Wednesday, 30 April 2014

Assorted Research on the History of Canadian Monetary Policy

Here is a series of exchanges between the first Governor of the Bank of Canada, Graham F. Towers, and a Member of Parliament, Gerald (Gerry) McGeer, in 1939. I apologize if there are any spelling mistakes, I transcribed these myself.
"Q: ... Will you tell me why a government with power to create money should give that power away to a private monopoly and then borrow that which parliament can create itself back at interest to the point of national bankruptcy ... ? 
A. ... Now, speaking of borrowing that money, we realize of course that the amount which is paid provides part of the operating costs of the banks and some interest on deposits. Now, if parliament wants to change the form of operating the banking system, then certainly that is within the power of parliament. Secondly, if parliament decided that it would proceed with such and such an expenditure by means of legislating for an increase in the note issue - two hundred, five hundred, a billion dollars - there are no limitations on parliament; it could do so. I would not be here to say that parliament must not do this. That would be foolish. Parliament can do as it sees fit. I can express opinions for what they may be worth on the results of any given method of financing."
- Banking & Commerce Committee, Proceedings and Evidence, 1939, pg. 394 (Q = Mr. McGeer, A = Mr. Towers)
"Q. So we come to the present, and so far as war is concerned, to defend the integrity of the nation there will be no difficulty in raising the means of financing whatever those requirements may be?
A. The limit if the possibilities depends on men and materials.
Q. Men and materials, and where you have an abundance of men and materials you have no difficulty, under our present banking system, in putting forth the medium of exchange that is necessary to put the men and materials to work in defence of the realm.
A. That is right.
...
Q. Well, in any event, you will agree with me on this, that so long as the investment of public funds is confined to something that improves the economic life of the nation, that that will not of itself produce inflationary conditions?
A. Yes, I agree, but I shall make one further qualification, that the investments thus made shall be at least as productive as some alternative uses to which the money would otherwise have been put"
- pg. 649
"Mr. Towers: The real cost of government expenditure is use of labour and equipment. That is my general proposition. The real cost of government expenditure to the country as a whole is the amount of labour and equipment required to carry out the various projects. When the question is asked if we can finance a certain government expenditure, the fundamental problem is whether we can afford to devote a certain amount of our productive resources to the projects in question. The problem of how the government can obtain the money which will give it the title to the use of labour and equipment, may present considerable technical difficulties, but it is not the fundamental problem; and the particular fiscal method by which the government may decide to acquire the money from the public has little or no effect upon the real cost of these projects to the country as a whole, although it may have a considerable effect upon other factors in the economy."
- pg. 64
"Mr. Towers: What are available for the defence of this nation are Canadian men and Canadian materials. The method by which those are put to use by the government - the method of financing - as I stated earlier, is a question of fiscal policy. But that men and materials can be created from money, no."
- pg. 78
"Mr. McGeer: When a bank takes a bond from the government, what the government receives is a credit entry in the banker's book showing the banker as a debtor to the government to the value of $1,000?
Mr. Towers: Yes."
- pg. 76
"B. Bank Deposits
Bank deposits, like bank notes and convertible government paper money, represent a form of credit money - indeed the most important form of credit money and much the largest portion of money in general.
Bank deposits are essentially credits entered on the books of a bank recording the obligation of the bank to pay legal tender currency to the persons in whose favour the entries are made. They are transferred from one person to another by a written instruction which normally takes the form of a bank cheque. It should be noted that it is the bank deposit itself and not the cheque which constitutes money."
- pg. 42, Appendix: Glossary of Monetary Terms (Submitted by Dr. W. C. Clark, Deputy Minister  of Finance)
"Q. Would you admit that anything physically possible and desirable can be made financially possible?
A. Certainly."
- pg. 771 (Q = Mr. Jaques)

