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When you look at the rate of development that has occurred on planet Earth in the last 100 years, then zoom in on the last 50 years, and even more alarming, in just the last 20 years, surely you must sense that we can't go on this way forever!

Reports of dwindling resources, environmental destruction, excessive population growth, unemployment, poverty, homelessness, depression, terrorism, global economic & financial shocks… all point to an imminent implosion. Human greed and ambition seem to have no natural limits and the giants who currently dominate and control most of the important rights and power have no apparent intention of easing up on their rate of expansion and acquisition.

Normal people, of course, are simply trying to ignore the worst so that they can keep on living reasonably happy lives, in isolated pools, amongst their friends and families. But is there not a growing, yet unspoken, sense of pending doom amongst us? Do you not feel an intolerant social crankiness developing around you? Do you really think we can continue avoiding the inevitable by hiding in all the usual places... in our tv sets & cinemas, in our bars and parties, or in our mindless shopping binges? Isn't it all starting to get a little stale, a little shallow… a little repetitive?

hmmm... should I keep on reading this crap?... is there a point coming soon?

You're still reading, so I will assume you too have felt the tempest described above. The question is what can we do about it. Well before some catastrophe pushes us all to the brink and forces some global dictator or fascist entity upon us we need to do some serious thinking. Tinkering around the edges of our problems, or simply nibbling on a particular aspect of one that personally threatens your own self interest is just not good enough any more. We really are running out of time, so we need to dig down to the common root of our problems... our money system.

It is said that money makes the world go round. In fact, it has been said so often that we now take it as a given. But it is only partially true and that part is due entirely to the fact that we believe it to be true. Get all your friends together and toss all your money into a big pile on the floor. Even if you watch it for a week, it won't do a damn thing. It won't make more of itself, it won't produce anything, it won't even be fun to be with. It will just lay there. If you eat it you will get sick, if you burn it, it will disappear quickly and give off very little warmth. Without human involvement, money is useless.

The only thing that money is good for is motivating humans. More honestly put, the only thing that money is good for is controlling humans. Money is particularly good for controlling humans when it is deliberately kept scarce. If there is not enough money for everyone, humans will compete unmercifully to get enough of it for themselves. They'll forget about the big picture, dilute their morals and values, submit to the authority of others who have money to offer and go to great lengths to rationalize that what they are doing is reasonable. The fact that they become exhausted and demoralized by the process of competition actually helps to further control them... and , of course, it is very good for business because people who are demoralized and exhausted need to relax, escape and be entertained. And in case you haven't noticed, much of our economy is sustained by providing exactly these essential services.

As children we learn that money doesn't grow on trees. Unfortunately, even as adults, we are never told where it does come from or how it really works. All money originates as debt. Although it is possible to obtain money without personally borrowing it, any money you receive was originally borrowed into existence by someone, somewhere, at some time. When money is borrowed into existence, an obligation to pay it back is also created at the same time. The obligation, however, is greater than the amount originally borrowed by an additional amount called interest. Even a child should be able to figure out that if all money is created as debt, and all debtors are trying to pay back more than they originally borrowed, that there won't be enough money available for everyone to pay back their obligations. If 10 people borrow $10 each, but must pay back $11 each, in total only $100 of money is created while $110 of obligation is created. This is the first cause of scarcity in the money system.

The second cause of scarcity is similar. One of the foundations of capitalism is the quest for profit. Simply put, the goal of each business must be to take in more money than it pays out. But if everyone is trying to take in more than they are paying out, there won't be enough money available for people to buy all the products that are made. If 10 people each pay out $10, but try to take in $11, in total there will only be $100 available to purchase $110 worth of products. Of course, when the people who do take in more than they spend decide to save their profits and expect their savings to earn interest, the first cause of scarcity in the money system kicks in again.

In both of the cases above, the scarcity of money gets worse if people try to solve the problem by borrowing more money. This simply feeds the first cause of scarcity. For the same reason, attempting to increase profits won't work for the good of all either, for that merely feeds the second cause of scarcity.

For many people, there is a third cause of scarcity in the money system. Although it is not a systemic logical error like the first two causes, its effects can be just as devastating. There are only five legitimate ways to get money in this money system: earn it with your talent & labour, sell something you already own of value, borrow it, win it, or receive it as a gift or inheritance. If you are out of work and own nothing of value, you will not qualify to borrow money and cannot win it (since you can't afford to try). Unless someone gives you money, you will very quickly become penniless. Without access to money, even the basic necessities of life remain out of reach. A sudden illness or unexpected job layoff could unleash this cruel reality on any of us.

