211 Canada's Medicare - funded by its Central Bank

(1) Canada's Medicare - funded by its Central Bank
(2) Gordon Brown to push for a global 'Tobin tax' on financial transactions
(3) Obama's bank bill facing enemies in Congress
(4) Wall Street lobbyists fight Obama bank bill
(5) Britain must back Obama's stand against the money bullies - Polly Toynbee

(1) Canada's Medicare - funded by its Central Bank

From: Ellen Brown <ellenhbrown@gmail.com> Date: 24.01.2010 04:00 PM

Funding Public Health Care with a Publicly Owned Bank: How Canada Did It

http://www.truthout.org/funding-public-health-care-with-a-publicly-owned-bank-how-canada-did-it56313

Bank: How Canada Did It

Saturday 23 January 2010

by Ellen Hodgson Brown J.D., t r u t h o u t | Feature

The story goes that Churchill offered a woman 5 million pounds to sleep with him. She hedged and said they would have to discuss terms. Then he offered her 5 pounds. "Sir!" she said. "What sort of woman do you think I am?" "Madam," he replied, "we've already established that. Now we're just haggling over the price."

The same might be said of President Obama's health care bill, which was sold out to corporate interests early on. The insurance lobby had its way with the bill; after that they were just haggling over the price. The "public option" was so watered down in Congressional deal-making that it finally disappeared altogether.

However, the bill passed both Houses by razor-thin margins, and the stunning loss on January 19 of the late Ted Kennedy's Democratic seat to a Republican may force Obama to start over with his agenda. The good news is that this means there is still a chance of getting legislation that includes what Obama's supporters thought they were getting when they elected him - a universal health care plan on the model of Medicare.

That still leaves the question of price, but all industrialized countries except the United States have managed to foot the bill for universal health care. How is it that they can afford it when we can't? Do they have some secret funding source that we don't have?

In the case of our nearest neighbor, Canada, the answer is actually that they do. At least, they did for the first two decades of their national health service - long enough to get it up and running. Now the Canadian government, too, is struggling with a mounting debt to private banks at compound interest and its national health service, Health Canada, is suffering along with other public programs. But when Canada first launched its national health service, the funding came from money created by its own central bank. Canada's innovative funding model is one that could still be followed by a president committed to delivering on his promises.

The Canadian National Health Service Today

Despite what you may have read in the corporate-controlled press, studies show that Canadians are generally happy with the care they receive; and they live an average of 2.5 years longer than Americans. They receive free health service for all diagnostic procedures, hospital and home care deemed medically necessary. People can choose the general practitioners they want; there are no deductibles on basic care; and co-pays are low or zero. Care continues despite changing jobs, and no one is excluded for having a pre-existing condition. Drug prices are negotiated by the government and are paid with public money for the elderly and homeless. For the rest of the population, cost-sharing schemes are arranged between private insurers and provincial governments, with most provinces requiring families to pay small monthly premiums (generally around $100 for a family of four).

According to a 2007 study, the government pays for more than two-thirds of all Canadian health care costs. The US government, by contrast, pays for less than half of these costs. In 2007, the US spent a staggering 16 percent of GDP on health care compared to 10 percent in Canada. Health costs paid for out-of-pocket by Canadians amount to less than $300 per capita annually.

But while that arrangement may look good to people in the US, it is only a shadow of Canada's former system. Between 1990 and 2007, the portion of health care costs covered by the Canadian government fell a dramatic 74.5 percent, chiefly due to a change in how the program was financed. In its early years, Canada's public health system was funded under a provision of the Bank of Canada Act allowing the Bank to create the money to finance federal, provincial and municipal projects on a nearly interest-free basis.

Money Created the Old-Fashioned Way - by the Government, Rather Than the Banks

What was extraordinary about the Bank of Canada, however, was not so much that it created money on its books as that it managed to wrest that power away from the private banking monopoly. All banks actually create the money they lend simply with accounting entries. This fact was confirmed by Graham Towers, the first governor of the Bank of Canada, in hearings in 1935. Asked whether banks create "the medium of exchange," he replied:

That is right. That is what they are there for.... That is the banking business, just in the way that a steel plant makes steel. The manufacturing process consists of making a pen-and-ink or typewriter entry on a card in a book. That is all.

