Why is the Alberta government in a situation where there expenditures are far in excess of their revenues?
The fact that the government's revenues do not meet their expenditures has forced the government to run a 10 billion dollar deficit, but why is this happening now? Many will blame excessive government expenditures, but the government did not suddenly add 10 billion in expenditures. Some will blame the price of oil and the sudden drop in oil revenues, and this is true, but is this the "cause" or is this a symptom?
Money is created as debt. When the price of oil was over, or near, $100 a barrel, the oil companies were taking on massive amounts of debt in order to build new projects in the Alberta oilsands and elsewhere (of course nobody was complaining when these companies were taking on all this debt, nor were they complaining about the salaries of the oil workers and their bonuses). The fact that the oil companies borrowed money for projects led the banks to create new money (every loan creates a deposit), and this new money was distributed to employees as wages, salaries and dividends. Further, consumers were taking on more debt as they saw their wages rising. In total, private debt was growing (business and consumer debt), and the government was in a situation where it's revenues exceed its expenditures and it was able to pay down its debt.
Now the price of oil has plummeted to less than half the price it was over a year ago. This has forced oil companies, and those that service oil companies to not only stop taking on additional debt (there are no more new mega projects being built in the oilsands), but they also are desperately trying to pay off their outstanding debt. This of course reduces the money supply. Now government revenues are less than they once were by a substantial amount,and this forces the government to take on additional debt to keep operating and providing the same services they once did.
In other words, the system cannot operate without ever increasing debt, whether that debt is private or public. A professor once told me that when explaining accounting to a class of economics students he told them that a balanced budget is equilibrium (ie. supply equals demand). But as we see, all the budgets in an economy cannot balance simultaneously, so aggregate demand never equals aggregate supply. If the government were to slash its spending in order to now balance it's budget, this would force businesses to either take on more debt, or declare bankruptcy in order to wipe out their debt. So the economy must not be in equilibrium if we have to take on ever increasing debt in order to make it function. The economy must be in a continuous state of disequilibrium.
In a letter to William Aberhart, C. H. Douglas wrote:
"THE HONOURABLE WILLIAM ABERHART,
Premier of Alberta, Edmonton, Alberta, Canada.
Strictly Confidential to Executive Council of
DEAR MR. ABERHART,
This seems to be a suitable occasion on which to
emphasise the proposition that a Balanced Budget
is quite inconsistent with the use of Social Credit
[i.e., Real Credit--the ability to deliver goods and
services “as, when and where required”] in the
modern world, and is simply a statement in
accounting figures that the progress of the
country is stationary, i.e., that it consumes
exactly what it produces, including capital assets.
The result of the acceptance of this proposition is
that all capital appreciation becomes quite
automatically the property of those who create an
issue of money [i.e., the banking system] and the
necessary unbalancing of the Budget is covered
C. H. Douglas
In other words, the banks control the ability to monetize physical capital (machines etc..), and the ability to do so only comes at the price of additional debt to the banks. As we become richer, we become further indebted to the banks for the use of the physical capital we created. That is the essence of servitude, and the cause of poverty in the midst of plenty.