An affordable housing crisis that is hurting the Canadian government’s popularity will take years to resolve, even if construction hits an 80-year high, Finance Minister Chrystia Freeland said on Saturday.

  • StillPaisleyCat@startrek.website
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    1 year ago

    One of the biggest questions is whether she’s willing, as finance minister, to take on the Bank of Canada.

    Monetary policy isn’t the only macroeconomic tool, and it’s one that should be coordinated with fiscal and other measures.

    In this case, the inflation fighting interest hikes can be argued to be having a ‘perverse effect’ of keeping the housing stock tight without cooling demand while at the same time being completely ineffectual for the other major inflationary drivers of food and fuel.

    Food inflation needs antitrust action, while fuel is a long term necessary adjustment to move the market away from fossil fuels. Interest rate hikes have nothing positive to contribute to those concerns.

    The Bank of Canada isn’t constitutionally independent no matter how much certain previous governors have tried to make that case. It only has responsibility for one macroeconomic tool, and isn’t democratically elected, rather appointed by the executive.

    The current governor of the Bank sounds increasingly like John Crown did in the early to mid 1990s when he put Canada into a deeper and deeper recession/depression because he placed inflation-fighting above all, and used the bank. He claimed however that no government should tell him how to manage monetary policy, and made speeches about the need for a constitutionally independent governor. Then, it took the electoral near eradication of the Progressive Conservative Party at the federal level plus the eventual exasperation of Paul Martin and Jean Chrétien to push Crow out.

    • MooseGas@kbin.social
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      1 year ago

      I don’t understand. Why do they need to “take on the bank of canada”? As you said, Monetary policy isn’t the only tool. Monetary policy is set by the bank of canada. The bank of canada is doing exactly what it is supposed to.

      The government sets fiscal policy. Currently the government is in a spending frenzy, which is counter to the Monetary policy.

      • frostbiker@lemmy.ca
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        1 year ago

        Indeed. Central banks in developed nations act independently of the government for good reasons. What the GP is suggesting, which is government interference on the central bank to lower interest rates, is the scenario that causes developing nations like Turkey to experience runaway inflation. It is a terrible idea with plenty of historical precedents.

    • StillPaisleyCat@startrek.website
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      1 year ago

      Actually, the independence of central banks, or in other words the isolation of monetary policy from fiscal and interventions to counteract market failures, is not a settled or proven essential for developed economies.

      A basic knowledge of dynamic macroeconomic theory and evidence shows that some level of coordination of monetary and fiscal policy is essential to avoid bad corner outcomes. That means coordination between the finance/treasury minister and the central bank.

      Most of the time, independent monetary policy is fine to contain inflationary pressures, especially when most of them are externally driven in an open economy like Canada’s. But not always. In those cases, when fiscal and monetary policy move in opposite directions, the trajectory will be poor.