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Guest Post: Mark Carney Kicks The Can

Tyler Durden's picture




 

Submitted by James Miller of the Ludwig von Mises Institute of Canada

Mark Carney Kicks The Can

Bank of Canada Governor Mark Carney takes a lot of cues from his U.S. equivalent and fellow central banker Ben Bernanke.  Both took interest rates to anorexic levels in light of the financial crisis in 2008.  Both used their positions of power as stewards of the people’s money to bail out the big banks.  Both take credit for the gains of their respective stock markets and for guiding their economies through the global recession.  Both are forever on a quest to rid of the world of the boogeyman of deflation.

And both are sewing the seeds of their own destruction by keeping interest rates artificially low and ultimately driving unsustainable investment that must eventually be liquidated.  All around the world, the boom bust cycle continues to occur due to central banks attempting to induce economic growth with money printing.  China’s economy is continuing to come apart as manufacturing output and real estate prices plummet.  These sectors were bid up by double digit increases per annum in the country’s money supply over the past decade.  Since inflationary growth, by definition, can’t go on forever, as its continuance results in what Ludwig von Mises called the “crack-up boom” and destruction of the currency, the chickens of the People’s Bank of China’s reckless monetary policy are finally coming home to roost.  The PBOC has responded to the downturn by recently cutting interest rates for the first time since 2008 in what will likely be a vain effort to reinflate the bubble.

Over in Europe, the year over year change in the broad money supply has dropped dramatically since 2010.  This provided the spark for the sovereign debt crisis which shows no sign of slowing down unless Angela Merkel and Germany concede to further inflationary measures by the European Central Bank.  Just like her support for the big banks and the austerity measures that ensure idiotic bankers don’t take too much of a loss on their holdings of euro government bonds, Merkel will likely give in to money printing in the end as she has already endorsed the push for a political union.

And now in Canada, Mark Carney announced a few days ago the Bank of Canada will keep its benchmark interest rate steady at 1%.  This announcement comes despite his previous warnings over the enormous increase in Canadian private debt.  But of course the run up in debt couldn’t have occurred if interest rates were determined by market factors only.  Had supply and demand been allowed to function freely, interest rates would have risen as a check on the swell in debt accumulation.   Carney won’t admit this though.  Like all central bankers, he has made a habit of boasting the positive effects of his low interest rates policies while avoiding blame for the negative consequences.

He is a bartender who gleefully takes the drunk’s cash while replying with “who, me?” when said drunk drinks himself to death.

What makes the promise of continually low interest rates especially worrisome is not only does it tell the market to keep accumulating debt, but it is also an attempt to keep what some are calling a nation-wide housing bubble from deflating.  Over the past decade, Canadian home prices have shot up at a far steeper pace compared to the decades that preceded it.  In recent years, the acceleration in home prices has been fueled by the Bank of Canada’s historically low overnight lending rate which went from 3% before the financial crisis to .25% in 2009 and now rests steadily at 1%.  The BoC has already acknowledged that its interest rate policies directly affect mortgage rates.  Many Canadian media publications and investment newsletters are pointing out this trend and warning of a potential collapse.  The BBC even did a report on it.  There is nothing potential about a sharp downturn in home prices however; it will happen.  It’s only a question of when.

With China and Europe leading the pack, the world economy is beginning to take a turn for the worse.  The orgy of money printing which took place over the past few years has slowed down significantly; even in the U.S.  Central bankers are standing at a precipice in which they must decide if they will forge ahead and prime the monetary pump to paper over the various malinvestments caused by their previous interventions or actually allow for a contraction and the market to adjust to a new path of sustainable growth.  If history is any indication, the latter is not a considerable option as it would be devastating to the banking sector which is reliant on piggybacking credit expansion off of an uninterrupted flow of newly printed monies.

