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Can Canada Afford Jack Layton’s Statesmanly Long Trousers? William Krehm - COMER \|\| March 27, 2006 Related - The Number 1 Reason YOU became a Slave The federal election is now behind us, but we are hardly further advanced. It was by every criterion an empty event. The basic issues, involving our history, our democracy, our economy, our survival as a distinct land and a culture were carefully kept out of the debates. Even the strictly business-oriented Globe and Mail the morning after (24/01, "NDP en route to key role in Parliament" by Bill Curry) makes this clear: "Mr. Layton [the NDP leader] ran a highly scripted campaign, refusing comment on anything other than his main talking—points of the day. "While the tactic meant that he never became the main story during the 8-week campaign, he managed to avoid the negative front-page headlines that hurt him in 2004. The goal was to keep Mr. Layton calm and on message with a platform that could be affordably implemented in a minority parliament. In contrast to 2004, this campaign had few defining moments for the NDP." A Party Undefined That sums it up. The historic party of reform avoided any basic criticism of the undoing of our social programs. In such ways the means had been found not only for a one-shot bailout of our banks in 1991. Worse still, the banks have been further deregulated to gamble bigger and better with the liquidity pools of the other "financial pillars" — the stock market, insurance and mortgage companies. That had been a principal cause of the Great Depression of the 1930s that led us into the Second World War. Deregulation guarantees that bailout of the banks will not remain a one-time affair, but a recurrent priority of our government. What was left out in the campaign thus defines the "affordability" of the NDP program mentioned by the G&M. Paul Martin made a career of cultivating bad accountancy — making no distinction between Government investment and current expenditure, resisting the advice of a series of Auditors-General on the matter. The bogus deficit was the magic wand that enabled the banks to elbow out the most vulnerable sectors of our society from priority positions in the relief lines. And, rather than challenging the bookkeeping swindle of Mr. Martin, Mr. Layton chose to be gentlemanly towards a possible cabinet colleague. An increasing number of people are comparing Mr. Layton with Tony Blair, but this weakness at the knees that afflicts Mr. Layton has earlier antecedents. I remember almost 20 years ago when the NDP Bob Rae was Premier of Ontario and the Mulroney government had slashed grants to the provinces to fill the hole in federal finances arising from the end of the statutory reserves that banks had to deposit interest-free with the Bank of Canada. We proposed that the provinces join in a public stand against this scandalous shift in income stream from social programs to get the banks out of their gambling losses. Premier Rae’s comment was brief: "I would prefer their restoring the grants." The essence of the situation escaped Mr. Rae. His chance of getting the grants restored was nil. The very bailing out of the banks by Ottawa followed by their further deregulation indicated a basic power shift from the electorate to the financial sector. And Mr. Layton has learned nothing during the intervening years. So we are left with the following situation. The financial sector internationally through their organizations, public and private, have buried almost a half century of crucial history during which economists had learned to at least soften the impact of economic cycles, and how to run a mixed economy to provide the highly educated work force that technological revolutions require. All this was thrown into reverse gear as the banks were deregulated and allowed to take over stock market brokerages, insurance companies, and real estate mortgages, and lay hands on the rich cash reserves these held for their own businesses. With these they gambled themselves to the brink of insolvency or beyond. But to cover up their tracks all this was done without debate in parliament, or press release. The university textbooks on the period were purged of any reference to the earlier period when the Bank of Canada did an impressive amount of financing of government projects. Article Posted at www.KnowledgeDrivenRevolution.com The CCF, the parent organization of the NDP, had been a major factor in the nationalization of the Bank of Canada, and made a point of cultivating an identity that could be mistaken for no other. The NDP’s failure to continue that tradition at the present critical time, when minority governments open doors that were bolted by those in power with the key thrown away, is quite the opposite of what the country needs. Both CAP and COMER spent much time and effort explaining to Mr. Layton and the NDP the use that the Bank of Canada had been put to in funding government capital projects at a near zero interest rates. He cannot claim unfamiliarity with that crucial bit of Canadian history. The Liberal Party under Mackenzie King in 1938, with a push from the CCF and certain of its own members like the former Mayor of Vancouver Jerry