Why Isn’t the Government Smarter than a 6th Grader?

A YouTube video of a 12-year-old Canadian girl’s address to a bunch of bankers has gone viral, attracting more than a million views. And listening to what she says makes me wonder if we adults get dumber as we grow older.

What Victoria Grant (photo above) has to say seems to me so logical, so self evident, so incontrovertible, that I am left with the obvious question:  Why is nobody who is anybody listening to this kid?

The Cambridge, Ontario, twelve-year-old makes the case that Canada is wasting taxpayers’ money by borrowing from private banks.

She wants to know why the government doesn’t get the money it needs from its own central bank and cut out the middle man. And she points out that the system worked pretty well in Canada from 1939 to 1974 – before the government switched to borrowing privately.

Here’s how she put it:

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.

It’s a very convincing argument. Especially since the interest on loans from private banks has sent Canada’s national debt soaring.

The way I see things working today is this: The government prints money and gives it to the banks, which lends it back to the government at interest.

Crazy? Of course.

But the system in America is even crazier. The U.S. doesn’t have a central bank like Canada’s. Americans have the Federal Reserve Board, which controls the money supply, adding another profiteering “middle man” to the mix.

Who could reasonably defend such a cockeyed system?

Canadian journalist William Watson, for one.

In “Truthout” today, Ellen Brown cites a National Post article by Watson, headlined (rather lamely, I think) “No, Victoria, There Is No Money Monster,”  as taking issue with Victoria’s thesis. Here’s an excerpt from Brown’s analysis:

Interestingly, (Watson) 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:

Well, yes, that’s true of any “fractional-reserve” banking system. Even before they were regulated, even before there was a Bank of Canada, banks understood they didn’t have to keep reserves equal to the total amount of money they’d lent out: They could count on most depositors most of the time not showing up to take out their money all at once. Which means, as any introduction to monetary economics will tell you, banks can indeed “create” money.

What he disputed was that the Canadian government’s monster debt was the result of paying high interest rates to banks. Rather, he said:

We have a big public debt because, starting in the early 1970s and continuing for three full decades, our governments spent more on all sorts of things, including interest, than they collected in taxes…. The problem was the idea, still widely popular, from the Greek parliament to the streets of Montreal, that governments needn’t pay their bills.

Brown notes that the Canadian government’s auditor general disagrees with Watson’s take on the topic. She reminds him that in 1993,  the auditor general noted in his annual report:

[The] cost of borrowing and its compounding effect have a significant impact on Canada’s annual deficits. From Confederation up to 1991-92, the federal government accumulated a net debt of $423 billion. Of this, $37 billion represents the accumulated shortfall in meeting the cost of government programs since Confederation. The remainder, $386 billion, represents the amount the government has borrowed to service the debt created by previous annual shortfalls. 

“In other words,” Brown points out, “91 percent 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.”

Watson also recited the time worn (and threadbare) argument that governments would create inflation by printing their own money. But you and I  know by now that’s not necessarily true. As even a 12-year-old can tell you, it’s just another hot-air balloon floated by the con artists who control our financial system.

Click here to read the “Truthout” analysis.

Click here to read about Victoria.