All posts by Understandingcanada

Where did Trudeau get that COVID cash?

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%.

Banker’s Acceptances:

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.

Commercial Paper:

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:

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.

Other Deposits:

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.


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

Much Ado about 1974: The Bank of Canada in the 70s

By Adam Smith, 21st Century

This paper is dedicated to John Monroe and Michael Karp, without whose exposing of my ignorance on the monetary system I would not have found impetus to delve as deeply as I have.

Ah the Bank and Canada and 1974!  I don’t think there’s a central bank in the world with more wild mythology surrounding a precise point in time.  I must admit however, were it not for this mythology I would not have found myself motivated to dig as deeply as I have to find the truth. In revealing this truth to others I have been called a government apologist and/or shill, a secret insider of “controlled opposition”, and many other names by ideologues whose conspiracy theorist identity is so wrapped up in the myth that their confirmation bias won’t allow them to accept new facts that belie their prior misinformation. The truth creates a cognitive dissonance their mind cannot accept, the irony being these people spent so much time researching bunk sites for false info but refuse to look elsewhere because the truth doesn’t fit their narrative.

Continue reading Much Ado about 1974: The Bank of Canada in the 70s

Top 10 Liberal Betrayals 2015-2019

One could make quite a list detailing all the dirt the Libs have built up the last 4 years, but here’s our (admittedly subjective) list of the…

1. Lying about electoral reform

While one could argue other items on this list did more actual harm, this out and out lie to steal progressive votes was the most cynical. Swing voters who may have been more likely to go NDP or Green but were terrified of Harper were seduced by the Liberal promise of electoral reform, feeling comfortable in the knowledge that a Liberal victory now would mean a truly fair election the next time around. The Libs made the promise a staggering 1,813 times on the campaign trail. Even more diabolical, Justin Trudeau stole Fair Vote Canada’s slogan “Make Every Vote Count” in making this false promise.

Upon taking power the Libs made a show of faith by erecting the ERRE to explore the issue. A majority of members on a multi-party House committee recommended a referendum on a form of proportional representation but that was ignored. Well, not only does Fair Vote Canada endorse proportional representation, which by definition compared to first-past-the-post or ranked ballots is the ONLY system where every vote counts, but 88% of respondents to the ERRE also endorsed some form of proportional representation. That wasn’t the answer the Liberals wanted to hear! Apparently Justin prefers preferential ballots and claims that means there’s no consensus, but really the Libs could never permanently dilute their own power now that they had it again. Either way, they out and out lied through their teeth about it.

2.  Buying a pipeline for the oil sands

The gross hypocrisy of this just boggles the mind. The day after announcing a climate change emergency, the Libs ironically negated that empty proclamation by spending billions in corporate welfare overpaying for a pipeline for the oil sands. The oil sands are:

Simply put, we must leave it in the ground.

3. Approving and supporting other pipelines and projects for new extraction of fossil fuels

Furthering the hypocrisy of the Libs’ climate change rhetoric, they approved Enbridge Line 3, approved, then lost, then re-approved the Kinder Morgan expansion, fully support Keystone XL, and approved a new LNG plant reliant on fracking. Every Canadian cheering on the Libs as serious about climate change must be living under an ideological rock wrapped in a partisan security blanket.

4. Continued to disrespect and oppress First Nations, especially fighting valid claims in court spending more defending than what was requested,

Like every single government before them, the Liberals shamelessly oppress the rights of our Indigenous peoples while proving how two-faced they are with claims of reconciliation. From lying that they will adopt UNDRIP’s “free, prior, and informed consent” to then not even living up to consent’s poor cousin consult by not consulting properly on projects like Trans Mountain, the Libs’ betrayal of reconciliation goes deep. Like challenging compensation for apprehended First Nations children harmed by the on-reserve child welfare system and under-funded child and family services, or this ridiculous court battle, spending more than $110,000 fighting a First Nations girl in court to block payment for orthodontic treatment that cost just $6,000, or spending millions losing a battle about testing fish farms for a virus, or spending nearly twice the $380,000 needed by Wapekeka First Nation for emergency mental health care after the northern Ontario community uncovered a suicide pact last year. Health Canada denied them the funding and two 12-year-old girls, Jolynn Winter and Chantell Fox, took their lives in January. How cruel is that?!? How indifferent to the suffering of First Nations children does one have to be to fight these battles? All this after the MMIWG report concludes our discrimination amounts to genocide.

5. Continued lack of support for our veterans, including cutting their healthcare funding

The Libs continue another government tradition, total disregard for our veterans. Despite their clear need for services Libs underspent hundreds of millions on them, putting the burden of their healthcare costs onto hospitals, all while fighting valid lawsuits and tinkering with pensions to further reduce support for disabled vets.

6. Using every lame excuse to sell the Saudis armoured vehicles despite knowing full well their history of violently oppressing civilians

This one really shows the Libs’ true colours as corporate war profiteers. The arms deal with the Saudis was started under Harper, but after criticizing the deal while in opposition the Libs had every chance to scuttle the deal and came up with a new excuse every time they were called out for continuing the sale. All this despite firstly, the Saudis’ history of oppression and using force on civilians in general, and secondly, dismissing evidence Canadian-made weapons were likely being used against civilians. And now, after empowering the Saudis’ interference in Yemen, Canadian-made war machines are falling into the hands of rebels. This has landed us the dubious honour of being the largest arms exporter to the Middle East second only to the US.

