Madam Speaker: The hour being five o'clock, time for private members' hour.
Mr. Leonard Evans (Brandon East): Madam Speaker, I move, seconded by the member for Swan River (Ms. Wowchuk),
"WHEREAS the purpose of the Bank of Canada is to control and protect the external value of the monetary unit and to mitigate fluctuations in the general level of production, trade prices and employment--in other words a balance between employment and inflation; and
"WHEREAS the federal government can control domestic interest rates through the actions of the Bank of Canada; and
"WHEREAS the Bank of Canada has abandoned its mandate to seek a balance between employment and price stability in favour of extremely low interest rates, which in turn has caused unsustainable real interest rates and high levels of real unemployment; and
"WHEREAS Canadian interest rates were higher than in other industrialized countries between 1989 and 1993 as a result of the priority attached by the Bank of Canada to the fight against inflation; and
"WHEREAS the Bank of Canada reduced the proportion of federal bonds that it traditionally held, thereby lessening its ability to affect long-term interest rates; and
"WHEREAS the holdings of government debt by the Bank of Canada represent the credit extended by the Bank to the Government; and
"WHEREAS the Bank of Canada Act allows the Bank to purchase Provincial Government bonds, if directed by the Federal Government; and
"WHEREAS the Bank of Canada could significantly ease the burden of interest on the public debt by holding a larger portion of the Federal Government debt, as occurred during World War II and the early post-war years; and
"WHEREAS the Bank collects interest on the debt paid by the Government, but because the Government owns the Bank, those interest payments are returned as "profit" paid by the Bank of Canada on its yearly operations; and
"WHEREAS the Bank of Canada is highly profitable, returning to the Government upwards of $2 billion per year; and
"WHEREAS the 1993 changes to the Bank Act completely eliminated the requirement for chartered banks to deposit any reserves with the Bank of Canada, thereby conferring billions of dollars of increased annual profits on the chartered banks.
"THEREFORE BE IT RESOLVED that the Legislative Assembly of Manitoba urge the Federal Government to immediately implement a policy whereby the Bank of Canada would acquire more Canadian government debt, both federal and provincial; and
"BE IT FURTHER RESOLVED that this Assembly urge the Federal Government to maintain a low interest rate policy through the Bank of Canada, thereby reducing the burden of interest rate payments on the debt, allowing the federal government to restore and maintain cash transfers to the provinces."
Motion presented.
Mr. Leonard Evans: Madam Speaker, I rise today to speak on this very important resolution, which has a very important bearing on the economic health of all Canadians and particularly people in the province of Manitoba. It is an issue that a lot of people do not understand because, unfortunately, the banking system seems to be clouded in a lot of secrecy. People simply do not understand how money is created, or, on the other hand, there may be some political apathy with regard to the banking system.
Of course, the banks maintain their privileged position because they have a very powerful lobby to support their position, and they are indeed big and powerful, and can certainly take on any opponents or hurt any opponents if such dare stand up to criticize them in any way, shape or form. I gather the recent suggestion of a marriage between a couple of major banks--there have been references made by the banks' CEOs that, in so many words, they are going to proceed how they please in their best interest and the government of Canada, the Minister of Finance are beside the point in so many words. This is very unfortunate.
I would like to explain, Madam Speaker, that during World War II, and for at least 30 years thereafter, the Bank of Canada played a very critical role in financing government debt and also in creating new money. In fact, it created half of all the new money for many, many years after World War II.
I might just go by way of history--the Bank of Canada was created in 1935 by a government, a Conservative government of the day, the Bank of Canada Act. It has played the role of central banker to the Canadian banking system, and every industrialized country has a central bank, whether it be the U.S. Federal Reserve System or the Bank of England or the Bank of Japan or whatever.
Unfortunately, since the mid-1970s, the bank has been creating less and less of our money supply, and the commercial banks have been creating more and more. By and large, this has had an upward pressure on interest rates. By and large, I would maintain, and a lot of economists would maintain, that interest rates are a lot higher on account of this. Unfortunately, this situation has contributed to the national debt crisis that we have had in this country, and I guess we still have, particularly, at the national level.
Regrettably, it has come about because the Bank of Canada has reneged on its responsibility, and instead of protecting the Canadian economic and social interest, it has really become a puppet of the commercial banking system. This is not unusual for government regulatory agencies who are supposed to protect the public and the consumers against industries that may be monopolistic or operate in a monopolistic way or in an anticonsumer way. They end up protecting the industry they are supposed to be regulating and protecting the industry against the consumers instead of vice versa. I am afraid this is what in reality has come about with the Bank of Canada. It should become the primary source of money creation and not play the peripheral role that it is.