Another great source of information is Inside the Bank of Canada's Weekly Financial Statistics: A Technical Guide by Peter Martin http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/inside-the-bank-of-canadas-weekly-financial-statistics.pdf It has many excellent facts about Canada's monetary system which fill in many gaps which economics textbooks don't address. Here is one excerpt:
There are several powerful reasons why the Bank buys
and/or trades Government  of  Canada securities:
i)  Debt Monetization-The Creation  of  Paper
Currency
The Bank  of  Canada acquires most  of  the Treasury
Bills and Government  of  Canada bonds, shown in the
first three entries of its balance sheet, directly from the
Government  of  Canada. These securities are usually
obtained as part  of  new issues offered to the public by
the Department  of  Finance.  If  the government offers,
say, $800 million in new bonds to finance a
government deficit, the Bank may buy $200 million  of
the issue, leaving $600 million to be sold to the
general public. On occasion, however, the Bank may
buy an  entire  new issue directly from the government.
To  pay for these securities which, once purchased,
appear in the appropriate Bill and bond entries on the
balance sheet, the Bank issues Bank  of  Canada
cheques  to  the  government  and  credits  the
Government  of  Canada account at the Bank  of  Canada
with the proceeds. ...
- pg. 13

Unfortunately this book was published in 1989, so some of the information is out of date - not inaccurate, just no longer implemented (hopefully that will change soon).

Here's a picture of one of the 1939 passages.




The Bank of England Admits That Money is Created Mostly by Banks

David Graeber recently wrote an excellent article for The Guardian about the implications of the Bank of England's recent paper, acknowledging that most of the money supply is created by private banks (http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity).

I believe he captures the issue well near the end of the article with this statement:
Just consider what might happen if mortgage holders realised the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.
 Mr. Graeber also hints at an underutilized power of most central banks today (with the exception of the People's Bank of China):
Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds
 (Emphasis added by me)

One observation I believe he could have made more explicit is that monetary policy in most countries (other than China) seems to be focused almost exclusively on reducing inflation by limiting the growth of the money supply that is created by the central bank. Since 95% of the money supply in Canada is not created by the Bank of Canada, and 97% of the money supply in the UK is not created by the Bank of England, then isn't it really a moot point?

If a central bank increased the money supply by buying government securities (like bonds and treasury bills), surely they could only do, at most, 1/20th the damage to the value of the currency that private banks can do? But of course, banks are role models for responsible speculation - I mean investment. Furthermore, if a central bank then returns the interest they receive from the government for the securities they hold (minus their operating cost), then that results in a smaller debt payment for the federal government. Surely having a lower bill for something unproductive (paying interest), and more money to spend on something productive (building infrastructure, investing in research and development, etc.), would reduce inflation rather than increase it?

Recently, many developed countries seem to be concerned that their inflation is too low. Policy makers get a blank cheque (so to speak) to create more money, solely for the purpose of intentionally creating more inflation. How do they choose to spend that money? By buying corporate assets no one else wants to buy. Meanwhile millions of people are unemployed, bridges are crumbling, subways are overcrowded, and emerging markets are on their way to beating the West at their own game.

Saturday, 17 August 2013

Quotes About the Monetary System in Canada

Here are some quotes I've collected from various books about the monetary system in Canada. Emphasis added by me.
"Another source of uncontrollable growth in the money supply stems from the process of debt monetization, which means issuing money to support government spending. As we are all keenly aware, the federal government persistently ran deficits for years. The primary form of finance has been through the sale of bonds to the public and to foreigners, but the Bank of Canada always has the option of purchasing the bonds outright from the government, simply issuing a quantity of notes sufficient to complete the transaction.

...

Remember, however, that the Bank of Canada can offset any imminent rise in the money supply through a variety of means, as we have seen. In any event, debt monetization has represented only a minor source of Canadian government finance, except during the war years."
- Pierre L. Siklos, Money, Banking & Financial Institutions, Fifth Edition, 2006, pg. 454 - 455