McGeer, had learned the lessons of the Depression and helped convert the Liberals to the nationalization of the Bank of Canada and its use for much of the Government’s capital financing. Under that arrangement, the loans of the BoC was able to provide near zero rates of financing, since the interest paid on the government debt held by the Bank returned to it in the form of its dividends. This was not "funny money." In the midst of a depression the government had found the money to buy out some 12,000 shareholders of the BoC at a good profit after less than four years of ownership. The Source of our Debt But by 1991 the Mulroney government was shifting most of the federal financing to private banks at the same time as the Bank of Canada was pushing interest rates well into double-digit range, supposedly to "lick inflation." That was the source of most of the federal debt that approached $600 billion. The banks, under the 1988 Risk-Based Capital Requirement guidelines of the Bank for International Settlements that declared all debt of developed countries "risk free," had loaded up with federal bonds without putting up a penny of their own money. That the deed, done in stealth, with neither debate nor explanation in parliament or the media, made the Conservative party of the day accomplices of the banks, and consequently put the government at their mercy. The Liberal Party of Mackenzie King bowed to Bay Street once it obtained power, incredible as it might seem. The Liberal Party had the choice of being less-funded but remaining true to their great tradition, but they pursued the less valiant course. Now the NDP of Layton, after having listed the use of the Bank of Canada for which it was intended as an "option" in the previous election campaign, never mentioned it again. The hole that the repeated bank bailouts left in the federal treasury changed radically what the concept of "affordable" might mean in the present crisis. That is why we have potholes in our cities and wretched maintenance of infrastructure that an impoverished postwar Canada managed to build after 10 years of depression and six of war. At the same time the federal debt was reduced from some 150% of the Gross National Product in 1946 to some 22% by the mid-1970s. This was possible because since 1938 when the Bank Canada was nationalized, our banks had been kept strictly to banking and were not allowed to engage stock market brokerage, insurance companies or real estate mortgage activities. The reason: such activities are incompatible with banking, which creates credit out of the void. If banks obtain access to the cash reserves held by such "other pillars" for the needs of their own businesses, they will use them for the creation of many storeyed structures of credit, backed in the last analysis by the federal government in its role through the Bank of Canada "as lender of the last resort." To bail the banks out from the loss of most of their capital in the 1980s, two major changes were made without discussion in Parliament or the media. Because the facts of the bailout could not stand the light of day, it was carried out in virtual stealth. Why University Texts were Rewritten in 1991 The manner in which the nationalized Bank of Canada could do such near zero-financing of the federal government projects had been clearly explained in university economic textbooks up to the year when the Conservative government of Brian Mulroney revised the Bank Act in 1991. This had required that the banks redeposit with the Bank of Canada a modest portion of the deposits they received from the public. Not only did that provide the Bank of Canada with more elbow room — within the existing constraints — for financing the government’s projects, but an alternative of combatting perceived inflation without raising interest rates. Raising the benchmark interest rate set by the central bank echoes in higher rates on all loans throughout the economy, and thus hits even the unemployed who hardly could have been contributing to "inflation." Raising the statutory reserves that banks had to redeposit with the BoC from the deposits received from the public, lowered the leverage allowed them for their credit creation. Abolishing those statutory reserves left the revenue of money-lenders as the sole device for directing the economy. That is the guilty secret that has poisoned the political atmosphere of Canada. A knowledge of our history would help society from repeating the same fatal errors on an ever larger scale. Layton’s decision has been to go the way of Tony Blair rather than of Tommy Douglas. The mere fact that the parties that serve Bay Street have suppressed these portions of our history should have been cause for Mr. Layton to raise the issue. Mr. Layton chose to go the other way. It underlines the need for electoral reform so that a few solitary voices can be heard in Parliament to keep alive key aspects of our past. The electoral results pointed the discrepancies of the number of seats won by parties by the rules of the present system. About KDR \| \| Home \| \| Weekly Features Archive	Weekly Weekly Features Archive
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Can Canada Afford Jack Layton’s Statesmanly Long Trousers?

