With interest rates at its lowest point of 0.25 per cent the effective lowest bound of interest rate cuts with no real possibility of going to zero per cent because of its potential disruption to the financial trading system, other measures now need to be taken into consideration.
In the past 16 months the bank has lowered the overnight rate from 4.5 per cent to 0.25 per cent and has promised to keep it at these levels over the next year.
The bank’s governor Mark Carney said “the bank [of Canada] retains consideration flexibility in the conduct of monetary policy at low interest rates.” Its efforts could result in pumping more cash in the financial system to boost the economy and loosen up frozen credit by buying government bonds and encouraging lending through the purchase of its own assets. Some suggest the bank should flood the market with liquidity, print more money allowing greater lending, but what would lending more money to financially unsound prospects achieve?
Now many are coming to the conclusions that the recession will be deeper and last longer than many thought just a few months ago. The efforts by government to jump-start the economy have largely failed, the hegemony of the US economy crisis has doomed us all. The financially sound Canadian economy has shrunk 7.3 per cent in the first three months as our exports of vehicles, parts and lumber are directly affected by the low US spending.
Many Canadians thought it horrible policy to rely entirely on the US for trade and not to expend our routes to South America and Asia to cushion an inevitable decline. Many proposed joining the US dollar. Now is the time to shore up our economic defences divesting ourselves of weak producers like Ford and GM and avoid massive debt spending through overpriced houses and utilities. We need to shore up future commerce through R&D and exploration of the Artic and investment in education and future tech. The old economies of the 60s are nearing their life span like many of the Baby Boomers.
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[The Toronto Star]
