Canadian Federalist Party



This paper makes the case for Canada’s independent economic development backed by policies of autonomy and sovereignty during this period of global monetary restructuring. A brief look at where we were and are at present is followed by a vision of where we should want to go.

In 2006 as the financial crises approached, the world’s wealth and liquidity had begun to accumulate in China, the oil rich nations and global corporations while the rest of the world fell into a giant hole of debt. This transfer of wealth out of the developed nations into emerging economies had the effect of slowing down global trade and development. It also signaled that the financial system was leveraged well beyond its capability to recover. The world was swamped in debt and had run out of money. Only a new monetary order would enable global recovery.

Back then it appeared to me that it would take until 2017 to play out the financial disaster and to persuade the major players to agree to a new global monetary structure. According to traditional economic theories, the United States debts could only be serviced by increasing the money supply which should also reduce the value of the dollar and thus stimulate their economy. Usually this would also stimulate inflation and thus increase interest rates. But this time around this did not happen.

In the past instances of increasing the money supply, the consumer debt burden was far below current levels and the banks still had room to lend money, so inflation of prices and interest rates could grow. This time, the banks were way over-leveraged and consumers could not afford to sustain their purchasing behavior. Consequently, we incurred negative interest rates and stagnation.

In July 2013 a brief article in The Economist (Free Exchange- A Trio of Trilemmas) highlighted a recent work of the historical economists Michael Bordo and Harold James. These men revisited the classic concepts of “fixed exchange rates”, “free movement of capital” and “independent monetary policy” in which only two can co-exist. They compare the Ero-zone’s common currency to states that previously traded whilst under the “Gold Standard”. Their conclusions are that these monetary unions take away a nation’s ability to set interest rates, but also forsake financial stability and undermine democracy.
Their second set of incompatibilities is “fixed exchange rates”, “capital mobility” and “financial stability”. The third is “fixed exchange rates”, “capital mobility” and “democracy”. All three cannot co-exist.

The recent global monetary collapse is clear evidence that the monetary system is in big trouble. As the economists point out, the Euro zone’s central bank has been unable to adapt to the internal differences in national economies. One might also recognize that even independent nations like the USA, China and Japan have not been able to adapt to the imbalances that evolved under the private Central Banking systems currently in place around the world.

The kinds of problems being experienced by global economies are very similar to those problems experienced under the gold standard system. This should not be a surprise as both systems are an attempt to assert a centralized monetary control over diverse peoples, diverse economies and diverse banking networks. Compounding the difficulties in adjusting currencies based upon surging and ebbing GNP growth is the constant re-shaping of capital flows by major free market investors in the global stock markets. The ensuing chaos has rendered many nations powerless to effectively manage their own economies without risking potentially disastrous social revolt.

(At this point it is important to understand that governments cannot control the monetary systems as they are directed by private individuals at the heads of the major banks. These people established and manage the Central Banks. For the past 500 years, private bankers have managed the global monetary systems.)

A major flaw in the world’s financial systems is the understated risks posed by leveraging of assets, especially financial assets that are backed by cash flow promises-  not backed by physical goods. (Ratings agencies within this sector have lost control over their ability (or capacity) to verify the information on which they base their ratings.) With computerization changes take place so quickly that the intrinsic value of an asset can change faster than people can monitor or assess them. Much of the time the system operates on “blind faith”, which is as reliable as playing roulette. The house rules ensure that more money is held back than goes out. The financial and thus the monetary systems have denigrated far beyond the safety parameters that existed behind traditional investing processes of the last century.

It is perhaps admirable that governments are calling for stronger regulatory frameworks for the financial and monetary systems. However, one should be skeptical about the outcome. We only need to see the number of laws and regulations set up to control crime to realize that these laws and regulations have actually done a lot to make crime more sophisticated and more difficult to prosecute. It has become a more sinister cancer in our democracies than we care to admit.

Obviously, business ethics have been twisted to enable the financial system to indebt people, businesses and governments to the point of accumulating debt loads that would take over 300 years to pay down. Even unrestricted expansion of the money supply has only provided opportunities to earn 2% to 3% returns which are barely enough to cover interest costs never mind commencing to pay down principal debt. Consequently, we are seeing debt burdens increasing instead of decreasing, especially by governments. At some point, these debts will exceed the value of the assets pledged as collateral. All the collateral will then switch owners and history indicates this will not be a “peaceful” process. Humanity is setting itself up for a major disaster once again.

