Bank of Canada should not side with capital in a class war | Unpublished

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Vancouver, British Columbia
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Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.

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Bank of Canada should not side with capital in a class war

July 26, 2022


    The Bank of Canada doesn't want wages to increase because these added business costs will by passed through to consumers and exacerbate inflation. Yet higher interest rates on business loans would also pass through and equally add to prices.


    Higher interest rates will be paid not only by business, but by those with student debts and household mortgages. These debt payments will flow through to banks, investors and shareholders who will have more funds to spend, presumably at cross purposes with the Bank of Canada's stated intention of reducing the demand side of the equation.

    The central bank's actions are beneficial for corporate and banking elites but detrimental to debtors and workers. The Bank is attempting to restrain wages, even at the risk of recession, while it ignores increased profit margins of businesses who use inflation as an excuse to raise prices far beyond actual costs. 

    The Bank of Canada should be working for all Canadians, and should not side with capital in a class war. 



    1. Raising the policy interest rate: a false economic consensus

        "The use of monetary policy to fight inflation roughly corresponds to a transfer of funds from the pockets of households to banks vaults and their shareholders. This solution entails a class bias.


        If the government really wish to protect the living standards of families, other strategies to slow price growth and raise incomes are available." 


    2. Letter from 14 Economists: False economic consensus around the hike in the key rate  (translation from French)

        "We are concerned that a rise in the key interest rate corresponds roughly to a transfer of funds from the pockets of households to the coffers of banks and their shareholders. People most sensitive to an increase in interest to be paid on their debts; families who have recently taken out a mortgage; young people with significant student debt… They are the ones who will bear the brunt of the fight against inflation. For large holders of financial wealth, rising interest rates mean that the value of their assets will be protected.

        If the government were genuinely concerned about protecting the living standards of families, it would use other strategies to slow price growth and raise incomes."


    3. Central Bank Independence: A Rigged Debate Based on False Politics and Economics

        The paper exposes the incoherence of the economics of central bank independence, and argues independence is a politically driven phenomenon intended to benefit particular interests.


        Tom Palley

        Co-editor, Review of Keynesian Economics 

    4. Modern Monetary Theory, explained

        "Indeed, from our view, excess demand is rarely the cause of inflation. Whether it’s businesses raising profit margins or passing on costs, or it’s Wall Street speculating on commodities or houses, there are a range of sources of inflation that aren’t caused by the general state of demand and aren’t best regulated by aggregate demand policies.

        Thus, if inflation is rising because large corporations have decided to use their pricing power to increase profit margins at the expense of the public, reducing demand may not be the most appropriate tool." 

    5.  Record profits for oil companies..

        "Imperial Oil reported first quarter profits of $1.17 billion, its best first quarter in 30 years. On Thursday, Canadian Natural Resources Ltd. reported profits of $3.1 billion, compared with $1.38 billion a year ago.

        "These companies are making record profits.." Guilbeault said."

    6. How Canada’s grocery ‘cartel’ doubled its profits while food bank lines grew

        "Low-income folks are having trouble making ends meet with the high price of food, but Loblaws saw their net earnings rise by 40 per cent in the latest quarter,” she said, adding “their profit margin was almost double. And at the same time that their profit margin doubled, they increased shareholders’ quarterly dividend.”

    7. Fiscal policy is the best counter-stabilisation tool available to any government

        "The reality is that policy makers have very little idea of the speed and magnitude of monetary policy impacts (interest rate changes) on aggregate demand. There are complex timing lags given how indirect the policy instrument is in relation to its capacity to influence final spending.

        Further there are unclear distributional effects – creditors gain when rates rise, debtors lose. What will be the net effect? Central bankers do not know the answer to that question.

        Monetary policy is also a blunt policy instrument that has no capacity to target specific segments of the spending population or regions.


        Fiscal policy expansion is always indicated when there is a spending gap. It is a direct policy tool ($s enter the economy immediately) and can be calibrated and targetted with more certain time lags. Liquidity trap or not, fiscal policy is the best counter-stabilisation tool available to any government." 

    8. Is the Remedy against Inflation a Monetary Policy of Real Wage Deflation and Has the Bank of Canada Already Abandoned its New Mandate a Mere Six Months after its Adoption?

        "..there are many who believe that the Bank will not manage this programmed disinflation in Canada particularly well. In fact, as recognized in a recent study by David Macdonald at the Canadian Centre for Policy Alternatives, there is no historical precedence over the last half century that our central bank can manage significant rate hikes of the magnitude that we have witnessed cumulatively over the last few months without causing a serious recession."




    Modern Monetary Theory in Canada