UNION OF NOVA SCOTIA MUNICIPALITIES
AND THE BANK OF CANADA

by
Ian Biggs

23/7/09

To Nova Scotia Mayors and Wardens:

Many of the problems facing municipalities, provinces and the federal government hinge on money. Infrastructure crumbles, taxes rise, debt at all levels of government escalates from interest on interest incurred on old debt and new debt. Interest payments alone keep most municipalities handcuffed and unable to move forward with necessary improvements and maintenance to infrastructure and services.

The Bank of Canada became the property of the citizens of Canada in 1938. The Bank of Canada is permitted to buy debt the instruments of the federal government, of provincial governments and under certain conditions, municipalities. Article 18 of the Bank of Canada Act makes these transactions possible. If the Bank of Canada were used to finance infrastructure projects under article 18 municipalities and the province would save hundreds of millions, if not billions of dollars in interest payments that would otherwise go to privately owned financial institutions. This idea is not new. Much of Canadas financing of world war two was done this way, without creating inflation.

Some background information can be found in the minutes of the Standing Committee of Banking and Commerce from 1939. During the committee hearings Graham F. Towers, the first governor of the Bank of Canada, reveals some points of vital importance. One point that he makes is that for domestic purposes currency issued by parliament is as powerful as gold. The key point being for domestic purposes; this admission came on May 3, 1939. Another point made by Mr. Towers is that Canada is on a fiat money system; Canadas money system is backed by the people of Canada and their productivity. Nobel Prize winning economist Theodore Schultz wrote that investment in human capital is the best investment government can make.

Mr. Towers also advises that a municipality should pay back debts during the life time of the asset. “We will pay the debts back during the lifetime of the assets which we have invested the money in” as the course municipalities should take accrual accounting keep in mind the year is 1939 and the words are those of the governor of the Bank of Canada and the federal government only recently (2002) started to adhere to this accounting practice. Financing in this way can save the province and municipalities enormous sums in interest payments.

My purpose in writing is to advise Nova Scotia municipal leaders that funding is available through the Bank of Canada and the federal government. The means are available and unused. Political will does not exist as the federal government refuses to exercise its authority. Municipal leaders have the legal right secure funding at low or no interest with the assistance of the provincial government.

Bank of Canada Act Article 18(i) make loans or advances for periods not exceeding six months to the Government of Canada or the government of a province on taking security in readily marketable securities issues or guaranteed by Canada or any province.

(j) make loans to the Government of Canada or the government of any province, but such loans outstanding at any one time shall not, in the case of the Government of Canada, exceed one-third of the estimated revenue of the Government of Canada for its fiscal year, and shall not, in the case of a provincial government, exceed one-fourth of that governments estimated revenue for its fiscal year, and such loans shall be repaid before the end of the first quarter after the end of the fiscal year of the government that has contracted the loan.

The phrase “but such loans outstanding at any one time shall not” itself indicates that the unfunded loans specified can be rolled over when due.

Funding of this nature is recommended by “a strong majority” of Monetary Policy Council at the C.D. Howe Institute in April of this year (www.cdhowe.org/english/monetary_policy_council/mpc_pressrelease_apr_16_2009.html <http://www.cdhowe.org/english/monetary_policy_council/mpc_pressrelease_apr_16_2009.html>).

The time is right for Canadians to exercise their rights on critical financial matters. Financing through commercial banks at high interest rates is not realistic and has failed Canadians across the country. The Bank of Canada is owned by the citizens of Canada all of its shares are owned by the federal minister of finance since 1938. Imagine a world where you own a bank and do not use it; really, little imagination is required because you live in that world.

I hope that as part of future meetings of the Union of Nova Scotia Municipalities meet that you will consider this very important issue.

I would consider it a privilege to answer any questions you may have regarding the information I have provided in this correspondence.

23/7/09

Ian:

Good letter except for the paragraph which quotes sub-sections (i) and (j) of section 18. These are not the sections for long term, “lifetime of the assets” financing such as mentioned by Graham Towers.

Richard Priestman