The Bank of Canada has no control of that. The Bank does not make those kinds of decisions. If they do, they’ll change how much money is printed, and they will likely cut back on the quantity so that this is a lower interest rate, but the quantity will remain pretty high.
And there’s still the possibility that we’ll continue having a very low inflation rate for the next few years. It’s not going to change much over the three years we have to go from the recession, the downturn that started in 2008, right to when we reach a low-inflation period again. And so these are all possibilities in a low-inflation scenario. We don’t know yet which one it may be, but it is a possibility, in other words.
On the next post on these problems, we’ll go to some very basic math: If you keep the amount of money in circulation constant, but in turn raise the inflation rate, then you’ve lowered the inflation rate. And so, it turns out that raising the inflation rate doesn’t increase the amount of money in the economy, so that may be a good thing. It makes the money in circulation less valuable, and that hurts consumers. But it also makes it less useful over the three years the economy has to go through, so we don’t have that benefit now when we’re at that low-inflation period.
On a different set of problems, when we go into low-inflation conditions again, we may have even less income for everybody. That’s not a problem now, because incomes are already fairly high compared to how low the unemployment rate is. It’s not going to get worse now, but we may get better.
And there’s all these other things that could happen that would affect everybody: there is a possibility we might have some kind of global recession, a recession that lasts longer than the recession that ended in 2008, that lasts longer than the global recession of the mid-1980s, that lasts longer than the global recession of the 1980s.
So for us to have anything that resembles the kind of recovery we should have seen in 2009 is highly uncertain in a low-inflation situation. We certainly don’t know how long we’re going to have to wait.
Q: I’d like to ask a question about what you’re calling “financial repression.” Are there situations where you think that the central bank in its policy of quantitative easing has undermined market discipline, like we see in Germany?
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