If you can’t afford to live, the quality of your life doesn’t do well. (Photo: Towfiqu Barbhuiya via Unsplash)
By now, we’ve all witnessed the Bank of Canada starting to increase interest rates to supposedly fight inflation. Yet it’s also proceeding with an unnecessary sell off of pandemic debt to the markets which raises the question: Can you fight inflation while feeding it?
What is inflation? Depending on whom you ask, it might be described as a complex economic set of conditions and factors that lead to higher costs for the things you buy. Of course, living within an inflationary economic system is a societal choice. That system was invented by a few individuals, and here we are, constantly struggling with a perpetual increase of the cost of living over time — constantly struggling with a perpetual increasing cost of living.
During the Second World War, Canada and other Allied nations needed quick money to support the war effort. Along came the Canada War Bonds, issued by the government and purchased by the public with support from the Bank of Canada. War bonds funded the war effort. When the need dissipated, the government paid back the debt to the people who had lent it money. Back then, funding government during times of crisis was a closed circle involving the government, Canadians and our bank, the Bank of Canada.
Today, we are mistakenly led to believe that the only way to fund government is to rely on, and generously reward, financial market actors. Where we used to have sovereignty over our “sovereign debt,” we are now at the mercy of the whims, moods and relentless profit-at-all-costs pursuits of a deeply flawed debt market system.
Where we used to have sovereignty over our “sovereign debt,” we are now at the mercy of the whims, moods and relentless profit-at-all-costs pursuits of a deeply flawed debt market system.
But the government got at least one monetary thing right during the pandemic. As the Bank of Canada’s manager, the government instructed it to purchase the pandemic-related debt it issued (about $500 billion). A health crisis demands government action and so, just like for a war effort, the government remembered that it could get all the money it needed by issuing an IOU (albeit a huge IOU) to its own bank, which then created the money to match. It was a truly remarkable recollection considering decades of neo-liberal economic indoctrination.
Unfortunately, instead of winding down the debt and paying it back to itself, Canada is about to let its bank sell the debt to private markets. Such a large-scale influx of new debt-based money into the economy will increase inflationary pressures while benefiting institutional investment firms, private banks and the wealthy one percenters.
Additionally, when our public debt is sold and traded into private hands, those hands demand interest payments, which will fall on taxpayers. If the Bank of Canada held the pandemic debt to maturity, the government would be paying interest to itself, resulting in little to no effect on taxpayers.
This selling to private markets is unnecessary, not legally required and certain to have a negative impact on broader quality of life and well-being. If you can’t afford to live, the quality of your life doesn’t do well.
This selling to private markets is unnecessary, not legally required and certain to have a negative impact on broader quality of life and well-being.
So, what are the real powers of the government and its bank as opposed to what we have been led to believe?
As a sovereign central bank, the Bank of Canada, instructed by the government elected by the people, has the powers to write off these emergency debt instruments (like war bonds) once the emergency is over. It has the power to reduce inflationary pressures by not enabling profiteering on the debt Canada needed to issue to address the equivalent of a war effort.
The government has the power to forgive the debt it owes itself.
As Canadians, we need to peer into the shadows of our public debt and monetary system — a system that does not have your well-being and quality of life as its purpose. We need to tell our government that it is time to reclaim sovereignty over our money and our debt.
This op-ed was originally published in The Hamilton Spectator
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