7. Despite it never results in growth or jobs, creating more corporate tax breaks

Is there more music to the ears of corporations than yet another undeserved tax break? The Liberals decided to continue yet another neoliberal tradition, the last few decades of corporate welfare, by introducing more corporate tax breaks to spur growth and investment, despite the fact such breaks NEVER result in promised jobs or growth.

8. Trying to get one of the world’s most corrupt corporations, SNC Lavalin, off easy for past misdeeds

This one was such obvious corporate cronyism we had to write a blog post on it.

9. After railing against them, hypocritically using an omnibus bill to…

The hypocrisy continues, a classic case, where you oppose in opposition what you practice in power, in this case omnibus budget bills, of which they did more than one.

10. … Create an infrastructure privatization bank to enrich institutional investors

The Canadian Infrastructure Bank is flying under the radar of most Canadians (possibly because it’s barely done anything to date) but it was quite contentious in economic and monetary reform circles because it is quite literally an infrastructure privatization bank as opposed to a public bank to build infrastructure as was promised. We also railed against it in our letter to the Finance Minister.

One could write a book on all the betrayal and two-faced nature of the Liberals the last four years… oh wait, someone did. “The Trudeau Formula” is an excellent resource for anyone wanting to fully understand just how much in bed the Trudeau Liberals are with corporate Canada, and how their core policies are about maintaining the status quo for the wealthy elite, and what little socially beneficial policies they enact are merely superficial bandaids to create the appearance of progressiveness and equality to appease and quiet the masses.

Adam Smith, 21st Century

SCANDAL: Trudeau, SNC, and the DPA

Seeing as the SNC-Lavalin scandal has everyone excited in an election year, and there is a ton of information, history, and varying views, we thought it prudent to write a post that details the whole story in a linear fashion.

Our information comes mainly from these articles:

Let’s begin with the simple historical timeline:

  • SNC is in trouble for various shady doings around the world. Most recently they got in trouble for bribes to Qaddafi’s son.
  • SNC needs to clean house, replaces CEO and some other senior execs, but the charges of bribery remain
  • SNC feels the charges should no longer apply because they’ve cleaned up the company, and if charged they would no longer be valid for Government of Canada contracts (a large part of their business). SNC then starts lobbying the feds for a “deferred prosecution agreement” (DPA) which is basically just a settlement, paying out for the problem without the whole company being held criminally responsible.
  • The Liberals, being as corporate-cozy as they are, don’t just agree to the idea of a DPA, at SNC’s request they devise legislation for a DPA and undemocratically slip it into their omnibus budget bill.
  • With the DPA legislation in place, and the investigation into SNC underway, Trudeau and others from the PMO start pressuring MP and Attorney General Jody Wilson-Raybould to “consider” a DPA in the SNC case.
  • Wilson-Raybould does not acquiesce nor relent, and pressure mounts to the point she feels it necessary to secretly record a conversation confirming that pressure. Wilson-Raybould keeps her mouth shut however, even though she feels unduly pressured to do as the PMO is suggesting.
  • Trudeau, claiming other reasons, removes Wilson-Raybould from the Attorney General appointment.
  • Wilson-Raybould goes public about the pressure for the DPA. Responding to a Globe and Mail article Trudeau out and out lies about the pressure.
  • Fellow Liberal MP Jane Philpott finds herself defending Wilson-Raybould, and they both get ejected from the Liberal caucus. They are both running as independents now.
  • Lastly, the ethics commissioner report comes out saying that Trudeau acted improperly violating the Conflict of Interest Act. Trudeau counters saying he’s not sorry for defending Canadian jobs.

And that about sums it up. There is one interesting side note to the articles above, that actually helps blow away a commonly held conspiracy theory: that the CBC only does the bidding of the government of the day, casting them in a golden light. Well, if those damning articles don’t wholly refute that I don’t know what else will. Those CBC articles could very well lose Trudeau the election, so ANY notion that the CBC is just a government mouthpiece should be put to rest.

There are some other tidbits worth mentioning, showing just how cozy a relationship SNC has with many government players, like the fact Supreme Court justice Frank Iacobucci, acting as lawyer for SNC at the time, also added pressure. If that’s not enough, another retired Supreme Court justice waded in with another supporting document for the PMO. Other than Wilson-Raybould, who doesn’t SNC control?

Finally we must address one of the detractor articles, where barrister David Hamer attempts to pick apart the supposed faults of the ethics report. Straight out the gate, one must acknowledge what a shameless die hard supporter of the Liberals Hamer is. He’s one of those ideological dyed-in-the-wool Liberals that will cheer for their political gang no matter how shady they act. Just look at his Twitter page, rife with blind support for a long-corrupted party.

The main issue with Hamer’s article is it’s simply a distraction, a lame attempt to run interference and try to diffuse and dispel the stink of Trudeau’s clear and unambiguous violation. His claims of a “predetermined conclusion” are quite ironic, as it seems that’s what he started with, the conclusion his hero Trudeau is blameless, and then worked to debunk the report based mostly on semantics. Excerpts like this “The Conflict of Interest Act is meant to prevent the improper furthering of private interests by elected politicians, not to control interactions between politicians and attorneys general” are particularly telling, as in light of the full history there is no better way to describe Trudeau’s actions than “the improper furthering of private interests by elected politicians”. His supposed distinction falls rather flat.

His semantics games with the word “improper” show just how great a lawyer he must be, because only a lawyer could twist the reality of those words to such an extreme it garbles their meaning to the point of doubt. Point in case:

“No public office holder shall … seek to influence a decision of another person so as to further the public office holder’s private interests or those of the public office holder’s relatives or friends or to improperly further another person’s private interests.”

