Global Finance: Dismantle or Reform?
Produced by Kirsten Garrett
ON-AIR PROMO: The bad news is that many economic soothsayers are saying that modern wall street capitalism has serious, inescapable problems. The good news is that, for reasons that defy economic logic, stockmarkets seem to know no bounds, and everyone can be an entrepreneur. Billions, overnight!
Can it last? Here one man’s view, a Canadian, the Hon. Paul Hellyer, on…
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Kirsten Garrett: News on the world economy is in a yo-yo state of good news/bad news. Wall Street goes through the roof, but Mr Yen, the Japanese economics guru, says that global capitalism could collapse because of deep structural flaws. Business confidence is up, but the economists are nervous.
Today on Background Briefing, you’ll hear a view on modern capitalism and economics from an ex-politician. The Honourable Paul Hellyer, from Canada, discusses, at a conference in Australia, where money comes from, and what he sees as the underlying forces in the economics of western capitalism. He says that all the loans being made around the world by the IMF for example, are an attempt to maintain the illusion that all is well, when in fact, he says, it is not.
Hello, I’m Kirsten Garrett.
Paul Hellyer was Canada’s youngest Cabinet Minister when appointed in 1957. He was for a time, Deputy Prime Minister of Canada. And now he is the leader of a movement called the Canadian Action Party, which is dedicated to the concept of full employment and zero inflation and quality of life issues.
Paul Hellyer: There’s something very wrong in the world, I sense it here as I sensed it at home, and there is an underlying fear and uncertainty which is not characteristic of my earlier years, which didn’t exist at that time. There are not enough good jobs to go around; people are being displaced by machines at an ever-increasing rate. Your unemployment has just dropped below 8% for the first time in quite a while. In Canada we just dropped below 8%.
I come from a generation who consider that a national disgrace, and I don’t buy Professor Friedman’s hocus pocus of natural rates of unemployment and all of this sort of thing. You either have high unemployment or low unemployment, and we’ve had high unemployment for too long. And not only do we have unemployment of statistically around 8%, real unemployment probably 11% or 12% in our two countries, but there are 350-million people unemployed worldwide. Another statistic I’ve seen is a billion people either unemployed or under-employed, and that too, I consider in this case, a global tragedy.
Health care I understand is coming under some threat in your country. It certainly is in our country. We had a wonderful system, one of the best in the world, now the queues are long, the emergency rooms are closed, ambulances go from hospital to hospital looking for somewhere to leave their patients, and even from the city of Toronto, in which there are dozens of hospitals, they couldn’t find a room for a pregnant woman recently and had to fly her to Windsor, 2-and-a-half-hours by air away, to get a room for her. And you must say to yourself as I say to myself, there is something desperately wrong when that is the case.
Universal access to education is being cut back. You have had until very recently, I understand, free education at the university level, and I feel very strongly about this because I enjoyed that as a veteran of World War II, and my colleagues at that time, huge graduating classes, I think contributed mightily to the development of our country. And now, young people in Canada (and I think you can almost foresee what will happen here in due course unless there is a change) are graduating with debts to banks, ranging from $35,000 to $65,000. And one recently, bless her heart, went to the bank and tried to get it renegotiated and they wouldn’t. She said, ‘Well I’ll pay you, but my job doesn’t pay me enough to pay you at the rate that you want. I’ll pay you if you’ll just renegotiate the terms of the loan.’ ‘No.’ She went to the government, they wouldn’t help. So she went to the courts because the government had passed a law which said that students couldn’t get a total discharge of their debts if they went bankrupt. But they’re the only class of citizens who can’t. And so under our Constitution, the Bill of Rights, where everyone is allegedly treated equally, she is now challenging that and saying, ‘Well, you’re treating students differently than you are other citizens, and therefore I’m going to take you to court and have this decided.’
So these things are happening worldwide. Restricted recession in South East Asia, recession in Brazil. If you look at the statistics where they cut back an output in South East Asia, it is enough to break your heart, just calamitous. Fear of recession worldwide, and then the Bulls and Bears are fighting it out on the stockmarket. You all know what the Bulls and the Bears are: the Bulls are the ones who are pushing this way, and the Bears are the ones that are pushing this way, and some days the Bulls are stronger than the Bears, and some days vice versa, and it depends whether you play the stockmarket or not, whether you care or not. Most of the people in the world don’t, some people have a few dollars invested and are quite concerned as to what might happen.