Carney’s decision to keep interest rates suppressed is yet another instance of a central banker unable to face reality.  The malinvestments will continue to accumulate and will have to be liquidated at another date.  What Carney has done to mitigate the looming debt and housing bubble is effectively kick the can down the road.  He has revealed through his actions the undeniable truth which holds for all central bankers: that they have no other card to play but the printing press.  As legendary investor Marc Faber has noted,

“I do not believe that the central banks around the world will ever, and I repeat ever, reduce their balance sheets. They’ve gone the path of money printing… And once you choose that path, you’re in it and you have to print more money.”

The Austrian theory of the trade cycle developed by Mises a century ago tells us that credit expansion is bound to end in depression.  To quote Herbert Stein’s Law, the business cycle theory essentially boils down to “if something cannot go on forever, it will stop.”  The debt fueled boom in Canada is a house of cards.  No matter how much money printing or interest rate manipulation Carney attempts, the collapse in inevitable.   His record, along with Ben Bernanke’s, will eventually be one of dismal failure.

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Sat, 06/09/2012 - 17:46 | 2511016 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

He is just like all Chairmen of the Central Banks!  He is GOldman Sachs afterall....

The Central Banks want to soak the "taxpayers" in debt and then implode the financial system.  They wish to make you their serfs once again.

Who is this Carney?  some innocent?  No.  Just because his mother was a nurse or teacher or whatever, he has sworn an oath to his banker buddies, some of whom have had their wealth in their bloodline for thousands of years, because he think he is on their side.

You are in no better shape than anyone, Canada.  Best to recognize.

Sat, 06/09/2012 - 17:47 | 2511020 Western
Western's picture

I thought he was different...... what about the time Jamie Dimon tried to fight Mark Carney in a board room?

Sat, 06/09/2012 - 17:51 | 2511024 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

It is a high school cafeteria.  Do you actually care?

Carney said he wasn't doing bailouts and has been.  He is a liar and a thief, and a Keynesian to boot.

Sat, 06/09/2012 - 18:35 | 2511092 Colombian Gringo
Colombian Gringo's picture

Stinky Mark Carney, fucking clown, should go back to stinky Canada Land from where he came.

Sat, 06/09/2012 - 20:47 | 2511295 The Monkey
The Monkey's picture

All these guys are subject to the economic cycle. Sorry.

Sun, 06/10/2012 - 08:02 | 2511819 CPL
CPL's picture

My fellow Canuck countryfolks are complete dolts when it comes to reality and just as bad at math as every other country out there.

Not to sound blaise about the situation in Canada though but we've been in a deep shit hole financially for the exact same amount of time as our southern cousins.  It's just better disguised because we are used to taking it in the ass.  Tiny population in a large land mass where less than 3% of it is inhabited.  Our biggest problem isn't debt, it's making sure we can keep the lights on and things running.  

The situation, at least where I am is simple, after 9am in the country I am lucky to get any power to run my little farm and it's just the beginning of the summer and AC units are cranked.  My neighbours are not so lucky, it's safe enough to pump diesel into equipment, milk and pasturize milk before 9 am.  After that...well, most of you have already been drinking and eating the results.  I understand Legionaires diease is making a come back which is common when refridgeration breaks down and things spoil slightly.

 

Means if you are over the age of 50, there's a good possibility that is how you're going to get your ticket punched.  As an added bonus it's completely resistant to anything on the antibiotic shelf now along with every other airborne and food borne disease and parasite out there.

 

We'll know systemic breakdown is completely in full swing when we are unable to make ice and some poor soul is killed by eating sealed bacon that wasn't handled properly.   Seriously it's pretty bad out there when pirates are stealing the data cables between continents for the copper content in them

Attempted subsea cable theft takes out phones and internet in Highland.

http://www.bbc.co.uk/news/uk-scotland-highlands-islands-18365150

Sun, 06/10/2012 - 21:03 | 2513106 Henry Hub
Henry Hub's picture

The question I keep asking is what happened to Canada's gold?
Canada had over 600 tons in 1980, now it all "vaporized", "apothacated", actually stolen. No one will address this question. Greece, Spain, Italy are all in big trouble, but they have vastly more gold then Canada. When will Canadian wake up and realize what's going on. If the world goes on some type of a gold standard, Canada is going to be in big trouble!