Nevertheless, we should be capable of creating better financial (National) and monetary (International) systems by recognizing the consequences of past structures and systems. It could be foolish to generalize too much, but too much centralization creates rigidities and momentums of their own that eventually suppress freedoms of choice and actions.
The failed “Euro” example is fresh in our minds and the proponents of a centralized world government are apparently blind to the enormous fallaciousness of their Utopian fantasy. The powers of the Central Bankers are so vast that they appear to have become intimidated or possibly mesmerized by their influence over world affairs. In fact, the exponential leveraging they enabled during the past 20 years allowed them to accumulate extreme personal wealth while unwittingly de-stabilizing the whole network of financial and monetary systems.  This situation makes it abundantly clear that national governments need to find ways to protect not just their sovereignty, but also their financial independence. At the core of these objectives is the economic productivity of their domestic society.

The national trade restructuring alignments being discussed during the present decade amount to economic and monetary warfare. National autonomy is being jeopardized on a grand scale. Thus, the ability of a country to manage their economy and social development will become more dependent upon their trading partners’ prosperity than their own prosperity. Although Free Trade has strengths and weaknesses that can influence internal economies, trade alliances also lead to inter-dependence and vulnerability to external or even internal political change.

Dependency on others is a direct pathway to foreign containment of a nation’s economy (Note the USA’s dominance over Canada’s economy). Unfortunately, the global economy has evolved to this status in most industries, where either huge international corporate organizations have gained control over the wealth of industry after industry or foreign government sovereign wealth funds have achieved the same objectives. In many industries, these organizations can dictate industrial policies to the local government. Local policy makers and regulators are now in the habit of taking advantage of short-term economic gains at the expense of long-term control over development. (Canada has recently taken grave risks in this kind of domestic foreign investment (China and Billiton).)

For nations like Canada with plentiful supplies of the five key resources: human, physical, informational, technological and financial resources, there is still a viable option to function somewhat independently from the centralized global monetary unions through our adoption of a floating exchange rate. This is because Canada’s monetary system is founded upon goods and services with intrinsic values. The $CDN has solid backing and is not based upon promises of future productivity or future wealth ($USA?). It has actual present value which many global currencies presently lack.

Countries without a full mix of resources need to adopt development strategies quite different than Canada. They will need to partner with nations that have a complimentary mix of resources. But Canada has an option to develop on its own according to its own strategies.

A strong argument can be made that Canada has carelessly squandered its wealth during the past fifty years. It chose to make foreign capital alliances and build a massive “public sector” middle class civil service rather than allow itself to create a widespread wealthy “private sector” middle class. This has led to shortages of domestic liquid investment capital and large foreign borrowings.

The basic strategy has been to direct natural resource development cash flows through public coffers and to tax incomes and purchases of its citizens. This led to the flow of capital to the growing government agencies and inefficient capital expenditures. It also limited the public middle class’s ability to purchase homes and accumulate investment capital. The end result is that the baby boom generation was prohibited from building a huge commercial diversity that would supply future generations. Instead, there will be a society over-burdened with seniors living in poverty and young people unemployed due to oligopolization of most industries by international corporations. (50 Years of ill-conceived domestic taxation policies constrained internal development by Canadians and opened the door to wealthy foreign capital.)

So how do we go about changing our strategies and restructure our economy? Much like re-engineering a business turnaround, we need to agree upon a new vision for our nation. To create this new vision, we have to look at what we have now by carrying out major research projects that define and quantify our five key resources. We need to then set some goals for the next twenty five and fifty years. Once we establish where we want to be in the future, then we can prioritize the changes we need to make. Canada doesn’t need a revolution to achieve our vision, but we do need to embrace change and become adaptable to the changing country we create. Old customs, cultures and beliefs may endure, but some will be left aside as we make a better country for all Canadians. As no society can accommodate all traditions and beliefs, some traditions, customs and beliefs will just not be compatible with our vision of our future Canadian society.

All economic activity is predicated upon there being like-minded people willing to accept responsibilities and having similar goals. This set of principles is the same whether it is a simple purchase transaction or the building of a spaceship to visit other planets. They also apply to the development of the economy of a nation. But Canada has avoided the discussions we need to anchor our common culture, values, traditions and responsibilities. These must be addressed before we can embark on a path to achieve the equitable and just economy we all desire. We all must have the knowledge, trust and respect of a common purpose in order to enjoy the prosperity and synergy of our potential economy.
Individual privacy, rights and freedoms are integral to our broader Canadian culture so it will become increasingly important for us to protect these and to find ways for those with contrary beliefs to accept this culture or to freely seek their culture elsewhere. People are always most comfortable around family members and people of like culture, but in order for different cultures to co-habitate we must establish common grounds that anchor individual responsibilities and rights. Those who cannot accept these common grounds will likely find themselves living outside our laws and acceptable traditions.