But there has to be a reason for all this: And the reason is neo-classical monetarist economics. It is he product of Nobel Laureate Milton Friedman, and his colleagues at the University of Chicago. Milton Friedman mis-read the cause of the inflation of the late ’60s and early ’70s. He came to the conclusion that there was only one kind of inflation, classic inflation: too much money chasing too few goods and consequently had to be treated on that basis. If he had checked his data more thoroughly, he would have found that the inflation of those years was primarily , (and I say ‘primarily’ because it’s probably in the range of about 80%) cost-push inflation. In fact wages rising out of sync with output, with productivity. And that started in different countries at different times for different reasons, but it really got going in the second half of the ’60s and on into the ’70s and became a problem which had to be treated, but by means other than those recommended by Dr Friedman and his colleagues.
So they decided, because they thought it was a monetary phenomenon, which it wasn’t, that the way to cure it was to crack down on the monetary system to tighten money and raise interest rates. And they had a little go at it in 1974-75, and they brought on a little recession, at least in our part of the world. And then in 1980-81, Paul Volker, who was at that time the Chairman of the Federal Reserve Board in Washington, and who had become a disciple of Dr Friedman, said, ‘We will put this to the test’. And so he brought on a horrendous recession which was virtually world-wide. And million of people lost their jobs, hundreds of thousands of people lost their houses because they couldn’t pay the high interest rates on their mortgages. Thousands of farmers lost their farms after four or five generations in the family, and thousands of businesses, including a lot of struggling businesses, went bankrupt.
Well of course, what happened? Government revenues fell, because people weren’t paying taxes; huge deficits were created, those deficits were rolled over into debt and then compounded at very high interest rates. And your debt problem, worldwide, can really be traced to 1981, and that recession. That’s when it began. Before that, (and this may sound a little technical) but the debt to GDP ratio just the total debt related to the output of the world and most countries, was flat, because economies were growing as fast as the debt. And as long as they grew at the same rate, it didn’t become a problem. Then all of a sudden, with slower growth in the economies, and faster growth in the debt, the debt to GDP ratio took off, and headed skyward.
Well, not only was there social devastation, but as I’ve said, this was the origin of the debt. I’ve had a little difficulty getting the figure for Australia, but I’ve got one here and you can correct me later. Let’s say is it around $200-billion? $230? Close enough. The United States, $5-and-a-half-trillion, which is a lot if you say it fast. In Canada, it’s only $600-billion in all. But I keep telling my friends, if it were just the Federal debt that you’re talking about, that’s one thing, the $600-billion, but our total debt in Canada is $1.8-trillion, and that is the Federal, Provincial (the equivalent of your State) Municipal, personal and corporate debt is $1.8-trillion. And that is about 225% of our Gross Domestic Product. And the interest rate on that is higher than the growth rate of the economy, so you don’t need a PhD in Economics to know that if you owe 2-and-a-quarter times what you earn, and the interest rate on what you owe is about double your average increase in salary year to year, you’ve got a problem, and that is the problem that most western countries have around the world.
Well, this problem was not limited of course to the First World, but very much became a factor in the under-developed world. And that is where the Third World debt problem really began. I haven’t got time to go back into the recycling of petro-dollars and all of that sort of thing, but Third World was borrowing money, and it became so lucrative, that the big US banks decided they wanted to get in on it, so they started lending more and more money to the Third World and at one time their profits in the big New York banks were as high as 60% of their total profits, came from lending money to Third World countries.