That money is scarce is not an accident. The accumulation of wealth and power could not be maintained without interest and profit. The rich can only get richer by expropriating the earnings and productivity of other people. Interest and profits are merely a private tax extracted from consumers and workers by a corporate monarchy.

Never in recorded history has there been a time when the rich and powerful did not exploit the weak. Consider the Crusades, the Vikings, the pirates, the feudal lords, the monarchs and now the corporations. The law of the jungle has always prevailed... might creates right. For a brief period after the second world war, through to the early 1970s, a kinder more egalitarian society began to develop. Social programs and publicly funded safety nets blossomed briefly throughout western democracies raising the standard of living for all. But the rich were not happy. This "excess of democracy" had to be stopped before the contentment and security of the masses made them unmanageable.

By the end of the 70s, high interest rates were unleashed to discipline public expectations and democratic governments throughout the western world. The gold standard was abandoned, reserve requirements dismantled, and banking, insurance and the financial service industries were deregulated so they could prepare for future consolidation. High interest rates caused massive public debts which, in turn, caused the collapse of social programs and other liberal-minded utopian fantasies. Privatization, or the takeover of the public sector by private capital, was well on its way. By the end of the next generation, all recollection of a public sector may be completely erased. Our grandchildren will know of no other alternatives and will have only one blunt tool left in their toolbox... the business tool, to build their society. No other models of co-operative or egalitarian societies will exist anywhere on the planet.

We must not allow this to occur. We must not let the concept of a public sector die. We must not give up our inalienable rights, our collective social inheritance and our human dignity so easily. We have not yet even tasted how sweet a truly functional social democracy can be. We have yet to exert enough social strength to break free from the chains of our scarce money system.

The First Steps To Freedom

The first step we must take is to demand that our federal government once again create a significant portion of its own credit supply. During the 1940s, 50s and 60s our federal government created as much as 25% of its own credit supply through the Bank of Canada, a wholly owned subsidiary of the government of Canada. This 30 year period was the most successful economic period in Canadian history. Inflation was low and nearly everyone who wanted to could find a job or afford to get an education. During this period old age security, medicare and the unemployment & disability insurance programs were started. Most of the infrastructure that we count on today, our roads & bridges, airports & utilities, schools & hospitals were successfully built and maintained. Tax rates were reasonable and people didn't mind paying for they could clearly see the direct and positive results of their tax dollars at work... and user fees were virtually non-existent. All this was achieved with the government creating only, at the most, 25% of its own credit requirements. The other 75% came from private financial institutions, pension & investment funds and individual citizens. Never more than 4 or 5% was ever borrowed from outside the country and nearly all of it came from loans denominated in Canadian dollars to protect the government from currency speculators.

Using the Bank of Canada this way is not a big step. It is not something new. It is simply returning to a proven system that worked successfully for Canada in the past. Instead of using this tried and true approach today however, there is mounting pressure within our government, and a growing campaign of public misinformation, pushing us to abolish the Bank of Canada and merge our monetary system with its privately owned counterpart in the US, the Federal Reserve. Doing so would be the most serious sellout of Canadian sovereignty since Confederation. It would change us from a independent nation into a puppet state of the US and rob us of the authority to ever establish a sound public monetary system for ourselves.

Those who advocate that the public sector must operate on the same principles and follow the same rules of business as the private sector are simply wrong. Either they don't understand the economic principles of public sector finance or they are ideologically against the notion of a public good interfering with their perceived right to own and operate everything on Earth for the gain and profit of private capital. The true wealth of a nation comes from its natural resources, its infrastructure and the knowledge, skill and talent of its people. If the raw materials necessary for a project exist, and enough people with the required knowledge and skill are available to supply the labour, and the citizens of the country have expressed their desire through their elected representatives to see the project completed, then a lack of financing should never be allowed to delay or prevent the project from beginning.

When a new public infrastructure like a school or hospital is built, the value of the country's assets increase by the total cost of the project. In the public sector, the value of an asset is always equal to the exact cost of creating or acquiring it. While reasonable care should be maintained to avoid unnecessary expense, since the public asset will never be sold in the marketplace, it is totally irrelevant what the marketplace would be willing to pay for it. Bidders in the marketplace are driven by their desire to make a profit and their perspective of value is highly biased by this. The market value of a building merely reflects the average price that people are willing to pay for it at a given time, not the original cost of building it. In fact, getting good value in the marketplace usually means buying things for less than they are truly worth, which is one reason why taxpayers should be very concerned when governments try to privatize public assets.