"There is little difference in inflationary consequences between creating new money at home and borrowing it abroad. In either case spendable funds are 'injected' into the economy. Foreign borrowing is fully as inflationary as new domestic money creation. And, if the official response to this borrowing is to reduce new money creation pari passu, then what is the purpose of letting foreigners create the credit and earn the international interest and earnings thereon?"
- Michael Hudson, Canada in the New Monetary Order, 1978, pg. 97
"... a central theme of the questioning [in Parliament] was whether the Bank [of Canada] might have eased the financial impact of the war by an increased issue of currency"
 - George S. Watts, Bank of Canada: Origins and Early History, 1993, pg. 63
"The minister may ... give to the Governor a written directive concerning monetary policy"
- Ibid., pg. 22 - regarding the aftermath of the Coyne Affair
"the active circulation of Bank of Canada notes increased fivefold during the war"
- Ibid. pg 52

This last quote is confirmed by my own research: http://andrewcichocki.blogspot.ca/2013/05/bank-of-canada-activity-during-second.html 

And here are some facts collected from the same book which I don't have the exact quote of:
  • the Bank of Canada became a shareholder of the Bank for International Settlements in 1970 (pg. 19)
  • the Bank of Canada was unwilling to finance provincial deficits, though it had the power to (p. 37), in 1967 this power was repealed in the amended Bank of Canada Act (pg. 14)
Lastly, according the several sources including Tom Courchene (supporter of monetarism and professor of economics at University of Western Ontario), Monetarism became the official policy of the Bank of Canada after a speech by new Governor Gerald Bouey in Saskatoon on September 22, 1975, "Remarks to the 46th Annual Meeting of the Canadian Chamber of Commerce".

I hope you find these helpful in some way. If you find any similar quotes/facts about the monetary system in Canada feel free to contact me with them.

Friday, 7 June 2013

NSA Internet Surveillance Scandal

I looked through alot of newspapers' websites today and this is the best article I found on the NSA scandal: http://translate.google.com/translate?hl=en&sl=de&u=http://www.faz.net/aktuell/feuilleton/medien/gespraech-mit-frank-rieger-vom-ccc-der-zugriff-auf-die-informationen-ist-total-12213355.html

The most important line in my opinion is this:
But once you look at what people are sitting at these companies in supervisory boards and how many former NSA employees are employed there, even in higher positions
I didn't know NSA employees work at Facebook, Google, Apple or Microsoft but it would make alot of sense, after all, intelligence agents used to (and perhaps still do) work at major news outlets (MI6 and the British Media), so why wouldn't they go where the largest troves of personal data are kept?

If you are concerned about your privacy then always work under the assumption that anything you post on the Internet can be spied upon. In fact even if you don't post something but it's on your computer as a file or keystroke it can be spied upon if you have an Internet connection, whether by a hacker or a government.

One person told me that your personal data may be a currency of the future.

But perhaps data mining can also be put to a good use, right now it seems like it can only be used maliciously but I think a Facebook profile has the potential to be used for positive data mining.

Saturday, 25 May 2013

Bank of Canada Activity During the Second World War

Today I spent my afternoon at a library looking through old copies of the Canada Gazette. I found that alot of government created money was created during the Second World War. Here is a graph I made.

Notes In Circulation refers to legal tender in the country, Reserve Total refers to the total amount of foreign currency reserves held at the Bank of Canada, and Investments Total refers to the amount of government securities purchased by the Bank of Canada.



As you can see the amount of government securities purchased by the Bank of Canada (one way of creating money) skyrocketed, the currency in circulation went up considerably, and the foreign reserves were occasionally used for expenditures.


As far as I know there are 4 ways for a central bank to create money: printing legal tender, buying government securities (bonds, treasury bills, etc.), advances (loans) to chartered banks, and government deposit shifting (from the central bank account to a chartered bank account). There's also the option of drawing upon foreign reserves or the reserves of chartered banks (assuming the country in question has reserve requirements, Canada doesn't anymore). So I examined those five activities from 1938 to 1946. Here are my main findings.
  1. Dramatic increase of notes in circulation - five-fold from 1939 to 1945
  2. Dramatic increase of purchasing of government securities - eight-fold from 1939 to 1945
  3. Occasional small advances to chartered banks (not shown in chart)
  4. Minor changes in government deposits at chartered banks (now shown in chart)
  5. Some variation in foreign reserves, presumably used for temporary war funding
The two methods the BoC chose, printing money and buying bonds, are the most effective ways of injecting money into the economy in my opinion because giving a chartered bank money doesn't guarantee that they'll loan it out or that they would have enough credit-worthy borrowers, where as giving money directly to the government guarantees that it will be spent into existence. Using reserves is a short term, unsustainable strategy but at least the money goes straight to the government.

