[R-G] [BillTottenWeblog] A Debt Ode

[Bill Totten]

Exerpts taken from "Money: the fundamentals"

by Stewart Sinclair


This link is an attempt to mentally arm core opposition groups with the
basic ideas concerning debt and money supply so that they are not
continually at the mercy of muddleheads and deliberate misleaders in the
media, including the Internet.


What is Debt?

The common muddlehead diatribe against 'government spending' revolves
around the horrors of the national debt.

So: what is debt? How important is it?

Click here for Debt to GDP Ratio chart: http://www.comer.org/debtratio.PNG

Debt is not a stack of bills reaching to heaven's gate.

It is not a big pile of gold.

It is simply a few lines on a set of papers or more likely a series of
data entries in a computer memory. (Computers are made for this, of
course. They can be used to calculate pi to a million decimal places or
the diameter of the universe to the nearest centimetre.)

But beyond those marks - it isn't anything.

It represents time spent in the past and things mostly in land fills but
it is not in itself real: you can't feel touch taste or smell it.


To whom is this 'debt' owed?

It is not owed to Martians who may nuke the planet if it's not paid!

It's largely owed to these same bankers, financial gamblers, and fund
managers who just blew the system up with their short-sighted greed.

Government debt is one of their primary sources of income and is
certainly their most reliable source. So it's no wonder that they and
their spinning muddleheads are very concerned about it.

Who gave the banks the ability to create the money that they used to buy
the government's debt?

Oops!

We did!

Bad move on our part.

We, the people did - through counterproductive (to say the least)
legislation by our trusted elected representatives (whom the bankers
seem to have corrupted).


How can we correct this? What can we have our government do?

The Bank of Canada (BoC) can put up cash (create the money) to buy back
a large part of this debt from the banks and other corporate holders. If
they did that, there would be no inflationary impact from this action
because the government-created (BoC) money would be offset by the
"destruction" of the bank-created money upon repayment of the bank debt
through the repurchase of the bonds - no net impact on the money supply.

History does show that the Bank of Canada can be used in this way, as it
was in financing the huge upsurge of the economy in Canada during World
War Two.

Question: But could the BoC become a disastrous instrument if not used
with restraint?

Answer: No more disastrous than allowing the private banks to create
money without restraint!

This is in fact what has been happening and has led to the current
meltdown (as was the case in 1929 and other financial crises).


Gambling with Our Money

Most of us didn't see much of the money that was created in the last
twenty or thirty years because it went into the "paper economy" where
high-stakes gamblers in the banking and financial system got to play
with it.

The Bank of Canada just created a huge amount of money (nearly $200
billion) in term loans solely to get the banks out of their current mess
by replacing some of the working capital that they just lost. Talk about
rewarding the Perpetrators!

Now is a good opportunity ... With the private banks lending less and
more expensively, the government and BoC can step in to more easily
create the money that the banks are not creating and lending and direct
it to public needs rather than the bankers' favourite projects - bonds,
swaps, derivatives, oils sands plants, energy-wasting houses and cars
and the like.


Bank Regulations and Statutory Reserves

But to consistently use the BoC or other government agencies to create
money over the long run the banking regulations and regulatory regime
that existed prior to 1967 have to be put back into operation.
This means primarily that the cash reserve system in the banking system
must be restored. This was modified in 1967 by finance minister Mitchell
Sharp and wiped out by Mulroney with Bill C-19 in 1991.

Prior to 1967 the Bank Act (not the Bank of Canada Act) required all
chartered banks to keep between eight and twelve per cent (at the
discretion of the Governor of the BoC) of outstanding liabilities in
cash on deposit with the BoC. To control bank lending, the Governor
could up the ratio - (as they do now in China. Last year the central
bank of China required the banks to hold 12.6% of their liabilities in
cash to cool a, then, over heating economy). Canada's banking cash
reserves are legally zero per cent and most other major economies are
less than one per cent. That allows the banks, theoretically, to lend
forever out of nothing. Good deal, eh? Means you pay them back forever
out of something!


