impacts of this basic flaw as more and more of the money created gets siphoned off to pay interest on deposits and exponentially grow the wealth of those that are able to save (because they have been able to make more than they spend). Am I missing something?
EXCELLENT QUESTIONS! Have you read my other paper https://understandingcanada.ca/2019/11/much-ado-about-1974-the-bank-of-canada-in-the-70s/ ? I think you’ll find it most enlightening considering your “interest” (pun intended). My answer to your question may seem long-winded, but there is simply no way to give the answer context without getting into some of the history of the economic actors that designed and maintain this system for their own benefit.
You are sort of missing something, but only perhaps because I didn’t fully explain it in my paper (and will likely go back and add some clarity). The fact the interest is not created is the core aspect of the monetary system that drives the growth economy. New debts pay off old debts in a never-ending spiral, but what allows for the continued expansion of all that is the continued expansion of the population and resource extraction. New people and new resources from which wealth can be extracted means new debts can be created at a level capable of paying off old debts. But if growth slows down for any reason, like the global birth rate leveling off the last 40 years, or a natural disaster, or because people are consuming less to have less of an impact on the planet, or because consumers are so over-indebted they simply can’t afford new stuff, the whole house of cards comes crashing down. Such is the folly of a debt-based monetary system, especially one that uses compound interest because then the economic growth must also be exponential to overcome the exponentially growing debt.
This is not the first time in recent history we’ve started bumping up against the limits of such an unsustainable system. The last time was during the profitability crisis of the late 60s/early 70s. A profitability crisis ensues when corporations aren’t pulling in enough revenue to cover all their debts potentially leading to insolvency, and avoiding such a “crisis” is why the federal government’s primary concern is feeding the corporate profit machine.
Due to high public expectations and in part to strengthening unions, labour had been making serious gains in the post-war period, taking a larger and larger share of the wealth created in the economy and leaving less for the owners of capital. This was the golden age of capitalism into which the Boomers were born, and all that growth also required alot of progressive investments by government, like new hospitals and schools, and as the Boomers aged, new universities too. This was all well and good as long as the unprecedented economic growth of the post-war period kept on chugging. But the debt-based monetary system requires EXPONENTIAL growth, it wasn’t even a matter of keeping pace with previous years, the economy was required to somehow grow FASTER. Except by the late 60s/early 70s “secular stagnation” was setting in, a completely natural ebb of economic growth. But the system was not designed to ebb; it was designed to be an ever increasing flow upwards into the pockets of the wealthy elite.
So, what was the reaction of capital to the profitability crisis resulting from this natural and unavoidable secular stagnation? Well that was the birth of “neoliberalism”, an ideology hell bent on turning EVERYTHING into a marketable commodity in a “free” market that was to be influenced as little as possible by government. The OPEC oil crisis hit (1973), inflation soared, and the elite saw an opportunity in the crisis to regain the power they had before WWII. Wage and price controls were instituted in the US and Canada, and you can see on a chart how from that point (1975) onward productivity kept going up while wages have completely stagnated. Which is why the incomes of the wealthy elite have gone up so much more quickly than workers: as the pie expands labour’s piece remains the same size.
The “free” market fetish at the core of neoliberalism also entails circumscribing government by actively and openly advocating for retrenchment, regardless of how socially destructive it has proven. This has taken many forms over the last 40 years, from demonizing and restricting deficit spending, to privatization after privatization of public assets, to trade agreements that are little more than corporate power agreements, to the rise of public-private partnerships, to simply slashing and burning the public service (like the across the board 25% cuts of Chrétien in the 90s). In a neoliberal context, government’s only priority is to facilitate the profits of the private sector, THAT is government’s only purpose: providing a stable labour force and maintaining a profitable environment for our largest corporations (and by extension maintaining the wealth and power of the elite).
