LETTERS: More debt is not the solution to financial crisis


I haven’t heard any politicians talk about my number 1 election issue. I have never seen it covered in the media or debated in Parliament. I had never even thought critically about it until two years ago. The issue is how our personal and national debt relates to the way money is created in Canada.

We should all be outraged that ever-increasing debt continues to be necessary for our stable economy because of our federal government’s inability to change our money creation policy.

When I grew up in the 1950s and ’60s, only one spouse needed employment, yet the debt-per-household was very low compared with today. Canadians reportedly now owe $1.78 for every dollar of their disposable income.

So why is increasing debt necessary for our economy to thrive? I used to think that when you went to the bank for a mortgage, you were borrowing from other depositors’ savings in exchange for the next 25 years of your physical toil. After all, I thought this used to be how banking worked in Canada.

But that’s not how borrowing really works. Now you are trading your 25 years of labour — time spent away from your spouse and children — for the time it takes the bank to review your mortgage application and create a one-minute bank ledger entry. An equal trade? No.

Among many other sources, a Library of Parliament research publication explains that most of the new money in Canada is created by banks when they make loans. So the main way to get extra money into the economy is to borrow it from banks, leaving many people trapped under a mountain of personal debt. And the extra spending the newly created money produces gives us the impression the economy is doing well with more employment opportunities, which encourages us to borrow even more.

As the debt goes up, so does the amount of money in circulation. But just as banks create money when they make new loans, they effectively destroy money when we repay loans.

What would happen if everyone stopped spending in order to pay down their debt? Massive unemployment. It’s almost impossible to reduce our debts without causing a recession. And what does government do to recover from a recession? It entices more debt by lowering the bank rate. If we want more money in the economy, we have to go further into debt. But if financial crisis is caused by people having too much debt, how can more debt be the solution?

There are solutions that eliminate boom-bust cycles, solutions that would best ensure adequate funding for education, environment, poverty, housing and infrastructure issues. We need the federal government to fix our money system because all other issues depend on it. We shouldn’t need ever-increasing debt to have a “successful” economy.

Steve Chapman, Surrey

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