Well they were getting by until 1981 and the interest rates went up. So all of a sudden, they couldn’t pay the interest on the money that they had borrowed. So what had to be done? Well they were about to default on their loans and they were about to become non-performing. Then Mr Volker, having created the problem, never having admitted it, but having created the problem, got the bankers together in a small room, twisted their arms real hard and said, ‘You make new loans so that they can use those new loans to pay the interest on their old loans until I can get the IMF to come riding to the rescue.’ And that’s exactly what happened. And that’s when the IMF started taking on its new role, and that’s set the precedent for all of the things that have gone wrong in that department since, and created the moral hazard of big international banks making loans that they know they can never get back, but counting on the IMF using taxpayers’ money, our money, riding to the rescues not of the countries that are under siege, but to bail out the international banks.
So this worked successfully at the time. They tried it later again in Mexico, as you know, and then South East Asia, taking billions of taxpayers money, and using it to bail out international financial institutions. And of course when the IMF ran out of money, they got the World Bank in on the deal too, and they started making loans. They used to make loans for development, but then they started making structural adjustment loans in order to give countries the money that paid the interest on their external debt.
But then they attached conditions. And what they started to say to these countries was, ‘We will lend you money to keep you solvent, but we want you to run your countries our way, and we want you to cut back on your health care, and we want you to cut back on your educational expenditures, and we want you to balance your budgets, and we want you to lower your borders to imports, to reduce the tariffs and allow external imports, and we want you to agree that foreigners can buy your assets, and we want you to do all these things as conditions of the loans. So in effect, they were saying, ‘We’re going to impose the Anglo-Saxon model, economic model, on the rest of the world.’ And what I call it is the Sovietisation of the South, because what they were doing was the same kind of thing that the Soviet Union had done from the Kremlin. And I remember talking to a friend who was quite knowledgeable in these things, and he said, ‘You know, they used to decide in the Kremlin how much jam, how much peanut butter and how much marmalade, would be sent to every restaurant in the Soviet Union.’ No thought of the fact that in some parts of the Soviet Union, they might prefer peanut butter over marmalade and others it might be the other way around. So they had peanut butter going rancid and shortages in some parts of the country because the decisions were made by people who were not knowledgeable of the circumstances in the various areas. And this is exactly what the IMF and the World Bank have done, they have been interfering in other people’s affairs and making decisions about thing of which they new nothing basically. And they have, in effect, just taken the Soviet kind of system and imposed it on the Third World.
Well, when I wrote ‘The Evil Empire’ a couple of years ago and started out to promote it, my first stop was Halifax, which is our eastern city on the Atlantic coast, and at the end of the day I took a cab to the airport and I got in the front seat for some reason, I don’t usually do that, and the driver asked me why I was there and I told him, and he said, ‘Colonisation.’ And I hadn’t thought of it that way, but that’s exactly what it is and what’s been going on. And it’s ironic, because at the end of the Second World War, it was the United States which pressured European countries to give freedom to their colonies. But here, you have now seen a degree of colonisation, re-colonisation, which was previously thought unthinkable. And all part of the pattern. And the difference this time, as I think the Reverend Jesse Jackson has said, instead of using gunboats and bombs they used bonds and bank loans, with the same effect. And in fact with less consideration of the people than the old imperial empires had for them.
Well it’s all part of globalisation and globalisation is really a code name for corporatisation. I think we have to point that out to people because globalisation is so glib and it sounds so easy and so inevitable, but if we expose it as corporatisation, which it really is, then people begin to understand what is going on. It’s an attempt on the part of the largest corporations in the world and the largest banks in the world to re-engineer the world in such a way that they won’t have to pay decent wages to their employees and they won’t have to pay taxes to fix potholes and to maintain parks and to pay pensions to the old and the handicapped. And that is what globalisation is basically all about.
And you’re seeing the big transnational corporations attempting and succeeding, and turning the social clock back 100 years to Dickensian times, and they’re paying starvation wages in many Third World countries, no benefits, women working up to 13 hours a day, 7 days a week; if they get sick they’re out, if they get pregnant, they’re out. No holidays with pay, no pensions when they retire, nothing. In other words, 100 years of social progress by legislation and unionisation down the sink by going around this globalisation route. And if you want to understand the process and the aim of the game, that in fact in a broad way is the name of the game. So we’re being told that it’s the road to Nirvana, that it’s inevitable and just to relax and enjoy it. But it is just the opposite, in fact.