I might add that a lot of people do not understand how money is created. It is often said, well, if the Bank of Canada creates money, it will be inflationary. Well, the fact is--and they often refer about printing money. Well, I might ask, Madam Speaker, to those critics: who prints the money anyway? Who creates the money anyway? It is created now by the commercial banks, basically, by lending money that they do not have to those of us who go and then seek a loan. We want a loan for whatever it is--a car, a house, some furniture, or whatever it may be--and presumably they take an asset from us that we have of some kind, and based on that or your signature that you promised to pay, based on that IOU, they create the money. They are not taking the money from the depositors. That is the myth that, you know, well, we are only using depositors' money to lend out.
The fact is that for every dollar they have on deposits, I think they spend the money supply now by 317 times because the reserve requirement has virtually been eliminated, thanks to 1991 legislation under the Mulroney government when the small reserve requirement was in place at that time, when it was totally eliminated, so that today there is no reserve requirement. The commercial banks do not have these reserves, and the stats I have show that for every dollar, they can expand 317 times; for every dollar base, they can expand 317 times.
Now this right of creating money is not a right inherent in the banking system. It is given to them by the Parliament of Canada. In fact, it was 1913 that the Bank Act was passed allowing commercial banks to be established and to be involved in the creation of money. It is not any purview, they do not have any special privilege of being able to create money, unless it has been given to them by the Parliament of Canada and presumably supervised by the Bank of Canada.
But what has happened, they have run away with the ball, so to speak, and this is where all the action is. Regrettably, because the governments are borrowing from the commercial banks instead of from the Bank of Canada, they are paying out these billions of dollars of interest to the commercial banking system and thus the problem we talk about of heavy deficit burden or heavy debt burden. We do indeed have a debt burden.
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I am essentially talking about the national scene, the federal scene, where the government of Canada, if it so chooses, if it needs $100 million, let us say for an infrastructure program as I believe the Chretien government engaged upon a few years ago, instead of going to the commercial banks, which they do, they could have borrowed that $100 million from the Bank of Canada. If they borrowed it from the Bank of Canada, they would be interest free because, although they pay interest to the bank, the bank at the end of the year turns all its profits back to the Central Treasury, so it is virtually interest free, Madam Speaker.
Unfortunately, this is not the case with the commercial banks. In the case of the commercial banks, they create the money. They loan, quote-unquote, the money to the federal government for whatever purposes the federal government wanted--let us say an infrastructure program--and that $100 million has to be paid back to the banks with interest, and that is the burden. If we could get at least a portion, a greater portion of the federal debt held by the central bank, instead of this minuscule amount that it holds today, that would alleviate the interest burden, the debt burden on the federal government.
Instead of the government having to say, oh, we cannot possibly maintain transfers to the provinces; we are going to have to cut hundreds of millions of dollars for health care, social programs and so on because we have got to contend with this debt, which is a real problem; it is a real problem; the interest on the debt is a real problem--instead of that, if we could have the government saying, okay, we are going to finance an increased percentage of our spending through the Bank of Canada so that we do not have that interest rate burden, so that we do not have that burden of interest.
So instead of that hundred million dollars borrowed by the federal government for infrastructure from the commercial banks, it could have been borrowed from the Bank of Canada interest free, and it would not have been that burden. The bank can even be used to buy up existing debt. If the federal government so chooses, the bank could buy up existing debt held by the commercial banks and simply do that, give the banks the money. The central bank gives the commercial banks the money, takes over the debt, and to that extent relieves a burden of interest to the federal government.
Now, just by way of figures, I have lots of figures here, and I am not going to bore you with all of them, but the outstanding federal government debt during the war was quite high, and even for many years after the war a high percentage was held by the central bank. I will just take one number here. In 1975, over 20 percent of the federal government debt was held by the Bank of Canada. Today, it is down around 4 percent or 5 percent. I do not have the very latest figures. I have to 1994 and it was 5.8, but I think it is down to around 4 percent.
As you would expect, a higher percentage is being held by charter banks, and, of course, a higher percentage is being held off-shore which is a real problem, but the fact is we can reverse the situation. We can do what we did during World War II and right after the war, use the bank in a very progressive way. We fought Hitler, we fought the Nazis with the use of the Bank of Canada. You know, it is often said, well, I was unemployed. You talk to the grandfathers and great-grandfathers around here that went through the Dirty Thirties, and they will tell you they could not get a job; there was no money to be had. Once the war came along, boom, there was money, and why was there money?
An Honourable Member: So are you advocating a war? Is that what you are advocating? My goodness.
Mr. Leonard Evans: No, I am advocating that the minister listen carefully, that the bank was used and used successfully and throughout the war to fight Hitler and for a great time after the war to permit post-war prosperity, and we could use it today.
You know, I refer to Paul Hellyer, who by any stretch of the imagination is no raving socialist. In fact, he was a one-time federal cabinet minister, a successful businessman--[interjection] Paul Hellyer, a former cabinet minister and businessman and activist. In an article that he has written in a magazine entitled Monitor magazine, he has very clearly stated that the Bank of Canada--I will just quote the one paragraph, Madam Speaker: It was only when World War II broke out and government started letting contracts for ships and planes and guns that jobs were created and the economy grew to its maximum potential. This was made financially possible when the Bank of Canada entered the money creation business in a major way. At one time, it created more than half of all the new money. It was a process which allowed us to escape the Depression, finance the Second World War, and laid the foundation for the best 25 years capitalism has ever known, unquote.
