The Privilege of Creating Private MoneyThe state authorities consider printing new money for private use a serious crime called counterfeiting. However, creating new money in other ways for the private enrichment of chartered banks is lauded and state-sanctioned. Canadian authorities have given a small group of privileged people and their financial enterprises, called chartered banks, the right to create money for their private ownership, use and profit. The state-organized privilege of creating privately-controlled new money has greatly strengthened the financial oligarchy, tightened its grip and control over the economy and concentrated wealth and power in fewer hands. Once awarded state authority to create money, private chartered banks can expand their ownership of legal money without having their workers produce anything. The amount of money they can create for their private use is restrained only by vague guidelines in the Bank Act, their own assessment of the creditworthiness of the borrower, and the risk they wish to take according to the amount of money or equity they already control. Since the onset of the neo-liberal regime in the 1990s and the anti-social offensive, including deregulation of big business, any legal requirement that the chartered banks hold in reserve against the total of outstanding loans a certain amount of their own cash or money in accounts that people or businesses have deposited in their banks, has been eliminated. The creation of new money is a constant necessity within the modern economy of industrial mass commodity production where the capacity of workers to produce new value is enormous. The issue is that the creation of new money through financing, based on the prospect of workers producing added value should be the social responsibility of a public authority accountable to the people. It should not be a means to enrich a privileged few. The state awarding of private charters to enrich a faction of the elite should be an illegal practice denounced as corruption of the worst kind. The "Big 6 Chartered Banks" in Canada are by far the biggest moneylenders in the country and creators of the most new private money, even more than the public money the Bank of Canada creates.[1] If a person or company seeks to borrow $5 million from a wealthy person or company other than a chartered bank, the money-lending person or company would have to possess the required amount. The $5 million in possession of the lender would be transferred from the lender's account to the borrower's account or handed over in some other way at an agreed price or yield, usually a rate of interest. If the person or company seeks to borrow the $5 million from a chartered bank, the bank does not have to possess the money to be borrowed. The bank does not have to hand over any of its own money to the borrower. The bank puts drawing rights worth $5 million into the account of the borrower. The amount does not previously exist. The chartered bank creates the money using its state-sanctioned privilege. The lending of the new money follows the bank's assessment of the creditworthiness of the borrower and legal paperwork to detail the amount and length of time before the borrower fully repays the loan, which includes the $5 million principal and interest. The legal paperwork also includes the borrower's collateral the bank may seize if the loan is not repaid in full.[2] Example of a Commercial Mortgage for a Multi-Unit Rental BuildingReal estate or construction companies can apply to a chartered bank for a commercial mortgage on a multi-unit rental building they have built or want to buy. The loan is assessed against the perceived value of the property, which becomes the collateral to be seized in case of default. The commercial mortgage then must receive approval from Canada Mortgage and Housing Corporation (CMHC), which is the only insurer for mortgages on multi-unit residential properties, including large rental buildings, student housing and nursing, long-term care and retirement homes. The CMHC insurance allows greater protection for the bank in case of default. Lawyers conclude the necessary paperwork, including the rate of interest the borrower must pay for the use of the new money. If the moneylender is satisfied that the loan is worth its while, and the collateral, which is the market value of the building, is sufficient to cover any outstanding non-payment of the loan, the bank finalizes the loan. The bank puts the loan amount, say $5 million, into the account of the borrower. No money is transferred from the reserves of the bank lender; instead, a debt to the bank under the name of the borrowing company is entered on the bank's balance sheet, indicating the amount of the loan and terms. The borrower may use the $5 million to pay off a construction mortgage and possibly smaller higher interest loans required during construction and any remaining contractors owed. Commercial mortgages can also be used to purchase an existing property from another owner. Commercial mortgages carry smaller interest rates usually on par with the yield on ten-year government bonds, at this time below two per cent. This may appear at first glance as not very profitable for the banks until one realizes that none of the $5 million comes from a vault in the bank or out of the pocket of some oligarch but rather is created out of nothing but state-organized privilege of the rich. The created $5 million loan plus interest comes back to the chartered bank in monthly payments. The borrower begins to repay the principal and interest on the $5 million the next month, in the portions agreed upon for the duration of the loan. The bank lender receives the monthly payment in return for money that it never possessed in the first place but merely created according to the state-organized right to do so as a private chartered bank. This new $5 million the bank has created and any accrued interest belongs to the bank as its private property. If the borrower defaults, the bank seizes the building as its own private property. Over the duration of the loan until final payment, the bank receives in monthly amounts the $5 million principal plus the total in debt charges called interest. With final repayment, the bank receives $5 million plus interest without having used any of its own money except for administration and other consumed value such as the offices it maintains, the equipment it uses and the price of the capacity to work it buys from its employees. The borrower routinely pays the legal fees and the cost of the CMHC insurance and other transaction fees. If the borrower for some reason, such as an economic crisis or financial disaster in another area of the business it owns, can no longer service the loan, the bank begins legal proceedings to seize the building as collateral for the loan. Because CMHC has insured the loan, the bank also has that cushion to recover the debt, if the market value of the building does not match the unpaid portion of the loan, and to pay for the legal process. The banks also have options to turn the existing mortgages they own into immediate money. The banks can sell to others the mortgages they possess for a discounted amount of the total value that is left in the mortgage. Also, outstanding mortgages are often bundled together into large bonds that are then sold on the international market. These asset-backed securities consisting of mortgages and other outstanding loans were a factor intensifying the economic crisis in 2008, as many of the mortgages and loans bundled within the bonds failed, leaving insufficient collateral value, causing a cascading collapse of those types of derivatives. The financial oligarchy uses the state-organized right of chartered banks to create private money as yet another weapon to concentrate into its hands the social wealth of the economies it controls within the imperialist system of states. Part of the fight for a new pro-social direction and aim for the economy is to put an end to the state-organized corruption and privilege of the rich. Notes1. The "Big 6 Chartered Banks" in Canada: - Bank of Montreal (BMO) See articles in TML Weekly May 9 Supplement for discussion of the role of banks and the creation of money. 2. Generating Price Inflation To promote price inflation, the financial oligarchy, both privately and publicly, deliberately creates new money beyond the growth in aggregate new production. When currency growth in circulation is greater than any growth in the national production of goods and services, the discrepancy becomes a factor for price inflation. More total money in circulation representing the aggregate national production means a dollar represents less actual value of production. In other words, one dollar does not buy as much goods and services as before. The Bank of Canada even has an annual inflation target of two per cent. The most basic reason to force price inflation upon the economy is to put downward pressure on the value of the capacity to work that the working class sells to those who own and control the economy. With price inflation for goods and services, the working class is in a constant battle to raise the price for its capacity to work to keep up with price inflation for the goods and services it requires to sustain a certain standard of living. The financial oligarchy also promotes price inflation specifically in Canada to keep the Canadian dollar weak against other currencies within the imperialist system of states. The Canadian dollar currently trades at around 72 cents to the U.S. dollar. A lower Canadian dollar relative to other imperialist currencies cheapens the exports of Canada's abundant natural resources, which the financial oligarchy within the imperialist system of states seizes for use in production elsewhere, in particular within the U.S. military economy. The weaker dollar also promotes certain sectors, such as the U.S.-dominated entertainment business, specifically the production of movies and TV programs. The cheaper Canadian dollar allows the U.S. oligarchs in control of that sector, who use U.S. dollars to finance their productions, to cheapen the price of production by filming in Canada as compared with the price of a similar production within the United States.
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