William Krehm - COMER || March 27, 2006

Related - The Number 1 Reason YOU became a Slave

The federal election is now behind us, but we are hardly further advanced. It was by every criterion an empty event. The basic issues, involving our history, our democracy, our economy, our survival as a distinct land and a culture were carefully kept out of the debates. Even the strictly business-oriented Globe and Mail the morning after (24/01, "NDP en route to key role in Parliament" by Bill Curry) makes this clear: "Mr. Layton [the NDP leader] ran a highly scripted campaign, refusing comment on anything other than his main talking—points of the day.

"While the tactic meant that he never became the main story during the 8-week campaign, he managed to avoid the negative front-page headlines that hurt him in 2004. The goal was to keep Mr. Layton calm and on message with a platform that could be affordably implemented in a minority parliament. In contrast to 2004, this campaign had few defining moments for the NDP."

A Party Undefined

That sums it up. The historic party of reform avoided any basic criticism of the undoing of our social programs. In such ways the means had been found not only for a one-shot bailout of our banks in 1991. Worse still, the banks have been further deregulated to gamble bigger and better with the liquidity pools of the other "financial pillars" — the stock market, insurance and mortgage companies. That had been a principal cause of the Great Depression of the 1930s that led us into the Second World War. Deregulation guarantees that bailout of the banks will not remain a one-time affair, but a recurrent priority of our government. What was left out in the campaign thus defines the "affordability" of the NDP program mentioned by the G&M.

Paul Martin made a career of cultivating bad accountancy — making no distinction between Government investment and current expenditure, resisting the advice of a series of Auditors-General on the matter. The bogus deficit was the magic wand that enabled the banks to elbow out the most vulnerable sectors of our society from priority positions in the relief lines. And, rather than challenging the bookkeeping swindle of Mr. Martin, Mr. Layton chose to be gentlemanly towards a possible cabinet colleague.

An increasing number of people are comparing Mr. Layton with Tony Blair, but this weakness at the knees that afflicts Mr. Layton has earlier antecedents. I remember almost 20 years ago when the NDP Bob Rae was Premier of Ontario and the Mulroney government had slashed grants to the provinces to fill the hole in federal finances arising from the end of the statutory reserves that banks had to deposit interest-free with the Bank of Canada. We proposed that the provinces join in a public stand against this scandalous shift in income stream from social programs to get the banks out of their gambling losses. Premier Rae’s comment was brief: "I would prefer their restoring the grants." The essence of the situation escaped Mr. Rae. His chance of getting the grants restored was nil. The very bailing out of the banks by Ottawa followed by their further deregulation indicated a basic power shift from the electorate to the financial sector. And Mr. Layton has learned nothing during the intervening years.

So we are left with the following situation. The financial sector internationally through their organizations, public and private, have buried almost a half century of crucial history during which economists had learned to at least soften the impact of economic cycles, and how to run a mixed economy to provide the highly educated work force that technological revolutions require. All this was thrown into reverse gear as the banks were deregulated and allowed to take over stock market brokerages, insurance companies, and real estate mortgages, and lay hands on the rich cash reserves these held for their own businesses. With these they gambled themselves to the brink of insolvency or beyond. But to cover up their tracks all this was done without debate in parliament, or press release. The university textbooks on the period were purged of any reference to the earlier period when the Bank of Canada did an impressive amount of financing of government projects.

Article Posted at www.KnowledgeDrivenRevolution.com

The CCF, the parent organization of the NDP, had been a major factor in the nationalization of the Bank of Canada, and made a point of cultivating an identity that could be mistaken for no other. The NDP’s failure to continue that tradition at the present critical time, when minority governments open doors that were bolted by those in power with the key thrown away, is quite the opposite of what the country needs. Both CAP and COMER spent much time and effort explaining to Mr. Layton and the NDP the use that the Bank of Canada had been put to in funding government capital projects at a near zero interest rates. He cannot claim unfamiliarity with that crucial bit of Canadian history.

