The personal blog of @mattfguerin, a media manager, loving husband, writer, filmmaker, political junkie, union activist based in Toronto, Ontario, Canada
Saturday, October 8, 2022
Today's tonic: "Here’s why Poilievre’s attack on the Bank of Canada is absolute nonsense"
In its renewed assault on the Bank of Canada (BoC) this week, the Conservative Party of Canada blames it for today’s high inflation.
The BoC should therefore “be subject to ruthless scrutiny and dispassionate analysis,” the Tories say.
But the Tories’ own criticism of the bank — actually a backdoor attack on the Trudeau government — is anything but dispassionate.
It is driven by politics and ideology, not sound economics.
More on that later.
Tory leader Pierre Poilievre, who in May declared that he would fire the bank’s governor, Tiff Macklem, if he became PM, has assigned former Tory leader Andrew Scheer the task of tearing down the bank.
Scheer obliged this week with a 10-minute video posted Tuesday on YouTube.
“The Bank of Canada created billions out of thin air, caused inflation, then denied it,” Scheer says.
The bank did not conjure money out of the cosmos to protect Canadians financially from the epic pandemic recession.
It bought debt issued by the Trudeau government to finance that most humane project. And it has made an impressive start in selling off that debt.
Our decades-high inflation was caused only in part by central bank infusions of rescue money into Western economies. And to wish they hadn’t done that is to accept the impoverishment of Canadians if they’d failed to act.
The current abnormally high inflation was, of course, caused by an abundance of factors.
They include pent-up consumer demand; acute labour shortages; frenzied house-buying across Canada; and an over-stressed global supply chain further disrupted by Russia’s invasion of Ukraine in February.
Finally, central bankers in North America and Europe have not denied their role in the inflationary consequences of rescuing their economies. Instead, Macklem has acknowledged it.
“We got a lot of things right and we got some things wrong,” Macklem told the Senate banking committee in April.
Among the mistakes Macklem acknowledges is his errant expectation that inflation would peak at about 5 per cent. Instead, it climbed a peak of 8.1 per cent in June.
The BoC has since transitioned from buying government debt, a process called “quantitative easing” (QE), to offloading it, or “quantitative tightening” (QT).... continued...
2/2 If QE can be inflationary, QT helps drive down inflation by removing money from an overheated economy.
The bank has already offloaded almost a third of the $450 billion in government debt it accumulated during the pandemic. That so-called “unwinding” of the bank’s balance sheet continues.
In reality, the bank is doing what the Tories accuse it of failing to do. But, as noted, the real target of the Tories’ latest BoC-bashing is the Trudeau government, and never mind that the bank is independent of the government.
And the government, as it happens, is also doing what the Tories would have it do. It is exceeding its deficit-reduction targets.
With a combination of fiscal discipline and a stronger than expected economic recovery, Ottawa will probably be able to post a deficit in its current fiscal year of about $43 billion. That’s 26 per cent lower than the government originally forecast.
Which means Ottawa has credibility in projecting a deficit of just $8.4 billion by 2026, down from the $114 billion shortfall recorded in its latest fiscal year ended in March.
Now some quick facts.
The current inflation rate, at 7 per cent in August, is down more than a full point from its June peak. TD Economics forecasts an inflation rate of just 2.6 per cent by the end of next year.
And Canada is performing better on inflation than most of its G-7 peers. They include the U.S. (8.3 per cent inflation), Italy (8.9), the U.K. (9.9) and Germany (10). Canada trails only Japan (3.0) and France (5.6) by that measure.
So, why are Poilievre & Co. making such a fuss about the BoC, when Trudeau is more vulnerable on, say, Indigenous reconciliation or slow progress in fighting climate crisis?
In his video, Scheer depicts the BoC and the Trudeau government as shadowy co-conspirators.
In framing inflation that way, the issue plays into the Tories’ more than passing interest in conspiracy theories.
And Poilievre might still be in thrall to the late U.S. economist Milton Friedman, whose 1962 libertarian treatise “Capitalism and Freedom” has been a talisman for him since his teens.
In Friedman’s view, inflation was “always and everywhere” caused by the monetary policies of central banks. “My first preference” in fixing the economy, Friedman once said, “would be to abolish the Federal Reserve.” The Fed is the U.S. equivalent to the BoC.
More practically, though, inflation is unlikely to be an issue in an election held in 2024 or 2025.
So, the Tories need to maximize Canadian annoyance with the Liberals over inflation now, before inflation subsides and loses its political potency.
In the meantime, Poilievre is part of a small fraternity of prominent central-bank bashers with Donald Trump and Turkish strongman leader Recep Tayyip Erdogan.