Then he goes on to say that since the mid-'70s, the bank has withdrawn from this and the commercial banks have come in. But, Madam Speaker, we still have a lot of unemployment around the Atlantic region, in particular, parts of Quebec and so on, and we have it in parts of Manitoba, as well, but the point is--well, in northern Manitoba, there is a lot of unemployment, unfortunately.
An Honourable Member: No, there is not--
Mr. Leonard Evans: There is not in northern Manitoba? Well, talk to our colleague the MLA for The Pas about that.
At any rate, Madam Speaker, the Bank of Canada could be used to finance construction projects, to finance various programs, to create jobs, to stimulate jobs. You might say, well, that is deficit financing. Yes, it is, but it is deficit financing at interest-free, that is the point. A lot of people have spoken about this and advocated this; they are not necessarily left-wing politicians by any means. I do not think Mr. Hellyer considers himself in that category whatsoever, having been a successful businessman and former cabinet minister and so on.
At any rate, Madam Speaker, the other point I would make is that under the Bank of Canada Act, that bank, the central bank can lend money to the provinces. It did that--that clause is put in there for a very good reason because in the Depression there were some provinces like Saskatchewan that were virtually bankrupt, and this would be one way to save them. In fact, if the government wanted to be progressive, it could help all provinces, including Manitoba, by lending money, maybe not interest-free but at a much lower rate of interest. [interjection] Well, what happens to private sector, the private sector continues. I am not suggesting you eliminate the commercial banking system. I am not suggesting you eliminate all the private banking; I am saying there is room for increased central bank financing in the way that I have described. It will help the provinces as well as the federal government.
So the trade-off--and I know my time is short--is instead of the government saying we have no option, as Paul Martin would say, but to cut, cut, cut. The option is indeed use the bank, take over some of the debt, ease the interest burden, and do not cut the transfers to the provinces, do not cut the social programs. Cut the zillions of dollars that are going to the commercial banks because they are getting rich at the expense of health care that is diminishing in quality, at the expense of education, at the expense of social services in this country of ours. Let us get our priorities right. Instead of making the banks--and all the evidence is there, the banks are bloated with billions of dollars of profits. In the meantime, governments are having to cut seriously and deprive people of the kind of health care they need, the kind of education system they need or whatever we choose as a people.
I would trust that there would be unanimous support for this resolution in this House. It is a progressive, intelligent suggestion, and members opposite should have no problem whatsoever with this proposal that I have put forward in this resolution. Thank you, Madam Speaker.
Hon. Harold Gilleshammer (Minister of Labour): Madam Speaker, it is a pleasure to rise and be able to speak on Resolution 16. I will not have the member for Brandon East (Mr. Leonard Evans) wait very long to see what direction we would vote on this.
Madam Speaker, this resolution has no merit whatsoever and must be rejected by the House. Let us cut through the misleading rhetoric, the preamble, and be clear about the real motivation behind this resolution. It has been put forward by a party whose banner is proudly emblazoned with the motto Deficit Financing Forever. This is a party which heaped debt upon the shoulders of our province with wild abandon during their unfortunate period in office.
How much debt might you ask? Did they double the debt of the province? The answer is no. Did they triple the debt of the province? Again, the answer is no. Did they quadruple the debt of the province? Again, the answer is no. Madam Speaker, they quintupled the debt of the province, that modest debt that was there in 1981 and multiplied it by five.
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Of course, there is a huge interest bill attached to all that borrowing, a bill which exists solely because they spent far more money than Manitobans could afford to pay. But do they accept responsibility for that interest bill? Absolutely not. They blame the Bank of Canada for purportedly being obsessed about inflation and raising interest rates here in Canada, and they want the Bank of Canada to bail them out by acquiring that debt. That is what this resolution is all about, blaming others for their errors, getting others to take responsibility for fixing the problems that they created during their period in government.
Let us also have a closer look at the claim that the Bank of Canada was too concerned with inflation and raised interest rates too high. In the late 1980s, inflation was becoming a more serious threat for the simple reason that governments in this country were applying a huge amount of fiscal stimulus to the economy. They were doing so at a time when the economy would have done fine without the extra stimulus. The rest of the industrialized world was growing strongly, and Canada would have grown at a healthy pace without any government stimulus. Indeed, governments should have been running surpluses starting in the mid-'80s to offset the deficits run up during the recession of the early '80s. Instead, governments in this country, including the government of Manitoba, ran huge deficits.
Running large deficits during a period of economic growth will generate inflation. In fact, as members know, there were double-digit increases in government income at that time, and yet the government of the day during that period of the '80s ran huge debts that we now have to pay off.
