How The Monetary System Works - And the Fraud of the Canadian Banking System
How The Monetary System Works – And the Fraud of the Canadian Banking System
Forms of Monetary Systems

Present System
Money Creation
Effects of Bank Credit
Accounting Flaw
Interest
- Dividends to shareholders
- Interest Payments on Deposits
- Bank Operating Expenses (Paying Bank Staff)
- The dollar, created as the principal of the loan, must be available to be earned by the borrower in order to make the principal payment to extinguish that dollar
- Every dollar the borrower pays to the bank as interest must also be available to be earned by the borrower
In Canada, as in most other countries, the two conditions are not met. The current banking system in Canada does not force banks to redistribute their interest revenue back to the people, nor does it stop banks from re-loaning or hoarding the interest revenue for its own benefit.
Defenders of the current monetary system argue that if all interest charges can be earned, then all loans can be repaid. If the Canadian government actually enforced that all interest revenue must be redistributed by the banks, then the above argument would hold true, but sadly it does not.
So even if banks redistribute their interest revenue in a way where people could earn it, there is no guarantee that secondary lenders would not redistribute it as well.
Perpetual Debt
Deflation and the Monetary System
Inflation and the Monetary System

Banking Benefits
Conclusion
The History of the Bank Fraud of Canada Part 1
The History of the Bank of Canada
This article provides a history of the Bank of Canada, and examines in detail three key events that have radically changed Canada’s fiscal position.
To begin with, the article presents the historical context of the Bank of Canada and why it was created. The key dates we examine are 1934, 1938, and finally, 1974.
It is important to note, that prior to the 1930s, Canada had no reason to create a central bank. At this time, the banking system in Canada had been comprised of several large private banks, many of which issued their own currency.
The banking system was sufficient and supplied the needs of Canadians up until the Great Depression in 1929.
Bank of Canada – 1934
The great depression devastated Canada for much of the 1930’s. At this time, hundreds of American banks had failed, yet none of the Canadian banks had failed during this time. However, there had been a huge strain on the Canadian economy because there was a contraction in the money supply, as much as 27%.
As a result of this contraction, people were not able to receive access to loans, businesses were not able to expand, and at the same time more people were seeking jobs. The intense competition in the labour market drove down the price of wages.
This period of high unemployment and economic instability forced many Canadians to question the cause of the great depression.
Canadian Jerry McGeer – a popular advocate on monetary reform – claimed that the policies of the Canadian banks had been responsible for the effects Canada felt due to the great depression.
One of the reasons McGeer, and a vast majority of other Canadians, had held the banks responsible for the great depression had been because of the failure of the Finance Act in 1923. The act granted upon the Department of Finance the power to advance dominion notes (i.e. cash reserves) to banks upon pledge of securities. The Finance Act was originally created in order to protect Canadians from situations similar to the great depression, by allowing the Department of Finance to control the cash reserves of the Canadian banks.
With the failure of the act, many Canadians wanted something to protect them from the great depression.
In accordance with the majority of Canadians, the Prime Minister of the day Richard Bedford Bennett called for a Royal Commission in 1933 in order to determine the cause of the recession.
The Royal Commission has historically been used in Canada as a major public inquiry in order to investigate the issue that is under study. In this case, it was on matters of banking and finance.
Bennett steered the Royal Commission to examine the current banking system in Canada and Bennett also wanted the Commission to consider the arguments for and against a central bank.
When Bennett had issued for a Royal Commission on the matter, he said;
The organization and working of our entire banking and monetary system [and] to consider the arguments for or against a central banking institution.
And in the summer of 1933, the Royal Commission issued its report titled The Royal Commission on Banking and Currency in Canada which examined the arguments, as well as investigating the underlying causes of the great depression.
Below is a list of the members that had been part of the Royal Commission
- Lord Macmillian – Former Chairman of British Macmillian Commission, also a British Jurist
- Sir Charles Addis – A reputable British International Banker
- Sir Thomas White – Canadian Finance Minister During WW1
- J.E. Brownlee – Prime Minister of Alberta
- Beaudry Leman – General Manager of the Banque Canadienne Nationale
The Royal Commission recommended the creation of a Central Bank.
Not long after, Bennett followed the report’s recommendation and established the Bank of Canada Act in 1934.