The word “improperly” is key — it modifies the words “further another person’s private interests,” not the phrase “seek to influence a decision.”

On the commissioner’s interpretation, it is as if the word “improperly” were moved, so as to read: “No office holder shall use his position to seek improperly to influence a decision so as to further another person’s private interests.”

See, Hamer wants to distract you from the actual law to claim some interpretation that changes the purpose or focus of that law. When really, one need only take “No public office holder shall … seek to influence a decision of another person so as to further the public office holder’s private interests” at face value as it applies perfectly to Trudeau. He made it about Quebec, and Quebec votes in his Quebec riding. No more obvious use of public office to further private interests could exist.

Hamer then continues on, demonizing and projecting his own version of Wilson-Raybould’s actions as “unreasonable”, from an highly subjective point of view. So, an AG subjected to unusual pressure from multiple people from the PMO including the PM himself, to utilize a brand new and untested law THAT THE COMPANY IN QUESTION LOBBIED FOR, is somehow “unreasonable” in her resistance? Or that it is not within her purview to act as such, wanting to ensure massive multinational corporations face consequences for their actions? That the only way for her to be considered “reasonable” would have been to roll over to the pressure?

The most shocking of Hamer’s fallacious logic though is the complete and total dismissal of SNC’s intense lobbying for the DPA that saw them get a piece of legislation passed just for their specific needs. Hamer seems to think context is meaningless and that we shouldn’t bother paying attention to how the DPA law came to be. Now who’s being unreasonable?

All in all, Hamer’s lame duck attempt to deflect from the PM’s wrongdoing by projecting onto and demonizing Wilson-Raybould makes him look no better than the biased partisan shill he clearly is. He really exemplifies just how many high level cronies the Libs have in their pockets.

The conclusions are obvious:

  • we have a government and PMO solidly in bed with our largest corporations, to the point where the government will not only go to bat for them defending them to the public, they’ll even go so far as to create legislation for them and then pressure it to be used
  • we truly do live in a corporate oligarchy, where our largest multinationals can and do write their own rules
  • we have a PM either ignorantly oblivious of his wrongdoing, unaware of the legalities of his actions, or he knew the potential consequences but prioritized political concerns, drunk on his own power and privilege.

No matter how you shake it, we are electing the neoliberal representatives of the corporate oligarchy and it’s driving us into the ground. This election, vote something other than Lib or Con, maybe find a “reasonable” independent to vote for.

Adam Smith, 21st Century

Making the case for public money creation in Canada

There is a very strong case to be made for monetary reform in Canada, in particular increasing public money creation to fund deficits instead of always borrowing from capital markets. This type of money creation is called “monetary financing” and is achieved through the central bank buying government bonds instead of investors and private banks (so we owe the debt to ourselves) and spending that money into the economy without neutralizing it*. This would mean less burden of debt payments to investors, which take up a substantial part of the budget, and which is used an an excuse for unnecessary austerity measures to “balance the budget and reduce debt” (although paradoxically for conservatives you cannot reduce the debt without running a surplus, taxing more than spending).

*central banks, and notoriously the BoC, typically use open market operations and government reserve deposit auctions to “neutralize” or “sterilize” government spending. That is to say, the CB takes actions to ensure its spending new money into the economy is balanced by taking money or other assets (like bonds) out of the economy.

There is absolutely nothing standing in the way of this other than neoliberal ideology, particularly the ideology emanating from the Bank for International Settlements and their desire that central banks be neutral and autonomous. Now, while there is a case to be made for central bank neutrality considering the past mistakes of some governments, in a historical context those mistakes are usually symptomatic of larger often exogenous problems, and moves to use the central bank to solve the problem only exacerbates it. There is no reason a responsible government (and not in a panic trying to solve a crisis) would cause any ill effects to financial markets or the economy with a little more monetary financing. In fact, in a global economy of persistent stagnant growth, a little deficit spending through monetary financing could actually perk things up significantly. Deficit spending grows economies, austerity shrinks them.

Please enjoy my first attempt at making the case for public money creation in Canada, I will add to and evolve the argument over time as new evidence emerges.

First of all, debunking the intentionally inflammatory and fear mongering misinformation about past hyperinflations, the two most common tropes being Weimar and Zimbabwe.  Well, money printing was the symptom, not the disease.  In particular in Weimar the hyperinflation was happening FASTER than they could print the money, so clearly money printing was not the culprit:

“The empirical reality, both when looking at quantitative data and qualitative descriptions of what actually happens in hyperinflations, shows that they are not the results of well-governed states abusing the money creation process.

Indeed, the case study of Weimar Republic shows that it was not even Public Money Creation but private bank money creation that triggered hyperinflation.

The lessons from the above case studies suggest that hyperinflations do not happen simply because of an increase in money creation; indeed, the private banking sector in the UK more than doubled the money stock from 1997-2007 and we did not see experience hyperinflation. Hyperinflation in Germany and Zimbabwe was preceded by a fundamental collapse in the productive capacity of the economy, which started the inflationary pressure.

In both cases the economy collapsed and the government could not mobilize resources via taxation to fund expenditure. As was the case in Zimbabwe, desperate for funds, the government resorted to financing their spending through money creation. Hyperinflation was thus not a consequence of monetary policy but a symptom of a state that has lost control of its tax base.”

