Sponsorship Scandal

For over 30 years, from 1939 to the early 1970’s, the Bank of Canada was used to finance a significant portion of government debt at cost (as low as 0.37%). During the 1970’s, under Pierre Trudeau, this changed so that government has been borrowing almost entirely from the private sector – at commercial interest rates – instead of from its own bank at very low rates. This same crazy practice continued under Brian Mulroney who made it worse in 1991 by eliminating what was known as the “statutory reserves”, a mechanism for controlling inflation without having to resort to the destructive use of high interest rates.

When Paul Martin took over as Finance Minister he realized that he had to bring Canada’s debt under control, but instead of attacking the cause of the problem – which was and is to finance government debt through the private sector instead of through its own bank, the Bank of Canada - he attacked government services, giving the impression that we had been “living beyond our means” and had to cut back. In fact, it was not public services which led to the debt, but the cost of compound interest which, according to StatsCanada, accounted for 94% of the debt.

From 1995, the year when Paul Martin as Finance Minister declared war on the deficit, to 2002 Canadians paid $594 billion in unnecessary interest. That is the real reason we don't have enough money for health, education, roads or anything else.

Some will say that using our public bank will cause inflation, but in the 30 years that it was used as it should be inflation never got out of control. In 1950 the inflation rate was 2.8% and, while it rose and fell over the years, was only 2.9% in 1971 (just before the sudden increase in oil prices). On the other hand, if increasing the amount of Bank of Canada money in circulation is supposed to cause inflation, we would expect that decreasing it would reduce inflation. Instead, just the opposite happened; inflation increased from 6.4% in 1978 to 11.4% in 1980 along with a huge jump in public debt when the government was using the Bank less.

What can you do about it? Ask your MP’s and your MPP’s if they will speak to their party leaders about the misuse of the Bank of Canada. Ask them if they will support better use of the Bank. Ask them if they will speak publicly to their constituents about it, and tell them you will be voting in the next election for the candidate who answers “YES” to these questions.