Turn to today, with growth slowing the last decade in another bout of incurable secular stagnation that rock bottom interest rates cannot stimulate, what have all the big banks and companies been doing to keep the debt machine chugging? Well if the real (physical) economy can’t provide the growth they need, they turn to shadow banking and the speculation of the global casino of financial markets, markets which have become completely unhinged from reality. The irony is that now investments in completely virtual financial products are considered “less risky” than investments in actual physical ventures, because something physical has to work in reality to succeed, but if it only exists in the virtual realm they don’t have to worry about reality getting in the way. That was the root of the 08/09 GFC, too many entities desperate for investment earnings went after what looked like a sure thing on paper, when it had zero connection to the reality crumbling beneath it. Once reality caught up with the paper, it all came crashing down.
Speaking of mortgages, the other solution for the elite having too much money and not enough places to grow it is to put it into assets, like real estate, bidding up the prices to incredibly inflated highs in desired areas. This is why housing has gone through the roof in some markets, because of the amount of speculation. Worst are not the house flippers, but those who have so much money they simply sit on vacant homes for years waiting for the need to sell.
Between tax avoidance and ever-lowering corporate tax rates the wealthy elite have managed to keep their profits rolling in at the desired pace, but that leaves the remaining burden of debt on governments, and we’re seeing that worldwide. Every government is burdened with debt and starved for revenue because they kept bending over backwards to reduce costs for corporations in order to spur economic growth that NEVER happens. All that happens is the growth of wealth for the elite.
And much of that growth in wealth comes from the government bonds that the wealthy and corporations line their investment portfolios with! So instead of taxes removing the need to sell bonds to fund government spending, they cut taxes and sell the bonds to the very entities that use the money they saved from lower taxes to buy the bonds! Imagine that deal if you would:
– government gives wealthy/corporations a tax cut
– now government is short of revenues to spend and so must raise money selling bonds
– government sells bonds to the wealthy/corporations who can buy the bonds using their tax savings
– government uses the proceeds from bond sales to spend on the public, but now owes interest to bondholders, interest on money the wealthy/corporations wouldn’t have had to buy the bonds with if they were taxed properly in the first place!
Isn’t it simply diabolical that our governments turn tax cuts into not just a savings for corporations and the wealthy, but then make an interest-earning investment out of it for them, allowing them to double dip? They get their tax savings, and some interest earnings to boot. Now, if cutting those taxes actually resulted in positive economic results for all they could be justified, but supply-side or “trickle down” economics has been proven unequivocally a failure of neoliberalism. If that doesn’t lay bare the inequity of the system I don’t know what does.
Today we’ve reached the limits of our exponential interest debt-based monetary system and the growth economy. Not just because infinite exponential growth on a planet with finite resources was always an unbalanced equation and our consumption is killing the planet, but because we’re simply coming to a natural plateau as a species. The global birth rate is now 2.6, replacement value is 2.1, we aren’t creating enough people to satisfy the growth economy and its pre-existing debt. We need an economic system that is FLEXIBLE, that can ebb and flow with the natural ebb and flow a species should have (no species on the planet save humans expands century after century displacing and extinguishing hundreds of species in its tracks). I am actively trying to devise such a system, the problem is there’s simply no room for billionaires in a sustainable system. I don’t say that simply because I want a more equitable system or because billionaires are just elite psychopaths (unless you inherited it, you can’t become a billionaire without heartlessly and grossly exploiting masses of people). I say it because the ability of the billionaire to extract that much wealth and the ability to command the resources that wealth buys is too large an imbalance, their wealth extraction and resource consumption doesn’t leave room for a sustainable circular economy. The planet simply doesn’t have room for psychopath billionaires.
In the end, bad debts can be written off, companies and people can go bankrupt, but that’s not a reset or even a bandage. It’s a peek at the truth: that our capitalist system is one of exploitation of the masses by the elite, a wealth vacuum for the ultra-rich. Yes, regular folk get some great benefits from that system too, but that’s just to keep them happy and distracted and not straying from their role as labour creating wealth for capital. Not to mention those benefits for regular folk have been shrinking ever since neoliberalism set in, the gains by labour of the post-war period are being eroded, there are more renters and less owners of property, and you can see on a chart how the middle class is shrinking. We’re slowly returning to feudalism.