Bank of Canada Act – 1934
The creation of the Bank of Canada Act in 1934 proposed several key changes to the then banking policies.
Among the changes were;
- The Central bank (Bank of Canada) must keep 25% of their reserves in gold
- The Bank of Canada (BoC) had the right to issue notes
- The Chartered banks had to retire their note issues (money they created)
- The BOC’s mandate was to act as the banker to the government and manage public debt
- The Commercial banks had to keep at least 5% in reserves with the BOC either in the form of deposits or central bank notes
- The creation of the Bank of Canada Act ultimately led to the creation of the Bank of Canada itself in 1935 as a private central bank.
The idea of a private Central bank however, was strongly opposed by several key individuals of the 1930s.
Among them was Canada’s 10th prime minister William Lyon Mackenzie King who amended the Bank of Canada Act in 1938 which led to the nationalization of the Bank of Canada.
Bank of Canada – 1938
One of the key individuals to influence King’s decision to nationalize the BOC was his advisor Gerry McGeer, a major proponent for the nationalization of the central bank.
King’s decision to nationalize the BoC demonstrated remarkable foresight as he understood that the key to a stable and debt-free economy was to have government control of currency and credit.
It was Mackenzie King himself who had once said,
Once a nation parts with the control of its currency and credit, it matters not who makes the nations laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of sovereignty of parliament and of democracy is idle and futile.
For many decades since 1938, the Bank of Canada provided near interest free loans to the Canadian government.
As a result of these loans, Canada had increasingly become prosperous and developed quite substantially, with the money created being used to build highways such as the McDonald-Cartier freeway, public transportation systems, subway lines, airports, the St. Lawrence Seaway, funding the universal healthcare system, and the Canadian Pension Plan.
The effects of King’s decision would last all the way until 1974, when the Trudeau government made the decision to halt the borrowing of money from the Bank of Canada, and instead, choosing to borrow from the private banks at compounded interest.
Bank of Canada – 1974
There are two major explanations why the Trudeau government decided to stop borrowing money from the Bank of Canada, and instead choosing to borrow from the private banks.
These include:
- Popular Public Opinion by Canadians, of the Crisis in the mid-1970s
- International Basel Committee’s Recommendations
In the first explanation, the public in the mid-1970s Canada was facing an oil crisis along with many of the other nations in the west.
The public misattributed the economic effects of stagflation as having been created out of the Bank of Canada. This stagflation had little to do with the Bank of Canada and more to do with the rising prices of energy as well as the stagnation of wages.
In fact, the energy crisis that gripped Canada’s economy had much to do with the Oil and Petroleum Exporting Countries (OPEC) oil embargo. The OPEC’s oil embargo resulted in the quadrupling in the price of oil and the cost of this increase required Canadians to spend more of their income on energy.
The rise in oil prices had also been accompanied by an increase in the unemployment rate as new and existing workers were seeking more jobs to pay for the increase in the price of goods. The increase in unemployment naturally drove down the cost of wages since competition in the labour market was fierce.
In addressing the second explanation, the government borrowed from private banks based on the recommendations of the Basel Committee. The Basel Committee is an international think-tank type of organization that is composed of the central bank governors of the G-10 countries.
A prime objective of the Basel Committee had been to maintain monetary and financial stability. To achieve this goal, the Committee had discouraged governments from borrowing money from their respective central bank and instead, encouraged governments to borrow money from the private banks.
The Committee’s rationale had been that borrowing money from the central banks would create inflationary pressures and cause the value of the currency to drop.
Previous finance minister Paul Martin has agreed with the Basel Committee’s view of the Bank of Canada as a cause of inflation. During an interview in the documentary movie Oh Canada: Our Bought and Sold Out Land! Paul Martin claimed that printing interest-free money would “drive inflation through the roof”.
Regardless of which explanation is used, we can see clearly that Canada’s net debt rose significantly beginning in 1974.
It was at this time that the Government had borrowed from private banks. The growth of Canada’s national debt is indicated below.
From the graph, one can see that after 1975, Canadian federal debt grew for the next 12 years at more than 20 percent per year. Currently, Canada’s national debt stands over $1.1 trillion and taxpayers are forced to pay over $30 billion in interest on the debt every year.
Thus as one can see, the private banking system has been a prime facilitator in the indebtedness Canada is currently in.
