Print more & spend more!
If you somehow secretly printed – or digitally generated – an amount of Canadian Dollars that matched the quantity that is already in the economy, and then instantly distributed it to everyone (effectively doubling the money supply) would Canadians be twice as rich?
Would our GDP per capita double?
Of course not.
Sure, at first there would be an apparent economic surge as people bought a bunch of stuff and packed the stores trying to get as much as they could.
But, those selling products and services would quickly realize there was a huge surge in demand, and start raising prices. People would then see those prices going up, and seek to spend their money even more rapidly before things got more expensive. And then, business would start running out of products, and shortages would develop, driving up prices even further.
Before long, the economy would rebalance itself, with everything having about doubled in price. Or, more accurately put, our money would have been halved in value.
A huge increase in the quantity of money chasing the same amount of goods cannot generate any real wealth or productivity. It can merely displace future consumption and bring it into the present.
This is what happens whenever a government & central bank rapidly increases spending while flooding the money with printed fiat currency.
The most extreme result of this is what is called a ‘crack-up boom‘:
“A crack-up boom is an economic crisis that involves a recession in the real economy and a collapse of the monetary system due to continual credit expansion and resulting in unsustainable, rapid price increases. This concept of a crack-up boom was developed by Austrian economist Ludwig von Mises as a part of the Austrian business cycle theory (ABCT).1
The crack-up boom is characterized by two key features: 1) excessively expansionary monetary policy that, in addition to the normal consequences described in ABCT, leads to out-of-control inflation expectations and 2) a resulting bout of hyperinflation which ends in the abandonment of the currency by market participants and a simultaneous recession or depression.”
Note, a key element of a crack-up boom is when government institutions desperately try to put off the consequences of their loose money policies:
“The crack-up boom develops out the same process of credit expansion and the resulting distortion of the economy that occurs during the normal boom phase of Austrian business cycle theory. In the crack-up boom, the central bank attempts to sustain the boom indefinitely without regard to consequences, such as inflation and asset price bubbles. The problem comes when the government continuously pours more and more money, injecting it into the economy to give it a short-term boost, which eventually triggers a fundamental breakdown in the economy. In their efforts to prevent any downturn in the economy, monetary authorities continue to expand the supply of money and credit at an accelerating pace and avoid turning off the taps of money supply until it is too late.”
It would be similar to someone having a bunch of sugar (or a similar looking substance) to gain energy and then – in order to avoid the down after the sugar high – having more and more sugar constantly. The longer you put off the comedown the worse it will be when it inevitably arrives.
In Canada, the situation is even worse than example of someone magically increasing the money supply that I mentioned above.
With the massive expansion of the money supply by the Bank of Canada, the benefit goes to those closest to the Bank, with big investors quickly converting their fiat currency into assets that can hold value. Meanwhile, by the time some of that money makes its way to the rest of the population, the value of money has declined and the cost-of-living has risen.
How would this look?
We would see a supposed increase in ‘wealth,’ while evidence pointed to most people being worse off.
And indeed, that’s exactly what is taking place:
“The number of people turning to food banks rose 10 per cent in the province of Ontario during the first year of the COVID-19 pandemic. That’s aligned with figures that show food bank usage across the country was significantly higher this past March than in 2019.
At first glance, the numbers are hard to reconcile with data showing that Canadians became much wealthier during the pandemic. But the rise in household net worth was largely due to a boom in housing and stocks, leaving behind those with lower incomes and few financial assets. In Ontario, only about 6 per cent of food bank users are homeowners.
The cost of food and housing are two of the top three reasons why people access a food bank, according to a survey by Food Banks Canada. With a recent surge in inflation affecting food and fuel, the situation may get worse in 2022.”
This all makes sense unfortunately.
More fiat currency flooding the country, benefitting those closest to the government printing press, robbing Canadians of our earning power.
So, it looks like there’s more ‘wealth’ while more people have trouble affording the basics.
Freeland pushes more inflation
With the fiscal update, finance minister Chrystia Freeland has made it clear the Liberals are pursuing policies that will make inflation even worse, ramping up government spending by about $30 billion – on top of other increases in spending that have already been implemented.
The Liberals have also altered the emphasis of the Bank of Canada’s mandate, a move seen as trying to normalize higher levels of inflation and keep the money printer in overdrive.
The issue is that the fix for rising inflation is for the government to cut spending and reduce their intervention in the economy. A reduction in spending would also reduce the pressure on the Bank of Canada to continue funding massive deficits.
But, given their socialist & statist ideology, Freeland and Trudeau can’t and won’t admit that government is the problem, and will keep doubling-down on the policies that are driving increases in inflation and robbing the Canadian People of our purchasing power.
Spencer Fernando
Photo – YouTube
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