The Bank for International Settlements (BIS): Muddlehead-Central Training

The BIS has tried to keep the party going by substituting Capital
Requirements for cash reserves but capital is difficult to price
accurately - particularly when banks are allowed to hold assets at
historic cost rather than current market value.

The BIS also undermined suggested regulations by declaring the debt of
OECD (Organization of Economic Cooperation and Development) countries to
be "risk free" and thus not requiring any capital backing for holding
this government debt. That means the banks can hold federal government
debt at no cost and a pure profit!

Since they can generate this cash out of nothing to purchase government
bonds, the Bank of Canada can do the same at almost no cost to the
government and the people. The total quantity of money is what matters,
not which body creates it. The difference is in the government (and
hence the people) not having to pay interest on the BoC money.


Currency, Foreign Exchange Controls and a FTT

A return to a regulatory regime would almost certainly require currency
and foreign exchange controls (China has maintained such controls for
decades. We have often heard about the complaints by the US and other
first world governments against these controls. But these are precisely
some of the key reasons why China has moved from being a third world
basket case to becoming an industrial power house) and the establishment
of a Financial Transaction Tax (FTT) - in order to dampen down what
Allen Greenspan once called the "irrational exuberance" of traders. To
put it mildly.


... As To Inflation ...

As to the much-touted muddleheaded example of the Germain inflation of
1923, which is always trotted out, that had more to do with the fact
that Germany (i) lost World War One, and (ii) was saddled with massive
reparations payments as a result. That, along with (iii) one failed
revolution and (iv) two failed counter-revolutions AND (v) the
occupation of Germany's industrial heartland, the Ruhr valley, by the
French army thus preventing the collection of taxes from the area -
would pretty much cripple any government.

It should also be remembered that (vi) all the government had to do was
fire the President of the Reich Bank, Rudolph Havenstien and replace him
with a management that knew what it was doing under Haldmar Schacht at
the end of 1923. Would WE could have the same 'regime change': from
whirling muddleheads and neocon hobgoblins to real representation by and
for 'we, the people'!

Regulating and Restricting the money supply will not cure the "cancer"
of waste and stupid production in society. But the biggest "cancer" in
society is the opportunistic consolidation of power and wealth by the
financial elite - the alleged "brains" of society - "malignant tumour"
would be more accurate, given what the results have been and are for us
and for the Earth.

What is needed is new investment in green technologies, similar to the
shift to the new government-directed investment in machine tools,
synthetic rubber, et cetera which happened during World War Two.


How did we get into this mess?

As for the causes of the deregulation of finance, the restriction of the
Bank of Canada, and the current social meltdown, the (domestic) bank
lobby is primarily responsible - reinforced by US and offshore banks;
they have a common interest and a more or less common strategy.

But we SUPPORT this mess by continuing to reward the perpetrators for
their 'success' in destroying the Earth and Us!

The IMF is mentioned often, but it is (was) just an occasional excuse.
The proof in the pudding is that the IMF seems to have almost no
influence on China. I strongly suspect that this is because the
government there controls the banks, not the other way around as we have
here.


Remember:

* Debt is simply a series of written entries or data entries typed into
a computer.

* Beyond those marks - it isn't anything.

* Don't listen to the whirling muddleheads.

* Think about it. View our Bank of Canada tutorial:
http://www.comer.org/boc/BoCtut.htm

* Email us: comerpub at comer.org

* Blog us: http://www.john-comerblog.blogspot.com/

* Sign our petition: http://www.ipetitions.com/petition/eartheconomy

http://www.comer.org/stumoney.htm


TO POST A COMMENT, OR TO READ COMMENTS POSTED BY OTHERS, please click
on the word "comment" highlighted at the end of the version of this
essay posted at http://billtotten.blogspot.com/