From: tjdoran@watserv1.uwaterloo.ca (DORAN TJ - BIOLOGY)
Subject: Re: Bank of Canada and printing money.
Organization: University of Waterloo
Distribution: can
Date: Mon, 14 Dec 1992 19:01:27 GMT

In article <1992Dec13.212028.2564@cs.mcgill.ca> bspencer@cs.mcgill.ca (Brian SPENCER) writes:
>In article <1992Dec10.125420.18268@alchemy.chem.utoronto.ca> golchowy@alchemy.chem.utoronto.ca (Gerald Olchowy) writes:
>>In article <18319@mindlink.bc.ca> John_Carson@mindlink.bc.ca (John Carson) writes:
>>>I never have been involved in any ECONOMIC class so I would like to find out
>>>what is the situation if the BANK of CANADA does print extra cash just to pay
>>>off the debt to a "000" balance.
>>>
>>
>>Boys and girls...the word for today is "hyperinflation"...wiping out the
>>entire savings of the country, public and private, wiping out the social
>>safety net, throwing millions onto the streets, and into destitution.
>>
>This is exactly what happened to Germany after WW1. They had to pay back
>the allied countries so they printed up lots of money. The
>hyperinfllation was so bad that the German people were desperate enough
>to democratically elect the Nazi party into power because they promised
>to turn around the economy by starting a war.
>
>Brian Spencer (bspencer@binkley.cs.mcgill.ca)
>

But does this apply to Canada now? Germany after WW1 was saddled with an
*enormous* debt compared to its potential GNP. It ran the presses non-stop
and even so, I doubt they ever paid that baby off.

At this point, we must separate foreign and domestic debt. 

As mentioned before on this topic, if you start printing bills to pay off 
foreign debt, the IMF will jump all over you. 

But, Canada owes Canadians money, in the form of t-bills. Most t-bills are
owned by insurance firms, banks, etc. and are considered investments. Even
the part owned by private citizens is, to a large extent, considered investment.

If the Federal gov't liquidated all t-bills right now, and the whole mess of
dollars was treated like 'found money' by its Canadian owners, the price level 
would go thru the roof as people rush out to buy VCR's, cars, peanut butter,
etc.

But in most cases, the banks, insurance companies, as well as the small-time
private citizen investor would simply look to reinvest the money. Prices of 
stocks would probably go through the roof, but that will have little effect
on the average citizen, since such portfolio investment only concerns a small 
class of wealthy people.

On top of this, the resulting investment in private enterprise could be the 
best thing ever to happen to our economy. Unemployment would probably fall.

The important thing is that the cost of production of goods figured in the 
price index would not rise (costs might actually fall, increasing profits).
Freed from interest payments on domestic debt, the gov't could turn its $8  
billion operating surplus to paying off the foreign debt.

Cheers,
TJ



-- 
TJ Doran  	              |"There you stand like a duck in a thunderstorm
TJDORAN@watserv1.uwaterloo.ca | again... Aren't you ever going to understand?" 
                              |                         - W.A. Mozart
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