The Bank of Canada: Instrument of Growth or Destruction?

With the May 5 announcement by Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada that new protocols are being prepared in anticipation of future emergency bailouts[1], certain uncomfortable truths have been brought to the surface which not only challenge the entire paradigm upon which the Canadian financial system is built, but forces a re-evaluation of the true purpose and character of the bank of Canada, especially within the context of a new global growth paradigm based on “win-win” cooperation being led by the BRICS.

What was announced?

During a Montreal Chamber of Commerce meeting, Mrs. Wilkins announced that the turmoil in the world economy has forced a re-structuring of protocols in preparation for bailing out Canada’s banking system.

Three of the most notable features announced by the Bank of Canada call for 1) a decrease benchmark  in bond purchases which the Central bank needs to purchase per year, 2) the creation of a new repo facility which allows for financial institutions to unload toxic assets in order to receive bailout, 3) the extension of bailouts to provincially regulated credit unions which have become increasingly locked into toxic derivative bets and 4) the permission to use mortgages and related securities as collateral to receive future bailouts.

The Deputy Governor reasoned that the purpose of the new protocols was necessary in order to deal with the global shadow banking system. Mrs. Wilkins stated:

The shadow banking system is growing in size and influence. Here, I’m referring to institutions such as hedge funds that intermediate credit but operate outside of the regular banking system. Despite the ominous-sounding name, shadow banks have an important, positive role to play in the economy. Their influence is growing, along with the amount of assets they have to manage. They have also introduced a number of new financial products and innovations.”

What “positive roles” Shadow banks play in the economy, Mrs. Wilkins did not specify. Informed readers of such bankers’ jibberish should be aware already that the only innovation which Hedge Funds and shadow banks offer are the creation, manipulation and growth of “financial weapons of mass destruction” known as derivatives.

As the CRC and EIR have reported for years, what has made the global bond market such a trigger of global instability now threatening to tear across the world economy, resulting in such announcements as that made by Mrs. Wilkins, is the $2 Quadrillion derivatives bubble of which the bond market, and Canadian housing bubble are but lynchpins.

Another important fact which Mrs. Wilkins didn’t specify in her speech is that turmoil caused by the shadow banking system is the direct effect of the immanent Greek exit from the Euro which will result in the total disintegration of the Euro system. This will mean the reverse leveraging of the multi-trillion dollar derivatives ripe to explode and into which the Canadian financial system is deeply locked.

This brings us to the real reason that such measures are being adopted by the Bank of Canada and exposes the fallacy underlying the Canadian banking system. Namely:

1) The fact that the global derivatives contagion has thoroughly penetrated the Canadian financial system.

2) The imminent collapse of the Canadian housing bubble.

The fact that these two weak links have been not only permitted to exist, but encouraged to grow to behemoth proportions in order to continue to garner unprecedented profits for Canada’s big 6 banks represents the greatest of frauds and must be exposed and corrected immediately if general chaos is to be averted.

The Derivatives Bubble Exposed

As of May 2015, the big six banks cumulatively represent over $28 trillion of derivatives exposure, with the Royal Bank of Canada leading the dive with $10.6 trillion all on its own. This staggering figure overshadows the mere $3.2 trillion of declared assets held by all six. In 2011, the big 6 derivatives exposure was $16 trillion, suggesting a 46% increase in only 4 years!

As the economists at GreatPonzi.com stated in showcasing the most recent report on Canadian derivatives exposure:

Derivative exposure is hidden off-balance sheet where it can’t distress investors and depositors. The standard excuse given by banks is that they are long some derivatives, and short others – and the two (thanks to financial engineering) perfectly balance out risk, resulting in minimal net exposure. But in reality, banks can only maintain such perfect hedging during exceptionally low volatility. A spike in volatility, or a counterparty failure, can suddenly create enormous derivative book losses. This happened in 2007-2009 (wiping out several banks), and will probably happen again. More derivative exposure means more risk.”[2]

The $28 trillion figure reveals that not only has Canada followed other trans-Atlantic governments into the derivatives vortex at an accelerating speed since the 2008-09 crisis, but that the savings, pensions and other legitimate credit held in Canadian banks and credit unions will be wiped out as soon as the bubble, which such legitimate assets sustains, goes bust due a default in any other part of the interlocked global system.

A major weak link within the Canadian system remains the mortgage market. The fact that the Bank of Canada Protocols now allow for mortgages to be unloaded from balance sheets as collateral for bailout requires that a few moments be allocated in order to provide an update on the mortgage bubble.

The Mortgage Market: Ripe to explode

Since 2011, a multiplicity of factors have been deployed consciously by operatives within international banking and government circles with one singular intention: create the biggest mortgage bubble in history by a mix of predatory lending, reckless speculation, an expansion of federal home insurance led by the Canadian Mortgage and Housing Corporation (CMHC), and the creation of artificially low interest rates by the Bank of Canada.