Each new public asset adds to the total value of a country's assets. The country is wealthier, stronger and more able to provide desired services to its citizens. If the money to acquire the asset was borrowed, the country's liabilities also increase by the exact cost of the asset. So long as the government borrows the money from itself, through the Bank of Canada, the relationship between assets and liabilities will remain in perfect balance. Any interest charged on the loan will come back to the government as revenue and will be added to both sides of the balance sheet to maintain this perfect relationship. As the asset slowly wears out, over perhaps 50 or 100 years in the case of a building, the true value lost because of this wearing out (or depreciation or consumption) must be paid back to the government through taxes and erased from both the assets and liabilities side of the balance sheet. This is the only part of the asset cost that the citizens of the country need ever worry about. As long as the relationship between a country's assets and liabilities are in perfect balance and are adjusted regularly and honestly at the real rate of depreciation and the citizens are willing and able to pay the true cost of depreciation and consumption through their tax contributions, then there is no reason whatsoever to worry about the total value of the balance sheet. In such a case, to worry that a country's liabilities are too great is as meaningless as to worry that its assets are too great.

Unfortunately, under our present money system it doesn't work like this. Our government borrows from private capital markets which charge high rates of interest. The extra financial obligations created by this demand for interest must be treated like depreciation and added to the current tax rate. Interest costs can double or triple the total amount paid by citizens to acquire a new asset. Interest costs also displace other spending options. Other government programs and services must be gutted or cut out altogether to make spending room for interest payments. A study conducted by Statistics Canada in 1991 into what caused the massive government deficits of the 1980s revealed that 94% of the problem was due to high interest costs.

In addition, rather than requiring taxpayers to fund merely the depreciated portion of an asset, the government tries to budget (and collect from taxpayers) the entire cost of acquiring an asset in the same year as it is acquired, and then, bizzarrely, records the value of its new asset on the positive side of its balance sheet at only $1.00. Imagine if as individual citizens we tried to do the same thing. Since none of us can earn enough in a single year to pay cash for a new home, we too would have to run a deficit and arrange for a mortgage on our home. But if we entered the value of our home into the assets side of our personal balance sheet as only $1, no banker on Earth would consider loaning us money to buy the house since the loan would create a liability on our balance sheet over 100,000 times as great as the corresponding asset. One can't help but wonder if our current government really knows the true value of anything it owns. If not, how can we possibly trust it to privatize public assets fairly?

We must go beyond using the Bank of Canada to supply merely 25% of the government's credit requirements however. Since bad monetary policy created the deficits and debt of the Canadian government, remedial monetary policy must be used to eliminate them. If creating 25% of the government's credit requirements through the Bank of Canada was required before we had the interest costs of a huge national debt to service, then a great deal more of our current borrowing requirements need to be created by the Bank of Canada today to cover the additional burden of interest payments in the federal budget. At least 50% of all government borrowing should be done through the Bank of Canada. In addition, the federal government should begin immediately converting all of the country's privately held debts owed to non-residents into debt held by the Bank of Canada. As each foreign held note becomes due it should be paid out in full and retired permanently. This action would help stabilize Canada's currency exchange rates as well as saving taxpayers a great deal of money.

The second step we should take is to gradually increase the amount of credit the Bank of Canada creates each year until it can fully supply the credit demands of all levels of government in Canada. There is no good reason why any private individual or corporation should be allowed to add totally unnecessary costs to the process of creating public assets. The main reason it is allowed now is ideological and political... quid pro quo political/corporate patronage. The combined interest payments of all levels of government in Canada amount to some $75 billion dollars per year, or roughly 2,500 tax dollars each from every man, women and child in Canada... and in return we get nothing that we didn't already have. The Canadian Constitution clearly stipulates that the government of Canada alone has the power to regulate money and credit for the good of the nation. So why did it give this, its most sovereign right, away? Why does it ignore its own interest free bank in favour of private capital markets? You guessed it... quid pro quo political/corporate patronage.

Thinking about this subject is tiring for most people, so I won't go on with the third and fourth steps towards building a more just and equitable money system. Please re-read this article and talk about it with your friends and family. The two steps already described are enough to put us firmly on the road to recovery. They are however only the first steps, a necessary beginning, that must occur immediately, if democracy and a civil society is to survive into the next century.