The federal government, and the Bank of Canada, seem determined to repeat some of the biggest and most destructive errors in financial & monetary history.
Take a look at this chart, shared by Deterministic Optimism on Twitter:
“Bank of Canada printer go BBRRRRTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTTT”
https://twitter.com/nvk/status/1389540126800371712
The scale of this is tough to comprehend.
85 years of the money supply growing by 7.3%.
$5 billion growth in 1970.
$50 billion growth in 2006.
$500 billion by 2021, after 15 months in which the money supply grew by 284% on an annualized basis.
If that is looking to you like an exponential chart, you are absolutely correct.
And of course, we have to consider the inverse of what this chart means.
As the money supply grows, each individual unit of money (each CAD dollar) has less value.
So, we would expect to see rising inflation as the money supply grows.
And lo and behold, that’s exactly what we are seeing.
While the government claims inflation is still low (between 1-2%), nobody believes this.
We are seeing the cost of nearly everything rising rapidly, with the value of our money being eroded before our eyes.
Cryptocurrency boom
At the same time, we are seeing a boom in cryptocurrencies, from Bitcoin to Ethereum to Dogecoin.
This is no coincidence.
As governments burn out the printing press, more and more people are sensing that the value of their money is falling, and are looking for places to store value.
The benefit of cryptocurrencies is that they have limits placed on supply, and that they aren’t controlled by governments.
People are looking for somewhere to put their money that won’t be manipulated by politicians and central bankers.
This wouldn’t be happening – at least not at the same scale – if governments and central banks weren’t busy devaluing their currencies, but here we are.
An increasingly fake economy
Take a moment to consider the following, written by Frank Shostak at Mises:
“When the stock of money stays unchanged, it is instrumental to an exchange of something for money, and the money in turn is exchanged for something else. We have here an exchange of something for something. This means that produced goods are exchanged for other produced goods with the help of money. Note that these other produced goods can be various consumer goods, services, or intermediate goods, which will be transformed into consumer goods sometime in the future.
However, when money is printed or generated out of “thin air,” this means that nothing was produced for this money. It is like counterfeit money. This type of money sets in motion an exchange of nothing for money (since nothing was produced here to obtain this money) and then this phony money, is exchanged for something, i.e., an exchange of nothing for something. Alternatively, what we have here is no production, which is then exchanged for produced goods.
The printing of money cannot result in more real savings but on the contrary results in the weakening of the pool of real savings. It causes the diversion of real savings from wealth generators to the holders of the newly generated money out of “thin air,” who consume without producing anything. Consequently, this weakens real economic growth.
While it is true that the central bank monetary pumping increases the monetary savings of individuals, it weakens the pool of real savings while doing so because of the diversion of real savings from wealth generators to the holders of the newly generated money.
Therefore, increases in money supply, which boost monetary savings, are bad news for real economic growth, because these increases weaken the process of real savings formation.”
Does this not accurately describe much of Canada’s economy?
Look at our housing market.
The Canadian housing market contributes about twice as much to our GDP as a proportion compared to the US housing market.
A large portion of Canada’s economic ‘growth’ is thus based upon ‘paper’ increases in the value of housing, value that is artificially inflated by development restrictions, large-scale immigration, and massive money printing.
This is not real growth, this is not real productive activity.
And it’s not even the growth someone sees in an investment, since an investment in a growing company means that your money has gone towards a real productive use somewhere in the economy.
What makes this so maddening is that we already saw where this overreliance on the housing market can lead, when the collapse of the US housing market nearly brought down a large portion of the global economy.
The Liberal government is also seemingly convinced that having the Bank of Canada print money, and then giving more of that money out by running huge endless deficits, will somehow generate ‘real growth.’
And unfortunately, few in the political class are willing to directly refute this, with even the Conservatives embracing another decade of deficit spending (Pierre Poilievre is a rare exception who actually mentions the danger of all of this).
A fake economy will generate real problems
There are many ways to make it seem that an economy is ‘growing.’
You can increase immigration, as more people will mean more aggregate activity.
You can print a bunch of money, as that will inflate prices and make the economy look bigger.
And you can run huge deficits, pumping that printed money into the system to generate what appears to be productive activity.
But those are all mirages of growth, not real growth.
Real growth only comes through increased productivity, and an economy is only actually growing if per capita GDP is rising when adjusted for the true rate of inflation.
Anything less, and the economy is actually shrinking on a per-person basis, and people are getting poorer.
And that is certainly what is currently happening in Canada.
Our wealth, and the value of our savings and earnings, is being eroded, through a conscious and deliberate choice by the federal government and central banks to run massive deficits, suppress interest rates, and print money.
We are punishing the most important drive of true wealth and productivity – savings – and ‘rewarding’ short-term consumption, though that will also end up punishing those receiving the ‘largesse’ of printed money from the state.
Avoidance of suffering leads to further suffering
At the risk of getting philosophical, it is quite interesting how our society has become so averse to suffering that we are generating more suffering for ourselves.
It’s analogous to someone who decides it would be too tough to improve their diet and start exercising, and instead chooses to continue their current negative habits. Sure, they might avoid the ‘suffering’ of change for a few years, but their long-term suffering will be far worse.
Likewise, our refusal to accept fiscal and monetary restraint to avoid the ‘suffering’ of tightening our belts will lead to far worse damage down the road – damage we are in fact already starting to see as the value of our money evaporates.
To conclude, I’ll share the chart from the beginning of this column, and ask you this question:
Does anyone think this is going to end well?
Spencer Fernando
Photo – Twitter
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