Governments in this country could have eliminated those inflation pressures by balancing their budgets. They did not do so. They left the Bank of Canada to fight inflation singlehandedly.
Now, it is quite true that to have the bank fight inflation by raising interest rates was not the most desirable course. The better option was deficit elimination, but deficits were not eliminated and higher interest rates were the only option. In fact, if you look at the comments made by the member for Brandon East (Mr. Leonard Evans) and all the members on the other side when we brought forward the legislation to have balanced budgets and to repay debt, if you look at their comments, they were all totally opposed to it, and they are still opposed to it. They would sooner see governments run deficits and raise that debt.
It is unfair to blame the Bank of Canada for acting when governments failed to. In addition, it is unfair to blame the Bank of Canada for all the rise in interest rates. As the honourable member for Brandon East should know, the central bank has a strong influence over short-term interest rates, but it has little or no direct influence over long-term interest rates.
In fact, the only way it can bring down long-term rates is to convince lenders and borrowers that inflation will remain low and stable so that there does not have to be a high inflation risk premium in interest rates.
The reason long-term interest rates rose so high in the late '80s is twofold. First, the high deficits generated inflation pressures which caused lenders to demand an inflation risk premium in the interest they charged; and, second, the extremely high level of government borrowing drove up interest rates in the same way that excess demand for any other commodity will drive up the price of that commodity. After all, an interest rate is merely the price at which you can borrow money.
I would hope that the member for Brandon East maybe would listen and get a better understanding of this so that maybe he would have an influence on NDP governments in other parts of Canada and try and encourage them. In fact, the government of Saskatchewan--and I believe the member brags about the fact that they have a balanced budget and now a surplus--understands what happens when you run a deficit and create more debt.
In short, interest rates became very high because government deficits were very high. Similarly, interest rates have now fallen because government deficits have fallen. Balanced budgets mean less risk of inflation, and lower government borrowing means governments are not bidding up interest rates by trying to borrow more than the market can supply at moderate interest rates.
You know, the member for Brandon East, who spoke so negatively about balanced budgets, has more recently been bragging about the fact that Saskatchewan has balanced their budget-- [interjection]
Madam Speaker: Order, please. I am experiencing difficulty hearing the honourable Minister of Labour.
Mr. Gilleshammer: Thank you, Madam Speaker. I do wish that the member for Wolseley (Ms. Friesen), and the member for Brandon East (Mr. Leonard Evans) would listen and try and get a better understanding of this issue.
I would also say that Manitoba--[interjection]
Madam Speaker: Order, please.
Mr. Gilleshammer: Madam Speaker, this truly is a very important issue, and I do believe that members opposite should listen carefully because they may have some influence on left-wing governments in other parts of Canada, and can maybe assist them in not pursuing the path that the NDP in Manitoba followed during the 1980s.
Madam Speaker, I would also say that Manitoba deserves some of the credit for reducing interest rates, because this government was one of the first in the country to begin tackling the roots of the deficit problem. It was one of the first governments to balance its budgets. By cutting our borrowing, we have made a significant contribution in the lowering of interest rates in this country.
Madam Speaker, if this resolution has any value, it is that it exposes the lack of economic understanding possessed by the members opposite. Not only do they fail to understand such things as the causes of inflation or the reasons why interest rates rise and fall, they also fail to understand the basic rules that we must all follow if we are to get along together in society.
One of these rules is that if you borrow something from someone, you must pay it back. When the members opposite formed the government, they borrowed money. The money was lent to them in good faith. I might add that it is not chartered banks that lend most of the money, contrary to the remarks made during budget debate by the member for Brandon East (Mr. Leonard Evans). No, most of the province's bonds are held by institutional investors such as pension funds and life insurance companies. They hold those bonds on behalf of the millions of ordinary people who expect to retire on a pension or who may need to collect on a life insurance policy someday. They lent us money in good faith, and they expect to be repaid. They have a right to be repaid, but members opposite borrowed in bad faith. They do not want to fulfill their half of the bargain. They do not want to repay all the money they borrowed, and they think they have hit upon a trick they can use to avoid this repayment. Just get the Bank of Canada to print a bunch of money and exchange it for bonds. That is precisely what it means for the Bank of Canada to acquire bonds; it creates more money.
As experience in many countries has shown with painful clarity, when you print money not in accordance with the needs of the economy but in accordance with the spending desires of the government, the result is inflation. There can be absolutely no argument on that point. When you create inflation, you devalue the purchasing power of the currency. What this means is that the ultimate bondholders, the pension plan members, the life insurance policyholders, have lent money to governments with a certain amount of purchasing power, and what they will get back is money with less purchasing power.
In short, through a conscious policy of printing money to retire debt, the members opposite are actually calling on governments to rob ordinary people in this country of their hard-earned savings by inflating away the purchasing power of the dollar.
It is shameful that this House is even being asked to consider such a policy. The resolution must be firmly rejected. Thank you, Madam Speaker.
