Christmas in the Senate

 The Government of Canada presented its Throne Speech today --- about an hour of trying to buy most people’s votes it seems to me. It was like an extended gift opening on Christmas morning. Something for everyone ….. all bought on credit. You can look up the details.

I agree with the Conservative observation, reflecting the comments of the Premier of Quebec, that the federal government is stepping into Provincial jurisdiction. My observation has been that the Liberals do not pay much attention to the constitutional separation of powers. They seem to think they know how to run people’s lives better than the individuals do, and it is reflected into their forays into health care and education.

I do not agree with the Conservative objection that the country will be saddled with debt that will be borne by future generations. The give-aways are funded by borrowed money, but mainly borrowed from the Bank of Canada. It works something like this. The Government issues a debt instrument to the Bank of Canada in exchange for cash. Cash is a liability of the Bank of Canada. So the Government debits Cash and credits Due to Bank of Canada, while the Bank of Canada debits Government Bonds and credits Cash outstanding (a payable). The Cash in the hands of the Government is liquid, and it gets spent. The entry ends up being debit Deficit and credit Cash. The final result is Government accounts that have a debit Deficit balance and a credit Due to Bank of Canada balance. Debt for the next generation? No. What it does is make the Canadian dollar worth less. It is not the future generations paying for the goodies; it’s the holders of Canadian dollars. But since other countries are essentially doing similar things, the Canadian dollar likely will not lose much ground against most major currencies. Where it will lose ground is in terms of how much of various commodities, goods and services it can buy.

If we get into negative interest rates, which will make it easy to handle such foreign debt as we do have, the velocity of money will increase quickly and we will likely have a major price inflation as people spend, spend, spend. The loss in purchasing power of the Canadian dollar could likely be more than mitigated if the country did away with all income tax at every level and funded government solely through the creation of money, sales tax, and fees for services. I suspect the economy would be vigorous as companies moved here and the production of goods and services increased. The retention of income taxes combined with massive amounts of new money and very low, and even negative, interest rates is likely the road to an inflationary depression.