It is also – and this is an important part of understanding a globalisation process – it is an effort on the part of the five most powerful countries in the world, to prevent any other countries from developing industries to compete with them.
Interestingly enough, every one of the five became great industrial powers by erecting tariff barriers, but now that they have that power, they say, ‘Oh no, no-one else can do that, that’s retrograde, that’s -‘ you know, they call it all sorts of names because it’s not in their interest. And what they are saying to the rest of the world, all small countries including Canada and Australia, is ‘If you get an industry that becomes big enough to become a threat to us, we will buy it and either shut it down or make it part of our empire. And that way you will never be able to compete with us on an equal footing.’ And these treaties that they have been negotiating, are all part of that, and I’ll talk about those in a minute.
Kirsten Garrett: You’re listening to the Honourable Paul Hellyer. He was Deputy Prime Minister of Canada many years ago and is now leader of the movement, Canadian Action.
Paul Hellyer: Well then you go back and sort of look at some of the big corporations in the United States and elsewhere, and they’re earning returns of 10% to 15% a year, have been for a number of years, partly, maybe largely on the basis of buying up other companies. And this enhances their shareholder value and of course part of the process is going lean and mean, as they call it, which means laying off a lot of people that had worked for one of the companies for 20 or 30 or 40 years and dumping them out in order to pay back their debt and try and get a decent return on their investment. And they’ve been gobbling up other companies at such a rate that they’re running out of them. And so the big fish have been eating the small fish, but eventually there are not enough small fish left, and the only thing to do is start fishing in somebody else’s pool.
And that’s where Canada came in, and I’d like to mention this because you’re kind of next on the line down there. We negotiated a Free Trade Agreement with the United States, and I was naive enough, (I’m not the most naive person in the world I don’t think) but I was naive enough to think it was a Free Trade Agreement. I mean after all, that’s what it said, FTA, Free Trade Agreement. So a couple of years later I read it, highly recommend it, get the document whatever it is, and read it. I read it, and I got through and I said, ‘This isn’t a trade agreement at all.’ I mean, reducing tariffs over ten years, sure that’s one thing. It was largely to the United States’ advantage because our tariffs were higher than theirs at the time so they had net advantage there. But what it was all about was investment, and they wanted to be able to get our resources and our industries and that is what it was all about. And they put in what is called the National Standing Clause, (and beware of the National Standing Clause) which gives American corporations the same rights in Canada as Canadian citizens. And so in effect they can invest, without conditions, you can’t say to them, ‘You have to hire Canadians, you have to export a certain amount of your product, or you have to leave the technology if you leave the country’ or any of these things. No conditions and no limits. So we can’t say to them, ‘You know, you can’t buy more than 50% of our forests’ because the treaty says they can buy them all. And we can’t say to them, ‘You can’t buy more than 80% of our oil and gas business’ because the treaty says they can buy them all. And we can’t say to them ‘You can’t buy more than 20% of the farms in Elgin county or Southern Manitoba’ because the treaty says they can buy them all. Which is, in effect, what they’re in the process of doing. And under the treaty, you can’t stop it.
Well then, that worked so successfully that they decided to roll it over in NAFTA and get Mexico involved. So that worked well, and then they decided, ‘Well let’s do this with the whole world’, and they tried to do it under the World Trade Organisation and it was called the MIA at that time, and don’t let it bother you whether it’s the MAI or the MIA, it is all the same thing. And some countries bought; India and others said, ‘We don’t want to give up our sovereignty to that extent’. And so they decided instead to go for the richest 29 countries of the world, the Organisation for Economic and Co-operation Development, the OECD. So they started to negotiate a treaty there which was even worse than NAFTA, and which in effect robs nation states of their sovereignty to an extent you wouldn’t believe. And they almost got away with it, but thanks to someone who leaked a copy of the draft, and to the Internet, again some of us got a look at it.
Now of course, what they’re trying to do is to move it to the World Trade Organisation, and the next round of trade negotiations for the year 2000. Also they’re trying to put it in the free trade of the Americas. They’ll put it in everything they can get it in, because this is part of their plan of running the whole globe their way.
