I can not think of anything more “realistic” than putting an end to printing money that is backed by nothing but the promise to tax future generations. Encouraging malinvestments by printing new money does not sound like a strategy for success to me. If you think otherwise, take a look around. It clearly does not seem to be working.

Mr. Zoop keeps saying “that is how things work” but eventually you are going to run out of credit-worthy customers. Then what? You can not keep expanding loans to keep your artificial wealth flowing. I think we are there already. The central banks can only delay the inevitable and exacerbate recessions if they actually occur.

The jury is still out on this. There are plausible scenarios that suggest that inflation is not going to be a problem. Rather, we will head into a period of deflation.

What do you think should be happening Charles? Let credit freeze up and watch the value of our investments plummet even more than they already have? I don’t like socialized losses, but what other realistic options were available in your opinion?

So, on a pedantic level, you are right, it is not a government bailout but that is not what I called it. I am calling it a bailout. Period.

The banks are bailing themselves out with the blessing of the government. That makes it a bailout and it is paid by the tax-payers pay for it through price inflation.

The loan insurance, if purchased, covers 1/5 of failed intra-bank wholesale debt from abroad, and it acts like a stop-gap should these loans fail. If that happens, the insurance will allow Canadian lenders to continue short-term lending, which lets small businesses meet payroll, etc. The insurance basically insulates the Canadian economy from internationl financial shocks, and puts Canadian financial institutions on equal competitive footing with banks in other countries that already enjoy the benefit of such loan guarantees. Its not a government bailout.

I take your point about there being little difference between the BoC creating money and the BoC ‘blessing’ the creation of money by the chartered banks. But then that is just how the system works, in fact almost all money is created by the chartered banks anyway. But that’s just the mechanics of the monetary system, its not a government bailout.

I even agree the risks of bad debt should be real, and it would be a problem if the loan guarantees removed all risk from the equation. But since the insurance must be purchased at a 1.85% premium and covers only 1/5 of the wholeale loan, there is plenty of risk left in the transaction to scare our banks away from aquiring bad debt.

I acknowledge the BoC will essentially be printing money IF payouts exceed premiums, and I say again that while innovative this approach is congruent with the legitimate role of the BoC as the lender of last resort. Its not a government bailout.

Purchasing shares, issuing treasury bills and open market operations do not change a thing. They are all just devious ways in which the government conceals how it picks winners and losers in the markets for money.

Here is a new book: The Ethics of Money Production that you might find interesting.

They are simply offering loan insurance to Canadian banks. Banks that participate BUY the insurance at commercial rates. This is not printing money, it is a government sponsored insurance policy. Its true that if the premiums don’t cover the payouts then the BoC will end up ‘printing’ the money, but then that’s the role of the Bank as lender of last resort. It may even happen that no banks take up the insurance offered.

This is starkly different from other countries that are indeed ‘printing money’ by purchasing shares in banks, issuing T-Bills and performing open market money transactions.