Rocco Galati: Bank of Canada should provide interest-free loans to government to finance infrastructure

Liberal Leader Justin Trudeau says a Liberal government won't balance the books for three straight years but will double spending on infrastructure to jump-start economic growth.
Liberal Leader Justin Trudeau says a Liberal government won’t balance the books for three straight years but will double spending on infrastructure to jump-start economic growth. (The Canadian Press)

by Ron Hart, Jan 15, 2016

The Committee on Monetary and Economic Reform lawsuit is  slowly moving towards the Supreme Court in a showdown concerning the  Bank of Canada. 

The COMER lawsuit proposes that the Bank of Canada should be the government’s own bank, providing interest-free loans to the government instead of paying interest unnecessarily to the private sector.

Bank of Canada Lawsuit

by Joyce Nelson, reposted from the WatershedSentinel.ca, Jan-Feb 2016

One of the most important legal cases in Canadian history is slowly inching its way towards trial.  Launched in 2011 by the Toronto-based Committee on Monetary and Economic Reform (COMER), the lawsuit would require the publicly-owned Bank of Canada to return to its pre-1974 mandate and practice of lending interest-free money to federal, provincial, and municipal governments for infrastructure and healthcare spending.

Renowned constitutional lawyer Rocco Galati [see below] has taken on the case for COMER, and he considers it his most important case to date.

On October 14, a Federal Court judge cleared away yet another legal roadblock thrown in the lawsuit’s path. The federal government has tried to quash the case as frivolous and “hypothetical,” but the courts keep allowing it to proceed. As Galati maintains, “The case is on solid legal and constitutional grounds.”

When asked after the October procedural hearing why Canadians should care about the case, Galati quickly responded: “Because they’re paying $30 or $40 billion a year in useless interest. Since ’74, more than a trillion to fraudsters, that’s why they should care.” (COMER says the figures are closer to $60 billion per year, and $2 trillion since 1974.)
The Fraudsters
Created during the Great Depression, the Bank of Canada funded a wide range of public infrastructure projects from 1938 to 1974, without our governments incurring private debt. Projects like the Trans-Canada highway system, the St. Lawrence Seaway, universities, and hospitals were all funded by interest-free loans from the Bank of Canada.

But in 1974, the Liberal government of Pierre Trudeau was quietly seduced into joining the Bank for International Settlements (BIS) – the powerful private Swiss bank which oversees (private) central banks across the planet. The BIS insisted on a crucial change in Canada.

According to The Tyee (April 17, 2015), in 1974 the BIS’s new Basel Committee – supposedly in order to establish global financial “stability” – encouraged governments “to borrow from private lenders and end the practice of borrowing interest-free from their own central banks. The rationale was thin from the start. Central bank borrowing was and is no more inflationary than borrowing through the private banks. The only difference was that private banks were given the legal right to fleece Canadians.”

And that’s exactly what “the fraudsters” did. After 1974, the Bank of Canada stopped lending to federal and provincial governments and forced them to borrow from private and foreign lenders at compound interest rates – resulting in huge deficits and debts ever since. Just paying off the accumulated compound interest – called “servicing the debt” – is a significant part of every provincial and federal budget. In Ontario, for example, debt-servicing charges amounted to some $11.4 billion for 2015.

What is key to the COMER lawsuit is that the Bank of Canada is still a public central bank (the only one left among G7 countries). Their lawsuit seeks to “restore the use of the Bank of Canada to its original purpose, by exercising its public statutory duty and responsibility. That purpose includes making interest free loans to the municipal, provincial, and federal governments for ‘human capital’ expenditures (education, health, other social services) and/or infrastructure expenditures.”
Deliberate Obfuscation
In February 2015, Rocco Galati stated publicly: “I have a firm basis to believe that the [federal] government has requested or ordered the mainstream media not to cover this [COMER] case.” Subsequently, the Toronto Star and the CBC both gave the lawsuit some coverage last spring and there was good coverage in alternative media. But given the importance of infrastructure-spending in the recent federal election campaign, it’s amazing (and sad) that the COMER lawsuit was so ignored, even by the political parties – especially the NDP.

With the Harper government touting its ten-year, $14 billion Building Canada Fund, and the Liberal Party of Justin Trudeau promising to double that amount of funding by running three years of deficits, the NDP led by Tom Mulcair pledged to balance the budget. The NDP could have explained and championed the COMER lawsuit and even possibly utilized it to somehow justify the balanced-budget promise – a platform plank that likely cost it the election.

justin trudeau
Justin Trudeau smiles from the cabin as he operates a crane at an Oakville campaign stop. (Photo: Paul Chiasson/CP)

In August, Justin Trudeau spoke vaguely about financing infrastructure spending with a new bank. As a COMER litigant wrote in their newsletter, “During the recent federal election, Trudeau floated an interesting plank about creating an infrastructure bank. My first response was ‘You already have one. The Bank of Canada.’  My second question was, ‘Public or private?’ Again we see both the colossal ignorance and deliberate obfuscation of money issues in this country by our leadership.”

A Liberal Party Backgrounder explained, “We will establish the Canada Infrastructure Bank (CIB) to provide low-cost financing to build new infrastructure projects. This new CIB will work in partnership with other orders of governments and Canada’s financial community, so that the federal government can use its strong credit rating and lending authority to make it easier – and more affordable – for municipalities to finance the broad range of infrastructure projects their communities need … Canada has become a global leader in infrastructure financing and we will work with the private sector and pools of capital that choose for themselves to invest in Canadian infrastructure projects.”

It’s those “pools of capital” – including Wall Street titans like Goldman Sachs – that are set to profit handsomely from Canada’s new infrastructure lending and spending spree.

