Global Research, May 30, 2012
The youtube video of 12 year old Victoria Grant speaking at the Public Banking in America conference last month has gone viral, topping a million views on various websites.
Monetary reform—the contention that governments, not banks, should create and lend a nation’s money—has rarely even made the news, so this is a first. Either the times they are a-changin’, or Victoria managed to frame the message in a way that was so simple and clear that even a child could understand it.
Basically, her message was that banks create money “out of thin air” and lend it to people and governments at interest. If governments borrowed from their own banks, they could keep the interest and save a lot of money for the taxpayers.
She said her own country of Canada actually did this, from 1939 to 1974. During that time, the government’s debt was low and sustainable, and it funded all sorts of remarkable things. Only when the government switched to borrowing privately did it acquire a crippling national debt.
Borrowing privately means selling bonds at market rates of interest (which in Canada quickly shot up to 22%), and the money for these bonds is ultimately created by private banks. For the latter point, Victoria quoted Graham Towers, head of the Bank of Canada for the first twenty years of its history. He said:
Towers was asked, “Will you tell me why a government with power to create money, should give that power away to a private monopoly, and then borrow that which parliament can create itself, back at interest, to the point of national bankruptcy?” He replied, “If Parliament wants to change the form of operating the banking system, then certainly that is within the power of Parliament.”
In other words, said Victoria, “If the Canadian government needs money, they can borrow it directly from the Bank of Canada. The people would then pay fair taxes to repay the Bank of Canada. This tax money would in turn get injected back into the economic infrastructure and the debt would be wiped out. Canadians would again prosper with real money as the foundation of our economic structure and not debt money. Regarding the debt money owed to the private banks such as the Royal Bank, we would simply have the Bank of Canada print the money owing, hand it over to the private banks, and then clear the debt to the Bank of Canada.”
Problem solved; case closed.
But critics said, “Not so fast.” Victoria might be charming, but she was naïve.
One critic was William Watson, writing in the Canadian newspaper The National Post in an article titled “No, Victoria, There Is No Money Monster.” Interestingly, he did not deny Victoria’s contention that “When you take out a mortgage, the bank creates the money by clicking on a key and generating ‘fake money out of thin air.’” Watson acknowledged:
What he disputed was that the Canadian government’s monster debt was the result of paying high interest rates to banks. Rather, he said:
That contention is countered, however, by the Canadian government’s own Auditor General (the nation’s top accountant, who reviews the government’s books). In 1993, the Auditor General noted in his annual report:
In other words, 91% of the debt consists of compounded interest charges. Subtract those and the government would have a debt of only C$37 billion, very low and sustainable, just as it was before 1974.
Mr. Watson’s final argument was that borrowing from the government’s own bank would be inflationary. He wrote:
Let’s see. The government can borrow money that ultimately comes from private banks, which admittedly create it out of thin air, and soak the taxpayers for a whopping interest bill; or it can borrow from its own bank, which also creates the money out of thin air, and avoid the interest.
Even a 12 year old can see how this argument is going to come out.
Ellen Brown is a frequent contributor to Global Research.