Carney vs. the British Pound

June 1, 2013 Leave a comment

UK citizens are running out of time before Mark Carney takes over their central bank.

Carney got the Bank of England job because he was a friend of bank bailouts and has shown no reluctance when it comes to printing money.

Mike Amey, head of sterling bonds at PIMCO, believe that’s what Carney plans to do when he takes over the BoE. He predicts Carney will devalue the pound by as much as 15%. That’s because Britain is desperate, and central bankers don’t really have any solutions other than “MOAR PRINTING.”

I’m so glad Carney’s going to be gone, not that I expect Stephen Poloz to be any better. But we should feel bad for the citizens of the UK. The pound has already lost significant value in recent years.

— Read more at The Telegraph —

 

Mark Carney - HERE I COME BRITAIN YOU SHOULD SELL YOUR POUNDS BEFORE I GET THERE

Filed under Central Banks, CMR, Currencies, Foreign Affairs, Inflation Tagged with , , , , ,

Yield on Canadian Government Bonds Rising

May 29, 2013 Leave a comment

About three weeks ago, I speculated that the bottom on interest rates had come and gone, and interest rates were rising.

This now seems more and more certain. Because of Abenomics, yields on Japanese government bonds have shot up and set off an ugly chain reaction. Bond prices are falling and yields are rising. Rather quickly, I might add.

Take a look at these charts of yields for selected Canadian government bonds. Pay extra attention to the longer-term bonds.

First, marketable bonds. The average yield on 1-3 year bonds:

Government of Canada marketable bonds - average yield - 1 to 3 year

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Now 3-to-5 year bonds:

Government of Canada marketable bonds - average yield - 3 to 5 year

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5-10 year:

Government of Canada marketable bonds - average yield - 5 to 10 year

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Here’s the average for 10+ year bonds:

Government of Canada marketable bonds - average yield - over 10 years

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Now the benchmark bonds.

First, the 2-year:

Government of Canada benchmark bond yields - 2 year

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The 3-year:

Government of Canada benchmark bond yields - 3 year

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The 5-year:

Government of Canada benchmark bond yields - 5 year

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The 7-year:

Government of Canada benchmark bond yields - 7 year

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The 10-year:

Government of Canada benchmark bond yields - 10 year

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Long-term benchmark bonds:

Government of Canada benchmark bond yields - long-term

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Here’s the long-term real return bond yield:

Real return bond - long term

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You can draw your own conclusions from this data, I’m sure.

Filed under Banking and Finance, Economics, Interest Rates, Ottawa Tagged with , , , , , , , ,

Bank of Canada Should Raise Rates to Pop Bubbles, Says Former Carney Advisor

May 20, 2013 Leave a comment

Paul Masson, former advisor to Mark Carney, says the Bank of Canada should raise interest rates and pop the housing and debt bubbles.

He says years of low interest rates have distorted the economy and driven people to take higher risks. The accumulation of debt has left Canadians and their institutions stretched thin, ill-prepared to withstand the impact of another financial crisis.

Mr Passon correctly describes our situation.

The Bank of Canada could raise rates very quickly by selling assets. It will definitely not do this, because it would cause a depression. All talk about “maybe” raising rates “in the future” is just that: talk.

Should the BoC raise rates? Well, the Bank of Canada should be closed down, so really all of its assets should be sold. Central banks exist to empower governments and the elite at the expense of everyone else.

But in the context of having the BoC and Canadian dollars, I am sympathetic to the argument that the BoC shouldn’t really do anything. It would be reasonable to leave the money supply as it is and let the market determine interest rates from there. The BoC shouldn’t be jacking the rates around, whether to raise them or lower them. Let the market set interest rates free of further invention. This would give us a bit more time to prepare for the crash, versus an active contraction of the BoC’s balance sheet. “Laissez-faire.”

— Read more at The Financial Post —

Filed under Banking and Finance, Central Banks, Intervention Tagged with , , ,

Poloz Prepared to “Nourish” Economy. Translation: He Will Inflate

May 6, 2013 Leave a comment

Poloz thinks it will be necessary to “nourish” the economy.

To a Keynesian central banker from the EDC, this means “buy assets” i.e. inflate.

The boneheaded idea that this strengthens the economy is characteristic of cranks throughout history.

Currency depreciation cannot ever boost the economy. If Poloz were to announce that he will start expanding rate of growth in the money supply, the outcome on the foreign exchange market would be for other currencies to appreciate versus the loonie. Domestic producers would want to increase exports due to increased international demand, and would borrow from commercial banks to fund production at interest rates lower than otherwise. Resources would shift away from other industries into Canadian export industries. Exporters would record higher profits, but in real terms, the citizens of Canada would be getting fewer imports for each export. Basically, Canada would gain more foreign exchange, but they would get getting fewer real goods in exchange. Canadians in general would therefore become poorer.