Mr. Steve Ashton (Thompson): I really wish the member had said what he really thinks, instead of reading that kind of drivel onto the record, Madam Speaker. I really say to the member opposite, he displays a complete and absolute ignorance of the fundamental aspects of economics.
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I mean first of all, for any Conservative to get up in this Legislature and talk about debt is interesting--or deficit, because when was the highest deficit in Manitoba history? It was 1992-93, under that Conservative government. You know, when they were elected in 1988, they ran a deficit. They ran one in 1989, they ran one in 1990, 1991, '92, '93, and you know what? Where is the debt of the province today? It is at a higher level than it has ever been in Manitoba history, so let not that member opposite put on the record that kind of drivel about the Conservative Party.
You know, Madam Speaker, the facts are very clear. If you look at economic policies that we have faced in this country the last period of time, more and more economists, mainstream economists, are saying that one of the biggest mistakes that were made in this country was made when we had the Bank of Canada pursue some of the strictest inflation targets in the world to the point where we lost percentages of growth in GDP, where we had a more severe recession between 1989 and 1992-93, how we ended up with higher unemployment. That is the reality of when you have the kind of extreme policies that we saw in place by the Bank of Canada. No mention of that from this member. He obviously supports the Bank of Canada policies that we have had in place, the John Crow policies, which have been condemned by many people, including by many of the people on his side of the political fence nationally, but the minister lectures us on economics here.
You know, the fact is let us look at the question of debts, let us look at the question of debt financing. There has been a big explosion of debt in this country since the 1960s. Do you know where it has come from? It has come from the corporate sector, and to the Minister of I, T and T (Mr. Downey), who, I remember, a few years ago got up in the House and said how proud he was to be a yahoo, this is yahoo economics. The corporations in this country are existing on debt financing. The kind of debt equity ratios that were in place in the 1960s no longer apply in the 1990s. There is not a single corporation in this country that has 100 percent equity financing.
Where does that financing come from? It has come from the banking system, as the member opposite pointed out. We have more and more creation in this country of debt and money in the banking system. Go to an ATM, go to a bank, and you will see what is in place. You know, I find it absolutely bizarre that the members opposite do not deal with that reality.
What the member is saying, and what the minister fails to point out--the member for Brandon East (Mr. Leonard Evans) is suggesting that what we have to look at very much is who finances the debt, not just the debt levels, but who finances it. One of the biggest problems we have had in this country is the fact that a significant amount of our debt is being held outside of this country. Does the member agree with that? By the way, who borrowed it for the Minister responsible for I, T and T? Brian Mulroney borrowed a good chunk of it, his favourite political leader of all time. The federal Conservatives, who were running some of the biggest deficits in history--$40 billion-plus. But, you know, the minister read into the record the kind of drivel that I say I am disappointed in. It is not unusual for that member, but what is he saying? That we should not look at refinancing the debt, refinancing a debt that is held out of the country, the federal debt?
By the way, Madam Speaker, there has not been an NDP government federally; it has been federal Conservatives and Liberals that have built up the $600-billion debt.
An Honourable Member: There never will be.
Mr. Ashton: Well, it is interesting, the member opposite says that there never will be, and I tell you with the Conservatives now, the situation they are at, I do not think they are going to be in for federal government for quite some time, so he has some experience of that. He supported a government that went from a majority government to two seats, and I must admit that when they went down to two seats, I was disappointed. I thought that was two too many, given what they had done to this country.
But this member, the great economics expert on the other side, says, no, we should not look at refinancing the debt that is held by those institutional investors he is talking about. Do you know who those institutional investors are that hold the debt? A lot of them are institutional investors based outside of this country. Are you suggesting that the debt should be held outside of the country?
An Honourable Member: That is where MTS is being held.
Mr. Ashton: Well, that is right. I mean they do not have any problem with 80 percent of MTS shares being held outside of the country, so what would they care? Why do you think we have had problems with the balance of payments in this country in recent years? It is because our debt is held outside of this country. We are paying to those bondholders you were talking about, and for you to get up and make this ridiculous statement that somehow anyone is suggesting not paying the bondholders is at absolute ridiculous extremes to go to in this House.
What we are talking about is refinancing the debt, getting it out of foreign hands, getting it into Canadian hands with the Bank of Canada, using our banking system to get control back on that debt so that we do not end up paying the price of $600 billion in interest payments to go outside of the country, affecting our balance of payments. That is simple economics everyone can understand.
The Minister responsible for Industry, Trade and commerce is sitting there making gestures with his hand. If he wishes to speak with his mouth, he can do so afterwards. I was just out in the minister's constituency, and I found it interesting--[interjection] Well, he might as well use his hands. It is about all he has to contribute to this debate, is empty mouth movements.
