The rocky relationship between CERB, EI and getting back to work

Back to school concerns compounded by back to work woes

While parents worry about sending their kids back to school in September, millions will be without work and without government assistance. The Canada Emergency Response Benefit (CERB) runs out in September. It provided   $500/week to pay the rent and buy groceries.

The future looks especially bleak for those previously employed in the service sector. They represent the largest sector -three out of every four jobs.  With isolation measures in place, many jobs in the food and tourist accommodation sectors are lost for a long time.

Without CERB, a cloud of debt hangs over the unemployed. Canadians owe $1.77 for every dollar available to spend as of June, 2020.

The holders of that debt face a problem as well. Banks were happy to see Canadians in debt as long as the credit cards, loans, and mortgages were paid off with profitable interest. But what do banks do when Canadians can no longer pay debt?

Canada’s Big Six banks face growing loan losses as government programs wind down, and loan-deferral and interest rate relief programs come to a halt. Banks have already set aside $11 billion for losses but that may not be enough.

CERB has kept the wolf from the door so far. Personal insolvencies are below average and credit payments have remained stable.

The government of Canada faces a big problem as well. You only have to look back at the Dirty Thirties to see what happens when there are no jobs and no government support. Men left their desperate families on dustbowl farms and wandered the countryside on trains trying to find any work and money to send back home to starving families.

As of Tuesday, Prime Minister Trudeau has prorogued Parliament to deal with the crisis, a move that sets up a confidence vote this fall that could trigger a 2020 election.

Here’s the problem that the Trudeau government faces.

As of last March all EI recipients were rolled into the CERB program and received $500 a month. The feds will discontinue the CERB program at the end of this month and move recipients back to EI or an “EI-like” transitional benefit. Just what will an EI-like program look like?

There are major holes in the move back to EI as it now stands, according to calculations done by David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.

At the start of August there were 4.7 million people receiving the CERB. Because EI has no minimum, 811,000 of those would receive less on EI than they did on CERB; instead of $500 a week, they would receive only $312 on average.

And under current EI rules, 2.1 million of those receiving CERB will not be eligible; they will get nothing at all. In B.C., that’s 324,000 who were previously receiving $500/week who will now get nothing.

The clock is ticking as CERB runs out. I look forward to the Throne Speech on September 23 and the federal plan in which “no one will be left behind,” as Trudeau promised.


How to make money

Banks make money by creating it. By making money, I don’t mean that they earn it through fees and interest. And I don’t mean that they print it either  –that’s the job of the Canadian Bank Note Company.

The words How to Make Money on a chalkboard

No, I mean they literally create money: all 97% of it now in circulation. Author Peter Stalker exposes the trick: “Nowadays almost all money is created out of thin air when they make loans,” he explains in the New Internationalist magazine. It’s not how I thought it worked.

I thought that banks loaned out money that others deposited. It turns out that cash is only about one-tenth of the supply. In 1992, the Bank Act was amended to allow banks to keep only as much cash on hand as they deemed necessary.

This sleight of hand is best explained by an example. If I go to my bank and make a loan of $5,000, I don’t usually walk out with a wad cash. If I did, no money would have been created. Instead, an entry is made to my bank account; no cash is deposited to my account, simply an entry.

Suddenly, and with a stroke of a key, money that didn’t exist is there in my account. I can now write a cheque for $5,000 to buy a car from Fred. Fred can take my cheque and deposit it.

Now I owe the bank $5,000 (plus interest) and the bank owes Fred the same amount. All seems fair except for two things. The bank must keep $5,000 in reserve to pay Fred. Unless Fred withdraws the deposit as cash, the bank can do with it what it wants. If Fred uses the money for on-line bill payments, the newly created currency is passed around. And the bank collects $5,000 from me.

Pierre Parisien doesn’t think that’s fair because the $5,000 collected from me represents untaxed capital gains. He calls this bank reflux. A fairer system would be for the Bank of Canada to create all currency regardless of whether it’s banknotes or book entries.

“I suggest that the federal government be granted the exclusive right to create new money, whether in the form of currency, book entry, or even computer data. The Bank of Canada would be mandated to accommodate the chartered banks in the granting of credit, create the necessary funds, and loan them at zero interest to the banks. The banks, however, would have to repay this capital, thus giving the government the full benefit of the reflux.”

Another problem with banks creating money is that they encourage debt. When they can create money, why not persuade people to borrow in order to collect interest? However, as we found out in the Great Recession of 2008, too much easy money can drive borrowers into bankruptcy and the whole facade comes crashing down like a house of cards.

The profit motive is not the best way to create money. Switzerland recently considered a proposal to have the Swiss National Bank become the sole creator of money. Leonid Bershidsky suggests in Bloomberg that such a plan would reduce the money supply but that might be a good thing.