And those higher exporter profits? As time goes by, monetary expansion would cause prices to rise and those artificial, subsidized profits would disappear. The end result is a weaker economy where resources have been misallocated due to credit expansion and interference with market exchange rates, and along the way some politically-connected export industries would make a bit of extra money.

Poloz needs to read Mises:

The much talked about advantages which devaluation secures in foreign trade and tourism, are entirely due to the fact that the adjustment of domestic prices and wage rates to the state of affairs created by devaluation requires some time. As long as this adjustment process is not yet completed, exporting is encouraged and importing is discouraged. However, this merely means that in this interval the citizens of the devaluating country are getting less for what they are selling abroad and paying more for what they are buying abroad; concomitantly they must restrict their consumption. This effect may appear as a boon in the opinion of those for whom the balance of trade is the yardstick of a nation’s welfare. In plain language it is to be described in this way: The British citizen must export more British goods in order to buy that quantity of tea which he received before the devaluation for a smaller quantity of exported British goods.

The Canadian dollar will surely suffer under Poloz’s governance.

Filed under Banking and Finance, Central Banks, Currencies, Economics, Inflation, Money, Trade Tagged with , , , , , , , ,

Mourn for the Lost Penny

May 4, 2013 Leave a comment

Every Canadian hated pennies. Even homeless street beggars hated getting pennies. If someone dropped a penny, they wouldn’t even bother to pick it up. Every Canadian seems happy that the penny is gone.

Sadly, Canadians do not realize how this loss is truly a tragedy, because it unequivocally shows how the government and the Bank of Canada have abused the monopoly over money. If you go to the BoC website, you can see that since 1914 the Canadian dollar has lost 95% of its value.

This is the inevitable result of the age-old credo of monetary cranks and inflationists. Mises wrote:

A very popular doctrine maintains that progressive lowering of the monetary unit’s purchasing power played a decisive role in historical evolution. It is asserted that mankind would not have reached its present state of well-being if the supply of money had not increased to a greater extent than the demand for money. The resulting fall in purchasing power, it is said, was a necessary condition of economic progress. The intensification of the division of labor and the continuous growth of capital accumulation, which have centupled the productivity of labor, could ensue only in a world of progressive price rises. Inflation creates prosperity and wealth; deflation distress and economic decay.

All this time, rather than having pennies lose value until they must be eliminated, pennies should have been increasing in value. We should have been able to buy more stuff with pennies today than 50 years ago. That is how a free economy with a stable money supply works. Money is saved and invested into more production. Workers create more goods, and so the monetary unit can purchase more stuff. Instead, the Canadian government and its central bank have distorted the economy and redistributed wealth by means of monetary policy. Monopolies are always bad, and a monopolization of money is the most dangerous of all.

The death of the penny should be a blaring wake-up call to Canadians. The Bank of Canada should be shut down, the government should abolish legal tender laws, and Canadians themselves should decide what their money should be. Otherwise, expect to someday bid farewell to nickels, dimes, and even loonies as the government continues its destruction of our currency.

— Read more at the Mises.ca —

Filed under Banking and Finance, Central Banks, CMR, Economics, Inflation, Money, Monopoly, Ottawa, Totalitarian Democracy Tagged with , , ,

Economic Ignoramus Stephen Poloz to Replace Carney as Bank of Canada Governor

May 2, 2013 1 Comment

So far, we don’t know much about Mr Poloz on a philosophical level.

Based on the little we do know, I think he is a bad choice. He has a PhD in economics, so he likely knows very little about economics.

We also know he has spent most of his life as a bureaucrat. Most of his career has been “public service” (cough cough) at the BoC and Export Development Canada. I’m sure he made lots of friends in the export industry there. Friends who will really appreciate a subsidy in the form of monetary inflation.

Back in late 2008, he wrote a commentary on the financial crisis. In essence, he appeals to animal spirits, like all Keynesians who are baffled by economic law. He blames it on nothing more than a change in psychology following the 9/11 attacks. Everyone had a “live for the moment” attitude, he says, and ultimately this created the housing bubble.

The first sign of failure in economic analysis is a reliance on nonscientific pop-psychology. He completely fails to identify the source of bubbles and account for why business cycles occur. The culpability of central banks is nowhere challenged. He pleads agnostic about the ability of economists to understand the cause of bubbles at all. He does not understand the Austrian theory of the business cycle.

Based on these facts, I can safely conclude he is an Keynesian/inflationist/mercantilist. Sort of like, well, all central bankers. He may prove to be better or worse than Carney. Only time will tell.