Conclusion
It is inevitable, based on how the money system operates as indicated in Part 2 of the series, that more and more money will have to be spent to pay the interest of the net debt.
This leads to a situation where governments have less money to spend on education, infrastructure, and social programs and as a result, leads them to implement ineffective tax cuts and austerity measures in order to save money.
To address Canada’s economic health, many prominent academics have begun to speak up on the issue calling for monetary reform. We address these leaders in part 4.
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Historical Content - Canada’s Deregulated Financial Industry Part 2
Pillar System
Biggest Regulatory Changes
1957 – THE FEDERAL GOVT PASSED LEGISLATION THAT FACILITATED THE CONVERSION OF THE LARGEST STOCK LIFE INSURANCE COMPANIES INTO MUTUAL COMPANIES OWNED BY THEIR POLICY HOLDERS. A NUMBER OF MAJOR FIRMS INCLUDING CANADA LIFE, MANULIFE, AND SUN LIFE, TOOK THIS ROUTE WHICH PROVIDED PROTECTION AGAINST FOREIGN TAKEOVER.
1964 – FINANCE MINISTER WALTER GORDON ANNOUNCED MEASURES TO PROTECT DOMESTIC FINANCIAL FIRMS, INCLUDING BANKS, LIFE INSURANCE COMPANIES, AND TRUSTS FROM FOREIGN TAKEOVER.
1967 – THE INTEREST RATE CEILING ON CHARTERED BANKS WAS REMOVED. IN ADDITION, CHARTERED BANKS WERE PERMITTED TO PROVIDE CONVENTIONAL MORTGAGES AND LOANS. ALSO, REVISIONS WERE INTRODUCED TO THE BANK ACT PROHIBITING FOREIGN BANKS FROM OPERATING BRANCHES OR SUBSIDIARIES IN CANADA.
1980 – AMENDMENTS WERE INTRODUCED TO BRING FOREIGN-OWNED BANKS UNDER FEDERAL REGULATORY CONTROL. PREVIOUSLY, FOREIGN OWNED BANKS WERE PROVINCIALLY REGULATED, AND IT WAS HOPED THAT PLACING ALL BANKS UNDER THE SAME REGULATORY REGIME WOULD “LEVEL THE PLAYING FIELD” AMOUNG BANKING INSTITUTIONS.
1984 – THE ‘CEILING’ LIMIT ON SIZE OF THE TOTAL FOREIGN BANKING SECTOR WAS RAISED TO 16% FROM 8%
1987 – BANKS WERE PERMITTED TO OWN BROKERAGE FIRMS AS SUBSIDIARIES
1992 – AMENDMENTS TO BANK ACT ENDED THE CONCEPT OF FOUR FINANCIAL ‘PILLARS’. UNDER THESE AMENDMENTS, CHARTERED BANKS AND TRUST COMPANIES WERE GIVEN PERMISSION TO OWN AND ESTABLISH SUBSIDIARIES ENGAGED IN SECURITIES. A NUMBER OF INTER-PILLAR OWNERSHIP RESTRICTIONS WERE ELIMINATED. BANKS AND INSURANCE COMPANIES WERE ALSO ALLOWED TO OWN TRUST COMPANIES, AND BANK AND TRUST COMPANIES WERE PERMITTED TO OWN INSURANCE COMPANIES, THOUGH THEY WERE RESTRICTED FROM MARKETING INSURANCE THROUGH THEIR BRANCH NETWORKS. WIDELY HELD FINANCIAL INSTITUTIONS, INCLUDING INSURANCE COMPANIES, WOULD ALSO BE PERMITTED TO ESTABLISH A BANK.
Deregulation
The Banking Empire Deregulation of Canada's Financial Industry Part 3
Diversification
Thus, financial claims demonstrated real authority on their owners. Stockholders demanded receiving higher profits, and this kept corporations downsizing and outsourcing operations even during the best of times. Bond holders also pressured state and local governments to trim their budgets, and bankers and bondholders, along with global state institutions such as the IMF, forced severe economic restructuring on debtor countries.
The Proposal for Mergers
1998 – FOUR CANADIAN BANKS HAD PROPOSED A MERGER.