And I tell my folks at home, unless we abrogate both the Free Trade Agreement and NAFTA soon, and get that National Standing Clause out, re-negotiate treaties on trade, not investment, Canada will cease to exist as an independent country within a few years and it won’t take very long. We’ll become the 51st State. And some Canadians wouldn’t care, but I think the majority still do, and I certainly do, and I want my grandchildren to have the same choice that I had. I went to school in the States, but I chose to go back and live in Canada, and I would like them to have the same choice as they grow up.
So it’s an overriding problem, and I just note here that Australia’s external debt, which is really the thing that happens when you start letting other people buy all of your assets, that your external debt has gone up from 3.1% in 1976 to 38.2% I guess that’s supposed to be 1994, it’s a typo here. Which means you have no reason to be complacent, because the higher level of foreign ownership you get, the more profits flow out of the country and the more difficulty you have trying to earn enough through exports to pay, and eventually someone else winds up owning you.
Well what transnationals want, of course, is the right to fish in other people’s pools and without any obligations in return. I’m told by someone very knowledgeable that in Australia they’re not paying taxes in Australia, they’re paying taxes offshore, and this is one of the benefits that they are looking for. And what we’re seeing of course is the death of democracy, in the sense that you can no longer run your own country in the interests of your own people, which is presumably what it was all about.
An interesting little thing in my book which gives you some insight into this, and I quoted American because I was talking about the United States and I thought it would be better coming from him than from me. He says there are two governments in the United States: I’ve learned from talking to a couple of old friends here in Australia, that maybe you have two governments here too. We have two in Canada. In the United States, the permanent government is the Fortune 500 list of companies, the largest law firms and public relations firms in Washington and the senior bureaucrats, both civil and military. And they are the permanent government. And every four years they have what they call an election, and they elect the provisional government. And it doesn’t really matter very much the way things work out who the provisional government is. You elect a provisional government, they come on stage and they read the script written by the permanent government.
I don’t know if any of you ever see that television series from England, ‘Yes Minister’, well you’ve got a pretty good idea of how the system works, and I could spend a whole hour telling you about some personal experiences that would curl your hair. It used to make me so mad, people come up to me and say, ‘Oh, it doesn’t matter whether Conservatives or Liberals get in, they’re all the same, nothing changes.’ And the reason it made me mad was because there was a lot of truth in it. You’d get some good ideas, you’d get elected and then you’d go into a room with the experts, and they’d tell you ‘Now you would never have made that suggestion if you’d known the facts.’ And so they spend the next little while educating you and proving to you that you don’t know what you’re talking about, but they do. And the Governor of the Bank of Canada, not the present Governor, but the previous one, a Minister in the room, I think 20 experts, charts and graphs on the wall, says, ‘Now Minister, this is what you have to do: you have to raise interest rates and you have to tighten my spine to all these things, and if you don’t, Canada will have a financial crisis such as you have never seen before. The Japanese will dump your bonds and the bottom will fall out of the Canadian dollar and chaos will ensue; and you, Minister, will be responsible.’
Now you’ve got to be a brave person to walk out of that room and say, ‘Well, I don’t agree, and we’re going to go in the opposite direction’, knowing that before you got 30 steps they’d be at the press speaking anonymously, letting the press know what an idiot the Minister was in trying to go against the world trend. And I actually had an experience in this when I was Minister for National Defence. We had a plane called the 104, it was an interceptor, later called the Widowmaker, and we’d bought a bunch of them and when I became Minister the Air Force came roaring in and said they needed 22 more, and I asked them what they needed them for, and they said, ‘Attrition’. I said, ‘What attrition rates did you use?’ They said, ‘Well, American experience.’ And I said, ‘Well what American experience, the American test experience?’ ‘Well, yes’, and I said, ‘Well don’t you get better results after you fly them for a while?’ ‘Well, yes.’ ‘Well how much better?’ They didn’t know. So in those days I was doing all my own staff work. So I took the stuff home and looked at it for a week, came back and they came to see me, and I said, ‘I don’t think you need them.’ And they said, ‘Well Minister, of course it’s your decision. But if the western world should fall as a result of that decision’ – this is the truth – ‘you would expect us to tell the truth as to who made the decision, wouldn’t you?’ And I said, ‘Well, as a matter of fact, I would.’ And the end of the story, very quickly, was my successor, (we had more than we needed even then without the 22) and my successor sold 50 to the West German government because we had a surplus of them. But sometimes you have to know what questions to ask.