Here’s the kicker:
My concrete conclusion after years of studying the history of politics and economics through the lens of psychology is that we are ruled in all corners by textbook non-violent elite psychopaths. The Stephen Harpers, Rob/Doug Fords, and Donald Trumps of this world are a prime example. And if the person in charge is not themselves a psychopath (like Trudeau), it’s only because they’re the puppet of billionaire psychopaths (like the Bronfman family that run the Liberal Party). Really, you can look at just about ANY leadership across the world, whether political or business, and you find psychopaths dominating. That’s why supranational corporations behave like psychopaths: it’s just a reflection of the people running the show.
If you want to reach the end of the rabbit hole, the unifying theory that explains ALL the evil and inequity in the world, read about psychopaths. Not all psychopaths are evil, but all evils started with a psychopath. Here’s a few books on the topic should this pique your interest:
Political Ponerology by Andrzej Łobaczewski
The Wisdom of Psychopaths by Kevin Dutton
Without Conscience by Robert Hare
The Psychopath Test by Jon Ronson
Snakes in Suits by Robert Hare and Paul Babiak
I know, I know, you ask a simple question about interest rates and the answer evolves into a diatribe about psychopaths. But it actually gets to the heart of the system, the WHY. Why would we use a monetary system that is inherently unbalanced and unsustainable, requiring impossible infinite growth on a finite planet, in a globalized era of modern technology and instant communication, when we know for a fact we are pushing against the natural limits of our growth as a species? Are bankers, economists, and politicians all really that short-sighted, or, just like the behaviour of corporations, is the structure of our monetary and economic system just a reflection of the psychopaths running it?
Psychopaths have a black hole where there emotions should be. They spend their lives trying to fill this hole, but it’s unfillable, the more they stuff in the hole has no effect, the hole is still empty. But they can’t simply stop trying to fill the hole; everyone with a hole in their life tries to fill it. Regular folk find their hole easily filled by family, friends, or religion, unlike psychopaths whose hole is unfillable. THAT is why the system is paradoxically based on infinite exponential growth in a finite system: it’s a direct reflection of the unfillable black hole existing in the psychopaths running the system.
The system is built by psychopaths for psychopaths, ever since we left behind our hunter-gatherer ways for civilization psychopaths have been gaming things in their favour and taking and consolidating power every chance they get. In a lot of ways civilization itself facilitates psychopathy. It’s really hard for a psychopath to selfishly exploit and monopolize in a hunter-gatherer group where the group’s survival depends on group cooperation and everyone knows everyone intimately, but in a city of millions, where you can back stab and climb your way to the top leaving destruction in your wake with impunity, psychopaths find themselves right at home.
Regular folk have little chance against psychopaths, the system is designed by them for them, and the ONLY way to rise to the top is to either be a ruthless psychopath or be willing to act like one to compete with all the other elite psychopaths. I know a few people high up in corporations who just couldn’t hack it anymore because of their psychopathic bosses and the psychopathic decisions they were forced to make. One fellow in particular, who was a VERY highly paid corporate executive who was slowly eating and drinking himself to death, had to quit after his boss was telling him to fire people for reasons that made a little sense in the short term (to save money) but no sense in the long term (because half the sales team would be gone before their usual clients were buying in). Classic psychopathic behaviour: seeking immediate reward regardless of long term consequences.
I have been planning on writing a paper about this topic for a while, and responding to you has become good material for such a paper. But leaving out psychopaths for a moment, please do not hesitate to ask any other questions about the economic and monetary system. I promise the answers won’t all end with a speech about psychopaths. 🙂
Again, excellent! Okay, I’m up-to-speed and agree. So, what’s next? I have some ideas that I’d like to share but would prefer to do so in a private email exchange. Let me know how to contact you if you are interested. I have spent a lot of time thinking in a vacuum feeling very alone and frustrated and you have given me some much-needed encouragement. I was on a Zoom call last night and met your colleague, Herb Wiseman, and was further encouraged. (Herb provided the links to your articles.) And, THANKS!! Please keep plugging!