The report concluded (just as many before it), that there was no persuasive evidence that consumer choice and access to banking services would be enhanced by large bank mergers and no evidence that the cost of banking services wold be reduced under a bank merger. The report argued that in the public review that was done, there was little representation from the public or consumers, to the legislative committees that were tasked with this public review. Rather, there was significant representation and input by banks.
You merge for only one reason, in my view. There is one overwhelming reason that can be given to the Canadian people, which is the overall scale of our equity base. Why do you need the size? It is to grow and expand outside of Canada faster.
Bank mergers are about raising prices and reducing service to the public and concentrating economic power in the hands of the few.
So what did we find in 1998? We found that the barriers to entry or expansion were high. There is a need for a large branch network. They represent large sunk investments. Customer inertia is high. Market share does not change very much except by acquisition. The banks built up significant brand names through decades of advertising, which was reinforced by large numbers of branches throughout the country. Technology is an important factor here, but we found that in some ways it was more of a complement than a substitute, and in some ways it can actually make changing banks a little more difficult…In terms of the effect of competition, at that time, given the four merging banks, what you had left was the Bank of Nova Scotia and some regional niche players, which were important to some parts of the country but not all. Foreign competition for the products we were most concerned about, personal banking and SME (Small and Medium sized Enterprises) products, was minimal.Obviously there was also the removal of two vigorous and effective competitors
Increasing Financial Competition
Banks Prudently Regulated to Teeth - Deregulation of Canada's Financial Industry Part 4
Banks Prudently Regulated to Teeth – Deregulation of Canada’s Financial Industry Part 4
- meeting global competition,
- ensuring safety and stability in the system, and
- meeting its social obligations (as defined by the government).
- Legislated privacy regime that will assure consumer protection of sensitive personal information
- Stronger and broader ban on coercive tied selling than now exists
- Better assurance of access to basic banking services for low-income Canadians
- A regime for financial institutions to issue regular Community Accountability Statements that discuss contributions to the community and identify emerging community needs
- New powers for credit unions and credit union centrals to make them more effective, including the power to become or form cooperative banks,
- Integration of deposit insurance for banks and compensation plans for life insurance companies, to reduce the competitive advantage that banks now enjoy
- Strengthening the Office of the Superintendent of Financial Institution’s (OSFI) governance structure and reducing regulatory overlap by transferring the regulatory responsibilities of the Canada Deposit Insurance Corporation (CDIC) to OSFI
- Public Interest Review Process for large mergers, with a Public Interest Impact Asssessment that examines the public interest costs and benefits, and legislated power for the Minister of Finance to accept enforceable undertakings from merger proponents with severe sanctions for non-compliance
- Stage 1 – Examination of the Proposal. The first stage of this process commences with the submission of a written application for permission to merge. The application is to be accompanied by a comprehensive Public Interest Impact Assessment (“PIIA”) prepared by the applicants. Among other things, the Guidelines require the applicants to address the rather toxic issues of job losses, branch closures and access to credit for small and medium-sized businesses.
- Stage 2 – Minister of Finance Decision. After stage 1, initial reviews of the merger application and the PIIA are then carried out by the Competition Bureau, OSFI, the House of Commons Standing Committee on Finance and the Standing Senate Committee on Banking, Trade and Commerce, with the latter two bodies expected to hold public hearings on the merger application. The results of these various reviews are then communicated to the Minister of Finance for the second stage of the process, which the Guidelines describe as follows: “Using the reports of the Competition Bureau, OSFI, the Finance Committee and the Senate Committee as inputs, the Minister of Finance will render a decision on whether the public interest, prudential and competition concerns are capable of being addressed. If not, the transaction will be denied and the process stopped at this stage.”
- Stage 3 – Negotiation of Remedies. The third stage, if ever reached, consists of negotiations on any steps required by the Competition Bureau, OSFI and the Minister of Finance to remedy specific problems created by the proposed merger.
Testimonies from Both Sides of the Divide- Deregulation of Canada's Financial Industry Part 5
Testimonies from Both Sides of the Divide- Deregulation of Canada’s Financial Industry Part 5
We then tend to try to look at whether the quality of the risk mitigants, the risk control systems, the capital levels, the reserving levels are appropriate for the kind of inherent risks in the activities, and a balance of those two, so that the net risk, if you will, is manageable from the point of view of the overall safety and soundness of the institution. Clearly, for example, there are lot of cases in which expansion of geographic scope can actually reduce risk because it diversifies risk. There are other examples in which expansion of scope can lead to control problems if not managed appropriately and lead to surprises that have occurred, and there is experience of that internationally.