Well, another aspect of Dr Friedman’s philosophy was to give the banking system, the private banks, their virtual monopoly on the creation of money. And this is the pre-Depression system. Most of you here know where money comes from. Is there anybody that doesn’t know where money comes from? Hands up. Only two or three. Well, that’s pretty good. I think it’s probably the most informed audience I’ve ever had in these subjects. But when I wrote ‘Funny Money’ which was about three books back, I asked 100 of my friends, doctors, dentists, lawyers, businessmen, publishers, editors-in-chief and financial writers, where money came from. And first of all they were uncomfortable with the question, and when I pushed them gently, ‘Why,’ they said, ‘well the Government prints it.’ And I said, ‘Well how much does the government print?’ And lowest estimate was 60% and the highest was 100%. And I said, ‘Well if that were true, we would have a very, very different system than the one we’ve got.’ In fact governments print very little of the new money and the private banks create most of it. And last year I think in Canada, probably the government only created 1% of the new money and the private banks created 99%.
We allow them to create credit money and for the three or four people who don’t understand how this works, it is when you go to the bank and want a loan, if you want to borrow $30,000 to buy a car or something like that, you have to provide collateral so you have some stocks or bonds or a second mortgage on your house, or a rich mother-in-law, or someone who will co-sign. You give them the collateral, you sign a note at a certain interest rate, they tap their computer and presto, the $30,000 appears in your account. Seconds earlier, that money did not exist, it was created out of thin air, and it’s easy for them to do it and they create billions of dollars every year that way. So when people talk about printing money, the banks print billions of it in the normal course of their business.
The problem is, once they’ve created it, they’ve got to get it back, and that’s what’s gone wrong, well, everywhere, but especially in the Third World. They’ve made loans that there’s just no way they can ever get back. And one of the reasons the world is in such a mess today. We allow the private banks to blow up credit money, like a balloon. The problem is, it gets, like a balloon, it gets so big somebody sticks a pin in it and then it’s like a balloon with a pin stuck in it. And then you have a recession or a depression. And all 45 of the recessions and depressions that we’ve had since the Industrial Revolution, have had a monetary base and they have all, in my opinion, been due to the private banking system, the partial reserve system of banking.
Well, now they’re setting us up for another huge meltdown. When? Who can say? They came within 30 minutes when Paul Volker was there, of having the whole system collapse, and they just turned off their mad machine before the whole thing came down like the house of cards that it really is. It is being postponed now, not solved, but postponed because Michael Camdessus is going around from one country to another with his tin hat and his Santa Claus suit, holding out his cup and collecting money from us to bail out international banks. And a lot of my friends at home don’t realise that they’re paying taxes for that purpose. And a lot of them would be very unhappy if they did know they were paying taxes for that purpose. If and when we get tired of paying taxes for that purpose, then the crash will come. So all we’re doing is not solving a problem, just postponing the inevitable day.
And the problem is I guess, that if and when that happens, millions and millions of people will be hurt worldwide. Again, they’ll lose their jobs, they’ll lose their homes, they’ll lose their cars, they’ll lose their businesses, they’ll lose their hopes, and maybe even some of the rich people who were highly leveraged that particular day, might lose their wealth and do what they did in 1929 and jump off a high bridge or a high building.
And it doesn’t need to happen. And that is the reason the final thought I want to make today is that we have two choices: we’re at a crossroads really. We’re going to keep on going the road we’re on, the globalisation, the corporatisation, unfettered capitalism road which as George Soros says has replaced both communism and fascism as the greatest threat to open societies. Or we’re going to revise the system dramatically and make it work for everyone, and make sure that that doesn’t happen.
