Quantitative Tightening (QT): Canada’s central bank, unlike the U.S. Federal Reserve, has never previously attempted to shrink its balance sheet – Waves of bankruptcies Coming to Canada? – February 9, 2022,
Let’s cut the crap when it comes to Quantitative Tightening (QT) for a moment and talk about what Quantitative Easing (QE) is for a moment. Quantitative Easing represents malinvestment, central banks counterfeiting money to save government preferred private sector businesses from failing or RESTRUCTURING! When a business is making a profit, and it stops because of changing market conditions it doesn’t necessarily have to go out of business, but at the very least it would require restructuring.
QE prevented badly run businesses from restructuring, but let’s, talk about why QE became a thing in the first place? QE exists because most government regulations have made most private businesses uncompetitive globally. General Motors, is uncompetitive mostly because of Labor Unions who lobbied governments, to pass laws that made GM and other U.S auto manufacturers uncompetitive to their foreign competitors.
Let me point out that German Auto manufacturers are also unionized, but the German government doesn’t throw out the baby with the bathwater when their government sides with labor unions. In Germany, as an example, their education system revolves around preparing German students to work in German factories, in the United States, and Canada, our school system especially as it relates to the trades, is disjointed, which results in labor shortages.
Canadian schools have become masters in training students to avoid trade schools, in Germany, it’s almost a right for a German student to learn the trades, in Canada, chances are you’ll end up in some sort of debt to learn a trade, meaning that Canadian students often find themselves at a deficit when they enter the working world. While Canada does this to its young people, the government seeks to bail out as an example the housing market.
So after the Canadian students waste money paying to learn a trade, when they get out of school, the cost of living doesn’t allow them to buy a house, so they end up in apartments, or if they’re lucky they can buy a Condo. Notice that you don’t hear about cities in Germany having the highest real estate markets in the world. Canada has far fewer people than Germany has, yet we have 2 cities with the highest real estate prices in the world?
I bring this up because Germany as well auto-manufacturer powerhouse Japan both currently have negative interest rate policies, however, you’ll notice the structure of their economies differ from those in Canada and America. Controlling the means of production is very important if you’re going to embrace socialist policies. Canada has invested heavily in being reliant on the strength of the Canadian dollar, well… which could become extremely problematic once QE is replaced with Quantitative Tightening (QT).
Now, if I’m, to be honest, I think we’re in QE Infinity, if the Bank of Canada hasn’t noticed the dilemma it’s in already, it will figure it out very soon. Politicians in order to get votes will often add more regulations to an already overly regulated economy. The central bank of Canada bailed out prior bad Big Government ideas, that’s how we ended up with QE. No austerity measures were imagined after the QE bailout, instead, Justin Trudeau created more government regulations.
Candidate Justin Trudeau told voters that a low-interest-rate environment was a good time for the Federal Government to invest. If you haven’t been paying attention, Justin Trudeau has racked up more debt than all the previous Canadian Prime Ministers COMBINED!. Not only did Justin Trudeau get Canada in more debt, Justin Trudeau also decided to add more regulations to the Canadian economy.
Now, what regulations mean is that it is now MORE expensive to be in business if you’re a Canadian resident. Justin Trudeau as an example imagines that the climate is changing and therefore his government has decided to create a carbon tax? This regulation alone equates to businesses in Canada changing their business models. Now, if the Central bank of Canada, begins dumping the purchases it made during QE, asset prices that allowed for the creation of debt will start to disappear and risks that the market discounted prior, will start to become reality.
Now, as the cost of doing business begins to rise with these new risks, the market which has new regulatory policies created by Justin Trudeau will so realize that some costs can not be cut and this could have a consumer price inflationary effect. Now, sure, governments can engage in price controls, but price controls historically have led to shortages, because no business person wants to go into business to lose money?
For people trapped in debt, this screams bankruptcy to me? Bad debt doesn’t allow you to restructure if I have all sorts of credit cards, auto loans, and other non-cashflow positive debts and my only income is my job, there’s no wiggle room for me to restructure my debts. A great reset you argue? Sure ok fine, but suppose this market we’ve created doesn’t work? Meaning suppose if we started over keeping the existing regulations on the economy, what would that mean exactly?
Well, based on my observations of Argentina, other Latin American countries, and Africa, bad regulatory policy equates to constant hyper-inflation problems. If Canada didn’t have the privilege of being considered one of the world’s reserve currencies, the forex markets wouldn’t reward the Canadian dollar ANYWHERE IN THE WORLD. It’s imperative to remember how reliant on IMPORTS Canada is, we’re able to import what we need because to date the Canadian dollar garners a lot of respect.
Well, a great reset might compromise all of that. I personally think Quantitative Tightening will be a huge failure! I think you’d be wise to consider purchasing some Gold and Silver.
Interesting times ahead!