On to Venezuela and the reality of what is happening versus the gross oversimplifications and demonizations of mainstream media. My knowledge is cobbled together from multiple sources over time, so there’s no one source that sums it all up, but these two get close:

Now, that’s not to say Venezuela didn’t make some missteps and do some shady things, but it must be understood, in a globalized economy nothing happens in a bubble, and any nation not following the neoliberal playbook will be punished by other nations, as the US has done to Venezuela.  And when I say “neoliberal playbook”, I mean, as one BIG example, the (supposedly non-binding) dictates of the Bank for International Settlements.  Here’s it is from the horse’s mouth:

“Concerning the first aspect, monetary policy autonomy may be at risk if the central bank can be obliged to lend to the government or provide it with implicit or explicit subsidies in other ways, for example by supporting the price of government debt. Where financial markets are well developed, this risk is the principal reason why lending to government is typically prohibited when the central bank law is modernised, for example to comply with the Maastricht criteria in the case of actual or prospective euro area participants (Table 4 provides a snapshot of the frequency of such prohibitions). In emerging market economies, it is also important to address this risk, but there is a second reason why it is desirable to limit access to central bank credit by the government. This is to provide an impetus for the development of local money and bond markets, which will benefit from the government being motivated to develop a local market-based source of credit, and the critical mass the government’s borrowing needs may provide. 

At the same time, practical experience shows that it can be very difficult to convince governments, particularly in low-income countries, to agree to a reform of the central bank law that includes the wholesale prohibition of lending to government. To address this problem, great efforts have been made to draft central bank laws that limit government access to or facilitate a gradual weaning of the government off central bank credit, but not much is known about how effective such provisions are in practice.”

This shows clearly the favouring of private financial markets over public money creation, ensuring that the ideological claims of public money creation being problematic become a self-fulfilling prophecy by punishing nations that stray from the playbook, while developing nations are forced to rely on foreign capital and end up indebted to foreign interests.  Interests that will force austerity, privatization, and cheap resource extraction onto developing nations if they don’t get their pound of flesh. 

The irony here is that during the Great Depression, WWII, and the post-war period, what we now call developed nations were doing all kinds of public money creation to build themselves into the powerhouses they are now, but that kind of activity has been virtually banned since neoliberalism took firm grip in the 70s.  So what allowed those nations to prosper and grow and advance then is denied to developing nations now.  Criminal.

This policy entrenches the supremacy of private financial markets in providing the funding of the economy, which also means that the entire economy becomes built on the notion of earning profits.  This is further reinforced by the fact one of the main daily functions of central banks is to neutralize the spending and taxation flows of the federal government, so it doesn’t impact the precious private banks and markets.  The ENTIRE financial system is designed to cajole and appease and coddle and facilitate financial markets (and by extension the rent extraction and wealth vacuuming of the corporate elite), regardless of the negative impacts on the general public.  Is my disdain too subtle?

For some extra context on how neoliberal policies are based on false assumptions, here’s a great book by Warren Mosler.  You don’t need to read the second half about his life story, but I highly recommend reading the Seven Deadly Innocent Frauds:

It has become obvious since the financial crisis that the global economy is stagnating, growth and inflation are low, they’re even having trouble keeping inflation to target, so much so a Deputy Governor at the BoC made a speech about it:

The answer is obvious:  MORE MONETARY FINANCING!  Not only is deficit spending proven to grow economies (while austerity shrinks them), if the neoliberal assumptions about inflation and monetary financing are meant to be true, then we could use a little monetary financing to keep inflation to target.

But even those inflation assumptions are not accurate.  It is well understood that inflation is poorly understood, and that a confluence of variables, known and unknown, contribute to it.  Here’s a paper showing empirically that past higher levels of monetary financing in Canada did not prove inflationary:

Bill Mitchell, one of the fathers of MMT, advocates for overt monetary financing, even claiming (incorrectly in my view) that governments should not fear the reactions of financials markets and should do as needed to finance the needs of the public (within reason of course, there are limitations to resource and labour supply that if strained would cause inflation):

Now, the reason I find his dismissal of the private sector reaction troubling is because of what happened when Bob Rae became Premier of Ontario and brought in a super progressive agenda which then caused a private sector revolt to resist his policies:

Of course, that was not a federal government and the province does not have a central bank or the ability to create money, but employing such monetary financing could prove difficult depending on market reactions, possibly causing a divestment of Canadian industry, a reduction in our credit rating, a depreciation of our dollar in exchange rates (making the MANY imports we rely on more expensive, especially food), and worst case scenario a la Venezuela, economic sanctions and/or tariffs for daring to make money creation work better for the public good.  And whether a baseless assumption or not, it would affect the inflation expectations of the Almighty Market which would wreak havoc in capital markets. 

Now, none of that is a reason not to enact some increased monetary financing, and it could be done gradually while assuring markets that stability and predictability and target inflation can be maintained, but none the less, there will be ideological opposition based solely on the fact banks and the financial industry do not want governments competing with them to finance public works.  Really, the ONLY thing standing in the way of increased public money creation is neoliberal ideology.

