This is a brilliant article by Ellen Brown about how the Canadian government used to borrow from its own central bank at a zero rate of interest till 1974, when it was persuaded by the Basel Committee to borrow instead from private banks.
Of course the private banks didn’t actually have the funds to lend to the Canadian government: those banks just created the money out of thin air. They did a few book keeping entries and charged billions for doing so: something the Canadian central bank had long been doing for decades and at no cost to taxpayer/citizens.Ralphonomics
The incompetence and the stupidity are a wonder to behold. Or perhaps, as Ellen Brown points out, it’s not stupidity at all: it’s very likely a case of private bankers pulling wool over the eyes of politicians and central bank staff. And to some extent it will be a case of private bankers who manage to get into positions of power at central banks pulling wool over everyone’s eyes, and as a reward, being offered lucrative jobs at a private bank on leaving their central bank.
How private bankers enslaved Canada
Ralph Musgrave
5 comments:
was the base interest rate (i.e. the equivalent of the 'fed funds' rate) zero during that period?
Were no government bonds held by the public?
y
Central bank profits for Canada, just as for the US, were remitted back to the Treasury. So effectively a zero percent loan.
Ultimately, the money still comes from the central bank, since what the commercial banks create "from thin air" are IOU's that are redeemed in the aggregate by central bank money that is continuously pumped into the system. And when taxpayers pay their taxes with their bank IOUs that necessitates a transfer of central bank liabilities from a commercial bank's asset column to the Treasury's asset column. But inserting the commercial bank middle man into this process is a trick for steering a larger portion of central bank liabilities in the direction of commercial bank stockholders. So yes, it's a racket.
Banking is about risk management wrt to credit, the reward being the spread. In a system using state currency, the banking is really agency in the form of a public-private partnership rather than as a contractor. If that is not chiefly involved, then there is no reason to cut a bank in as an agent performing a service intermediating between the central bank and private clientele, or for the government to be assume any risk. Anything else is a subsidy or grant.
Unknown,
what I meant is, was the overnight interbank rate also zero?
If the govt spends without selling bonds to banks, eventually they end up with excess reserves and the overnight interest rate gets bid down to zero, right? (Unless the CB pays interest on reserves, sells bonds or offers 'term deposits').
So I was wondering what the overnight rate was in Canada during this period. Were the banks just sitting on massive excess reserves earning zero interest?
http://moslereconomics.com/wp-content/graphs/2009/07/natural-rate-is-zero.PDF
(Also, did the treasury simply borrow from the CB to repay previous loans from the CB?)
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