Overall, this devil’s brew of financial services manipulation has tied Canada’s destiny ever closer to the hull of the Titanic, and while record profits have resulted for investors in Canada’s big six financial institutions, which have experienced record profits every year since 2011, Canada’s demise as a stable, civilized society were all but ensured.

In case any doubts still lingered that this mortgage scheme were somehow sustainable, it is worth mentioning just several startling facts:

  • Canada’s personal debt: earnings ratio is among the highest in the world, spiking at $1.63 of debt to every $1.00 earned as of April 2015. To put this figure in context, in 1999, Canada’s debt to earnings ratio was merely $1.06:$1.00[3].
  • Average home prices have skyrocketed to an all time high of $439 000.00 with an 11.2% growth in Vancouver, BC in on year. Precursors of the collapse of this bubble have already begun to be felt in Alberta, where the oil price collapse has resulted in thousands of layoffs and a wave of evictions that have sent overinflated prices plummeting.

While there are parallels to the American housing bubble which blew out in 2007-08, there are unique Canadian characteristics to our housing bubble which the Committee for the Republic of Canada reported on in July of 2012[4] and will not address at this juncture.

The dual nature of the Bank of Canada as an instrument for recovery or an instrument for destruction must now be brought into question. If leading citizens and policy makers permit for new bailout protocols, as well as new protocols for Bail-in warned by the CRC since July 2013, then self destruction were all but unavoidable. If however those reforms which Lyndon LaRouche and the CRC have put on the table were adopted, a bright future could yet still arise.

A Matter of Strategic Action

At an April 2015 New York Schiller Institute Conference, Helga Zepp-LaRouche described the BRICS and the new opportunity which has arisen with this new paradigm in the following words:

What people cannot imagine is that there are countries which have drawn the conclusion out of the unipolar mode of the United States, and they have basically joined hands to say, the IMF and the World Bank are not providing us with the opportunity to develop. And therefore, they have not only decided on all of these massive projects, but they are building a new banking structure.

They have started the New Development Bank of the BRICS, which will have an initial capital of $100 billion. They are building the AIIB [Asian Infrastructure and Investment], also $100 billion; the New Silk Road Fund, $40 billion; the New Maritime Silk Road fund, $20 billion; the SAARC [South Asian Association for Regional Cooperation] development bank, for the South Asian countries, also in the same vicinity. And they are also building a Shanghai Cooperation Bank. So, if you look at this new system of banks, it is entirely a new financial architecture—not for casinos, not for derivatives, not for speculation, like Wall Street and the City of London, but only for infrastructure funding, only for projects of the common good, only for development.”

What needs to be clarified now is the question “how can a solid educated mass of leading citizens be mobilized to ensure Canada’s participation in the Asian Infrastructure Investment Bank (AIIB) and other BRICS-affiliated global institutions operating on a principle of Hamiltonian credit and future productive potential?” For such an action to occur, Glass-Steagall’s restoration and a revival of Canada’s National Bank as a Hamiltonian institution were absolutely necessary. If Canada’s re-chartering of its national bank as a Hamiltonian Institution were not affected in short order, then it would be impossible for Canada to work with the BRICS as a reliable partner in global development.

Canada’s special contribution to this new global paradigm of “win-win” cooperation remains our high-tech specialization in engineering, agriculture, nuclear power, space science, aerospace, and medicine. Geo-strategically, Canada’s vast underdeveloped Arctic must be seen, as a platform for peaceful development centered on development corridors, fusion power development, the Bering Strait rail connection and planetary science research[5]. This new approach to global (and galactic) challenges, means abandoning the pro-war program which the British Empire has launched against Russia and China and adopt the paradigm of mutually assured survival in short order.

Footnotes

[1] Liquid Markets for a Solid Economy, Remarks by Ms Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada, to the Chambre de commerce du Montréal métropolitain, Montréal, Quebec, 5 May 2015. http://www.bis.org/review/r150508a.htm

[2] http://www.greatponzi.com/reports/cdn-credit/health-2015-Q1.html

[3] Indicating that Canada’s tendency moralize the Greek population as “lazy over-spenders” is more than a little hypocritical.

[4] Canadian Housing Bubble Blows Amid Global Collapse, by Matthew Ehret-Kump, Canadian Patriot Review, July 2012 http://canadianpatriot.org/archives/668

[5] Will Canada Succumb to the Militarization of the Arctic or Collaborate with Russia and the BRICS? http://canadianpatriot.org/will-canada-succumb-to-the-militarization-of-the-arctic-or-partner-with-russia-in-the-joint-development-of-the-worlds-polar-and-far-north-regions/