Poilievre will have to hope he’s not judged by the company he’s keeping.
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In its renewed assault on the Bank of Canada (BoC) this week, the Conservative Party of Canada blames it for today’s high inflation.
The BoC should therefore “be subject to ruthless scrutiny and dispassionate analysis,” the Tories say.
But the Tories’ own criticism of the bank — actually a backdoor attack on the Trudeau government — is anything but dispassionate.
It is driven by politics and ideology, not sound economics.
More on that later.
Tory leader Pierre Poilievre, who in May declared that he would fire the bank’s governor, Tiff Macklem, if he became PM, has assigned former Tory leader Andrew Scheer the task of tearing down the bank.
Scheer obliged this week with a 10-minute video posted Tuesday on YouTube.
“The Bank of Canada created billions out of thin air, caused inflation, then denied it,” Scheer says.
The bank did not conjure money out of the cosmos to protect Canadians financially from the epic pandemic recession.
It bought debt issued by the Trudeau government to finance that most humane project. And it has made an impressive start in selling off that debt.
Our decades-high inflation was caused only in part by central bank infusions of rescue money into Western economies. And to wish they hadn’t done that is to accept the impoverishment of Canadians if they’d failed to act.
The current abnormally high inflation was, of course, caused by an abundance of factors.
They include pent-up consumer demand; acute labour shortages; frenzied house-buying across Canada; and an over-stressed global supply chain further disrupted by Russia’s invasion of Ukraine in February.
Finally, central bankers in North America and Europe have not denied their role in the inflationary consequences of rescuing their economies. Instead, Macklem has acknowledged it.
“We got a lot of things right and we got some things wrong,” Macklem told the Senate banking committee in April.
Among the mistakes Macklem acknowledges is his errant expectation that inflation would peak at about 5 per cent. Instead, it climbed a peak of 8.1 per cent in June.
The BoC has since transitioned from buying government debt, a process called “quantitative easing” (QE), to offloading it, or “quantitative tightening” (QT).... continued...
2/2 If QE can be inflationary, QT helps drive down inflation by removing money from an overheated economy.
The bank has already offloaded almost a third of the $450 billion in government debt it accumulated during the pandemic. That so-called “unwinding” of the bank’s balance sheet continues.
In reality, the bank is doing what the Tories accuse it of failing to do. But, as noted, the real target of the Tories’ latest BoC-bashing is the Trudeau government, and never mind that the bank is independent of the government.
And the government, as it happens, is also doing what the Tories would have it do. It is exceeding its deficit-reduction targets.
With a combination of fiscal discipline and a stronger than expected economic recovery, Ottawa will probably be able to post a deficit in its current fiscal year of about $43 billion. That’s 26 per cent lower than the government originally forecast.
Which means Ottawa has credibility in projecting a deficit of just $8.4 billion by 2026, down from the $114 billion shortfall recorded in its latest fiscal year ended in March.
Now some quick facts.
The current inflation rate, at 7 per cent in August, is down more than a full point from its June peak. TD Economics forecasts an inflation rate of just 2.6 per cent by the end of next year.
And Canada is performing better on inflation than most of its G-7 peers. They include the U.S. (8.3 per cent inflation), Italy (8.9), the U.K. (9.9) and Germany (10). Canada trails only Japan (3.0) and France (5.6) by that measure.
So, why are Poilievre & Co. making such a fuss about the BoC, when Trudeau is more vulnerable on, say, Indigenous reconciliation or slow progress in fighting climate crisis?
In his video, Scheer depicts the BoC and the Trudeau government as shadowy co-conspirators.
In framing inflation that way, the issue plays into the Tories’ more than passing interest in conspiracy theories.
And Poilievre might still be in thrall to the late U.S. economist Milton Friedman, whose 1962 libertarian treatise “Capitalism and Freedom” has been a talisman for him since his teens.
In Friedman’s view, inflation was “always and everywhere” caused by the monetary policies of central banks. “My first preference” in fixing the economy, Friedman once said, “would be to abolish the Federal Reserve.” The Fed is the U.S. equivalent to the BoC.
More practically, though, inflation is unlikely to be an issue in an election held in 2024 or 2025.
So, the Tories need to maximize Canadian annoyance with the Liberals over inflation now, before inflation subsides and loses its political potency.
In the meantime, Poilievre is part of a small fraternity of prominent central-bank bashers with Donald Trump and Turkish strongman leader Recep Tayyip Erdogan.
Poilievre will have to hope he’s not judged by the company he’s keeping.
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