The decision to fund government programs through a publicly owned central bank was driven by a crisis much like that in the US today. The country was in the throes of the Great Depression, and the money supply had radically contracted, causing businesses to close and unemployment to soar. Many Canadians blamed the private banks for making conditions worse by failing to extend loans.

Prior to the 1935 Bank of Canada Act, private banks in Canada issued their own banknotes, which were regulated less by the government than by the Canadian Bankers Association. The country's largest private bank, the Bank of Montreal, served as the government's de facto banker. By the eve of the Great Depression, interest on Canada's public debt had reached one-third of government expenditures, and many officials believed that the government needed a central bank to come up with the money to pay its foreign debts. A Royal Commission was put together in 1933 which supported creating a bank. A major debate then ensued over whether the central bank should be public or private.

Credit for the Canadian public banking model goes largely to a Canadian mayor named Gerald Gratton McGeer. He has largely been lost to history, and his book, "The Conquest of Poverty," has been long out of print; but according to local historian Will Abrams, it was McGeer's lengthy presentations to the Ottawa Common Banking Committee that clarified for bankers, economists and legislators how well a publicly owned bank could work. McGeer's model was based on the public banking system of Guernsey, an island state between Britain and France. The Guernsey government began issuing currency to pay for public works as far back as 1816. To this day, its system of publicly issued money has allowed its inhabitants to maintain full employment and enjoy quality infrastructure, while paying modest taxes and without suffering from price inflation.

The Bank of Canada became publicly owned in 1938 under Prime Minister William Lyon Mackenzie King, a staunch supporter of McGeer's vision for a public central bank. King maintained:

Until the control of the issue of currency and credit is restored to government and recognized as its most conspicuous and sacred responsibility, all talk of the sovereignty of Parliament and of democracy is idle and futile. Once a nation parts with the control of its currency and credit, it matters not who makes that nation's laws. Usury, once in control, will wreck any nation.

What Can Be Done by a Government Issuing Its Own Currency

Along with New Zealand, Australia and other progressive countries, Canada proceeded to fund infrastructure and social programs using national credit issued by its own central bank. The potential of this new credit tool for the Canadian economy was first demonstrated in World War II, in which Canada ranked fourth among the Allies for production of war goods. Under the Returning Veterans Rehabilitation Act of 1945, some 54,000 returning vets were given financial aid to attend university. The Department of Veterans Affairs provided another 80,000 vets with vocational training, and the Veterans' Land Act helped 33,000 vets buy farmland.

After the war, the Industrial Development Bank, a subsidiary of the Bank of Canada, was formed to boost Canadian businesses by offering loans at low interest rates. The Bank of Canada also funded many infrastructure projects and social programs directly. Under the 1950 Trans Canada Highway Act, Canada built the world's longest road and the world's longest inland waterway (a joint venture with the United States), as well as the 28-mile Welland Canal. People over 70, regardless of income or assets, received $40 a month from the government under the Old Age Security Act; and children under 15 got a tax-free allowance of $5-$8 a month.

Canadians first began talking about a government-run health system during the Great Depression, but at that time the government felt it could not afford the service. Various provincial programs were launched in the 1940's, often to care for returning veterans. But it was not until 1957 that the Canadian federal health care system was actually initiated, with funding from the Bank of Canada. A Hospital Act was passed under which the federal government agreed to pay half of the bills of its citizens at most hospitals; a Diagnostic Services Act gave all Canadians free acute hospital care, as well as lab and radiology work. In 1966, the Hospital Act was expanded to cover physician services. In 1984, the Canada Health Act ensured that no medically necessary care would include private fees or a charge to citizens.

