Address to the Kingston Poverty Conference October 15, 2010
Richard Priestman, President, Kingston Chapter,
Committee on Monetary and Economic Reform

Is There Hope for Canadians?

Canadians paid $165-million per day in 2010 in unnecessary interest on federal, provincial and municipal debt. These costs are reflected in taxes, fees, cut-backs in public services such as education, health care and support services and deterioration of infrastructure such as roads, sewers, water lines and affordable housing. The 1.5 million unemployed pay through their loss of jobs.

This 'public debt interest' amounts to a little under $5 ($4.85) per day for every man, woman and child in the country. For a family of four that’s about $20 ($19.40) per day or $136 per week, every week, all year long. Think of what could be done with $160-million to alleviate poverty – and then think of having $160-million every day.

You are probably thinking, this guy must be crazy. Where does it say it cost $160-million per day to pay the interest on public debt?

In fact, these figures are easily verified by Satistics Canada, Canadian Economic Observer: Historical Statistical Supplement, Table 1.3-1.
down to the second table, locate heading 'Interest on the public debt', and you'll see there that interest on the public debt in 2010 amounted to $60.2 billion or $165 million per day.)

If we have that much debt we must have been spending like drunken sailors (with apologies to sailors). Well, we weren’t spending like sailors – drunk or sober - but our politicians were spending like irresponsible, badly informed guardians of the public purse.

How did we get into such a mess?  Not by living beyond our means as some would say.  Unemployment insurance, welfare programs, old age pensions and housing programs did not increase as a percentage of GDP.  The real culprit in the debt's astronomical rise was not social programs but high interest rates, made more galling because the government (both Liberal and Conservative) could have borrowed from its own bank at near zero cost instead! This is possible because the Bank belongs to the Federal Government and the interest paid to it reverts to that Government as part of the bank's profit.

If our government had been using its own Bank, the Bank of Canada, as it should have for the past 35 years we would not be in this situation.  From 1867 to 1975 the accumulated federal debt amounted to $19-billion, and during that time we paid for two world wars and other smaller ones, built the trans-Canada highway, contributed to construction of the St. Lawrence Seaway, built housing, provided funds for our veterans to go to school, brought in the Canada Pension Plan and made Medicare a national service.

After 1975 the government, which had been borrowing from the Bank of Canada since 1938 at near zero cost, began to borrow less from its own bank and more from the private sector at market rates of interest. The result was a huge increase in federal debt from $19-billion in 1975 to $588-billion by 1997, with a total debt for all levels of government of over $900-billion – a 3000% increase in just 23 years. By March 31, 2009, federal government interest bearing debt stood at $710-billion, but by 2015 the deficits will bring that up to $868-billion.  Federal debt charges, currently at $31-billion, will grow accordingly and based on previous figures the total debt charges for all levels of government will be about double the federal charges.

Where does all this information come from? It comes from Statistics Canada “Canadian Economic Observer”, the “Canada Year Book” and the annual financial reports of the government of Canada.

The federal government can reduce the interest paid on public debt by borrowing from its own Bank at near zero cost. This would lead to a reduction in the profits of the commercial banks and less income for holders of government bonds, but most Canadians would benefit. 

So, why aren’t we doing this, you ask? Government's indebtedness to private financiers gives that sector undue influence on government policy, leading to decisions which benefit the interests of the private sector foremost rather than that of the community as a whole. Our federal government is up to its neck in debt ($710-billion) and when you owe that much it’s not so hard to choose between the wants of your creditors and the wants of ordinary Canadians.  

You may have wondered why our government ignored the widely supported prison farm protest and public opinion which had the support of “experts” as well as obvious common sense. One could ask, who is running this ship anyway? In fact, Mr. Harper did not ignore people, i.e. the people he counts as his supporters.  He does care what the community wants, i.e. his community of very wealthy corporations and banks. 

To reduce the influence of the private sector and to save taxpayers billions of dollars every year we should only elect federal politicians who support using the Bank of Canada for financing public debt to invest in public services and infrastructure. 

Unfortunately, none of the parties currently holding seats in Parliament will talk about this. Recently however, the Green Party adopted a general statement of support for the Bank of Canada and two other parties, the Canadian Action Party and the Christian Heritage Party, have policies supporting use of the Bank to finance public debt. The Conservatives have made it clear that they want smaller government and therefore are not interested in using the Bank to finance investment in public services and infrastructure. The Liberals could have used the Bank of Canada to reduce debt in the nineteen nineties, but instead Paul Martin as Finance Minister drastically reduced services by cutting transfer payments to provinces for health care, education and infrastructure.

The biggest disappointment for me is the NDP which adopted a resolution in 1995 supporting use of the Bank in this way, but has ignored it ever since it was adopted. Nevertheless we continue to write to them on this and hope they will come around. The local NDP candidate, Dan Beals, is interested and wants to learn more about it. It’s essential to get people in Parliament who are committed to this and if none of the party representatives will support it then we must find independent candidates who will. The only way out of the mess we are in and to get adequate support for public services, job creation and reduce poverty is to use our public bank, the Bank of Canada, for financing public debt.  To attempt to pay down existing debt from earnings will only impoverish us and our children, our grandchildren and their children’s children. 

There is no alternative to having enough politicians in parliament who support using the Bank of Canada for financing public debt to invest in public services and infrastructure. We will not reduce poverty as long as we are spending $160-million a day on public debt interest.

References Canadian Economic Observer: Historical Statistical Supplement 2009/2010
Annual Financial Report of the Government of Canada Fiscal Year 2008–2009
Federal Debt and Interest Payments - Canada Year Book 1962 – 2005
List of Canadian provinces and territories by population - Wikipedia - 1/1/10
William Krehm, “A Power Unto Itself – The Bank Of Canada”, 1993, p.22
William Krehm, Meltdown – Money, Debt and the Wealth of Nations, pp.60-
Hideo Mimoto and Phillip Cross, “The. Growth of the Federal Debt.” Canadian Economic. Observer (Ottawa: Statistics Canada, 1991)
Bank of Canada Act 1985
“Why the Government Borrows” - Library of Parliament - 2008