While attention is understandably focused on the Bank of Canada, continued spending increases by the federal government puts additional pressure on the many Canadians struggling with high debt levels.
The Bank of Canada has lost a fair bit of credibility as of late.
With their one job being to control inflation, the BoC was repeatedly wrong about the impact of deficit spending and the expansion of the money supply.
Back when Pierre Poilievre was warning that high inflation – and thus higher interest rates – were coming, the BoC dismissed those concerns.
We all know what happened since then, with the BoC having now raised interest rates eight consecutive times.
Yet, while the BoC faces well-earned criticism, attention must also be focused on the impact of ongoing Liberal budget deficits.
With immense spending increases over the past few years – which have an inflationary effect – the Liberals have added even more pressure on the Bank of Canada to raise interest rates to get inflation under control.
It’s a cynical political move, because the Liberals get to posture as ‘helping Canadians’ while the BoC looks even worse.
In reality, the ‘help’ the Liberals claim to offer makes things worse, by further reducing the value of each individual unit of money.
After all, money measures value and wealth, but it doesn’t create it.
Ten people stranded on a deserted island could have billions of dollars worth of paper money in their possession, but will be able to do nothing with it. They will first have to find real food, build tangible shelter, and figure out how to construct a boat if they want to return to civilization.
They could use their paper money to measure the value of whatever food they find and use it to ‘compensate’ those who do the tasks of building shelter and constructing a boat, but they could just as easily use seashells for measuring that value. Indeed, seashells have served as currency in various parts of the world in the past.
Another way to look at it is to imagine a world in which fusion power becomes widespread.
The cost of energy would plummet, which would likely lead to immense deflation.
But people wouldn’t be getting poorer, just the opposite in fact.
Each unit of money would go much further because it would take so much less effort to generate value. Money would simply be reflecting that change, rather than causing it.
All of this is to say that the common view that simply giving out more money generates wealth has things backwards.
So, when Pierre Poilievre points out the damage of inflationary deficits and links that to interest rate hikes by the Bank of Canada, he is correct, and demonstrates a level of understanding that Justin Trudeau clearly lacks.
You can watch Poilievre’s full remarks below:
“Canadians now face an 8th consecutive interest rate hike, thanks to the Trudeau Liberals’ inflationary deficits, making their mortgages and loans even more expensive.”
Spencer Fernando
Photo – YouTube