A Misguided Economic Policy Kills the Golden Goose

For three decades, Canada paid for these projects through its own government-owned central bank, without sparking price inflation. Then in the late 1960's, a period of "stagflation" set in - rising prices accompanied by high unemployment. According to former Canadian Defense Minister Paul Hellyer, these elevated prices were the result of "cost-push" inflation, which could be traced to a combination of causes. Big labor unions, big government and big corporations all negotiated top dollar for their contracts. In 1971, President Richard Nixon took the US dollar off the gold standard, putting a strain on currencies in international markets. In 1974, the price of oil quadrupled, following a secret deal between Henry Kissinger and the OPEC countries in which the latter agreed to sell their oil only in US dollars and to deposit the dollars in US banks. Countries without sufficient dollar reserves had to borrow from these banks to buy the oil they needed, setting a debt trap that sprang shut when US Federal Reserve Chairman Paul Volcker raised interest rates to 20 percent in 1980.

These increased costs drove up prices worldwide; but in Canada, price inflation was blamed on the government drawing money from its own central bank. Under the sway of classical monetarist theory as promoted by US economist Milton Friedman, the Canadian government abandoned its successful experiment in self-funding and began borrowing from private international lenders. These private banks created "credit" on their books just as the Bank of Canada had done; but they lent it to the government at compound interest, creating a soaring national debt. Today, interest on the debt is the Canadian government's single largest budget expenditure - larger than health care, senior entitlements or national defense.

Canada's health care system is now suffering along with the rest of the economy, necessitating the cutbacks and long waits for elective procedures described by critics. But the achievements of an earlier debt-free era attest to the sustainability of a system of public health care funded with money issued through the government's own central bank.

Goosing the Economy Again

The Bank of Canada was created to end the hardships of the Depression and give the government full responsibility for the health of the economy. As it turned out, the Bank also funded the health of the Canadian people.

The US government could fund universal health coverage in the same way. Ideally, it would nationalize the Federal Reserve or set up its own government-owned bank; but the same result could be achieved simply by borrowing from the existing Federal Reserve. The Fed always rebates the interest to the government after deducting its costs, and the federal debt is never paid off but is just rolled over from year to year. Interest-free loans rolled over from year to year are the equivalent of debt-free government-issued money.

Contrary to popular belief, adding to the money supply in this way would not be inflationary. Inflation results when "demand" (money) exceeds "supply" (goods and services). In this case, the new money would be used to create new goods and services, keeping supply in balance with demand. That the result would not be inflationary is particularly true today, when we are suffering from a deflationary crisis. As in the Great Depression, money is not available to buy products and fund programs because the money supply itself has collapsed. The solution is not to slash programs, but to put more money into the economy, and that can be done by authorizing the government to create the money it needs for infrastructure and social services through its own bank.

== We also have a new website on publicly owned banks --

http://www.public-banking.com

Latest news posted: two Democratic gubernatorial candidates are now including state-owned banks in their platforms  ...

(2) Gordon Brown to push for a global 'Tobin tax' on financial transactions

{Why must it be 'global'? Why not national instead? - Peter M.}

http://www.guardian.co.uk/business/2010/jan/22/gordon-brown-tobin-tax-banking

Gordon Brown to push for 'Tobin tax' after Wall Street crackdown

PM believes US move indicates willingness in Washington to contemplate radical reform of markets

Larry Elliott and Jill Treanor

guardian.co.uk, Friday 22 January 2010 19.55 GMT

Gordon Brown plans to exploit Barack Obama's surprise crackdown on Wall Street banks to step up Britain's campaign for a new global transaction tax on financial products.

The prime minister believes the dramatic US move to curb risky activities by major US banks indicates a new-found willingness on the part of Washington to contemplate radical reform of markets.

Amid signs that key opponents of a transaction tax in Obama's administration have been sidelined, Brown intends to use a series of meetings in the coming weeks and months to build international support for a "Tobin tax", which he floated at last autumn's G20 meeting. Lord Myners, the City minister, is to host a crucial mini-summit on Monday at which US officials will spell out the details of the Volcker plan – through which Obama intends to stop banks running hedge funds, private equity arms and taking bets on markets with customer deposits.