I say to members opposite, get involved in a constructive debate. I say to the member with that speech, I do not know who wrote that speech. I know the minister did not write that speech. He read it. But I would say get involved in a constructive debate. What are you opposed to in this resolution that is so much of a difficulty? Forget about the rest of the stuff you put out. Refinancing the debt through the Bank of Canada--
Hon. Linda McIntosh (Minister of Education and Training): Madam Speaker, we have a wonderful new sound system in the House, and the member maybe could know his microphone is working. It is almost harder to hear when he is shouting so loud than it is if he just used the microphone. He does not need to shout. The microphone works.
Madam Speaker: The honourable Minister of Education and Training does not have a point of order.
Mr. Ashton: Madam Speaker, I was being heckled by about six different government members. If I raised my voice to try and get over the din of members including the Minister responsible for I, T and T and others who were making comments from their seats and if I offended the Minister of Education in any way, shape or form, I apologize.
To the minister who sits there, makes a comment, Madam Speaker, and then makes, again, these kinds of dismissive gestures that she is known--I can tell her, I will not be stopped by any members opposite, including the Minister of Education, in putting on the record what I feel is the important thing. I suggest to the member, why does she not go back to her office and write a few more memos on God Save the Queen. I think she will probably find that a lot more satisfactory.
I say to members opposite, are you suggesting in this House that we should not deal with the question of how that debt is held? Do you not think it makes a difference? You know, one of the things we did as a government that is being continued by members opposite is financing our needs here in this province--HydroBonds, an excellent idea. Why not go to Manitobans and ask Manitobans to invest in their own province.
Let us not forget, because members opposite, when they attack debt--it was interesting when the member talked about debt. One thing he did not talk about was where a lot of that debt is held, Manitoba Hydro. Yes, we had to debt finance the construction of Limestone. You know what? We did it for a billion dollars less than was the budget. It is now in place; it is producing a hundred million dollars a year for this province, a hundred million dollars a year.
If you follow the kind of voodoo economics that the member said, we would never have financed the construction of Limestone. I say to members opposite, how do you think in this province we have financed things like the Floodway, hospitals, schools? We financed it in the same way.
Corporations do it; governments do it. For this member to suggest that somehow we should no longer ever look at that kind of investment I think is a disgrace to the legacy of his own party, because I can tell you, if we relied on his economic philosophy, Duff Roblin never would have built Duff's Ditch. That is the reality, Madam Speaker.
If they want to get into a debate about the levels of debt, the debt-servicing costs and deficits, that is fair ball, but to give a blanket sort of statement about public finances without looking at the fact that a good percentage of that is dealing with what is good for this province, I will argue with anyone who says it was wrong to do what Duff Roblin did with Duff's Ditch--I will argue with anyone--or what the Pawley government did with Limestone. It is paying back the investment many times over.
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You know, what governments need to do is probably in a lot of ways deal with it the same way you would in the private sector, because there is not a single private sector corporation out there that does not look in terms of investments and when it engages in any kind of borrowing whatsoever, it is going to look at debt-servicing costs, it is going to look at the return on that investment. That is, I think, what the public expects from their governments, that money be spent wisely, that it be invested in what we need, whether it be health or education or floodways or highways or, yes, building up our hydroelectric system.
But, you know, we get back again to this attack on the resolution. What is the problem here? Now, if you support the Bank of Canada's restrictive monetary policies, I say, so be it. That is fair ball, it is a good discussion, a good debate. The evidence has proven now that even the Bank of Canada has moved away from its zero percent target. It now is targeting one to three percent. Even the Bank of Canada has disowned that policy.
What else do you have a problem with? The member for Brandon East (Mr. Leonard Evans) talked about the high real levels of interest rates. That is a fact, Madam Speaker. Interest rates have been high relative to the rate of inflation now for more than 10 years. Government, of all people, should understand that because, when that happens, that costs us more as a province. So what do you have difficulty with that?
And as I went through it, you know, whoever sat down and looked at it must have said, oh, good chance to get up and give our usual political speech on this. But, you know, let us have a rational debate on economics and public finance. [interjection] Well, I am starting it, to the Minister for I, T and T, by putting on the record the reality.
It is unfortunate the member for Lakeside (Mr. Enns) cannot be directly participating in this debate. I cannot reference why but, you know, he was part of a government that had a very different approach. As I look at the minister opposite, he was part of another government that had a very different approach. What this government is doing when it gets into issues of public finance I guess is after running up the highest deficit in Manitoba history is turning around with the help of VLT revenue and the slush fund, trying to turn around and say they do not believe in deficit financing or debts. It just does not wash.
When they faced that situation in '92-93, they had a deficit because of the recession. It happened. What is going on, if you look at what is going on, they mention about Saskatchewan. What is interesting about Saskatchewan is Saskatchewan faced a much higher debt situation than we have ever been in in this province. You look at the recent budget, we are third lowest in debt in this province. B.C. I think is lower than us. I think Prince Edward Island is the lowest again. Prince Edward Island, by the way, the Conservative government there is running a deficit this budget. They said there are more important things than deficit. You want to talk about quotations on deficit, that is what the Conservatives say there. But you look further west to Saskatchewan, again in terms of public financing, the Conservative government there, through the incompetence under Grant Devine, ran up the debt to one of the highest levels in Canadian history. That is when you have a major problem. That was the problem the Saskatchewan government faced.