Ultimately, it matters only a little who is the head of the Bank of Canada. The system as such is the problem, and not so much the individual people in charge.

— Read more at BoC’s website — 

Filed under Banking and Finance, Bureaucracy, Central Banks, Currencies, Inflation, Money, Ottawa Tagged with , , , , , , ,

Trusting Bureaucrats and Politicians Will Cost You Money

April 21, 2013 Leave a comment

Before the financial crisis in Cyprus, the Cypriot president assured voters that the government would never seize their bank deposits.

Then guess what happened?

On April 4, CMR asked if the Canadian government would have a Cyprus-like response to a banking crisis, as was implied by the language of pages 144-145 of the new budget.

The government is trying to assure us now that they won’t steal your deposits to prop up an insolvent bank. Yet Mark Carney himself wouldn’t rule out the possibility.

“Canadian institutions have substantial unsecured debt obligations in the wholesale market and as well as other classes of capital, and they have substantial capital as well, so once you stack all of that up, regardless of whether one would look to reach into it … it’s hard to fathom why it would be necessary,” the Bank of Canada governor said.

“Hard to fathom”? That is not exactly what I’d call “comforting language.” Especially because this is from a guy who is wrong nearly every time he opens his mouth.

He admitted the queue of capital buffers for banks would likely include some types of deposits, but did not elaborate.

Yet Carney also referred to a response from Flaherty’s office, which stated:

“The ‘bail-in’ scenario described in the budget has nothing to do with consumer deposits and they are not part of the ‘bail-in’ regime. Under a ‘bail-in’ arrangement, a failing financial institution has to tap into its own special reserves or assets (which it has been forced to put aside) to keep its operations going.”

“Nothing to do with consumer deposits.” Okay.

Remember Rockwell’s Law: always believe the opposite of what state-officials tell you. If they say you have nothing to worry about, then you should start worrying.

But let’s say for the sake of argument deposits are supposed to be excluded from any proposed “bail-in” scenario. What is the bank going to do? Canadian banks are capitalized about as well as Lehman Brothers before things went bad.

Consider TD. They have $818 billion in assets. They have $768 billion in liabilities. Very little equity is available to withstand losses in asset value or income. All the big Canadian banks are like this. A tremendous amount of special reserves need to be put aside to withstand even a 10% drop in the value of a Canadian bank’s assets.

There will be more crises. Canadian banks cannot survive a crisis without a government bailout. Don’t take any comfort in anything coming out of Ottawa and the BoC.

— Read more about this story at CBC — 

Filed under Banking and Finance, Central Banks, Taxation Tagged with , , , , , , ,

Mini-Review: CBC Documentary “The Secret World of Gold”

April 19, 2013 Leave a comment

On April 18, CBC aired a documentary called “The Secret World of Gold.” Though flawed, the program was interesting and covered many issues.

Here are some things talked about in the documentary:

  • The Bank of Canada has sold almost all our country’s gold over the last 30 years.
  • Underwater treasure hunts for gold.
  • Secret government deals to control gold.
  • Futures market manipulation (this was by far the weakest part of the show — the futures market is not explained and the case made for manipulation is very thin).
  • Buildings with gold windows.
  • Wars for gold.
  • How Chavez got all Venezuela’s gold back from the US and Europe
  • Gold shifting to the East from the West
  • Death gold from Nazi extermination camps (some of which was used to fill Hitler’s teeth — WTF).
  • Allocation of central bank gold holdings — who owns the gold? Is the gold even there?

Think about taking 45 minutes out of your weekend to check it out. You can watch it here for free, the only drawback is there are a few dumb CBC ads.

UPDATE: You no longer need to watch it at CBC. The copyright police got to “The Secret World of Gold” on YouTube, so it looks like you have to watch on CBC…

Filed under Banking and Finance, Central Banks, Currencies, Economics, Gold, Imperialism, Inflation, International, Intervention, Investments, Mining, Precious Metals, War Tagged with , , , , , , , , , ,

Recession will come to Canada in 2013.

December 17, 2012 Leave a comment

Oh Carney. What a wacky guy. He seems convinced we will only enter a recession if the US falls off the fiscal cliff. Err, I’m sorry, not a “recession,” but a “near-recession.” Central bankers don’t like to use the word “recession” in their predictions, because that serves as a confession that they are not “managing” the economy effectively.

If the fiscal cliff is resolved, he says, Canada will surge with the resultant economic relief!

So… is it the case that Canada’s only economic threat is idiots in the US Congress? (That’s redundant — I should just say “US Congress.)

Sorry, Carney. That is nonsense.

What about recession in Europe? Asia? Not to mention the general problems of the US, out biggest trading partner.