Myners had called G7 members to the Downing Street talks before the White House stunned the financial world with Thursday's announcement, seen as the biggest Wall Street shakeup since the Glass Steagall reforms of the Great Depression.

Publicly, Myners maintained today that the government was ahead of the US in its reform programme and that its plans for banks to create "living wills" so they could be broken up quickly if they collapsed had the same effect as Obama's. He said: "He's developing a solution to what he sees as the American issues. We've already taken the necessary action in the UK."

Privately, however, government sources admitted that they been caught unawares by Obama's bombshell and were now reassessing whether Britain needed to go further. Fears in the City that the government would embrace Obama's line continued to rock shares, particularly those in Royal Bank of Scotland and Barclays. The FTSE 100 was down 33 points at 5303 while RBS, 84% owned by the taxpayer, recovered earlier losses to end at 32.29p. Barclays was down 11p at 256, another 4%.

On Wall Street, the Dow Jones fell for a third day running, its biggest sustained fall since last June. Greg Gibbs, global strategist at RBS, blamed the uncertainty caused by Obama for the market upheaval.

Gary Jenkins, head of fixed income research at Evo Securities, said: "The banks can hardly complain – after the crisis of 2008 they needed to show humility and restraint, and have failed to do so spectacularly."

(3) Obama's bank bill facing enemies in Congress

http://www.guardian.co.uk/world/2010/jan/22/barack-obama-democrats-congress-bill

Democrats in a bind over passage of Obama's bank bill

President faces tough task getting bank reforms through Congress in face of scepticism from both sides

Ewen MacAskill in Washington

guardian.co.uk, Friday 22 January 2010 19.23 GMT

President Obama will have a tough task getting his bank reforms through Congress in the face of both Republican and Democratic scepticism, division and disarray, legislators signalled.

The new proposals are almost certain to be tacked on to a financial regulation bill that has been before Congress for almost a year. It was finally passed by the House last month but without a single Republican vote and with more than a score of Democrats opposed, and approval by the Senate will be even tougher to secure.

The White House views this as a win-win situation. If it gets a bill through that is tough on Wall Street, it hopes it will play well with the electorate: if the Republicans block it, the Democrats can portray them as pro-Wall Street. The problem with that strategy is that the Senate response will not be clear-cut. There are conservative Democrats who will not support many of the measures, while others still think Obama is not being radical enough.

In a sign of rebellion among Democrats in the Senate, some are threatening to vote against the re-appointment of White-house backed Ben Bernanke, whose tenure as chairman of the Federal Reserve is up this month.

The Democratic senator Russ Feingold said yesterday he would vote against another four-year term. Other Democrats are also promising to vote against him.

Another problem is that the passage of the bill falls on the Democratic chairman of the Senate banking committee, Chris Dodd, but he announced this month that he does not intend standing in November's Congressional mid-term elections, a decision that reduces his authority.

The bill leaves some Democrats, such as Chuck Schumer, the New York senator, in a bind. Representing a city heavily dependent on the financial sector, he said: "You can't do nothing because we all know the banks made mistakes, but you can't be so draconian that you cause job loss or make the institutions not function properly."

Another problem for Obama's strategy is that the supreme court decision on Thursday allowing companies to financially back candidates means banks and other financial institutions can spend heavily in support of those opposed to the regulations. Given the way the health bill has become bogged down, the chances are the financial regulation bill will not have got through Congress before November.

The bill would require the support of two-thirds of the 100-member Senate to get through, and the election of the Republican Scott Brown denies the Democrats that majority.

(4) Wall Street lobbyists fight Obama bank bill
http://www.guardian.co.uk/business/2010/jan/24/wall-street-lobbyists-banks-obama

Wall Street's $26m lobbyists gear up to fight Obama banks reform

Well-funded and influential lobby operation will argue that better regulation will be enough to solve problems

Andrew Clark in New York

The Observer, Sunday 24 January 2010

Banks are mobilising a smooth-running lobbying machine in Washington to battle Barack Obama's plans to limit the size and scope of Wall Street institutions, as financial services firms gear up to stop a shake-up that could slice away large chunks of their operations.

