The Bank of Canada really has no idea what it’s doing.
Or, a select few inside know exactly what’s up and thus should be facing criminal charges.
As asset prices inflate, economists and central bankers worldwide welcome inflationary suicide while equating the boom period with an economy that’s “gathering momentum.”
Despite the Canadian debt-to-income ratio at 167%, meaning, that the average Canadian owes $1.67 for every $1.00 that he earns — Poloz and the BoC are quite adamant that the economy is booming and thus ready for higher rates.
Now, normally, interest rates reflect supply and demand for loans. If people have saved a lot of their money over a period of reduced consumption, then there is adequate capital to loan out for roundabout production processes.
In other words, the influx of housing construction seen in markets like Toronto and Vancouver only make sense when there are sufficient savings to finance it.
You could argue that foreign investment plays a role, especially in the real estate markets, but this pushes the problem back one step. We are still faced with the reality of scarcity. One must produce before one can consume.
Have any of these fundamental economic principles been recognized or obeyed recently? Certainly, not in Canada, and hardly abroad either.
Canadians are borrowing from banks who print money by pyramiding on top of a federal reserve. And this reverse is also in paper money.
In fact, the Bank of Canada has sold all of its gold holdings. They instead engage in something called “open market operations,” where they buy Canadian bonds from the banks and then credit the bank’s accounts with money.
The Bank of Canada doesn’t debit itself when the bank accounts are credited, they simply add numbers to the balance sheet of whatever bank they are crediting. This is how they control interest rates.
And they clearly have no idea what they’re doing. And the ones that do deserve prison.
But according to Poloz, the actions of the central bank have “done their job.”
Instead of relying on market prices to determine interest rates, the BoC has centrally planned us just right.
Yet, it is the “Austrians” who have been right, not the central bankers.
Keeping rates artificially low distorts the economy. It sows the seeds for an economic bust preceded by an unsustainable inflationary boom.
The 2008-09 meltdown was only a trial-run compared to the hellscape descending on us.
Meanwhile, Poloz tells an audience in Winnipeg, “It isn’t time to throw a party, but it does suggest that the interest rate cuts we did two years ago have done their job, and that’s important to us.”
Clearly, so long as you can pass the buck to the next guy, a sort-of Canadian version of the Greenspan-Bernanke-Yellen musical chair number, then all is good in Canada.
Of course, if you happen to be in power when the stock market crashes, you can always blame Donald Trump.
But gone are the days (and good riddance to them) where central bankers can hide in the shadows. Canadians en masse may still accept an explanation for economic depression due to “greed,” “free markets,” and “the rich,” but a growing number of us are well aware of the BoC and it’s contributions to Canadian statism.