Sun, 06/10/2012 - 00:16 | 2511530 Bansters-in-my-...
Bansters-in-my- feces's picture

Hey , Gringo..... Don't  you know...???

Carney is in Canada....

He is the Govenor of the B of C.

 

Sun, 06/10/2012 - 05:32 | 2511756 Colombian Gringo
Colombian Gringo's picture

He may appear to be the governor of B of C, but is just another GS whore.

Sat, 06/09/2012 - 18:58 | 2511123 emersonreturn
emersonreturn's picture

wasn't carny the genius who basically hobbled income trusts?

Sat, 06/09/2012 - 20:48 | 2511299 Mark Carney
Mark Carney's picture

How about we talk about this over a Molson, eh?

Sun, 06/10/2012 - 00:36 | 2511579 palmereldritch
palmereldritch's picture

How was Bilderberg Mark?

Sun, 06/10/2012 - 09:15 | 2511879 debtandtaxes
debtandtaxes's picture

No real canadian talks about talking over a "Molson"! Over a Canadian or a Blue - yes. And since Carney hails from the Northwest Territories one would expect him to know better!

Sun, 06/10/2012 - 13:13 | 2512292 robertocarlos
robertocarlos's picture

We would just say "beer".

Sun, 06/10/2012 - 22:20 | 2513192 Paul Atreides
Paul Atreides's picture

Pluralize that and we have a winner.

Sun, 06/10/2012 - 01:49 | 2511654 peekcrackers
peekcrackers's picture

plus 1 Lennon

 

 

Sun, 06/10/2012 - 01:29 | 2511630 xtop23
xtop23's picture

Gotta punish those savers !!!

Get out there and spend baby. Debt is money.

Be just like the bankers. Spend into bankruptcy and then leave the bank holding the bag. Fuck those guys.

Sat, 06/09/2012 - 17:43 | 2511018 Cursive
Cursive's picture

 

His record, along with Ben Bernanke’s, will eventually be one of dismal failure.

Yeah, but until then, it's party time!  Forgive the sarcasm, I am suffering from bailout fatigue this weekend.

Sat, 06/09/2012 - 17:49 | 2511022 Sudden Debt
Sudden Debt's picture

My gold and silver supply is also becomeing a bubble. But I don't think it will form a problem anytime soon because in the end I'll be able to sell to some shithead who will pay ten times as much for it :)

Sat, 06/09/2012 - 18:41 | 2511099 Motorhead
Motorhead's picture

My stomach is becoming a bubble....way too much Duvel while watching Euro 2012.

Sun, 06/10/2012 - 08:07 | 2511822 CPL
CPL's picture

Duvel, a fine trapist pint, delicious in fact.  I would also suggest it's poor Canuck cousins Trois Pistole, Blanche du Chamblis and La Fin du Monde.  Similar hyper rich, high boozed content except maple syrup is used to act as the sugar in the brewing process.

 

It is very tasty and adds some teeth to a slow cooked pork/moose/deer/bear loin.  Very nice indeed.

Sat, 06/09/2012 - 17:52 | 2511026 GeorgeHayduke
GeorgeHayduke's picture

Kicking the can down the road seems to be the de facto plan around the world until the can falls down a sewer, over a cliff, gets run over, etc...

It may seem that it's all just delaying the inevitable and doing nothing according to us regular folks who aren't benefiting from the kick-the-can game. However, these cretins don't think like us. Any plan that keeps the wealth moving upward while piling the bankruptcies, property and wealth loss, and debt load off on the sheep and leaving the upper 7-8% as untouched and unscathed as possible while getting more and more of the pie crumbs is considered a win in their minds.