When the Liberals created the Canada Infrastructure Bank I wrote a letter to MPs about it.  It was also a reaction to Morneau’s flippant baseless dismissal of increasing monetary financing as inherently inflationary despite that being an entirely ideological assumption belied by historical empirical evidence:

There are numerous recent papers exploring the idea of monetary financing, especially since QE experiments showed pumping untold amounts of money into propping up the economy did not have the disastrous results many naysayers claimed. Here, even one of the largest most powerful banks in the world, Deutsche Bank, is practically advocating for monetary financing:

Lastly, even players from the IMF make the case for monetary financing, repeating more or less what I said above, that there is really no technical or physical reason we can’t do more monetary financing, it’s a political choice:

I will end with one of the most famous quotes about public money creation in Canada regarding the financing of WWII from the first governor of the BoC:

“In 1939, before the House of Commons’ permanent committee of banking and commerce, a question was put forward by Norman Jaques, M.P., and answered without hesitation by Towers. Here is the question and the reply as recorded on page 771 of the Minutes of Common’ Banking and Commerce Committee for 1939:

Jaques: Would you admit that anything physically possible and desirable can be made financially possible?

Towers: Certainly!”

I hope this wealth of evidence helps make the case the ONLY thing standing in the way of creating a better more equitable society is the machinations of the psychopathic wealthy elite.  They hold all the power and dictate the policies, and they have molded and shaped various institutions, especially post-secondary education in finance and economics, to their twisted selfish ideology. 

The system has always been a wealth vacuum for the rich, but the last 50 years it has been designed and tweaked and reformed to solidify and entrench the mechanics of that system as some undeniable and empirically proven best practice that should not be strayed from.  Well, as I’m fond of saying the last few years, the system is not based on some universal rules handed down by the gods nor did it emerge from the physical laws of nature; economics is not science and not based on empirical data and provable mathematical formulas.  It is a choice, pure and simple, and it is a choice made by a psychopathic wealthy elite to indenture and enslave the rest of us to their lust for profits and power.

We can do better, there are an infinite number of ways to run a more equitable and sustainable economic system. But the psychopaths and their puppets in power will not go down easily, we will have to fight hard for such reforms, which means educating the indoctrinated public so they can identify and debunk the neoliberal assumptions that have infected every corner of the economy and public discourse. We need to relegate neoliberalism to the same dust bin of history as a flat earth and intelligent design, because it’s just as laughably false but even more destructively enduring.

Adam Smith, 21st Century

Useful links to monetary theory resources

This is an ongoing list of links that are useful in learning monetary theory in Canada.

The only place to start learning about monetary theory in Canada, the primers on the Bank of Canada website:

A couple of federal government pages that very plainly state the realities of our monetary system:

A paper from the Bank of England being much more candid and honest about the structure of the monetary system (ours is nearly identical to theirs):

For those who wish to travel deeper down the rabbit hole, here are the main technical papers from the Bank of Canada:

Here are some great links making the case that monetary financing for public spending (money printing) is not inherently inflationary and that resistance to its use is purely an ideological choice:

A VERY revealing speech from a BoC Deputy Governor about some of the cracks starting to appear in a monetary system not designed for low growth:

And here are some great MMT links:

Bank of Canada advances to federal and provincial governments

There is much contention surrounding the history of the Bank of Canada making advances to the federal government and provinces.  Some claim it never happened, that although there were provisions in the Bank of Canada Act (article 18 (i) and (j)) for advances, this provision was never used.  That is incorrect, it was indeed used, multiple times.  The reason it took so long to confirm this is because the information was not on the Stats Canada tables of the Bank of Canada balance sheet (which does not go earlier than 1953), it was buried in the Canada Gazette archives.  Below is a chart of every time the BoC made advances to governments, the last being in 1961.  As you will see, the BoC had no issue giving its biggest advance for the war effort.

Date Level of government Amount 2017 dollars Per Capita
April 1935 Federal $3,000,000 $54,000,000 $4.98
June 1935 Federal $4,301,562 $77,965,811 $7.19
July 1935 Federal $1,240,625 $22,486,328 $2.07
Aug 1935 Federal $1,246,563 $22,593,954 $2.08
Sept 1935 Federal $2,759,375 $50,013,671 $4.61
Oct 1935 Federal $15,724,750 $285,011,093 $26.28
Nov 1935 Federal $2,223,375 $40,298,671 $3.72
Dec 1935 Federal $3,465,812 $62,817,842 $5.79
Jan 1936 Federal $2,195,875 $38,724,552 $3.54
April 1936 Provincial $2,000,000 $35,270,000 $3.22
May 1936-Sept 1936 Provincial $3,000,000 $52,910,000 $4.83
Oct 1936 Provincial $1,000,000 $17,640,000 $1.61
April 1938 Federal $7,000,000 $117,120,000 $10.50
Sept 1940 Federal $32,000,000 $522,000,000 $45.86
Jan 1953 Federal $15,000,000 $138,830,000 $9.35
Nov 1961 Federal $9,000,000 $74,810,000 $4.10

If you’d like to see the balance sheets from the Canada Gazette for yourself, check them out here:

BoC balance sheet 1935-1952

Municipal Improvements Assistance Act 1938, Bill 143

It has been claimed by many that the federal government never made loans directly to cities for infrastructure.  This is incorrect, one just needs to dig deep enough into the Canada Gazette archives.  There one will find the Municipal Improvements Assistance Act 1938, and the corresponding loan value on the government’s balance sheet.  The peak was in 1943 when the total value reached $3,740,716.44.  That is $53,644,340.16 in 2017 dollars, at a time when our population was only 11,795,000, making it around $4.50 for every person alive at the time.

