Saturday, December 8, 2012

Bank of Canada Warning About Low Interest Rates?

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"Depression is the aftermath of credit expansion." - Ludwig von Mises

According to Chaos theory, eventually a state of disorder will produce orderly results. I'm guessing that the chaotic Keynesian nonsense spewing from Mark Carney's Bank of Canada must have produced something resembling reason and common sense. The Canadian Press reported yesterday that,

Bank of Canada governor Mark Carney is warning that its own low interest policies and those of central banks around the world are adding another layer of risk to the already stressed global financial system and economy. The Canadian central bank said Thursday near record level interest rates in place since the 2008-09 recession are taking their toll on insurance companies and pension funds.

Low interest rate policies are doing more than just agitating insurance companies and pension funds. When interest rates are disconnected from the market process of supply and demand, and instead are centrally planned and set artificially low, price signals are distorted and malinvestments are made. Of course on the ride up it's a fun wealthy boom but eventually reality rears its ugly head. Recessions come not due to a “lack of consumer spending” or a “fall in aggregate demand” but because expanding credit is unsustainable. When producers and consumers start clashing over scarce resources, it becomes apparent that some of society's wealth is a result of funny money.

The "monetary stimulus" that the Bank of Canada and other central banks around the world set in place during the '08-'09 recession are the reason we had a recession to begin with. Nothing has been fixed. There is no recovery. All that's been accomplished is a postponing of the necessary correction. Debts need to be liquidated. Resources need to be reallocated to their most valued uses. Simply put, the production of money needs to be returned to the market of voluntary exchange and the Bank of Canada needs to be abolished.

Hopefully that will be the next statement from the BoC, but I somehow doubt it.

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