Mark Carney, Bank of Canada governor, is talking too much

Actions usually speak louder than words and so, I have to wonder why Mark Carney, the governor of the Bank of Canada is even talking.

More and more people have to understand that there is nothing the central bank can do to stimulate the economy in any responsible sense and the evidence of this is becoming more obvious. It seems like the bankers are still struggling with the realization that printing money does not create wealth:

Holt, who remains bearish about the next few years, agrees with Carney about the lacklustre response of the private sector economy to government stimulus. He says although central banks have done all they can to cut interest rates, consumers and businesses are just not borrowing.

Porter concedes that most of the recent good news points to an ailing economy that has entered a period of convalescence. There could be a relapse, he admits, but it is also possible for the patient to make a better recovery than many suspect.

“I’m concerned because part of the puzzle that we need is to see some repair in confidence, and to have one of our policy-makers stepping on the green shoots is not helpful,” he said.

Such poetic analogies (a repair in confidence, a recovering patient) may work well in academia to maintain the attention of wide-eyed gullible students or to provide meaningless sound-bites to a journalist. However, people who actually have to work for a living and for entrepreneurs who risk their own hard-earned money, economics will have to be a lot more concrete.

How an entrepreneur’s confidence arises is anybody’s guess but I think that providing cheap credit below market rates and printing money only stimulate malinvestment throughout the economy. The monetary inflation of central banks produces a phoney signal in the market and prolongs recessions.

That is not to say that there is no good reason to print money, mind you. To understand the reason, picture yourself on the receiving end of a cheap interest loan: you get purchasing power before you have productivity to show for it. Now, imagine yourself receiving that monetary inflation regularly. Not a bad gig, I would say.

A bad market if you do not get the cheap loans, though:

The numbers also say Canadian households have barely begun to bring down their household debts. A corporation that suffers from too much debt can sell a division, or find new equity partners, or merge with a healthier company. (If these fail, there’s always bankruptcy protection.) A government can raises taxes or invent new ones (goods and services tax, anyone?) – or, as a last resort, let the printing press run harder and longer, and allow inflation to work its painful magic.

But an individual debtor has fewer options.

The end result of monetary inflation is that it distorts the economy by perpetually giving cheap credit to the lenders and their elite clients. Since everybody is forced to use the same money, the people at the low end of the income scale end up subsidizing the parasitic lenders through price inflation. It is no wonder that you can not pay your taxes in a foreign currency.