After 1943 the government seems to have ended the program, but still has a line about loans and advances to provincial and municipal government, which continues for years afterwards.  Once upon a time federal support of local needs was much higher.  The full text of the Municipal Improvements Assistance Act is here:


Here’s a quote from 1939 about the good the Act was doing:

To complete the record I may refer to another measure adopted to stimulate the construction industry, and to help unemployment, namely, the Municipal Improvements Assistance Act.  During the eight months in which this act has been in operation, 46 loans have been approved for a total amount of $3,582,667.  Five applications are pending for a total amount of $442,731.  I have reason to know that apart from the contribution made by these loans to the relief of unemployment they have been a veritable godsend to many municipalities which have only in this way been enabled to finance much-needed improvements to productive undertakings without adding new burdens to
the shoulders of the general taxpayer.”

“34.  Under the Municipal Improvements Assistance Act, 1938, the Government approved loans prior to March 31, 1939, amounting to $3,143,000 to municipalities to enable them to finance the construction of municipal self-liquidating projects.  As at March 31, 1939, the amount actually paid out on such loans was $815,000.  These loans bear interest at the rate of 2% per annum and are amortized over a period not longer than the estimated useful life of the project.  The province in which the municipality is located is required to guarantee the payments of interest on and amortization of any such loan.”

For the budget speech this came from, please see:

Bank of Canada VS Canadian Infrastructure Bank

pdf version


The Right Honourable Justin Trudeau, P.C., M.P., Prime Minister of Canada

The Honourable Bill Morneau, P.C., Minister of Finance

Mr. Nathaniel Erskine-Smith, M.P., House of Commons

Dear Prime Minister, Minister, and Mr. Erskine-Smith,

Last year an e-petition was submitted to the government requesting the Bank of Canada fulfill its stated role “to promote the economic and financial welfare of Canada”, by returning to previous levels of monetary financing and economic activity[1], as opposed to only focusing on inflation through the blunt and indirect instrument of influencing short-term interest rates in overnight markets.

Minister Morneau’s response to the petition was troubling, as it cites disproven assumptions about inflation that Canada’s own history belies.  Empirical evidence shows higher levels of federal monetary financing did not affect inflation in Canada[2]Careful analyses of instances of hyperinflation by institutions like the IMF have proven public money creation alone is never the culprit, but rather currency speculation, corruption, a poor understanding of monetary policy and economics, and market forces are of greater influence[3].

Claiming government monetary financing is inflationary ignores that private bank money creation dwarfs government money creation at approximately 97%[4] of our money supply created as debt with interest attached[5].  It is their loans and credit that have caused consumer debt rise to nearly 170% of average income and over 100% of GDP[6], while also inflating asset prices resulting in the soaring housing prices in Toronto and Vancouver[7].  The elimination of reserve requirements at the BoC in 1991, replaced by the amorphous and ephemeral capital requirements, ensured what little control over the money supply the BoC had was gone[8].  Also disproving the notion is that the massive amounts of QE injected into various economies after the ‘08 crisis were not inflationary to consumer prices either (although it did inflate asset prices)[9].  Simply put, there is no historical or empirical evidence proving unequivocally an increase in reserves spent into the economy is inflationary, especially when the BoC pays interest (the deposit rate) on those reserves.  More importantly, it is not the government spending reserves into the economy that is inflationary:  it is the potential actions of private banks in response to the reserves.  Even the Fed admits to this[10].

However, the most alarmingly ironic statements come from our current BoC governor Mr. Poloz[11].  In selling the notion that a nation with a public central bank counter-intuitively needs foreign investment to fund public infrastructure, he then lists two projects, the St. Lawrence Seaway and the Trans-Canada Highway, which required no foreign investment whatsoever and were primarily funded through monetary financing using the Bank of Canada.  The St. Lawrence Seaway did not need US investment, in fact, after the US dragged its heels for too long Canada threatened to go it alone[12], and the US finally got involved because it would not have a claim to any revenues if it didn’t share the cost.  Either Mr. Poloz is intentionally misleading the public on this history, or he is unaware of the history of the institution he is leading.

The two most economically beneficial banks in the history of Canada are the Bank of Canada and the Industrial Development Bank (now the BDC).  Both had the same auspicious beginnings with a capitalization injection of publicly created funds[13].  At the same time the BoC was nationalized in 1938, the government enacted Bill 143, the Municipal Improvements Assistance Act, which allowed municipalities to borrow directly from the federal government for building municipal infrastructure[14]The Bank of Canada was once the largest holder of federal debt, using monetary financing to bring us into the unprecedented growth of our golden years in the post-war period, funding many important public infrastructure projects like the St. Lawrence Seaway, Trans Canada Highway, and early parts of the 401 Highway.  Even more significant, we had no problem using the BoC to fund our efforts in WWII[15], but somehow we can’t use it for peaceful purposes?  As we did until we joined the Bank for International Settlements’ first Basel Committee in 1974[16] and proceeded to adopt monetarism, the now disproven notion that the money supply is the main driver of inflation[17].  The resulting increase in federal debt after 1974 is painfully clear[18], and was a direct and immediate result of these policy changes.  The following year the government rescinded Bill 143 in line with the dictates of the BIS.  Monetarism forced increased private sector borrowing instead of public money creation, and since then the federal share of the total public debt burden has shifted onto municipalities[19]and is set to further burden cities now that the 2017 budget has reduced their access to federal funding[20].

