Comment 84346

By A Smith (anonymous) | Posted December 22, 2012 at 09:23:37 in reply to Comment 84226

All the money that we use in Canada is created by the Bank of Canada...

1.) The Government of Canada has a bank account at the B of C which is constantly topped up with cash.

2.) If this account runs low, the B of C sells debt to primary dealers. This reduces cash reserves in the banking system and increases debt instruments.

3.) If too much liquidity is taken out of the banking system, this will cause the demand for reserves (cash) to rise, which will in turn cause interest rates to rise. In order to offset this, the B of C buys adds cash by buying debt from banks.

4.) Since banks lend out a multiple of their capital (which includes Government of Canada bonds), the constant influx of new debt into the banking system ensures that the monetary base expands year after year.

At the federal level, taxes are actually part of the monetary system. For example, if there were no federal taxes, money would flow into the banking system, but would never leave. By taxing Canadians, the feds ensure that money growth is kept roughly in line with productivity growth.

In short, gambling is not necessary for Canada to fund anything. If the feds want to fund something, all they have to do is issue debt. The trick is to fund those things that make us all better off.

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