The Bank Of Canada Is Rapidly Losing Credibility

Late to figure out what was obvious to many Canadians, the Bank of Canada increasingly appears to be both out-of-touch and ideological.

Here’s what the Bank of Canada was saying about inflation in early June of 2021:

“Bank of Canada policy makers aren’t worried about the recent run up of inflation they believe is being driven largely by temporary factors, according to a top official.

The pick-up in Canadian inflation to above 3 per cent was one of the key issues discussed by policy makers in deliberations this week, Deputy Governor Tim Lane said in a speech after the central bank’s stand-pat decision Wednesday.

Officials agreed the higher-than-expected inflation is largely due to unfavorable year-ago comparisons, Lane said on Thursday, with continued excess supply expected to put downward pressure on prices once the base effects abate.

“These base-year effects are, by definition, transitory — they will not persist beyond the next few months,” Lane said in prepared remarks. “What will persist until we see a complete recovery is the underlying slack in the economy.”

“This slack will continue to put downward pressure on inflation as these base-year effects fade,” he said.”

Good ole’ “transitory” inflation, the preferred term of central bankers & politicians when people start noticing that we are being robbed of our purchasing power.

Indeed, as recent as this month (October 8th, 2021), the head of the Bank of Canada was still talking about how all of this is ‘temporary.’

“The factors influencing Canada’s red-hot inflation are proving more persistent than expected, but there are “good reasons to believe” they remain temporary, Bank of Canada Governor Tiff Macklem said on Thursday.

Macklem, answering questions after a speech to a foreign policy think-tank, said Canada’s central bank continues to expect inflation to remain above its 1-3% control range in 2021, primarily due to base-year effects and supply chain disruptions.

“There’s a bit more persistence than we previously thought. But when you look at it, I think there are good reasons to believe that they are temporary,” he said, when speaking about the factors driving inflation.”

Macklem’s comments followed the Bank of Canada’s statement in September that they would continue ‘quantitative easing’ (creating a bunch of fiat money):

“The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent. The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank’s quantitative easing (QE) program, which is being maintained at a target pace of $2 billion per week.”

As all of this was taking place, independent media such as Yours Truly and a few competent politicians like Pierre Poilievre had been warning about inflation for some time.

Warnings were given that a huge surge in government spending enabled by the Bank of Canada printing (creating on a computer) vast quantities of money would inevitably lead to inflation.

It’s not a complicated issue really:

A bunch of new money, chasing a quantity of goods that isn’t keeping up at all with the rate of money creation will lead to higher prices (in reality a devaluation of currency).

In Canada at this moment we have an economy that is being restricted by higher taxes and ‘climate policies’ that reduce growth, while vast sums of money flood into the system.

Given those circumstances, avoiding inflation would be impossible.

Yet, many claimed otherwise.

The so-called experts at the Bank of Canada were saying it was all ‘temporary,’ so many dismissed concerns about how rapidly the cost-of-living has risen.

Some even claimed that people like Poilievre ‘didn’t understand how the economy works.’

Funny enough though, many of those critics have fallen silent.

Turns out, those independent journalists and politicians like Poilievre who warned about inflation have been vindicated, with the Bank of Canada only now waking up to the scale of the problem:

“It’s astounding how quickly the “experts” forget history. For thousands of years there has been a nearly perfect correlation between money supply growth and inflation.

Yet, when I told them it would happen again, they said “this time is different.”

This time is no different.”

“In stark reversal, Bank Governor agrees with Poilievre that inflation is prolonged & promises to stop printing money.”

Bank of Canada to end quantitative easing

It seems the Bank of Canada has now joined those who have warned inflation isn’t ‘transitory.’

Here are some excerpts from their latest rate decision:

“The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent. The Bank’s extraordinary forward guidance on the path for the overnight rate is being maintained. The Bank is ending quantitative easing (QE) and moving into the reinvestment phase, during which it will purchase Government of Canada bonds solely to replace maturing bonds.

The recent increase in CPI inflation was anticipated in July, but the main forces pushing up prices – higher energy prices and pandemic-related supply bottlenecks – now appear to be stronger and more persistent than expected. Core measures of inflation have also risen, but by less than the CPI. The Bank now expects CPI inflation to be elevated into next year, and ease back to around the 2 percent target by late 2022. The Bank is closely watching inflation expectations and labour costs to ensure that the temporary forces pushing up prices do not become embedded in ongoing inflation.”

The damage is done

While the Bank of Canada is still talking about ‘temporary forces,’ that is a face-saving move at this point. Every force in the economy is technically ‘temporary,’ as is everything in our entire existence, since nothing lasts forever.

But when inflation is high month after month after month, some reduced rate of inflation in the future doesn’t negate the impact.

This is often forgotten when we talk about inflation.

If inflation surges for two years, and then goes back to ‘normal,’ that normal rate of price increases (say 2% or so) is based on prices that were elevated by previous higher inflation. An even more accurate way to look at it is to realize that if your purchasing power declines dramatically for two years, and then declines a little bit less going forward, you have still lost the purchasing power that was taken during periods of rapid inflation.

It’s similar to the mind-games politicians play after periods of economic decline. When an economy falls by 10%, and then recovers by 5%, that recovery is based on the smaller overall GDP that was left following the 10% decline.

They play this game with the job market as well. When people give up on looking for jobs, they are dropped from the list of unemployed, making the unemployment rate look far better than it truly is.

Ideological capture

Behind all of this is the sense that the Bank of Canada is increasingly functioning as an ideological institution that sees itself as an enabler of big government, statist, progressive policy.

By creating so much money, the Bank of Canada has driven up the housing market (making life even less affordable while technically boosting GDP), and has cushioned the immediate damage of rapid debt increases.

It is indeed ‘convenient’ for the Liberal government that the Bank of Canada is only now talking about how inflation will be around for a while and is musing about ending quantitative easing – after the election has come and gone.

As a result, the Bank of Canada loses credibility, and hemorrhages trust.

This is why more and more Canadians will continue looking to non-government controlled currencies for the protection of their earning power, at a time when governments and state institutions appear desperate to rob us of our financial independence.

Spencer Fernando

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