The Liberal Party under Mackenzie King in 1938, with a push from the CCF and certain of its own members like the former Mayor of Vancouver Jerry McGeer, had learned the lessons of the Depression and helped convert the Liberals to the nationalization of the Bank of Canada and its use for much of the Government’s capital financing. Under that arrangement, the loans of the BoC was able to provide near zero rates of financing, since the interest paid on the government debt held by the Bank returned to it in the form of its dividends. This was not "funny money." In the midst of a depression the government had found the money to buy out some 12,000 shareholders of the BoC at a good profit after less than four years of ownership.

The Source of our Debt

But by 1991 the Mulroney government was shifting most of the federal financing to private banks at the same time as the Bank of Canada was pushing interest rates well into double-digit range, supposedly to "lick inflation." That was the source of most of the federal debt that approached $600 billion. The banks, under the 1988 Risk-Based Capital Requirement guidelines of the Bank for International Settlements that declared all debt of developed countries "risk free," had loaded up with federal bonds without putting up a penny of their own money. That the deed, done in stealth, with neither debate nor explanation in parliament or the media, made the Conservative party of the day accomplices of the banks, and consequently put the government at their mercy. The Liberal Party of Mackenzie King bowed to Bay Street once it obtained power, incredible as it might seem. The Liberal Party had the choice of being less-funded but remaining true to their great tradition, but they pursued the less valiant course. Now the NDP of Layton, after having listed the use of the Bank of Canada for which it was intended as an "option" in the previous election campaign, never mentioned it again.

The hole that the repeated bank bailouts left in the federal treasury changed radically what the concept of "affordable" might mean in the present crisis. That is why we have potholes in our cities and wretched maintenance of infrastructure that an impoverished postwar Canada managed to build after 10 years of depression and six of war. At the same time the federal debt was reduced from some 150% of the Gross National Product in 1946 to some 22% by the mid-1970s. This was possible because since 1938 when the Bank Canada was nationalized, our banks had been kept strictly to banking and were not allowed to engage stock market brokerage, insurance companies or real estate mortgage activities. The reason: such activities are incompatible with banking, which creates credit out of the void. If banks obtain access to the cash reserves held by such "other pillars" for the needs of their own businesses, they will use them for the creation of many storeyed structures of credit, backed in the last analysis by the federal government in its role through the Bank of Canada "as lender of the last resort." To bail the banks out from the loss of most of their capital in the 1980s, two major changes were made without discussion in Parliament or the media. Because the facts of the bailout could not stand the light of day, it was carried out in virtual stealth.

Why University Texts were Rewritten in 1991

The manner in which the nationalized Bank of Canada could do such near zero-financing of the federal government projects had been clearly explained in university economic textbooks up to the year when the Conservative government of Brian Mulroney revised the Bank Act in 1991. This had required that the banks redeposit with the Bank of Canada a modest portion of the deposits they received from the public. Not only did that provide the Bank of Canada with more elbow room — within the existing constraints — for financing the government’s projects, but an alternative of combatting perceived inflation without raising interest rates.

Raising the benchmark interest rate set by the central bank echoes in higher rates on all loans throughout the economy, and thus hits even the unemployed who hardly could have been contributing to "inflation." Raising the statutory reserves that banks had to redeposit with the BoC from the deposits received from the public, lowered the leverage allowed them for their credit creation. Abolishing those statutory reserves left the revenue of money-lenders as the sole device for directing the economy.

That is the guilty secret that has poisoned the political atmosphere of Canada.

A knowledge of our history would help society from repeating the same fatal errors on an ever larger scale. Layton’s decision has been to go the way of Tony Blair rather than of Tommy Douglas. The mere fact that the parties that serve Bay Street have suppressed these portions of our history should have been cause for Mr. Layton to raise the issue. Mr. Layton chose to go the other way.

It underlines the need for electoral reform so that a few solitary voices can be heard in Parliament to keep alive key aspects of our past. The electoral results pointed the discrepancies of the number of seats won by parties by the rules of the present system.