And so I was just absolutely delighted when I heard about the Y2K, the Year of the Jubilee initiative. This is, as you know, based on a Biblical precedent, going back to Leviticus when every 50 years, debts were forgiven. We’ve got our system so complicated now that you can’t wipe out all of the debts, it just wouldn’t work. What the Year of the Jubilee initiative is asking for is really a modest debt reduction in the most highly indebted countries of the world, very modest requests really. But the trouble, if we keep the present system, is it will be taxpayers that’ll wind up picking up the bill, and as an old politician, there’s no faster way to get defeated than to go out and say, ‘I’m going to raise taxes so that you can pay off some Third World debt.’ There are a lot of altruistically piqued people, but they’re in the minority, and it just won’t wash, politically.
And so you’re getting these very modest counter-proposals now, the G7 were first talking about $30-billion that they might put up. Now President Clinton has raised the ante to $100-billion, but that is a drop in the bucket. $100-billion isn’t even the interest on the Third World debt for one year. So it doesn’t solve the problem. It doesn’t free them from the bondage of that debt, which is depriving them of any real hope of a decent life. And so it solves nothing. And in my opinion, we can do better. But that means that we have to change the banking system, the way it should have been changed 200 years ago, or 100 years ago, or 50 years ago, or 20 years ago, and do it finally. And I have a chapter in the book called ‘World War III: the banks versus the people’. Interestingly enough, when I wrote that I thought it was unique and original, and then I saw a clip the other day from the Lord High Justice, Chief Lord of the British Court, in the 1890s I think it was, saying the same thing. So there’s really nothing new under the sun. The problem is getting something done about it.
And my proposal is really to increase the cash reserves of the banks. Now this is just the opposite to what you’re doing in Australia at the moment, where you’re reducing them, you’re heading for zero, which is the latest vogue. And to reinstate cash reserve requirements (because in Canada we have already eliminated them, as you are now in the process of doing) and to increase them 1% a month for 50 months. And this in effect is equal to about 50% of the deposits of all of the deposit-taking institutions. I’m talking about world wide. And what this would allow, it would allow the rich countries of the world to pay off the entire $2.2-trillion Third World debt. And when I say pay it off, I mean buy up the obligations, buy up the World Bank bonds, buy up all of those things and cancel them, get rid of them. And still buy up some of our own bonds and cancel them, and reduce our national debts as well.
In Canada, the figures are, for example $600-billion, they could monetise about half of it; the first $100-billion would be our share of the relief of Third World debt and the next $200-billion would be to reduce our own debt, and we would wind up ultimately, because we had spent the first 100 for somebody else’s debt, with $400-billion national debt instead of $600-billion.
The United States would wind up paying a trillion dollars, which would be its fair share of that Third World debt, and still be able to reduce their national debt by enough to reduce their interest charges something like $70-billion a year. And this would provide the fiscal flexibility.
And then the other half of it is of course, that from then on that the money creation business be split 50-50 between governments, call it what you want, government-created money, and bank-created money, so that governments would have the fiscal flexibility to do the things that governments are expected to do, in health care, in education, environmental concerns, whatever. The armed forces, the important things that people expect to be done. And that’s the only way that they’re going to have the fiscal flexibility to do it, otherwise you’re going to have everybody always scraping and saying, ‘Can’t do it, there’s no money.’ This way there is money, you can do the important things and it doesn’t have the same devastating consequences that there would be if you have to raise those funds from taxes directly and to reduce the purchasing power of the population as a result.
So it is a unique opportunity, and one of the reasons I hope we can involve the Year of the Jubilee initiative this year, and I would say to those of you who are monetary reformers, make contact with them. Have seminars, explain how the monetary system works, have them raise their sights. For this is a marvellous opportunity, probably the best one since the Great Depression, of marrying the intellectual aspects of monetary reform and the monetary system, with those of the heart and the soul of people who really care about other people. And I think it’s a godsend in the truest sense of the word, that here those of us who understand how the system works, get together with those who really hope and pray that a miracle will happen in the world, and say ‘Let’s get together and try and understand how this miracle can happen.’ And if we do, and if we then do all of the things which we’ll discuss later about writing our MPs and writing our Prime Ministers and so on, something could happen, and might happen.