Let’s say the government needs to build $1 billion in new infrastructure.  It can either:

– create the money with the Bank of Canada


– borrow the funds selling bonds in capital markets

Either way, $1 billion is spent on public goods, it will have the same result economically and socially and create the exact same number of jobs and result in the same physical asset[21], it’s just in the latter option it needs to be paid back with higher interest than the deposit rate at the BoC.  The way our monetary system is constructed there is no such thing as “interest-free money creation” unless printing cash or minting coin, because when the government spends money into the economy it shifts reserves from the Receiver General’s account at the BoC to a private bank’s account at the BoC, on which the BoC must pay the deposit rate (.25% less than the target for the overnight rate).  However, the deposit rate is always less than what we pay in interest on our bonds, else it would incentivize banks to hold more reserves, which in a 0% reserve requirement environment they do not want to do.  The point is, even with the deposit rate on reserves, the interest paid is cheaper when the BoC creates the money for the government than when it gets the money from banks’ purchases of bonds.

It is most worrying to hear Prime Minister Trudeau speak to business audiences wooing them with promises of high returns with an unnecessary Canada Infrastructure Bank[22], when we already have one that does not require private investors in the Bank of Canada.  The greatest concern of all however comes from the government’s admission, allowance, and dismissal of the obvious conflict of interest in allowing a council heavily tilted in favour of big business interests, representatives from BlackRock (the world’s largest asset manager) and McKinsey & Co., to devise the plans for the infrastructure bank that will facilitate the high returns on their investments[23].  Despite the clear conflict, no disclosures were made and no one recused themselves for any of the council decisions.  The government worked for months with these advisers to prepare for the closed door meeting, organized by BlackRock, between Prime Minister Trudeau and institutional investors.  BlackRock even tailored and vetted the Infrastructure Minister’s presentation to ensure it was what investors wanted to hear.  Furthering the conflict of interest is Michael Sabia, the president of the Caisse who wants $1.3 billion from Ottawa for light rail, leading policy discussions on the CIB as a member of Minister Morneau’s Advisory Council on Economic Growth.  How are Canadians to have faith in a bank structured by the very players that will profit from it?

The manner in which the infrastructure bank was presented in legislation does little to inspire faith in it either.  Following in Harper’s tradition the CIB was jammed into the undemocratic omnibus Bill C-44, which had debate stifled[24], and which even the Senate is considering severing into separate legislation[25], as it should be for such an important change to our system.  Even a KPMG report for Infrastructure Canada itself calls for caution and not to rush in before more impacts can be considered[26].

With our debt as high as it is (over $1 trillion and counting[27]) and inequality worsening[28], why would we make it worse promising above average returns and monetizing public infrastructure into a revenue stream for private investors?  Even without public money creation, we can use traditional bond issues at a lower rate than investors would expect from an infrastructure bank[29].  The proposed infrastructure bank is a huge deviation from the Liberal election platform to “use its strong credit rating and lending authority to make it easier and more affordable for municipalities to build the projects their communities need.”[30]   Multiple studies from around the world have proven that using private investment to build assets, for example P3s, costs the public more money, as evidenced by Ontario’s Auditor General[31] and the reversal of privatizations in Europe[32].

Are you suggesting an infrastructure bank to build infrastructure or to provide a new revenue stream for large institutional investors?  How exactly are we supposed to pay back investors?  Are you planning to saddle the new infrastructure with user fees so they become an ongoing revenue stream?  Why do documents show the government plans to take on more risk to ensure investors get paid first, and the government last[33]?  How much more debt will tax payers be on the hook for?  We already made our debt worse when in February this year the BoC reduced its automatic minimum purchase of government bonds from 15% to 14%, increasing our debt burden for no apparent reason except perhaps to increase the available general collateral in overnight markets[34].  Harper’s first budget in a majority cranked the rate up to 20% to suit his needs, the BoC market notice makes clear it was done “to accommodate the planned increase in government deposits held at the Bank of Canada associated with the Government of Canada’s plan announced in the June 2011 budget to increase its prudential liquidity over the next 3 fiscal years”3.  Not the BoC’s plan, the Government of Canada’s plan, so why can’t we do the same?  The BoC is not autonomous; the disagreement with Governor Coyne that necessitated an additional clause in the BoC Act proves that[35], as does the disagreements with Governor Crow that led to him not being renewed for another term[36].

We don’t need to be a source of unearned income for investment funds, and we don’t need to sell off public assets.  These are capital assets for which the cost of acquiring fixed assets is treated as expenditure at the time of acquisition”[37] instead of being depreciated over the life of the asset the way private companies can.  That capital cost is also is accounted for in the same budget as the operating budget providing services, unlike municipalities’ ability to separate capital and operating expenditures[38], the net effect making deficits appear worse than they are.  If we really need money we’re not willing to create ourselves we should be going after the billions in tax avoidance and evasion and closing the loopholes that allow it[39].  We don’t even attempt to measure the tax gap in Canada[40].  Or consider raising corporate tax rates, as Canada itself has become a tax haven as evidenced by Burger King’s acquisition of Tim Horton’s[41], while corporations sit on billions in “dead money”[42], and Canada has now hit an unenviable milestone, for the first time ever getting more tax revenue from people than from businesses[43].

We need to provide the public with the infrastructure and services needed to ensure a high standard of living befitting a country of our wealth.  Deficits are mere accounting, and recent economic studies have proven that austerity shrinks economies and deficit spending grows them[44].  I hope you let evidence and history, and not the specious assumptions espoused by neoliberal institutions like BlackRock, McKinsey & Co, the London School of Economics, and the private banking community, guide you to the conclusion that we already have the ultimate driver of prosperity and growth:  The Bank of Canada.