I tell you, it was not a creation of themselves, it was a creation of the previous Conservative government, most of whom are in jail right now, and rightly so, given what has happened in that province. [interjection] The member says, be careful. He should look at how many of the Conservative MLAs are currently in jail. A good number of them are. This is in Saskatchewan, not in Manitoba.
If you look at the reality, the Romanow government has dealt with the situation there, but they have dealt with it in a way that reflects a balance, just as if, Madam Speaker, as an individual, if I have a mortgage on my house, I have to make sure it is affordable, I have to be concerned about who I am paying it to, if I have a 30-year time frame, and I have to make sure that it is affordable. That is the same issue in public finance. In this case, does it make sense to have our mortgage, in this case our debt as a nation, as the member pointed out, held by institutional investors, the vast majority of whom are out of this country. Why not repatriate that debt and bring it down and bring it down?
Well, once again the members opposite have not even read the resolution. The federal debt, which is over $600 billion, why not repatriate it and use the Bank of Canada as a way to ensure that that debt, the first step is to repatriate before we can bring down the burden of debt, because by repatriating, when you do not have to pay to the brokers on Wall Street and the institutional investors, when you finance it within Canada, that is the first step. The next step could be in terms of making a lower percentage of GDP, which is what we need to do.
So let us have a logical debate. Let us not have the kind of speech that the member previously read into the record. I actually look forward to his own personal view sometime, because I do not think even he would subscribe to all the things he read onto the record. Thank you, Madam Speaker.
Mr. Gerry McAlpine (Sturgeon Creek): It is interesting, and I really appreciate the opportunity to put some comments on the record. I have listened to the member for Brandon East (Mr. Leonard Evans) read his resolution into the record and his comments that he has made and the honourable member for Thompson (Mr. Ashton) as well. It really surprises me that the honourable member for Brandon East, with his background--mind you, he has been in this Legislature for a long time, and maybe he has lost sight of the reality out there in the real world, in the business world, because for anybody that has any background in economics would certainly understand that this is not the road to go.
The honourable member for Thompson also referenced and suggested that we build up--if we are going to follow what he has said, we are following the same thing that the Chinese did many, many years ago when they built the Great Wall of China. We know what has happened with that today because exactly what he is suggesting is that we should build walls around this country and shut everybody else out, not to allow any other economic influence coming out of any other part of the universe other than what is within our own boundaries. That, to me, is ridiculous, Madam Speaker, and the honourable member for Brandon East should know better than that.
The resolution basically is calling on the members of this Assembly to make fools of ourselves, and that is really what it is all about. That is certainly how we see it as far as this resolution proposes, to call on the federal government to print more money to pay the government debt and, at the same time, bring down interest rates. If you listen to what the honourable member says, he would have money growing on trees, and we know that is not possible.
You know, it is interesting that the honourable member is suggesting money growing on trees and would still maintain the value of the dollar. You cannot have it both ways, and the person who has an economic background should know that. That is what really disappoints me with this honourable member.
We have to disagree philosophically on this because I just cannot buy into what he is suggesting. I mean, if we do that, if we do what he is proposing, then we are going to go back into the '80s, the '82, '83, when we saw interest rates at 18, 20, 22 percent. That is what he is advocating. [interjection] The honourable member chirps from his seat; he does not want any debate. He wants everybody to subscribe to what he is saying and rather than listen to something--you know, they say we do not debate the issue, and then he says, yes, we do not know what we are talking about. If we do not hitch up to his team, we do not know what we are talking about.
Well, let me tell you there are other people in this Chamber that have views other than what might be the views of the honourable member for Brandon East (Mr. Leonard Evans) or the member for Thompson (Mr. Ashton). I would hope that these members could respect that--[interjection]
Well, the honourable member for Thompson talks about a speechwriter. The honourable member might do well to get one because the honourable member across the way, in putting the rhetoric on the record--and he is entitled to that, but I call it rhetoric.
Interest rates are now much lower than they have been during most of the past three decades. Mortgage rates in particular have returned to the range that prevailed in the early 1960s. That is good for the economy. Those are the engines that drive the economy of this country and this province.
The honourable member for Brandon East (Mr. Leonard Evans) should know better. He should know that.
Furthermore, interest rates in Canada are below those in the United States and have been for two years. For many years most economists and investors thought that it was impossible for Canada to have lower interest rates than the U.S., but now we do, and we are the benefactors here in Manitoba. That is what we are doing in terms of what is driving the economy. That is what is creating jobs.
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Then the honourable member has the audacity to speak from his place in this Chamber suggesting inflation, because that is what is going to happen, and high interest rates. When you have inflation, you end up with high interest rates.
