the lawsuit is based on the premise that canada borrowed interest free from the 30s until the 70s, which is false. i think the source for this is paul hellyer (who is a perennial canadian crackpot), although it's been repeated in a popular book by ellen brown. all these people think we went from total interest-free borrowing to total private bank borrowing, and they blame the ballooning of the debt in the 70s on it. they think that if we borrowed less from private banks then the debt would decrease, and we'd stop being taxed to pay interest. they even go so far as to attribute the famous rothschild quote to the canadian pm of the time, mackenzie king. it's an elaborate pile of nonsense, but it's been rather resilient.

what actually happened in '74 was that the prime minister made a policy to change the ratio of borrowing, to conform to an international conference on stagflation. interest-free bank of canada borrowing was always a minority of money creation, and always directed towards specific state stimulus funding. the vast majority of money in canada was always created from private banks. and, the debt did grow steadily in the period up to '74.

but, then they drop out of the narrative altogether - because the prime minister realized quickly that it wasn't working. speculation is rife that he never thought it would work in the first place - but there was that conference. so, he fell back on keynesian theory - before the americans did - and put interest rates through the roof to try and fight the continuing inflation. it was over 20% for a while. this is the actual reason that the debt ballooned, not a shift to private banks (which was minimal).

i've never seen a source where trudeau acknowledges the effects of the oil embargo, but he must have known it was having some effect. i've always assumed he was hoping that the standard keynesian approach would work anyways, as a short term solution to a short term problem.

it might have ultimately been benign with the proper adjustments, but the problem was not addressed by the conservatives in the 80s, although they introduced a new tax at the end of their mandate, and hit crisis levels in the 90s. but, it hit crisis levels because it wasn't dealt with. we can argue whether cranking interest rates was right or wrong, but it was a messy situation that nobody really had an answer to and it was at least an attempt. but, regardless of how we view this, it's inarguable that it needed to be dealt with after the effects of the embargo had subsided. it wasn't, and it eventually required some short-term austerity (and devaluation), under threats by the imf, to structurally rebalance.

the situation was stable until the mid 00s when another conservative government came in and slashed taxes across the board (as well as created billions in subsidies), but didn't cut spending, which has created another structural mess.

i'll take the position that it ultimately doesn't matter who you borrow from, so long as you maintain high enough tax rates and don't break the bank on subsidies. but, these people basically just have their history wrong, and are simply drawing false conclusions out of an incorrect grasp of the facts.

https://www.mises.ca/the-underlying-goal-of-the-bank-of-canada-lawsuit/