In a cynical move, the Liberal Backgrounder doesn’t mention the interest-free loans of the past, but it does cite their results in order to tout the Liberal Party’s “transformative investment plan” for Canada: “A large part of Canada’s 20th century prosperity was made possible by nation-building projects – projects that without leadership from the government of Canada would not have been possible … the St. Lawrence Seaway served as a foundation for prosperity in Quebec and Ontario; the TransCanada Highway links Canadians from coast to coast; and our electricity projects, pipelines, airports and canals have made it possible to develop our natural resources, power our cities, and connect with each other and the world.”
Pools of Capital
Enthused about Justin Trudeau’s victory and his infrastructure campaign platform, Paul Krugman wrote in the New York Times (October 23, 2015), “We’re living in a world awash with savings that the private sector doesn’t want to invest and is eager to lend to governments at very low interest rates.  It’s obviously a good idea to borrow at those low, low rates … . Let’s hope then, that Mr. Trudeau stays with the program. He has an opportunity to show the world what truly responsible fiscal policy looks like.”

Of course, borrowing from the Bank of Canada at NO interest rates would be even more fiscally responsible, and would keep policy decisions out of the hands of foreign lenders.

Joyce Nelson is an award-winning freelance writer/researcher and the author of five books.

SOURCE

Rocco Galati challenges Bank of Canada to offer interest-free loans

Maverick lawyer argues central bank should provide interest-free money for infrastructure

The lawyer best known for stopping the Supreme Court appointment of Judge Marc Nadon has turned his sights on the Bank of Canada.

Rocco Galati has taken on a case for a group called the Committee for Monetary and Economic Reform, or COMER, which wants the central bank to return to the practice of lending federal and provincial governments interest-free money for infrastructure.

“They felt it was important in the face of the financial sector meltdown in 2008, the banking meltdown, and the drastic reduction and elimination of human capital infrastructure such as health care, universities and basically the stuff that the Bank of Canada from 1938 to 1974 funded,” Galati said in an interview with CBC’s The Exchange with Amanda Lang.

His clients have been dismissed as conspiracy theorists, but Galati argues the law is there to support their case.

The Bank of Canada was set up in 1935 in the wake of the Great Depression to provide a means for settling international accounts and to provide interest-free loans to government to finance infrastructure investments.

History of infrastructure funding

Projects like the St. Lawrence Seaway and the Trans-Canada highway were funded in this way, and the central bank also underwrote Canada’s Second World War effort as well as the building of hospitals and universities.

But in 1974, the central bank stopped providing interest-free loans to government so it could join the Bank for International Settlements, a kind of central bank of central banks.

Galati argues that from then on private banks became government’s lender, contravening the act that established the central bank.

He has launched legal action, beginning in 2011, to rule on the constitutionality of the central bank’s current role. His argument is that private banks are dictating the terms of Canadian debt, usurping the role of the Bank of Canada.

Is government bound by original act?

“My hope is that the court declare that the government is bound by the legislation and cannot simply hand over that decision-making to foreign private bankers,” Galati said.

“What the government then does is up to the government, but they can’t simply arbitrarily say ‘no never again’ when the law is there and the history of the reason for creating the Bank of Canada is there.”

The Committee for Monetary and Economic Reform takes the view that having the Bank of Canada provide funding would eliminate interest payments on the national debt — a huge burden for the Canadian taxpayer.

Galati agrees the case is a strange and quixotic one, but he’s built a career on holding the government to the law.

“It wasn’t arcane for me, it’s in the law,” he said.

And he acknowledged it will probably earn him few friends. He’ll never be made a judge or even sit on a law faculty. And it will be a long fight.

“Well, most struggles to enforce the law are. I mean, often, I’ve had cases that have gone 12 years, successfully at the end of the day, because the government simply wants to ignore the law,” he said.

“That’s the system we have, and when they do, the only people that can force them to abide by the law are the courts.”

Marc Nadon case

Last year when Prime Minister Stephen Harper nominated Nadon to the Supreme Court, Galati stepped in, saying the move broke the rules. Few expected him to win. But in a surprise decision, he did.

“I saw an attempt to pervert and subvert our independent judiciary, which is the last bastion of balancing the rights of the citizens against the rights of the government and making sure that the government doesn’t turn into a dictatorship,” he said. “If you can stack the court and corrupt the judiciary, well, that’s it.”

Galati said he believes Parliament has become ineffective in checking the power of government and the courts are the only recourse. SOURCE


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One thought on “Rocco Galati: Bank of Canada should provide interest-free loans to government to finance infrastructure”

  1. The claim that the Bank of Canada ever lent money interest free to different levels of government or that anything of significance surrounding Bank of Canada lending to the federal government changed in 1974 is a myth propagated by COMER. COMER’s suit has been thrown out by the courts four times, most recently in February 2016. All COMER has won in court is the right to try again with a different claim.
    The Bank of Canada Act allows, but does not require, the Bank of Canada to lend money to the federal and provincial governments. It says nothing about the rate of interest to be charged. Since its creation, the Bank of Canada has lent money to the federal government and charged interest. It pays an annual dividend equal to its profit (the difference between its interest revenue and its expenses) to the federal government. This makes its lending effectively close to interest free to the federal government. It would not be interest free to provincial governments since they do not receive a dividend from the Bank of Canada.
    The federal government borrowed from a variety of sources, including the Bank of Canada, banks, insurance companies, pension funds, and individual Canadians, before 1974. It continues to borrow from these same sources. The Bank of Canada currently holds over $90 billion in federal government debt.
    Most other central banks are also government owned. For example the Bank of England was nationalized in 1946.
    The reason the media is not reporting this is that it is not news. COMER keeps losing, and has no real prospect of winning since they have no case. If they were to win anything more than the right to try again it would be news.

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