And the very last point I wanted to make was that I hope that the United States will recommend this dramatic change, because it’s the moral thing to do, and it is also in their own long-term best interests, because if the present system continues, eventually there’ll be no consumers because everyone will be paid so little, or unemployed that they won’t have anybody to sell their stuff to. And in the end, capitalism would bring on its own destruction. So as John Kenneth Galbraith said, ‘Keynes saved capitalism from itself once, and I think somebody is going to have to do it again.’
If the United States doesn’t do this though, and I have some doubts that they will because of this permanent government which has too much at stake, then I’m suggesting, (and I know this is drastic and radical, but after all these are big stakes we’re talking about) is that the Third World, that Nelson Mandela organise the Third World, to write to the leaders of the G7 and say to them, ‘Now the stakes are high, we all want to come out of this winners, and we expect you to do something by June 1st, in the year 2000, and if you don’t, on that date we will cease paying both interest and principal on our external debt.’
Now that’s power politics.
But I think it’s the only kind of power politics that the people running the world understand. I hate to say that, but I believe it. They have just so much power to push people around the way they want and have been doing it for so long, and will continue to do it as long as they can get away with it, and the only way they’re going to stop is if somebody says, ‘Hey, you did it to us, now it’s payback time, and what we’re suggesting isn’t going to hurt you, it’s going to be in your own long-term best interests as it is in ours. But it’s so important that we’re going to put the gun to your head and say let’s work together to build the kind of world that all of us would like to see and where all of us can prosper and where all of us can realise our dreams, and reach our maximum potential in the millennium to come.’ Thank you.
Kirsten Garrett: That was The Honourable Paul Hellyer, former Deputy Prime Minister of Canada, talking at a conference, ‘Reclaiming Democracy’, in Sydney in April. The speech was followed by questions from the floor.
Arthur Chesterfield-Evans: Arthur Chesterfield-Evans, Australian Democrats. Two questions: firstly, would you not agree that free trade does in fact transfer jobs from wealthy countries to poor countries, and does that not have some beneficial effect? To ask the question with your ratcheting up of the banks, statutory reserve deposit ratios I think we used to call them in Australia, where they have to keep a certain amount of money and they can only lend in relation to the amount of cash they have, rather than an unlimited amount which they create, if that were not done by all banks at the same time, the ones that in fact didn’t do that would have more cash to play with and effectively would make profits that all the others didn’t make, so in other words, is it not true that that concept you have would have to be universal if it were to work at all?
Paul Hellyer: OK. Of course, my business friends say ‘Well when we create jobs we make jeans or dresses or something, in Honduras, or Venezuela, instead of the United States or Canada or Australia, we’re creating jobs in those countries.’ And I say, ‘That is fine, subject to two things: One, that you pay decent wages, living wages, so that the people there are not being totally exploited in the way that I was talking about recently. And the example I was giving, making garments for J.C. Penney and K-Mart and Wal-Mart, at disgusting rates under disgusting conditions, with harassment both physical and sexual, and under those circumstances I think sure, if they’re going to pay decent wages and benefits and help the people of those countries to come up, just fine.’ The other second thing is we have to change the monetary system because then we have to provide new jobs, presumably better jobs, for the people who are displaced in the First World countries and that means changing the monetary system so that the governments have enough money to finance new environmental projects and new research projects, and new equipment for their armed forces, and free education for their people and better health care and all the other things, to provide good jobs for the people who are displaced by the displacement of jobs to other countries.
So I’m not against that sort of thing, subject to those two conditions: change the system so you can employ the people who have lost their jobs as a result; and secondly, to pay decent wages, decent standards and decent benefits under some sort of perhaps international standard, in those countries where they go, rather than just this race to the bottom of trying to get the very lowest wage, with the very lowest environmental protection and the very least benefits that they can find anywhere in the world.
The second thing was about the banks. If it was only done in one country, then you would have to protect your financial industry from other countries. I’m proposing it on a world-wide basis. That’s where it should take place, that’s where I hope it will take place, but if I were the leader of my country and no-one else would move, I would do it, and I would protect my financial industries to make sure that they weren’t undercut by people who didn’t have to maintain those standards.
Kirsten Garrett: The Honourable Paul Hellyer, from Toronto in Canada.