Their influence on Capitol Hill is broad – the top eight US banks spent $26m (£16m) on lobbying efforts last year, an increase of 6% on 2008 despite their financial woes, according to Congressional records. And in the first 10 months of 2009, the financial industry donated $78.2m to federal candidates and party committees – more than any other business sector – according to political research institute the Centre for Responsive Politics.

"The power of the financial services sector in this city has not dissipated at all … they've just done things in a quieter way," said Ethan Siegel, an analyst at financial consultancy The Washington Exchange, who monitors Congress for big investors. "They haven't pulled back on their lobbying just because they've become piñata [punchbags] in the press."

Wall Street lobbyists argue that scaling back the size of banks misdiagnoses the cause of the financial crisis, jeopardises jobs, damages America's competitiveness and could inhibit growth.

The Financial Services Forum, which represents 18 top banks including Goldman Sachs, JP Morgan and Citigroup, says the problem of institutions becoming "too big to fail" ought to be tackled through more effective supervision, and by creating an authority able to wind down failing firms, rather than by forcing them to shrink. Spokeswoman Erica Hurtt said: "This was not a trading crisis and these proposals miss the mark. They won't get to the causes of the crisis."

Banks' persuasiveness has already had significant impact on the Obama administration. Plans for the creation of a consumer financial protection agency are meeting staunch Senate opposition and may be watered down to get the 60-40 support needed to override objections.

One widely used strategy by the financial industry has been to deploy representatives of smaller high-street banks to make the case to lawmakers. Organisations such as the Independent Community Bankers of America tend to get a sympathetic hearing because they can point to members in towns and cities in almost every Congressional district, rather than purely in lower Manhattan.

Douglas Elliott, a non-partisan expert in financial services at the Brookings Institution, said JP Morgan and a few other firms were likely to be particularly alarmed at the prospect of a tightening of the existing cap preventing a bank from holding more than 10% of America's insured deposits: "They may already be over any limit under consideration. If they are, they'll probably be allowed to stay unchanged but it will mean they have to eschew acquisitions."

He added that banks will not succeed in defeating restrictions entirely: "Everybody hates banks now and my intuition is that bank lobbyists overplayed their hand last year. It would have been better for them to work out some compromises rather than trying to destroy reform bills entirely."

(5) Britain must back Obama's stand against the money bullies - Polly Toynbee

http://www.guardian.co.uk/commentisfree/cifamerica/2010/jan/22/britain-obama-banks-money-bullies

Britain must back Obama's stand against the money bullies

It's high noon for the global economy, but malign market forces are running rings round Labour

Polly Toynbee

guardian.co.uk, Friday 22 January 2010 17.30 GMT

Here comes the great global fight for democracy. Who's in charge, banks or elected governments? President Obama puts up his fists and every other democracy had better stand with him. He is taking a colossal risk, as Goldman Sachs and the rest thumb their noses at mere governments. Someone had to take on the bully power of money – and only America has the clout. The world's economy depends on it, so Europe must stop pussy-footing and back his plans to dismantle "too big to fail" banks.

In Britain this comes to lift the spirits after a week that saw a government powerless against malign market forces – forces it has too often extolled. The hostile takeover of Cadbury by Kraft, financed by RBS, is a deal that stands to be a loser for all but the deal-makers. Not even Kraft's biggest shareholder, Warren Buffett, could stop what he called "a bad deal", as financiers creamed off $390m in fees. Cadbury's CEO cried crocodile tears and flaked out for £12m. Mergers and acquisitions mania is back, despite voluminous evidence that takeovers often fail and only benefit the fixers. Think Sir Fred Goodwin crashing RBS with his macho capture of ABN Amro.

