No Canadian bank bailouts but “make credit available” instead?

Speaking of Canadian banks, I think we may be getting a few mixed messages from the government. Jim Flaherty insists that the government will not bailout any banks and presents a muddied message that insists that credit must be made available:

“The government stands ready to take whatever actions are necessary to protect the stability of the Canadian financial system.”

“I think what we have right now is adequate.” But he would not give any details about what specific measures he was contemplating and dodged questions about expanding CMHC lending programs, except to say it is a possibility. Any new measures will target the availability of credit, and not aim at subsidizing banks for their losses, or even focus on the cost of credit.

“So what I’ve said to the banks is, do as much as possible in the present circumstances” Mr. Flaherty said. “My concern, again, is less the cost of credit – that is, the price – but the availability of credit. We have to ensure that credit continues to be available.”

I am happy to hear Stephen Harper reiterate that there will not be any bailout of Canadian banks. However, I am not satisfied when I hear this:

‘The government has a series of options at its disposal … to ensure both the availability of credit and the cost of credit coming down, and we’re doing that to ensure there’s money available,” he said.

How can the government make credit available? What are these secret options at the government’s disposal? They had better get their story together because Flaherty seems unconcerned about interest rates wheras Harper is. Maybe that was just a slip up.

Regardless, get ready for an inflation of the money supply.

There is nothing that the government does that is rightfully productive. The government is not some rich zillionaire who can hand out donations to “make credit available” as a goal. Anything the government does is funded by what the government takes away. When the government acts to “make credit available” to the economy, we find ourselves somewhere along a continuum between an independent monetary system and a banking system that requires bailouts to prevent collapse. Whatever makes a bailout wrong is the same thing that makes a policy to “make credit available” wrong too — just to a less dramatic degree.