Bank of Canada strikes again

January 2006

Under the cover of the election campaign the Bank of Canada has once again foolishly raised interest rates for the fourth time since September. Without any evidence of inflationary pressure and simply because the economy continues to grow and despite the fact that unemployment has now risen the central bank and its Governor continue to be dogmatic about monetary policy. This coming week a new chief Ben Bernanke takes over at the Federal Reserve. Here's hoping he continues the relatively pragmatic grounded in fact as opposed to theory approach of Alan Greenspan who has successfully ruled the roost at the Fed for more than the past decade.Our problem in Canada is that we have a group running the central bank who are grounded in theory-the wrong theory-about how capitalist economies grow and the sources of growth as opposed to inflation that operate within them. The oil cartel is not a source of inflation that can be intelligently treated by raising interest rates to the point we have rising unemployment and a slow down in growth. What good can be accomplished in causing unemployment to rise and growth to slow when inflation is at 2-3 % and when oil and natural gas price pressure is stripped out is even less ? More on this shortly.