Statements of Assets and Liabilities

Here are 2 pictures of what the Statements look like.



Saturday, 11 August 2012

U.S. Newspapers Ranked By Pulitzer Prizes

I was googling a list of newspapers by Pulitzer Prizes won and surprisingly I couldn't find any. The closest I found was an article on answers.com, so I decided to make my own since I have alot of free time in the summer. This is based on the information from the Pulitzer Prize's official website. I hope this can be used as a rough gauge of quality. All newspapers are not created equal if you are looking for information that's as objective, detailed, and well written as possible.

I included all the wins and finalist nominations in the table to make it more accurate. After all, getting nominated for a Pulitzer is pretty outstanding already. It turned out to make little difference. This is from 2008 to 2012, so 5 years. I was originally going to do 10 years but I got tired. Why not the entire history? Well it doesn't make much sense to compare a newspaper 30 years ago with the newspaper of the same name today, it has changed alot. In fact even 10 years ago may be a big difference and 5 years may in fact be a better choice because it's after the change in ownership of the LA Times and Chicago Tribune, and of course, the impact of The Internet which put all newspapers into financial troubles and forced them to lay off editorial staff.


Name
Won
Finalist
Total
New York Times
12
20
32
Washington Post
11
10
21
Chicago Tribune
2
9
11
Los Angeles Times
3
8
11
Wall Street Journal
1
8
9
Associated Press [newswire]
1
6
7
Plain Dealer
0
5
5
Philadelphia Inquirer
1
4
5
Tampa Bay Times
1
4
5
Boston Globe
3
2
5
Milwaukee Journal Sentinel
3
2
5
Dallas Morning News
1
3
4
Denver Post
3
1
4
Bloomberg News [newswire]
0
3
3
St.Louis Post-Dispatch
0
3
3
Miami Herald
1
2
3
Politico.com
1
2
3
Sarasota Herald-Tribune
1
2
3
Star-Ledger
1
2
3
ProPublica.org
2
1
3
Wisconsin State Journal
0
2
2
The Oregonian
0
2
2
Getty Images
0
2
2
Las Vegas Sun
1
1
2
Agence France-Press [newswire]
1
1
2
Thomson Reuters [newswire]
1
1
2
Detroit Free Press
1
1
2
Seattle Times
2
0
2

* I excluded all the organizations with only 1 nomination to keep the list shorter and more relevant.

To no one's surprise The New York Times came first. The list up to AP confirmed what I've heard from journalists about the other quality U.S. newspapers. The one thing which surprised me was that the Wall Street Journal was at the bottom of that group since many people consider it to be 2nd or 3rd in quality in the U.S.

There are 4 cases where a newspaper received more awards than nominations, so kudos to them!

If anyone needs the original Excel file for research or a school project or something you can email me and I'll probably send you it.

If you enjoyed the fruits of my labour the please share this blog post with your friends via facebook, twitter, Google+, email, reddit, etc.

Sunday, 1 April 2012

Free university lectures online (updated)

I've updated my 2 year old list of university lecture (MOOC) websites.

Coursera: https://www.coursera.org/

edX: https://www.edx.org/

MIT OpenCourseWare: http://ocw.mit.edu/index.htm

Open Yale: http://oyc.yale.edu/

Harvard Extension: http://www.extension.harvard.edu/courses

iTunes U: http://www.apple.com/education/itunes-u/

Khan Academy: http://www.khanacademy.org/

Wikiviersity: http://en.wikiversity.org/wiki/Wikiversity:Main_Page

425 Free Online Courses: http://www.openculture.com/freeonlinecourses

TVO's Big Ideas: http://bigideas.tvo.org/

CBC Radio's Ideas: http://www.cbc.ca/ideas/episodes/

Last but not least there's the more traditional method of sitting in on a lecture at a near by university.