Juno News - Can the government run out of money？

Canadians are now running out of money and have to rely on the government to pay back the money they have borrowed to cover their debts. Is the government going to be able to provide enough money to cover these debts or will the government have to step in and pay them back? This is the first part of a two-part series on the current situation and the second part will be released next week.

00:00:00.000 can the government of Canada ever run out of money well the simple answer to

00:00:09.040 that is no because the Bank of Canada is going to basically invent money for them

00:00:13.080 now in a normal situation it basically happens like this the Bank of Canada

00:00:17.820 holds an auction where it sells bonds or Treasury bills and it normally sells

00:00:22.680 this to investors banks brokers etc but it typically buys about 20% for itself

00:00:27.320 so that means that the government of Canada buys 20% of the debt from itself

00:00:30.620 and the assets go on the Canadian government side and the liability goes

00:00:35.420 on the Bank of Canada side so it basically holds the debt for the

00:00:38.060 government even though they're kind of the same institution but that's besides

00:00:40.760 the point that this is this juncture now again 20% is in a normal situation but

00:00:45.740 right now this is not a normal situation you can kind of think of it like a

00:00:49.580 situation where you have your credit cards and they're maxed out because you

00:00:53.300 spent pretty frivolously but now you have a genuine emergency and so you're gonna

00:00:56.900 have to pull from somewhere so we maybe you just take out a new card and imagine

00:01:00.260 you could just keep on taking out new cards and racking up debt as much as

00:01:03.140 possible now no one is saying that this debt is not necessarily needed because

00:01:07.280 there's obviously things that the government is responsible for because

00:01:10.220 they shut people down they obviously have an obligation to assist and manage

00:01:13.640 the economy because they're directly interfering again for a positive reason

00:01:17.600 for reason that they have to but they're directly interfering so there's a lot of

00:01:20.060 arguments to be made that they're gonna need to get involved but the

00:01:23.240 question I have here is that many politicians are calling for more lockdown

00:01:28.160 measures while at the same time calling for additional spending programs to

00:01:31.580 keep these keep the economy going the Prime Minister himself said that the

00:01:35.460 provinces shouldn't have to choose between people's health and the economy

00:01:38.640 because the federal government is supporting businesses now that is

00:01:42.740 problematic because again the government of Canada is simply going to

00:01:45.920 invent the amount of money that is needed to cover these bills the

00:01:49.520 question is though a two-parter number one is who is going to pay this money

00:01:53.720 back and what is the invention of all this new money going to do to the

00:01:57.080 economy well if you've studied even basic economics you know that an increase

00:02:01.280 in the money supply so the total amount of money in our system an increase in the

00:02:05.420 amount of money in the system is going to basically cause a high amount of

00:02:08.460 inflation to occur as you produce more and more money now inflation is

00:02:13.280 something that most people especially if you grew up or became an adult more

00:02:16.340 recently that's not something you're necessarily used to dealing with

00:02:18.860 because interest rates have been fairly low the prime interest rate which is the

00:02:22.640 rate that it did that banks buy money from the government has typically been

00:02:26.240 at you know one two percent very very low digits you can get a lot of loans zero

00:02:30.620 percent 1.9 percent etc if you bought a car recently you might have got a

00:02:34.160 really great deal on financing so people are really not used to paying more

00:02:37.520 than five percent for things but what happens if you have a property and you

00:02:43.160 suddenly have to renegotiate your mortgage because the rates are either fixed

00:02:47.240 for five years or maybe variable but it's still a term for a couple of years the

00:02:50.840 interest rate could suddenly shoot up to ten twenty percent that could affect your

00:02:55.100 payment by hundreds perhaps even thousands of dollars depending on what

00:02:57.860 we're talking about and how much the principal amount that you borrowed is now

00:03:01.120 this is again a larger problem that people seem to be ignoring because right now the

00:03:06.720 focus is on the immediate and that is really just a factor of the way that the

00:03:11.480 political system works the government doesn't necessarily have to worry what is

00:03:14.860 going to happen five or ten years down the road maybe even two years down the

00:03:18.340 road they are really concerned with the here and the now and so that's why

00:03:21.520 Justin Trudeau keeps on promising provinces that they don't have to choose

00:03:25.480 between people's health and the economy but it's not really a real choice

00:03:29.020 because if you pay attention to what's going on in the economic system you know

00:03:32.960 that you cannot simply print money there are historical precedents I don't

00:03:35.740 even need to name them you probably know their historical precedents to just

00:03:38.920 simply printing money until you you know until you pay off your problem that does not

00:03:42.880 seem to work so a lot of stuff we do need to be pay attention to and as

00:03:46.780 Canadians we do need to ask our government what is going on and make

00:03:49.840 sure that we are being responsible with our economic planning because

00:03:53.620 ultimately this could cause a larger disaster not just for the businesses

00:03:57.040 which are now shut down during lockdown but it will have an effect on every

00:04:00.940 single person in this country and that is not something that we'll be able to 1.00

00:04:03.760 handle if interest rates go up to like 10 20 even 30 percent we will

00:04:07.120 definitely be in a huge and serious problem so a lot of stuff to thank you

00:04:10.720 think about but thank you so so much for watching for true north I'm Sam Ashkenazi

00:04:13.840 and don't forget to subscribe

Juno News - November 25, 2020

Can the government run out of money？

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