Updated: Jun 14, 2021
An economic tempest, conjured by the Federal Government, is on the horizon. And though they have locked us in our homes and bankrupted our businesses, they promise they are here to rescue us. Many of our means of income are gone. We have no idea what the authorities will announce tomorrow, let alone next week, and the majority of Canadians are worried about the country's economic future. Can you blame us? We are saving our earnings (if we still have a job) rather than spending them anticipating more fabricated crises and closures.
But Canada can’t be in a recession—not in a year where the Liberals want to call an election. Recessions don’t win elections. So Prime Minister Trudeau and his caucus are pumping money into the country at unprecedented rates. In an attempt to re-light the economy, they are dumping gasoline onto the dim smouldering smoke and char of the Canadian economic fire that used to burn so brightly. But their actions will lead to disaster. The whole country will be burned by their carelessness.
Where does all the money needed to power Prime Minister Trudeau’s bold enterprise come from? Money, after all, is a machine.* It’s a superior machine, vital to society's technological and industrial progress whose benefits we are now privileged to reap. And like any other machine, this one needs a mechanic. It’s the Central Bank’s (Bank of Canada) job, whether we like it or not, to keep it running with a smooth and precise operation. They are the mechanics who perform routine maintenance, monitor levels of output, and make any necessary adjustments to maximize efficiency. The Central Bank must get this right. They better be expert technicians. Because if they aren’t, if they tighten the mechanism too much here or loosen too much there, if their "fixes" actually cause the machine to break, the whole economy, not just a factory, grinds to a halt. The assembly line of economic production shuts down, and families are left without any way to provide for themselves.
The Liberal Government has the option of funding their spending project by increasing taxes for us, but that’s undesirable for both parties. Nobody likes taxes—not even the socialist—and the Liberals need to be liked this autumn. Instead, The Federal Government has approached the Bank of Canada and “encouraged” the mechanics to be negligent with the machine. As such, they are working the presses too hard, printing so much money we cannot keep up. And although we may only see glimpses of it now, inflation is running away.
The first thing economic students learn is that the more abundant something is, the less it’s worth. If Ferrari manufactured 1 Trillion F12’s, they’d be worth nothing. The same is true of money. If the Federal Bank programs the presses to print a lot of money, trillions of dollars, the money sours worthless.
But that is only a law, and a law cannot produce an event. It only defines the rules that the event must follow. You and I might know that inflation is caused by printing an excess amount of cash, but that doesn’t mean we have inflation any more than the laws of addition put $5 in my pocket. On the contrary, someone, or some institution, must initiate the sequence of monetary events (printing too much money) that will produce the inflation.
Indeed every historical record of inflation devastating a country, whether America during the Civil War or the 1970s, Germany in the 1920s during the Weimar Republic, or Venezuela in the last five years, shows that a government increasing the supply of money is escorted by inflation.* As Friedman said, “A budget deficit is inflationary if, and only if, it is financed in considerable part by printing money.”** And we’re next.
Of course, accusing the government of giving the push off the precipice of inflation is serious slander. We will no doubt be hounded by heavy flak from those in control, or agreeing with, Canada’s monetary policy. Usually, their argument goes something like this:
“The Bank of Canada says that the “Consumer Price Index” (CPI)* is increasing like it always does, and nothing is out of the ordinary. They say that inflation is holding somewhere between .5–2% (which is normal), there are still goods on our shelves, our dollar is relatively strong, we’re climbing out of the recession, and the Bank says there’s no reason to worry. So what are you talking about?”
Simply put, the proponents of this printing and spending are asking the question, “Well, where is this inflation you speak of? I can’t see it.”
It’s already here. It’s a sleeping giant that is stirring and soon to wake. But we must be careful. We must remember that rising prices aren’t inflation; they are only a product of inflation bred in the bowels of the Bank of Canada. And those prices are laggy. It can take a little while for them to understand how much money there is in the economy, realize the goods are undervalued, and adjust accordingly.