Still members opposite want us to call for lower rates. Let us remember that very low rates are not good for everyone. Look at our seniors, who rely on their fixed incomes. They look to interest income for a source of their income. Many of them have been distressed to learn that members opposite want even lower rates.
A balance must be attained between the benefits of borrowers and the lower rates and the benefits to savers of higher rates. Even lower rates than what we have now would not, I think, be fair to savers. What we have is a balance.
The fact is that we are going to look very foolish calling on the federal government for lower interest rates when they are already as low as they should and can be. We will look doubly foolish because we are also asking for the federal government to do something which would actually raise interest rates. Yes, this is precisely what would happen if the Bank of Canada were to acquire a significant larger share of the government debt. How are they going to re-source that?
We have a system in the banking industry today where the banks, the chartered banks, borrow money from the central bank and they turn around and they lend that money out as a business. That is what makes the world go around. That is what the honourable member for Brandon East (Mr. Leonard Evans) just does not get. They do not get it over there.
The mover of this resolution does not seem to understand the simple facts of economics, that a change in the central banks holdings of government debt directly changes the money supply. When you call on the Bank of Canada to acquire more government debt, you are really calling on the bank to increase its money supply, printing more money. [interjection]
The honourable member chirps from his seat, you know, who brings the money?
Mr. Leonard Evans: I wonder if the honourable member would submit to a question on the reserve ratios to be implemented for the commercial banks to curtail inflation. Would the member submit to a question?
Madam Speaker: The honourable member for Brandon East does not have a point of order.
Mr. McAlpine: I respect the honourable member would like to interfere with my remarks because my time is running short, and I certainly do not want to--I think that he had the opportunity to put his remarks on the record, and I hope that he would give me that. After, if we have an opportunity to speak privately, we can do that.
Madam Speaker, the money supply should grow approximately in line with the growth of the economy, and they have to be connected. If it grows much faster, the result is simply inflation, and when we have inflation, we create high interest rates. The fact of the economic life which has been proven countless times by the experience of many countries, not only this country and the province of Manitoba--and the honourable member for Thompson (Mr. Ashton) he talks about, he puts on the record about creating the debt and this government doing that.
Our Premier (Mr. Filmon) today, I think, is the 19th Premier of the province. I might be wrong. It is either the 18th or the 19th Premier, but 18 Premiers in this province, 17 Premiers actually created all this infrastructure and the debt. At that time, we built universities, we built streets and all the roads and highways and Duff's Ditch. All these things were built. All this whole infrastructure was built.
The six years that Howard Pawley, and the honourable member for Brandon East (Mr. Leonard Evans) was a member of that government, created, they more than quadrupled, the debt in those six years because of that ideology.
Why would we want to go back to that? The people of Manitoba do not want that. We have all lived through that. We are trying to pull ourselves out of that now, and I think that we are making some headway and making some success.
Madam Speaker, when inflation rises, interest rates go up because savers have to be compensated for the loss of purchasing power they suffer as the prices rise. In fact, one of the major reasons for the current very low interest rates is Canada's five-year record of low stable inflation. That record gives savers the confidence that their savings will not be eroded by inflation and allows them to accept a lower interest rate. Manitoba and the people in Manitoba whom I am in contact with are looking for stability. They want stability because otherwise they are not going to invest in what we are looking for in terms of business, the businesses creating the jobs.
In short, if the Bank of Canada acquires more government debt, the sole result will be higher inflation and therefore higher interest rates. Therefore, this resolution would have us call on the federal government to do two inconsistent things.
Unfortunately, the member for Brandon East (Mr. Leonard Evans) does not understand this, and he has argued that the Bank of Canada held 21 percent federal debt in 1976, and today it holds only 5 percent. Of course, 1976 was just two years after the federal debt reached its post-war low as a share of the GDP so there was not very much federal debt available for the Bank of Canada to hold. Since the mid-'70s, the federal debt has grown steadily and rapidly. In 1976, the debt was equal to less than 20 percent of the GDP; today, it is roughly 75 percent. So what the member for Brandon East is saying is that the Bank of Canada should hold a constant share of the public debt, which means that the money supply should increase, not in line with the economy but in line with the government borrowing. That is a recipe for hyperinflation.
Madam Speaker, in his speech during the debate in the 1997 budget, the member for Brandon East (Mr. Leonard Evans) calculated the Bank of Canada should be holding an additional $96 billion of government debt. He obviously does not realize that the current money supply is about $70 billion, so he is calling on the central bank to more than double the money supply, and for the money supply to double in a very short time would be an economic disaster. Prices would skyrocket and the economy would be thrown into turmoil.
Madam Speaker: Order, please. The hour being 6 p.m., this House is adjourned and stands adjourned until 10 a.m. tomorrow (Thursday).
Order, please. Just for clarification, the resolution will remain open. The honourable member's time has expired.
The hour being 6 p.m., this House is adjourned and stands adjourned until 10 a.m. tomorrow (Thursday).