First there is Europe. The European recession is spreading, evidenced by slowing price inflation and rising unemployment (at 12% for the Eurozone). This deeply aggravates the existing European crisis. Even Germany, the ‘good’ (cough cough) part of Europe, is grinding into economic slowdown. Its central bank predicts a pathetic 0.4% for next year. It could very easily be less. As long as everyone over there relies on Keynesianism to solve their problems, they will never escape the financial death spiral.

Japan is in a recession. Other Asian export markets are slowing down, because the weight of China’s economic distortions are turning into a brutal yoke and necessitating slowdown there.

And what of the US? The perception is that if “something” is done about the fiscal cliff, everything will be rosy. Shockingly, the US is still considered a safe haven. But foreigners are not scooping up US debt like they used to. China is reducing its exposure; Japan’s purchases are slowing. Bernanke’s surprise announcement to expand the Fed’s balance sheet by an additional $45 billion a month to buy US debt is a telltale sign that he understands the problem, at least to some extent. Yet I do not believe that Bernanke’s action will deflect the recessionary pressures coming from both sides.

Then there is Canada. Everyone here thinks we are special. “Well, if the world goes into recession, we will be okay — we’re CANADA!” they say. The myths spawned during the 2008 financial crisis have sunk deep into the nation’s collective unconscious. Canadians feel invincible. That is dangerous. So the debts continue to grow. Harper continues growing the government, thinking it’s perfectly acceptable to do so because Canada is not as bad as other countries (ignoring the fact that it is still bad).

I frequently speak with executives in the oil industry. There are big deals being made, plenty of excitement as usual. But I’ve noticed people seem strangely oblivious to even the prospect of slowdown in 2013. We are largely a resource based economy, so if the entire world is slowing down, they are not going to buy as much of our stuff. It’s a fairly easy prediction to make. Myanmar and Laos are not going to make up for lost demand from China. Canada’s slow growth will drop mid-to-late 2013 unless some new crisis speeds the world’s decline. Canadians should get ready for this. Hold cash. Get ready to use it when prices fall.

Filed under Banking and Finance, CMR, Economics Tagged with , , , , ,

Bank of Canada — engine of too much debt — warns about too much debt.

December 10, 2010 Leave a comment

The Bank of Canada is warning Canadians about too much debt.

Experience suggests a long period of very low interest rates may be associated with excessive credit creation and undue risk-taking as investors seek higher returns, leading to the underpricing of risk and unsustainable increases in asset prices.

This is a remarkable statement, really — it reveals that the Bank of Canada’s economists either don’t know economics, or they pretend not to know. The issue should not be about how low interest rates “may” be associated with excessive credit and excessive risk. Rather, there is a direct causal relationship here.

Mises wrote:

If there is credit expansion [by the central bank], it must necessarily lower the rate of interest. If the banks are to find borrowers for additional credit, they must lower the rate of interest or lower the credit qualifications of would-be borrowers. Because all those who wanted loans at the previous rate of interest had gotten them, the banks must either offer loans at a lower interest rate or include in the class of businesses to whom loans are granted at the previous rate less-promising businesses, people of lower credit quality.

This is not rocket science. It is not a complex relationship to understand at all — if interest rates rise, there will be fewer risky loans than there would be otherwise; if interest rates falls, there will be more risky loans than there would be otherwise.

But if you have a PhD in economics, like our ex-Goldman central planner at the BoC, Mark Carney, you probably are incapable of understanding this, and would say something inane like, “In light of the high level of indebtedness of Canadian households, some caution in banks’ lending to households is warranted.”

Carney does not realize that lending standards are directly related to the ease with which credit is made available. Talk is cheap. If Carney jacked up interest rates to 10% tomorrow, that would have a dramatic impact on lending standards, much more so than his oracular admonitions about risky lending.

On the other hand, what would happen if Carney decided the economy was too weak, and he cut interest rates down to zero? Then we can rightly expect that more loans would be made to those businesses and individuals would have been previously deemed unworthy of credit. 

A lot of Canadians like to think we breezed through the financial crisis without too much pain and suffering — “our banks didn’t need a bailout,” and that we are leading the way out of economic ruin.

All is not well, however. The mammoth growth of consumer debt in this country, the worst of all OECD countries at about 140% debt-to-asset levels, is a very serious problem . With our housing market still in bubble territory, unemployment relatively low, and implausibly low interest rates, Canadians have been piling on more and more debt.

It’s so bad, even the banks — you know, the ones making all these questionable loans to Canadians mired in debt — are raising concerns. You have to acknowledge this is a bit rich — but don’t worry big Canadian banks — I am sure you can keep making your risky loans and if (when) things turn ugly, someone will bail you out.

Filed under Banking and Finance, CMR Tagged with , , , , ,

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