Low-cost loans inflationary?

Open letter to Finance Minister Bill Morneau 

Re: http://www.parl.gc.ca/Content/HOC/ePetitions/Responses/421/e-337/421-00858_FIN_E.pdf

In your official response to petition 421-00858, you claim that public financing of infrastructure through Bank of Canada low-cost loans would be inflationary. 

But does real-world evidence support your contention when applied to advanced countries with large unused productive capacities and that issue their own currencies, such as Japan or Canada?

According to Australian economist William Mitchell, "...the Japanese experience with sustained high fiscal deficits, the world’s largest public debt to GDP ratio, close to zero interest rates, and deflation, was totally at odds with (neo-liberal) economic theories. It was a mind-boggling failure to explain reality."

The New Economics Foundation recently published "Is Monetary Financing Inflationary? A Case Study of the Canadian Economy, 1935–75".  The report concludes "The 1935‒70 period saw the Canadian economy recover quickly from the Great Depression, weather the Second World War, make a rapid transition from war to peace, and then enjoy a 25-year period of relatively stable and high growth with rapid industrialization..... The Bank of Canada played a key supporting role by directly and indirectly financing government debt."

Under your proposed Infrastructure Bank, investors are expecting a minimum return of 7 - 9%, and it is clear that low and middle class Canadians will bear the brunt of higher costs through tolls, user fees and increased taxes. That is inflationary.  

Canadians deserve a finance minister who will challenge economic myths propagated by financial elites who claim no alternatives exist to their high-cost lending.

Mr. Morneau, whose interests will you serve?

Larry Kazdan
CPA, CGA