Bill Morneau’s status-quo economics: big bank profits, corporate giveaways and debt


They’re back. Last week interest rates went up for the first time in 7 years. Not by much; only 0.25 percent, but it’s definitely a warning shot across the bow of Canadian borrowers.

The man at the helm is Bank of Canada governor Carlos Poloz, who signalled the rate increase back in June, citing Canada’s healthy economic growth in the first quarter of this year, a world economy gaining momentum, especially in the US, and his comfort with oil prices running at between $40 and $50 a barrel. There’s another reason he didn’t mention: a desire to cool a red-hot real estate market in Canada’s major cities. And a couple of reasons not to raise rates: shaky consumer confidence and an inflation rate that’s slowed to just 1.6 percent.

All of this tinkering with the machinery won’t affect Canada’s six big banks a whole lot. They’ve been rolling in profits, bringing in collective profits of $10.5 billion in just the first quarter of this year. The profits don’t only come from car loans and mortgages to ordinary Canadians. The Government of Canada is a big borrower, too.

Last year our government paid the private banks nearly $26 billion in interest alone. Canada’s debt now stands at $1.05 trillion dollars, which is more than half of our annual gross domestic product.

As every student of financial history knows, and our federal finance minister Bill Morneau also knows, that it wasn’t always this way. Once upon a time, before 1974 when Pierre Trudeau undid the system, the Canadian government borrowed money from its own bank—the Bank of Canada. To cover its borrowing, the government simply created more money. Exactly like the banks do when they ‘lend’ you money. They don’t actually have that money, they create it electronically. But the debt you incur is real. And so is the debt our government now incurs with the private banks.

That debt to the private banks gets paid by you and by me in the form of taxes: income taxes, GST, business taxes and more. So not only are the banks doing well on our personal loan and mortgage business, they’re also doing extremely well on our taxes. Call it socialism for banks. And they have a friend in Bill Morneau.

Morneau, just so you know, is the son of a successful Canadian businessman. Educated at Senator O'Connor College School, a Catholic private school, he did his BA at Western, an MBA at University of Grenoble in France and earned an M.Sc. in economics at the London School of Economics. He married Nancy McCain of McCain Foods fortune, and took over the family business—specializing in corporate and public sector benefit planning—growing it from 200 to 4000 people. Bill Morneau is successful, accomplished, and very much a product of the status quo system. He’s been trained to maintain a profitable system, not to transform it.

Together, he and Justin Trudeau are working on the Liberal election promise to spend us into prosperity. The idea is to run annual deficits for a few years to get the economy humming. Except it’s already humming and the government is still borrowing and spending our money. 

The excuse, of course, is jobs. Or “jobs, jobs, jobs,” according to Innovation, Science and Economic Development Minister Navdeep Bains when announcing Canada’s new $950 million fund to seed new not-for-profit innovation “superclusters”. The idea is to create a Canadian Silicon Valley, in which private sector partners match government funding dollar for dollar. The program is similar to Bill Morneau’s newly minted private-public infrastructure bank, designed to attract international investors with billions of dollars to partner on public infrastructure projects—for a profit.

It didn’t used to be this way. Before 1974 the Canadian government, thanks to its control over the Bank of Canada, could fund super-projects like the St. Lawrence Seaway on its own.

In the end, the post-1974 central banking model is a lose-lose for ordinary Canadians. More of our hard-earned tax dollars go to paying off government debt to the private banks—on top of the money we borrow to maintain our expensive lifestyles, which keep getting more expensive as wages flatline (as they have since the late 1980s) and prices creep ever-upward.

So here we are. We have a highly educated, responsible finance minister who can fine-tune the system with the best of them—when the problem is the system itself.

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