by Ellen Brown
29 May 2012
from
Truthout Website
|
Ellen is an attorney and the
author of eleven books, including
Web of Debt: The Shocking Truth
About Our Money System
and How We Can Break Free.
Her websites are webofdebt.com
and ellenbrown.com.
She is also chairman of the
Public Banking Institute.
The YouTube video of 12-year-old
Victoria Grant speaking at the Public Banking in America conference
last month has gone viral,
topping a million views on various web
sites. |
Victoria Grant speaks about monetary reform12-year old Victoria Grant
explains
why her homeland, Canada, and most of the world, is in debt.
April 27, 2012 at the Public Banking in America
Conference, Philadelphia, PA.
(Screengrab: publicbankingtv)
Monetary reform
- the contention that governments, not banks, should create and lend a
nation's money - has rarely even made the news, so this is a first. Either
the times they are a-changin', or Victoria Grant managed to frame the message in a
way that was so simple and clear that even a child could understand it.
Basically, her message was that banks create money "out of thin air" and
lend it to people and governments at interest. If governments borrowed from
their own banks, they could keep the interest and save a lot of money for
the taxpayers.
She said her own country of Canada actually did this, from 1939 to 1974.
During that time, the government's debt was low and sustainable and it
funded all sorts of remarkable things.
Only when the government switched to borrowing
privately did it acquire a crippling national debt.
Borrowing privately means selling bonds at market rates of interest (which
in Canada quickly shot up to 22 percent), and the money for these bonds is
ultimately created by private banks.
For the latter point, Victoria quoted
Graham Towers, head of the Bank of Canada for the first twenty years of its
history.
He said:
Each and every time a bank makes a loan, new
bank credit is created - new deposits - brand new money. Broadly
speaking, all new money comes out of a Bank in the form of loans. As
loans are debts, then under the present system all money is debt.
Towers was asked,
"Will you tell me why a government with
power to create money, should give that power away to a private monopoly
and then borrow that which Parliament can create itself, back at
interest, to the point of national bankruptcy?"
He replied,
"If Parliament wants to change the form of
operating the banking system, then certainly that is within the power of
Parliament."
In other words, said Victoria,
"If the Canadian government needs money,
they can borrow it directly from the Bank of Canada. The people would
then pay fair taxes to repay the Bank of Canada. This tax money would in
turn get injected back into the economic infrastructure and the debt
would be wiped out.
Canadians would again prosper with real
money as the foundation of our economic structure and not debt money.
Regarding the debt money owed to the private
banks such as the Royal Bank, we would simply have the Bank of Canada
print the money owing, hand it over to the private banks and then clear
the debt to the Bank of Canada."
Problem solved; case closed.
But critics said, "Not so fast." Victoria might be charming, but she was
naïve. One critic was William Watson, writing in the Canadian
newspaper The National Post in an article titled "No, Victoria, There Is No
Money Monster."
Interestingly, he did not deny Victoria's
contention that,
"When you take out a mortgage, the bank
creates the money by clicking on a key and generating 'fake money out of
thin air.'"
Watson acknowledged:
Well, yes, that's true of any
"fractional-reserve" banking system. Even before they were regulated,
even before there was a Bank of Canada, banks understood they didn't
have to keep reserves equal to the total amount of money they'd lent
out: They could count on most depositors most of the time not showing up
to take out their money all at once. Which means, as any introduction to
monetary economics will tell you, banks can indeed "create" money.
What he disputed was that the Canadian
government's monster debt was the result of paying high interest rates to
banks.
Rather, he said:
We have a big public debt because, starting
in the early 1970s and continuing for three full decades, our
governments spent more on all sorts of things, including interest, than
they collected in taxes...
The problem was the idea, still widely
popular, from the Greek parliament to the streets of Montreal, that
governments needn't pay their bills.
That contention is countered, however, by the
Canadian government's own auditor general (the nation's top accountant, who
reviews the government's books).
In 1993, the auditor general noted in his annual
report:
[The] cost of borrowing and its compounding
effect have a significant impact on Canada's annual deficits. From
Confederation up to 1991-92, the federal government accumulated a net
debt of $423 billion.
Of this, $37 billion represents the
accumulated shortfall in meeting the cost of government programs since
Confederation. The remainder, $386 billion, represents the amount the
government has borrowed to service the debt created by previous annual
shortfalls.
In other words, 91 percent of the debt consists
of compounded interest charges. Subtract those and the government would have
a debt of only C$37 billion, very low and sustainable, just as it was before
1974.
Mr. Watson's final argument was that borrowing from the government's own
bank would be inflationary.
He wrote:
Victoria's solution is that instead of
paying market rates the government should borrow directly from the Bank
of Canada and pay only token rates of interest.
Because the government owns the bank, the
tax revenues it raises in order to pay that interest would then somehow
be injected directly back into the economy. In other words, money
literally printed to cover the government's deficit would be put into
circulation.
But how is that not inflationary?
Let's see.
-
The government can borrow money that
ultimately comes from private banks, which admittedly create it out of thin
air and soak the taxpayers for a whopping interest bill,
-
or it can borrow from its own bank,
which also creates the money out of thin air and avoid the
interest
Even a 12-year-old can see how this argument is going to come out...