Couldn’t be happier to hear that, you made my day. I have emailed you from [email protected]
Hi Adam. I was expecting an direct email response and only checked this link again today… I haven’t read your response yet but will tomorrow. Thanks!! Kearon
I’m incredibly grateful to you for putting the time to not only understand this – but then present it in a digestible way for me – a regular 22 year old uneducated-economically person – to actually understand. I KNEW it was a psychological thing at the end of the day (as you said in your comment above) – which is incredibly uplifting to hear that you hold the same belief in the fundamental driver of our selfish system – is the damaged humans who created it, and then passed along to their children – who probably never received love from that parent, who then won’t know how to love their children and so on. Creating a cycle of selfish inconsiderate uncompassionate elites/rulers. Now that we’ve come to this conclusion I’d be eagerly engaged in pondering how we should go about solving this dilemma? Can we help the elite find self-love? Or is it too late for them and we need to shift the system itself to give power to all people so that our decisions support all people? Give me your thoughts when you have the chance 🙂 thank you so much – I’m so engrossed in this subject right now – feel free to email me directly as well
Thanks Ashvin, very happy you find this information useful. However, I must clarify some of my comments on psychopaths. They may or may not be the product of a traumatic childhood or upbringing, there is no reason to assume they are damaged in that way. Research shows psychopaths seems to originate with quite a varying mix of nature and nurture. Some are simply born that way with no trauma or psychopathic influence, others are nurtured into psychopathy through childhood trauma (I believe in that case it’s a psychological defense mechanism, can’t be hurt if you shut off your emotions) but also through an elite upbringing, and some seems more epigenetic, if the gene is there it may or may not be turned on depending on the environment. However, in terms of nurturing psychopathy through trauma, you accurately describe the psychopathic influence of a damaged person inflicting psychological harm on others around them, whether family or friends, and that does indeed propagate this ongoing psychopathic cycle of violence.
Here’s my take, and it’s not scientific, but after all I’ve read it seems to make sense. At the extreme ends of the socioeconomic spectrum, the dirt poor and the billionaires, you get the most psychopaths. The dirt poor are nurtured into psychopathy from the various traumas of their lives, but the ultra wealthy become psychopathic from the experience of being born into extreme wealth. Chris Hedges writes about this in his article: https://www.truthdig.com/articles/lets-get-this-class-war-started/
Here’s some other articles of his exploring the topic:
His book “Death of the Liberal Class” is excellent. For another great book on the topic read Linda McQuaig & Neil Brook’s “The Trouble with Billionaires”
While some psychopaths back stab and climb their way to elite status, merely being super elite is enough to turn many people into psychopaths. And from everything I’ve read, no, they cannot ever find love, their brain is simply not wired that way. Psychopaths have an unfillable black hole where there emotions should be, there is no filling that hole, the connection does not exist in their brains.
I am very with you in finding a system where power is diluted amongst everyone. Where you cannot wield power over anyone else and cannot exploit people. And it’s entirely possible to devise such a system, it would be a system of direct democracy for all matters, but good luck convincing anyone to go that route right now. People are far too afraid of the ignorant masses to give them power, and by that I don’t mean the elite are afraid, I mean regular people are afraid of the ignorant having too much sway. I’ve had discussions about increasing democracy with supposed “progressive” liberals in Toronto and they won’t have any of it. No to referendums, no to increasing democratic choice, no to diluting power. There are different levels of neoliberal elite, some are neoliberal elite not by their wealth, but by their education and ideology. And they all think they know what’s best.
I won’t get into actual solutions here, I’ll email you, but rest assured, I’ve got ideas. Problem is they all require engaging the system and that’s a hard uphill battle when the public is so fractured and misinformed. Hard to convince people of anything progressive, especially if it challenges capitalism, they just can’t imagine anything else.