Canadian society can not progress economically if cultural biases and prejudices create barriers to mutual sharing of the resources and opportunities of this nation. We must find an acceptable harmony between all peoples and a respect for diversity and uniqueness.
Canada is anchored in an Anglo-French language tradition which should be sacred to all Canadians.  People who choose not to acquire fluency in either language can not participate in the full meaning of being Canadian. They end up choosing to exist within a ghetto of their own language culture. It is important that their children are given the opportunity to join the Canadian culture in language. Of course, multiple linguistics is inevitable in a country with citizens from all over the planet. But if one has the intellect, one must accept responsibility to learn a national language. This should be a distinct and implied ethical responsibility if one seeks to become a Canadian citizen.

Indeed there are other implied responsibilities that should be accepted to call oneself a Canadian, such as: respect for our Heritage (good & bad), generosity towards the indigenous nations, loyalty and service to the country, support and supply to those with greater needs, living and developing in harmony with our environment, respect and obedience to our laws, respect for our religious heritage and an innate desire to make a personal contribution to our society.  Canada got “the horse before the cart” in granting people “rights” through our Charter of Rights without defining the pre-eminent “responsibilities” we must undertake as citizens. This was an easier path but it was foolish and reckless and has created and sustained numerous internal divisions within society.

A nation must have its key values and principles laid down before granting almost unlimited rights to every citizen. The courts can then interpret these values and principles and also adapt to changes in society through the evolution of “Common Laws”. However, laws made without clearly stated moral and ethical parameters will only imprison society in a litigious mentality and a confusing array of regulations and restraints. Canada needs to revise its Constitution to accommodate a Charter of Responsibilities, Duties and Heritage that sets the context for our Charter of Rights.

Canada should enter this century with a new Constitution that recognizes the present perspective of our nation. Our current 150 year old Constitution was designed from a 150 year old perspective of our country and our capabilities. It is time to create a new paradigm for our nation. (This CFP website describes many elements of this new paradigm.)

It has been a life-long intellectual struggle for me (and likely many other Canadians) to understand why more than 60% of the money we earn and spend must go directly to government agencies rather directly into economic activity. (Much of these are hidden government costs passed on to us in the goods we acquire never mind all the different taxes we pay.) Finally it is clear to me that we have under-exploited our democratic rights by transferring the power of these rights to political parties and their government partners.

We have given up trying to solve the complex issues of creating a better country to these individuals who have then legally assumed the power and authority to build structures that sustain their controls. We also have granted them our faith in their sense of integrity and responsibility to serve the needs of all of us. But this has proven to be a naïve attitude. At present, the wealthiest sector of Canada’s middle classes is the civil servants and politicians. Sixty years ago, they were in the lower sector of the middle classes.

It would be wrong and unfair to displace these people, but it is also time to help the rest of the public to catch up. In fact, Canada has all the necessary ingredients to accelerate our economic development and overall prosperity. But time is running out as the momentum is increasing for foreign capitalists.

The real issue is whether we can produce our own capital or are we obligated to use outside capital? Outside capital helped us get to where we are to-day, but I strongly recommend that we use our own capital to finance our new growth in this century. (It is ironic that the largest Pension Fund in the world was created in Ontario, yet it must find foreign investments to sustain itself. OTPP has $130 billion in assets and a $5 billion shortfall in its funding commitments to retiring Ontario teachers.)

It is common knowledge that small businesses provide 70% of new jobs in Canada. They are the octane of our economy. Thus it is absolutely crucial that we enable the flourishing of small enterprise by enabling families to accumulate capital for starting new businesses. Nowadays it is likely a valid statement that many new businesses were created by working in the “cash economy” to avoid paying excessive taxes. In fact, these people have been rewarded by operating illegally while honest tax paying citizens have been robbed by the government of their opportunity to become financially self-sufficient. Clearly a country wide tax review and revision is called for.

A second issue is that we need to produce a generation of entrepreneurs, not the corporate and government wage slaves of the past century. We need to teach and show individuals with the interest and aptitude how to start up and run new businesses. A shocking fact is that a large proportion of successful new small businesses are started by people with no post-secondary education. These people learn “on-the-go” and don’t pass through the humiliating experience of university pre-requisite courses which often are unnecessary to succeed in business. Thousands of young people fail and fall out of these business programmes and never regain the confidence to embark on their own business. Clearly a nationwide review of university and college programmes is needed to produce a new generation of confident and aggressive entrepreneurs.

We need to teach leadership and initiative- not committee politics and decision making or try to teach detailed expertise in areas where salaried people can be found by the new business operator. (With four children exposed to the college and university systems, it is ridiculous that a significant number of their lecturers and professors never had a business of their own or can actually speak English in an understandable pronunciation of our language.)

To summarize, Canada needs to rewrite our Constitution to create a new identity for all Canadians. We need to begin the process of generating internal investment capital by restructuring the finances of our private citizen middle classes. And lastly we need to raise up a generation of entrepreneurs. These three significant tasks will move Canada onto an open expressway towards unimagined prosperity. We all need to belong to “Team Canada” – go team go!