So, expect more and more of what's working for them, but not working for anyone else, to continue until the sheep start making such plans much more difficult, dangerous or undesirable for them pull off. THEN, something might change but I'm betting nothing changes much before such a tipping point.

Sat, 06/09/2012 - 17:51 | 2511027 ekm
ekm's picture

Please stop the freaking bullshit of implying that the central banker is independent.

Check here. Who do you think is the boss?

Mark doeth what Steve sayth.

 

Sat, 06/09/2012 - 18:21 | 2511077 jimmyjames
jimmyjames's picture

Mark doeth what Steve sayth.

********

I think vice versa-

Can you see the visible question marks that are forever floating above Fhalerity's head?

Sat, 06/09/2012 - 18:24 | 2511081 ekm
ekm's picture

Jimmy

Thx for the comment.

I am not able to prove it to you, but my empirical research tells me that the tables have been turned over. We are living in TOTALLITARIAN DEMOCRACY, both in Canada and USA, hence the Gov rules and the Gov has subjugated the banks.

Sun, 06/10/2012 - 00:15 | 2511563 Abrick
Abrick's picture

That is the funniest thing I have ever heard. Those bankers are raking in billions while the "mail-room" schlubs like Stephen Harper pull down a measly few hundred grand a year. If that's the way it works in the TOTALLITARIAN DEMOCRACY, count me in. I'm going to get me some of that subjugation money.

Sun, 06/10/2012 - 17:59 | 2512817 ekm
ekm's picture

Banking employees are basically high end gov workers. It's like high end union.

Unfortunately that's how it works right now and if you can get a "subjugated" employment position and hold on to it, you're lucky.

Sat, 06/09/2012 - 20:01 | 2511201 Frozen IcQb
Frozen IcQb's picture

Politicians around the world answer to their respective central banks or they're out at election time. The paper aristocracy (banks) call the shots. There is no democracy.

Sat, 06/09/2012 - 17:51 | 2511028 CClarity
CClarity's picture

OT but the ever bullish Dougie Kass is predicting S&P 500 opens up 15 on Monday due to the ebullience over the Spanish bank "fix".  

Hmmmmmm.  Fundamentals gone forever?

Sat, 06/09/2012 - 18:00 | 2511041 fonzannoon
fonzannoon's picture

I'm asking this as a US citizen...besides precious metals, is owning some CAD wise as another diversifier from the USD? I can't get to Singapore, Australia etc. too easily. This would be my best bet. Smart or dumb move?

Sat, 06/09/2012 - 18:05 | 2511050 ekm
ekm's picture

CAD is a Petrodollar. Canadian crude oil can be purchased only with CAD. Hence, whoever buys oil has to convert USD with CAD.

My forecast and money is for crude oil at $40-50 within this year. That would make 1 CAD at about 65c USD. If your horizon is 6-12 month, I think it's a bad move, unless you short CAD.

Sat, 06/09/2012 - 18:09 | 2511057 fonzannoon
fonzannoon's picture

Holy shit $40-$50? I am guessing you believe Ben does not print and deflation really starts shredding the US? I don't want to put words in your mouth but is that about right?

Sat, 06/09/2012 - 18:17 | 2511062 ekm
ekm's picture

Only temporarily. I am canadian and Canada has been surviving due to crude oil prices.

But there's so much crude stored around the world, that time is very close for it to be dumped into the world market, same as in 2008 in order to make space for continuous production. Nobody can afford to shut down the rigs. That's my rationale.

http://www.google.ca/finance?q=TSE:HOD

This is where all my money is.

Sat, 06/09/2012 - 18:18 | 2511071 fonzannoon
fonzannoon's picture

I appreciate the input. I am guessing you would not be in any canadian energy trusts either. I will certainly take this into consideration.

Sat, 06/09/2012 - 18:24 | 2511073 ekm
ekm's picture

I am 39 yrs young and I have no wife and no kids. Energy Trusts are for people with wife and kids.

