The central bank only has one weapon: printing money
April 24, 2009 · By Charles Anthony
Following some more nonsense (0.25% lending rate?) from the Bank of Canada, somebody at The Globe And Mail presents this as new weapons. New weapons? The central bank only has one weapon: the money supply.
The Bank of Canada noted that “comprehensive programs” are now in place that should bring life back to credit markets, although “the challenge now is to ensure their rapid and effective implementation.”
Here we go again: “Canadians need credit! Canadians need credit!” is the government mantra.
I do not believe Canadians need credit. I believe Canadians need money. There is a huge difference between the two. Canadians work and earn their own money. After earning it, Canadians need to be able to keep it. The problem is that the government consistently takes some of their money away. So, as far as I am concerned, this monetary policy is nothing more than a direct subsidy to the lenders above anything else. I find the “Canadians need credit!” mantra to be the height of duplicity coming from a government who systematically takes money from Canadians.
The banks can lend people money at lower and lower and ever lower interest rates all they want. Unfortunately, more credit will never guarantee that these loans will magically create ongoing productivity. Cheap credit will subsidize malinvestment as much as it will subsidize ongoing investment. I think that the predicament we face right now is that the balance between the two has tipped towards malinvestment and too much uncertainty.
More cheap loans will only redistribute purchasing power from the poor (i.e., people who do not qualify for cheap loans or who have to use pay-day advance services, etc.) to people who should otherwise save their money before spending money they do not have.
Mr. Flaherty and Mr. Carney, stop prolonging this recession and let markets adjust to the modern economy — that includes the money markets. If Canadians really need credit as you guys keep saying, let Canadians keep more of their own money and lend it to themselves. That means you guys should be promoting public expenditure and tax cuts. Stop printing money, too.
we have become so dependant on credit (yours truly not immuned) that the very thought of a market stabilizing on the backs of every one of us has us shivering in our boots. but i am reminded that not only is nature beautiful but she is also cruel. we are witnessing a massive imbalance in the natural law of supply and demand due to false valuations of property and increasing consumer debt versus income. the chickens have finally come home to roost. this will be over only when the natural balance is restored. however it is unfortunate to see liberal (not so much just the Party but rather a state of mind) arrogance rules the day that says it is above the natural law and that it can create policies that will combat the current crisis without any blowback whatsoever. by letting companies like GM, that should have failed a decade ago were it not for the economic bubble that sustained it, fail, we will be positioned far better in a new emerging economy with the rules of good solid capitalism in tact and functioning properly. it will be painful but since we lived far above our means to begin with it means the we will (and should ) have to live far below our means to get back to nominal, to get back to balance.