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The bank of Canada refused to lower the key lending rate as "inflation is too high" This is rediculous as we are seeing all kinds of reports that the economy is sliding, even if the Gov says it is looking up and we must have bottomed out by now. The inflation rate is only on the rise because of the high cost of OIL as it has driven up the price on all products because of transportation. This in no way correlates with core inflation which is actually down. EXCEPT in Alberta and to a lesser extent Sask.I don't want to think about the kind of politics behind that. But if core inflation is down, meaning the economy is stagnating or dropping (like wages) There is no reason to keep interest rates up, except to preserve the wealth of the rich. As they are solely responsible for the 0 inflation drive.
Canadian policymakers currently adhere to the view that the benefits of establishing and maintaining price stability (near-zero inflation) are "many and large" and that the costs are "small and temporary". This paper, in contrast, warns about the lightness of zero-inflation optimism. Evidence across industrial counties and over time for Canada is first shown to contain no compelling proof that the macroeconomic benefits from inflation reduction are large. Recent Canadian and U.S. macroeconomic evidence is then reported to be consistent with a strong influence of the path of actual unemployment on the level of natural unemployment. The costs of recession-induced disinflation could therefore be much higher than previously thought. Unfortunately, the prospects of reconciling the objectives of price stability and full employment in Canada do not look promising.
While in the east unemployment continues to climb we are told that the economy is too hot so we have to clamp down on changing the interest rate. This could also do with Bond ratings as they are tied to the BOC rates. Yet our debt load would be greater if the lending rate dropped, but then the cons couldn't start cutting programs should they win the election to "keep a balanced budget", as they are very clsoe to running in the red
I believe zero inflation was a policy diktat of the Bank for International Settlements handed down to western world Central Banks in the 1980's. Zero inflation-high unemployment policies were observed to be incompatible with old line party's chances for re-election, or iow's, democracy. [url=http://www.comer.org/2006/biscorresp.htm]Canada's William Krehm[/url] said about the BIS, the Central Bankers' bank:
Resolution Five adopted at Bretton Woods for the liquidation of BIS at the earliest possible occasion, provided a very good reason for BIS cultivating a low profile in the shadows. In the early postwar years some of its offices in Basel, Switzerland, were housed, not behind fake Greek temple fascades, but over a bakery, where they were actually hard for Forbes’ correspondents to find. That low profile, commended it as the semi-underground bunker of the banks’ in which they plotted their comeback from the doghouse, to which they had been committed by President Roosevelt’s 1935 Bank Act. Since most of the governments in the immediate postwar period were left-of-center – e.g., the Labour Government that replaced the war-hero Winston Churchill in Britain – most of the banks’ comeback strategy had to be conducted not only outside governments, but in a sense [i]against[/i] them.
The recession method of fighting inflation and Milton Friedman's monetarist monetary theories was said to be the "consensus" of mainstream economists in the 1980's-90's. JM Keynes said there was anything but consensus of opinion. In fact, several high profile Nobel laureates were in disagreement to various Friedman's theories. Robert Solow said that recessions simply cost more to an economy than inflation. Bay Street bond salesmen and the rich like high interest rates and misery in general.