Thank you for your time,

Adam Smith



[2] Figure 1: Monetary financing and inflation in Canada, 1958–2012  “Is Monetary Financing Inflationary?  A Case Study of the Canadian Economy, 1935-1975” by Josh Ryan-Collins

[3] Quote about hyperinflation in the Weimar Republic from the IMF “this episode can therefore clearly not be blamed on excessive money printing by a government-run central bank, but rather on a combination of excessive reparations claims and of massive money creation by private speculators, aided and abetted by a private central bank.”

[4] M0 divided by M3






[10] “What potentially matters about high excess reserves is that they provide a means by which decisions made by banks—not those made by the monetary authority, the Federal Reserve System—could increase inflation-inducing liquidity dramatically and quickly.”


[12] However, the project was met with resistance from railway and port lobbyists in the US, and hampered by war and depression in the first half of the century. After rejecting numerous agreements to construct a Seaway, the US Senate finally assented in 1954 when Canada declared it was ready to proceed unilaterally with its own Seaway.”

[13] “the Prime Minister, as a reflationary measure, introduced legislation calling for an expenditure of $39 million on public works to be financed by an expansion of the note issue”  from “The Bank of Canada:  Origins and Early History” by George S. Watts

“the Bank of Canada subscribed for the full initial stock issue of $25 million and as funds were required drew it down and paid for it.  By starting off with only equity money and no borrowed funds, the new Bank (IDB) was to have a favourable start and develop some strength and attractiveness in its operating record before it should have to borrow and pay interest.”  From “The IDB:  A History of Canada’s Industrial Development Bank” by E. Ritchie Clark.  (for context, that is $652 million and $418 million respectively in today’s dollars)

[14]This Bill authorizes the Minister of Finance, with the approval of the Governor in Council, to enter into agreements to make loans to municipalities to enable them to pay the whole or part of the cost of constructing or making extension, or improvements to or renewals of a municipal waterworks system, gas plant, electric light system or any other self-liquidating project.”

[15] During the war period, $517.8 million of securities were bought directly from the government with newly created central bank money and by converting numerous maturing securities into new Government of Canada issues (Neufeld 1958a, 145; Mcivor 1958, 174). As Plumptre (1941, 155–56) remarks, the effect of this increase in note issue was to provide “a sort of interest-free loan to the Government through the medium of the Bank of Canada.” The Bank issued the notes at virtually zero cost to itself, whilst the profits paid to it by the government 
for holding government debt were all paid back to government which owned all of its stock.”




[19] chart 4 Asset Shares By Order of Government, General Government, 1955–2011’s%20Infrastructure%20Gap_0.pdf


[21] If a loan funds the building of a house, or a railway or a broadband network, it is creating a productive asset. A productive asset creates value over many years, providing a continuous flow of increased products and services over time. Money spent on such an asset should thus be able to be absorbed in to the economy without creating inflation.”








[29] “There’s no shortage of low-cost public financing available to Canadian governments. Ottawa can now borrow at 0.6 per cent over a year and issue 30-year bonds at 1.8 per cent, with provinces a percentage point higher. Long-term borrowing rates have never been this low. Meanwhile large private infrastructure investors expect ‘stable, predictable returns in the 7 to 9 per cent range’…It doesn’t take an economist to understand it makes no sense to finance projects at seven to nine per cent when you can do so at two per cent.”

“This argument doesn’t hold up. Borrowing money is largely a balance sheet transaction, and if it’s used to invest in infrastructure there will be assets to match these liabilities for many years to come,” the report states. Further, they note that Canada has the lowest net debt-to-GDP ratio of the Group of Seven countries by far.

“The case for establishing the CIB is not compelling, as it has the potential to increase overall costs to taxpayers while privatizing the most high-return, low-risk infrastructure assets.”



[32] “a growing number of cities worldwide deciding to end their experiments with privatisation. Since 2007, 170 municipalities in Germany alone have brought energy services back into public hands. Globally, at least 100 cities have done the same with privatised water services over the past 15 years, including dozens of municipalities in France – once seen as a growing focus for water privatisation.”



[35] Minister’s directive (2) If, notwithstanding the consultations provided for in subsection (1), there should emerge a difference of opinion between the Minister and the Bank concerning the monetary policy to be followed, the Minister may, after consultation with the Governor and with the approval of the Governor in Council, give to the Governor a written directive concerning monetary policy, in specific terms and applicable for a specified period, and the Bank shall comply with that directive.”

[36] “This will mean discarding the polite fiction that the Bank has any real say over, and therefore responsibility for, monetary policy formulation – however convenient that story may be for the government and however flattering the Bank of Canada may find it.”  From “Making Money” by John Crow


[38] An Ontario municipality may issue long-term debt only for capital purposes and cannot borrow for operations…  Repayment of municipal debt is amortized over the term of the debenture with regular contributions being made to the sinking fund.”






[44] Since the global turn to austerity in 2010, every country that introduced significant austerity has seen its economy suffer, with the depth of the suffering closely related to the harshness of the austerity…  Meanwhile, all of the economic research that allegedly supported the austerity push has been discredited…  An economy that is depressed even with zero interest rates is, in effect, an economy in which the public is trying to save more than businesses are willing to invest. In such an economy the government does everyone a service by running deficits and giving frustrated savers a chance to put their money to work. Nor does this borrowing compete with private investment. An economy where interest rates cannot go any lower is an economy awash in desired saving with no place to go, and deficit spending that expands the economy is, if anything, likely to lead to higher private investment than would otherwise materialise.”  “The Austerity Delusion” by Paul Krugman