- competition policy issues, [by the Competition Bureau]
- prudential issues, and [by the Office of the Superintendent of Financial Institutions]
- stewardship issues (the Task Force calls these latter issues “public interest” issues). [by the Finance Minister]
The Life Insurance Industry and Banks Woes – Deregulation of Canada’s Financial Industry Part 6
The Life Insurance Industry and Banks Woes – Deregulation of Canada’s Financial Industry Part 6
The Life Insurance Industry and Banks Woes – Deregulation of Canada’s Financial Industry Part 6
From a competition policy perspective, competition should act as the fundamental driving force of our economy. Competition within markets provides a much better vehicle than regulation for creating the incentives that encourage the development of new products, services and the methods of delivery to consumers. Competitive market forces drive the prices of goods and services toward their relative costs of production. This minimizes the misallocation of resources in the economy which in turn enhances economic welfare. This is not to say that market intervention and regulatory oversight is not sometimes warranted. In some instances, market forces alone cannot be relied upon to meet public policy objectives. And, in these instances, the reality is that achieving these public policy objectives may come at the expense of competition.
While the life insurance market used to be quite fragmented, with well over 100 companies operating in the marketplace, it’s not evolving quickly towards an oligopoly, like the banking sector.
For the Canadian banks, the dominant form of securitization in the country was asset-backed commercial paper (ABCP), which emerged only in the late 1990s, but was worth $63.7 billion at the end of 2002.
Outward Expansion – Deregulation of Canada’s Financial Industry Part 7
Outward Expansion – Deregulation of Canada’s Financial Industry Part 7
A sunset clause was introduced in revisions of the Bank Act requiring the re-evaluation of regulations every 10 years. This clause has reflected the Government’s recognition of banking as a dynamic industry with very quick changes, thus the government has been committed to act accordingly.
in the 90s’, the banks became so eager for short-term profit that there was a race to the bottom. Each bank knew that its competitors were engaging in similar practices, and if it didn’t compete, it would be left behind; and each banking officer knew what that meant: smaller bonuses, perhaps even being fired…The banks must surely have known that when the bubble burst, many of the loans that they had made would fail. Thus the banks’ loan portfolios depended on keeping the stock market bubble going.
In the US, there were meltdowns and scandals in the North American telecommunications and energy sectors that hit TD and CIBC.
Risky Mortgages – Deregulation of Canada’s Financial Market – Part 8
Risky Mortgages – Deregulation of Canada’s Financial Market – Part 8
allow new players entering the mortgage insurance market to gain access to that facility, and will be increasing the amount of business that can be covered under the Government’s authority from 100$ billion to 200$ billion in order to keep pace with the increase in housing prices and the growth in the mortgage market. These changes will result in greater choice and innovation in the market for mortgage insurance, benefiting consumers and promoting home ownership
There was a lack of regulation around the expansion of increased risk.
You hear all the usual excuses: ‘It’s a cash-flow management tool, people will pay off their mortgage ahead of time.’ But in reality it just becomes a mechanism for borrowing more than you probably should have.
An important change mentioned in the 2006 budget was when Finance Minister Flaherty announced that not only would Ottawa guarantee the business of U.S. insurers, but that it would double the guarantee to 200$ billion, up from $100 billion. This would mean that if there were an event where the mortgage insurers faced a liquidity crisis, the Canadian Government would have double the allocated Government capital to assist them, directly from taxpayer funds.
- On February 25, 2006 the CMHC kicked things off when they announced intentions to offer homeowner mortgage loans amortized up to 30 years as part of a pilot project to improve access to home ownership and choice for Canadians as part of a ‘pilot’ project, intended to last 4 months.
- On March 16, 2006 Genworth had also announced that they would be raising amortization periods from 25 year periods to 30 and 35 year periods.
- On June 28, 2006 the CMHC was Canada’s first mortgage loan insurer to eliminate homeowner high ratio mortgage insurance application fees. The 35 year amortization was also offered as a mortgage product.
- On October 23, 2006 Genworth had announced that it would insure mortgages with amortizations up to 40 years
- Effective as of December 15, 2006 the CMHC had extended amortization periods available up to 40 years