Nonetheless, when someone says, “the Bank says inflation is at 2%,” do they not see the price of lumber rising at least 240% in only a year?** Do they not see the price of housing rise 30% in the same time frame? Do they not see the price of groceries skyrocketing? What about canola almost doubling in price per bushel since the fall harvest? And we’re supposed to believe the illusion that inflation is, at most, 2.5%? Something, or someone, somewhere, is wrong.
But deniers don’t stop their argument. “Well, maybe it’s true some prices are rising, but there are many goods and services, like haircuts and patio furniture and watches, that haven’t risen in price. In fact, some of them are falling. So if some goods are rising due to inflation, why aren’t all of them?”
Believe it or not, due to our circumstances, we expect the price of some goods to fall (keeping the CPI low), even with inflation like this. Why?
One year ago, the country closed down entirely. People were laid off, businesses closed, too many, permanently, and incomes were depleted. Everyone (except our politicians) scrimped and saved what money they had, anticipating a period of uncertainty. As a result, businesses that opened a little later in the lockdowns struggled to bring back customers. In addition to this, many people hate shopping with a mask or waiting in lines due to store capacity, so they took what appetite they had for consumerism online. Because in-person demand for their product was lower, businesses logically lowered their prices. But even as the government injected more and more money into people’s pockets, pleading with them to spend, they preferred to save it, securing it in a mutual or rainy-day fund. Therefore, even with an inflated currency, businesses are still starving for customers and are keeping their prices low.
If we’re still not convinced of the inflation, let us remember that when the Bank of Canada prints, say, 100 billion dollars to pump the economy, most of that money doesn’t go to you or me, but investors. And those investors put that new money, not in bicycles or groceries or haircuts like you and I would (which would raise the CPI), but in the stock market. That is where we would logically expect to see the effects of inflation first. Lo and behold, that's exactly where it is. The S&P/TSX market (pictured below) is always climbing higher and higher which cannot continue indefinitely.*` The prices are removed from reality.
The Dow Jones only serves to reiterate the point:
4. Consequences and Cure
The deviousness of inflation is that it’ll probably stimulate the economy for a year or two, luring unsuspecting people into a false state of security. This influx of spending and welfare will entice people to spend a little more and brighten the economy for a bit, but it’s just the calm before the storm.
Nobody knows when the train will derail. It might take a month or a year or five. It might take a bank not lending any more loans for fear of not getting them back, which causes the economy to panic and let the truth of inflation finally flow forth. Either way, a crash is coming. We are primed for a disaster we have never seen, not in this lifetime.
Of course, things like savings, loans, and income taxes aren’t indexed with inflation. The man who needed $1 to buy a loaf of bread last year now needs $2, but his savings remained constant at $100. They did not double, only the price of bread in response to the increase of money. If inflation climbs high enough, it’s not only devastating, but catastrophic. What if a loaf of bread rose to $5? Or, God forbid, as it was in Germany, what if something which cost $1 on January 1 costs $130 the following new year?*
The cure is simple—stop printing money. But it doesn’t look like that’s going to happen.
So what if, perhaps, this is what the government’s wanted all along? What if all this is by grand design? What if the economy must crash, but in a way makes the government seem innocent and shifts the fatal blow to “capitalism and free-market policy”? That way, the government could legitimize the powerful illusion that they are here to save us. They could restructure the economy, and the society, to the liking of themselves and their masters. I’d rather be in my own country when it happens.
* This idea that money is a "machine" is first presented by Friedman here
* See "Monetary Inflation and Price Inflation," here
** From the St.Louis Fed, here
* CPI simply takes a random "basket" of goods, and tracks the price of those goods over a period of time. The percentage of change in the price of the goods from Time 1 to Time 2 calculates the CPI.
**Article available here. All other statistics cited from https://tradingeconomics.com/
Consequences and Cure
*See a historical detail of the German inflation in the 1920s here
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