Saving Canada From The New Great Depression

We’re on the verge of a new great depression. That much is very clear if you only open your eyes and take a serious look around. The world is awash in debt. The Canadian federal debt currently stands at about $622.6 billion  Canada Federal Debt Clock  Canadian consumer debt was at $1.88 trillion as of October. The provincial debt of Ontario, where I live, stands at $297.5 billion Ontario's Debt Clock . The American federal debt stands at $19.2 trillion in funded debt and $102.1 trillion in unfunded debt American Debt Clocks .

        Most governments are VERY well aware of the likelihood of a depression. Certainly the Canadian government is. Both Harper in 2013 and Trudeau in March Trudeau Budget (page 223) introduced a buy-in provision, which I call the “Stick ‘Em Up” law. If a bank gets into trouble there is a forced recapitalization paid for by its depositors. If you have over $100,000 in a troubled bank the bank gets to take everything over that amount. So if you had $1.5 million on deposit the bank would take $1.4 million and leave you with just $0.1 million. If you had $100,000 in a GIC the bank would let you keep the principle, but it would take the interest.

Another sign that the Canadian government expects a depression is a statement Bank Of Canada governor, Stephen S. Poloz, made in November Bank Of Canada Statement He said that if the economy were to get bad he’d try negative interest rates. He added that he didn’t expect things to get that bad. However you don’t say that if you really don’t expect things to get bad.

Efforts to create inflation by pumping money into the economy hasn’t worked and neither has negative interest rates, which is a sign of desperation. The idea behind negative interest rates is to encourage more lending, but those who want to borrow already have. China has poured billions of yuan into infrastructure, but that hasn’t worked either.

Besides debt, other reasons for the coming depression are an aging population and living way beyond our means ecologically and energy wise. If we don’t deal with the ecological and energy situation VERY soon an even worse economic disaster awaits.

While Canada and the rest of the world can’t, at this late stage, avoid a world-wide depression, there is a way that Canada’s federal, provincial and territorial governments could avoid going bankrupt. That would be a return to borrowing from the Bank Of Canada, which is 100% owned by the Government Of Canada, instead of from private banks. That would save interest as it would in effect be borrowing from ourselves.

The federal government used to do this, but quit in the 1970s. After that Canada’s debt ballooned due to interest payments. From 1974-75 to 2010 Canada paid out over $1.1 trillion in interest.

According to an article in the National Post the federal government is spending $25.9 billion this fiscal year on servicing the debt, while Ontario is spending $11.3 billion. Eliminate this and both governments would be in surplus and the debt could start being paid down. Such a move might also save the Canadian dollar and ease the transition back to gold backed currency.

There is currently a case before the courts trying to force the government to go back to borrowing from the Bank Of Canada.

Some claim that borrowing from the Bank Of Canada would cause or increase inflation. There is no evidence to support this. And if it did now is the very time when we could use some inflation.

For a good overview of this, including the court case, see Liberate The Bank Of Canada

Next time I’ll discuss the Four Sisters of alternative investing.