Sat, 06/09/2012 - 18:42 | 2511101 ekm
ekm's picture

http://www.google.ca/finance?q=TSE:HOD

This is where all my money is.

Sat, 06/09/2012 - 20:24 | 2511250 geminiRX
geminiRX's picture

You're gonna get raped if there is any altercation with Iran within the next 8 weeks. For any strike to occur they need to get oil prices down (whether this decline is manufactured...is anyone's guess). There is very little 40-50 dollar oil left on this planet BTW

Sat, 06/09/2012 - 21:47 | 2511388 I am Jobe
I am Jobe's picture

u are smart and wise. Get youself a dog and a safe place to hide.

 

Sat, 06/09/2012 - 18:19 | 2511072 fonzannoon
fonzannoon's picture

that was not me who junked you, and whoever did I would be interested in knowing why

Sat, 06/09/2012 - 18:34 | 2511076 ekm
ekm's picture

I'm sure it was another fellow canadian or somebody who is long oil

Sat, 06/09/2012 - 20:32 | 2511274 geminiRX
geminiRX's picture

As the sovereign debt crisis intensifies, money will flee government debt instruments into tangible things - such as commodities - including oil. He who has the most commodities wins in a world of currencies spiraling out of control. 

Sat, 06/09/2012 - 18:37 | 2511094 ekm
ekm's picture

Do not get me wrong though, I LOVE CANADIAN OIL SANDS.

But the law of supply/demand is a NATURAL law.

Sun, 06/10/2012 - 00:35 | 2511578 FrankDrakman
FrankDrakman's picture

CAD is a petrodollar?

Whatta fucking idiot. Oil represents about 6% of canadian exports, not 100% like Saudi, or Iran, or Iraq. When oil spiked to $140/bbl a few years back, the Cdn $ was still only around 90 cents US. Oil falls back to $80, and the Cdn $ goes over $1 US. This fool's advice is about as good as Cramer's, or GS's, if you're a schlubby retail client.

Sun, 06/10/2012 - 10:30 | 2511948 jonjon831983
jonjon831983's picture

Petro/resource dolla!  Not much else in Canada aside from realestate and finance. Well there is tech, but seems to be a repeated one hit wonder that fades away with Nortel + RIM.

 

Backin the 90's with the good ol days of 65c CAD?

Sun, 06/10/2012 - 10:22 | 2511936 ootofthehoos
ootofthehoos's picture

I think they will not let you open an account unless you can prove you are a resident.

Sat, 06/09/2012 - 18:01 | 2511044 Brian
Brian's picture

The phrase "Kick the Can" drives me crazy.  It implies that there is a problem now, but that the problem can be dealt with later.

In fact, the problem is not simply delayed, but the problem becomes more difficult the longer it is delayed.  The problem may, if sufficiently delayed, become unsolvable.

Each time the "Can is kicked," it becomes a heavier can.  It will soon (long ago) become so heavy, that it cannot really be kicked any more.

I think the words that we use to describe the problems should be chosen carefully.  To the general public, there is nothing really bad with kicking the can down the road.  It's fun, and why deal with the problem today if it can be dealt with in a few months or years?  If we have an interest in alerting the public to the increasing urgency of global financial problems, perhaps it is time to come up with a better metaphore than "kicking the can down the road..."

My 2cents

Sat, 06/09/2012 - 18:10 | 2511058 Diogenes
Diogenes's picture

I like to compare it to a doctor who does not want to treat a patient with cancer. Chemotherapy and surgery are messy, expensive and painful. Far better to apply makeup, touch up the Xrays a shoot the patient full of pain killers. He will be perfectly fine.

Sun, 06/10/2012 - 08:23 | 2511078 kill switch
kill switch's picture

The problem may, if sufficiently delayed, become unsolvable.

I really hate to unfold the truth, but, it is unsolvable X 10 cubed

BTW The can is morphing into a square.

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