The government bleated slightly over the loss of the Quaker Curly Wurly maker, but it was Labour in 1998 that removed the last vestige of a public interest clause in competition law that might have given the government some leverage. Employees in Bournville fear the same fate as when Kraft gobbled up Terry's in York and closed it down: it's easier to close factories furthest from their owners. Lord Mandelson started out warning the bidders not to think they could "come here and make a fast buck", but ended up whimsically hoping Kraft would make "perfectly formed Creme Eggs". He told parliament it was "not my place to say which mergers or takeovers should take place".

What is the government's place? It helped turbo-charge private equity takeovers when Gordon Brown in 1998 cut capital gains tax from 40% to 10%. Ostensibly, this was to encourage entrepreneurs to set up a business. But Apax, Permira and the rest used it not to create new value, but to destroy the value of old companies, buying them with top-heavy leveraging, asset-stripping and returning them to market laden with debt, with earnings taxed as capital gains at just 10%. Debenhams, the AA, Boots and EMI went the same way, burdened with debt. Much of what Adair Turner calls a "socially useless" activity is designed to avoid tax.

If for no better reason, tax loss makes this the concern of government. Companies that paid corporation tax now offset their debts against tax liabilities and pay none. Consider the banks that used to pay tax, but now offset their losses: RBS, Northern Rock, Lloyds, HBOS. The taxpayer pays to save them, then allows them not to pay tax on big profits.

But it's worse than that, as exposed last year by the Guardian's Tax Gap series on company tax avoidance. After the takeover, Cadbury need no longer pay any tax since it can offset its hefty new debt into the distant future. But check their taxes and something else emerges: in 2006 Cadbury paid £205m in tax – though only a token £1m was paid in Britain, while 14% of its turnover is here. Why was that allowed to happen? Cadbury won a court ruling saying it could relocate its tax affairs to Dublin provided the transaction was at least "not wholly artificial".

Gordon Brown boasted that Britain was open for business, and now most of Britain is sold. As the tax expert Richard Murphy points out, the Anglo-Saxon model has left few Anglo-Saxon businesses: France and Germany do things differently. Brown would take no action without international agreement, but G20 regulation proceeds at the pace of the slowest of its snails. However, now Obama is taking the lead, victory should lead to better international regulation. Tax havens so far only mildly rapped could be shut down, with people and companies fairly taxed where they genuinely reside. The "too difficult" box springs open once America engages.

At the start of this bank-bonus week there was much head-shaking that no lessons had been learned from the crash, amid warnings that another crash was inevitable that could destroy everything. Only such an Armageddon seems likely to stop business as usual: the stock market soars, house prices rip away, bailed-out banks smirk at government pleas for restraint, mergers are back and all's wrong with the world. Goldman Sachs's Lloyd Blankfein took a swing through London recently on an un-charm offensive that only reminded listeners that he inhabits a hostile asteroid on collision course with Earth. Nothing learned, no introspection, only the same breathtaking arrogance and ignorance as the investment bankers that I encountered in focus groups last year when researching the book Unjust Rewards. Boris Johnson, banker defender, warns that 9,000 bankers will flee London to avoid bonus tax and the 50p top rate: let them go. But if Obama can unite the major financial centres, there will be nowhere worth running to.

This is not about individual greed: people will take what they can. Government failure allows financiers to cream monopolistic rent off every transaction, mostly by churning pension funds at the loss of billions. Richard Murphy points out that the London Stock Exchange churns vast numbers of shares daily to the dealers' short-term benefit, while Warren Buffett makes higher profits sitting on his shares long term. The under-regulated system pays bankers and CEOs like Cadbury's to take their booty and run. Nor will delaying bonuses by a year or two make much odds. Talking to Revenue & Customs this week, I found them busy hunting down a host of very clever new schemes the banks are devising to avoid the bonus tax: some are backdating salary increases to disguise new bonuses. Other wizard wheezes include paying bonuses into trust funds to be cashed in later: "We are closing them all down," claims the taxman – but you can bet the tax avoidance industry is cashing in.

This is the shameless culture of defiance that Obama is taking on. This is high noon, and the good guy fights without the weapon of his Senate super-majority. If he loses, the bankers' next crash may be non-survivable. Britain and the rest of the world must back him: no niggling over whose regulation is best.