Bank of Canada Governor Tiff Macklem claims, “the end of the monetary policy tightening cycle was drawing closer to an end.” Will The BoC succumb to inflation? – November 2, 2022,
The current Bank of Canada Governor recently stated the need for higher interest rates to cool inflation but said the end of the monetary policy tightening cycle was drawing closer to an end. When I read that, I’m left wondering what Tiff means because in the same article I point to, it states:
Canada’s annual inflation rate was 6.9 per cent in September but has been steadily declining since reaching its highest rate this year of 8.1 per cent in June.Addressing supply issues not substitute for rate hikes, says Bank of Canada official | yahoo.com
Currently, central bank interest rates are 3¾% ANNUALLY, according to biased government data that does its best to make the politician in power look competent; the inflation reading is 6.9%. So if we’re being serious, the Bank of Canada is NOT fighting inflation; it’s merely trying to prevent HYPERINFLATION.
Currently, the world has accepted the U.S dollar as the worlds reserve currency, although the Canadian dollar is considered one of the worlds reserve currencies by “the powers that be” the evidence from the markets suggests otherwise; what I’m getting at here is if we’re indeed experiencing a prolonged RECESSION, in which the current regulatory environment is the new normal, it’s hard to imagine consumer price inflation slowing down.
The new normal in western nations is to give OPEC+ more control over the oil and gas markets because the governments in the West appear to be betting big on solar panels, wind turbines, biomass, and lithium batteries. The infrastructure for these new energies to replace fossil fuels hasn’t even arrived yet, meaning that more government redistribution of resources will be required for this Big Government pipe dream to be realized.
I see NO timeline from Justin Trudeau on when he plans to phase out the carbon tax, which by the way, is DEFLATIONARY to economic activity. From the market’s perspective, Justin Trudeau is intentionally trying to slow down economic activity, as companies are being penalized for polluting, and not only are there not enough offsets to save money on the carbon tax, there are no SOLUTIONS to replacing fossil fuels with viable CASH FLOW POSITIVE alternatives.
What I’m getting at here is everything points to economic DEFLATION. Suppose the economy is deflating, and the Canadian government continues to get into debt to SERVICE its EXISTING and ever-growing debts. Will the Bank of Canada reward this type of destructive behavior by lowering or even PAUSING interest rate hikes? I argued some time ago that I saw NEGATIVE interest rates in Canada’s future, and my reason for this revolves around government policies.
Justin Trudeau, whether you love him or hate him, does not have a pro-growth agenda; he is normalizing recession. Western governments have gone as far as to redefine recession in hopes of giving the markets some wealth effect news. What I do like to point out is that there is a lot of money slushing around the economy in the RIGHT hands; the money in the WRONG hands, however, is finding it more difficult to survive as consumer price inflation is eating away at their purchasing power.
What’s worse about money being in the WRONG hands is that a lot of these people are ALREADY in debt; if consumer price inflation continues, these individuals will soon gladly embrace BANKRUPTCY. As I like to point out, one of the major problems in the economy are the number of people and entities on some form of government welfare.
If, as an example, a company is the beneficiary of a government-created monopoly, then this company is indeed a component and beneficiary of malinvestment, I point to austerity measures as the only cure for malinvestments at this point, but austerity is not on the radar of most people. Why I claim austerity is coming is because once that inflation genie is out of the bottle, it will refuse to go back in until the COST OF DOING BUSINESS is back to ACCEPTABLE levels.
A carbon tax, as an example, is buffoonish, it doesn’t make any sense, and in Canada, it’s leading to the private sector SHRINKING. When the private sector shrinks the government is actually getting much larger. As the government gets larger and the pool of money to finance it shrinks, the government will have to BORROW more money to service its debt obligations; in order to put a halt to this stupidity, the Bank of Canada SHOULD raise interest rates to COMBAT inflation, which it’s been doing, however, if it’s going to pause it’s rate hikes or even lower interest rates, it will in actuality be REWARDING malinvestment into the Canadian economy.
One of the damaging effects of the Zero Percent Interest Rate policy(ZIRP) was the artificially created housing boom, which was a huge malinvestment for the Canadian economy. As I’m writing this Canada has thousands of UNOCCUPIED condo units where rental housing should be. One of the problems moving forward is if defaults on mortgages start to mount as flippers can no longer find buyers for their over-mortgaged condos.
Now, if we’re to be honest, unless the Canadian dollar is DEBASED, the Canadian housing market is headed for COLLAPSE. So I can see why the Bank of Canada might succumb to inflation; on the flip side, what people tend to forget about consumer price inflation is what it does to the PRIVATE sector because if the Bank of Canada gives up on its inflation fight, consumer prices which and wages have to go up, and a new PRICE DISCOVERY has to be found.
What people don’t understand about a new price discovery being found is what happens to fixed incomes like PENSIONS and other forms of welfare.
Now, if that new price discovery doesn’t benefit the private sector, things could get even worse, as the private sector might sideline their businesses until consumer price inflation is under control. People who’ve never experienced rampant inflation don’t understand how it works. If, let’s say, the cost of doing business is rising, but the government is claiming the private sector is price gouging consumers, instead of being accused of price gouging, a lot of private businesses will instead CLOSE THEIR DOORS!
When businesses start closing their doors, this leads to SHORTAGES. Now even when shortages problems get worse, don’t assume that people will all of a sudden have common sense and point to the government as the culprit; nope, in many instances, the opposite happens, a lot of people will blame the PRIVATE SECTOR for the problems of the shortage, or they’ll make up some conspiracy theory.
If a person votes for a politician or a political party that created the economic disaster, that voter won’t want to take personal responsibility, so they’ll usually opt for a scapegoat. What I’m getting at here is if the Bank of Canada gives up its inflation fight during this over-regulation cycle, expect consumer price inflation to get much worse and potentially be prepared for a lower-valued loonie in the forex markets.
The evidence suggests that recessions lead to a stronger U.S dollar, meaning that the cost to IMPORT things into Canada will rise.
Addressing supply issues not substitute for rate hikes, says Bank of Canada official | yahoo.com
In his opening remarks, Macklem reiterated the need for higher interest rates to cool inflation but said the end of the monetary policy tightening cycle was drawing closer to an end.
“If we don’t do enough, Canadians will continue to endure the hardship of high inflation,” Macklem said.
Interesting times ahead!