Mr. Frank Howard (Skeena):
Mr. Speaker, when the bill was being considered on second reading we were debating it, as we were on other occasions when these acts were sought to be amended, on a rather narrow base, namely, the specific application of, say, the Fisheries Improvement Loans Act to fishermen or the application of the Farm Improvement Loans Act to farmers, as the case may be. I think it was demanded of us that we do this because of the very nature of the bills presented. It is difficult to get into a far ranging discussion of banking, banking institutions and interest rates and their effect on the economy, but I think the provisions of the bill are sufficiently broad to permit us to ask ourselves what it is we are trying to do.
I got the impression from the answers the Minister of Finance (Mr. Turner) gave the House today to various questions about the decision of the Bank of Canada to raise the interest rate, the government's policy, and so on, that he was saying he really was not able to deal with the situation, that he was unable to cope, that there was no mechanism by which he could do anything, or very little, to correct the situation. The minister spoke about Eurodollars, other countries seeking to go in for deficit financing as a result of oil prices having gone up, about the way all of these factors throughout the world have injured poor Canada, and that the poor Minister of Finance was helpless in face of these pressures from outside.
On the other hand, I got the impression that the minister was not really interested in trying to do anything about the situation, that he was content to maintain in Canada an arrangement whereby basic decisions concerning fiscal policy are made by the private chartered banks and lending institutions, not by the Bank of Canada even though the Bank of Canada has some authority in law to establish interest rates.
Loans Acts Amendments
I have listened to advice given me at different times, from the time when Donald Fleming was minister of finance in this House, and he and other ministers of finance gave us the same kind of responses we are now getting when we ask questions about banking and interest rates. The theory usually advanced is that the economy is moving at too fast a pace; therefore it needs to have its pace slowed down. The mechanism for slowing it down is to increase interest rates. The Bank of Canada does this by declaring that the pre-discount rate will be at a certain figure. This is a signal to the private chartered banks and other lending institutions, on a kind of rub-off basis, to raise their interest rates on the theory, so we are told, that if it costs more to borrow money, then those who are contemplating borrowing, either for consumer or business expansion purposes, will think twice. These people will say to themselves, "The interest rate has gone up one-half of one per cent and therefore it will cost me too much money to do what I plan to do and I will not borrow money". The theory is that the economy will then slow down a bit instead of moving ahead at an accelerated rate.
It seems to me that the Bank of Canada has engaged in this practice dating from the historic tight money days of the Liberals in 1955 when Walter Harris was minister of finance.
Topic: GOVERNMENT ORDERS
Subtopic: FARM IMPROVEMENT, SMALL BUSINESSES AND FISHERIES IMPROVEMENT LOANS ACT AMENDMENTS RESPECTING LOANS AND GOVERNMENT LIABILITY