Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • A critical look at BC’s new tax breaks and subsidies for LNG May 7, 2019
    The BC government has offered much more to the LNG industry than the previous government. Read the report by senior economist Marc Lee.  
    Canadian Centre for Policy Alternatives
  • The 2019 living wage for Metro Vancouver April 30, 2019
    The 2019 living wage for Metro Vancouver is $19.50/hour. This is the amount needed for a family of four with each of two parents working full-time at this hourly rate to pay for necessities, support the healthy development of their children, escape severe financial stress and participate in the social, civic and cultural lives of […]
    Canadian Centre for Policy Alternatives
  • Time to regulate gas prices in BC and stop industry gouging April 29, 2019
    Drivers in Metro Vancouver are reeling from record high gas prices, and many commentators are blaming taxes. But it’s not taxes causing pain at the pump — it’s industry gouging. Our latest research shows that gas prices have gone up by 55 cents per litre since 2016 — and the vast majority of that increase […]
    Canadian Centre for Policy Alternatives
  • CCPA welcomes Randy Robinson as new Ontario Director March 27, 2019
    The Canadian Centre for Policy Alternatives is pleased to announce the appointment of Randy Robinson as the new Director of our Ontario Office.  Randy’s areas of expertise include public sector finance, the gendered rise of precarious work, neoliberalism, and labour rights. He has extensive experience in communications and research, and has been engaged in Ontario’s […]
    Canadian Centre for Policy Alternatives
  • 2019 Federal Budget Analysis February 27, 2019
    Watch this space for response and analysis of the federal budget from CCPA staff and our Alternative Federal Budget partners. More information will be added as it is available. Commentary and Analysis  Aim high, spend low: Federal budget 2019 by David MacDonald (CCPA) Budget 2019 fiddles while climate crisis looms by Hadrian Mertins-Kirkwood (CCPA) Budget hints at priorities for upcoming […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Currency Cooperation, Crowding out and Other Myths

Belatedly, two days after the fact, the Globe picked up on Bank of Canada governor Carney’s discussion of the Bank’s model of the world economy (I blogged about that speech here) at a  speech to the Ottawa Economics Association (OEA) last Wednesday.

The Globe spun the story in an unusual way by suggesting that the Bank and its analysis (using a GE model) could somehow position Canada as a “mediator” between the US and China over China’s policy of pegging the Yuan to the US dollar.

This interpretation is of nonsense because Canada’s clearly playing on the same team as the US and is part of a global effort to get the Chinese to play ball, as Bill Mitchell points out in considerable detail on a recent blog post.

Setting that aside, the Globe’s frame of this piece is also bizarre because by the Bank of Canada’s own reckoning, the pursuit of fiscal consolidation ONLY makes sense if China cooperates and backs off its US-dollar peg and starts buying other people’s stuff.  Absent that cooperation, the world is, based on the Bank’s analysis, in for a pile of deep doo-doo because of the deflationary effects of “fiscal consolidation.”  I know I shouldn’t expect much from the stenographers at the Globe, but that interpretation SHOULD have been the real story especially since the Globe carried a story that same day which quoted senior Chinese officials saying there was little to no chance of China moving off its peg.  Anyway, back at the G-20 it’s full steam ahead on the fiscal consolidation and damn the potentially devestating consequences…

Maybe I shouldn’t be so harsh on the Globe. The Bank of Canada-to-the-rescue piece did remind me of something that I’d forgotten — perhaps out of sheer disbelief  — from Carney’s speech, namely that all the negative effects generated by a “status quo” keep-spending scenario arise from “crowding out.”

This is simply an incomprehensible claim from a central bank that runs a fiat monetary system with no reserve requirements (not that they matter either but a lot of people think they do), which has openly acknowledge (pre-Carney mind-you) that it doesn’t worry about the quantity of money (for good reason) and which has complete control over short-term rates, with the potential to target longer-term rates if it so desired.  In fact, it is no exaggeration to say that the bank’s ability to control rates rests on an edifice where there are no monetary supply constraints and where private banks lend money first, and worry about the leakages later (as the BIS recently acknowledged).

Enjoy and share:

Comments

Comment from Keith Newman
Time: March 30, 2010, 9:48 am

Six months ago or so Bernanke made a number of comments to the effect that US commercial banks should lend their reserves. Since banks don’t lend reserves it was a bit odd. He has stopped saying that recently and has even proposed that reserves be abolished, which of course is the Canadian case. Presumably someone from the operations side of the New York Fed had a word with him and set him straight on the functioning of the monetary system he is in charge of. It seems Mark Carney needs someone in the operations side of the Bank of Canada to do the same.

Comment from دار التميمي حمد
Time: June 14, 2010, 8:05 am

Maybe I shouldn’t be so harsh on the Globe. The Bank of Canada-to-the-rescue piece did remind me of something that I’d forgotten — perhaps out of sheer disbelief — from Carney’s speech, namely that all the negative effects generated by a “status quo” keep-spending scenario arise from “crowding out.”

Write a comment





Related articles