I do not approve of the recent BOC defence of Quantitative Easing:
However, in its most recent Twitter thread, the bank went beyond explaining economics and took direct aim at a common attack levied against its policy decisions during the pandemic.
“#YouAskedUs if we printed cash to finance the federal gov’t. We didn’t,” the Bank of Canada tweeted on Aug. 25, followed by a series of tweets refuting the claim.
While central bank officials normally hold speeches and other events to communicate their thinking and to set expectations, Laval University economics professor Stephen Gordon says its audience has traditionally been smaller than it is today.
“The only people who pay attention are insiders and market experts. And that’s usually the only people that they have to talk to,” Gordon said.
This is obfuscation via technicality: of course the BOC hasn’t “printed cash to finance the federal gov’t.”. But they have certainly created settlement balances that can be used to buy currency (that’s how they get seignorage), assuming anyone wants to stuff their wallet with crisp new twenties. The potential for QE to ignite inflation is well known:
The biggest danger of quantitative easing is the risk of inflation. When a central bank prints money, the supply of dollars increases. This hypothetically can lead to a decrease in the buying power of money already in circulation as greater monetary supply enables people and businesses to raise their demand for the same amount of resources, driving up prices, potentially to an unstable degree.
This is implicitly recognized by the BoC itself, of course:
The goal of our monetary policy is always to reach our inflation target. We use QE to counter the risk of deflation—a dangerous decline in prices that harms everyone. QE helps stabilize the economy by making it easier for Canadians to borrow money and for companies to stay in business, invest and create jobs.
Under QE, a central bank buys government bonds. Buying government bonds raises their price and lowers their return—the rate of interest they pay to bondholders. This rate of return is also known as the bond’s yield.
Government bond yields have a big influence on other borrowing rates. Lower yields make it cheaper to borrow money. So, QE encourages households and businesses to borrow, spend and invest.
…
QE is not the same as printing cash. Under QE, we buy bonds in the open market from financial institutions. And the funds that we use to pay for these purchases end up being deposited in accounts that financial institutions have at the Bank in the form of settlement balances.
This ‘oh, but we didn’t print money’ campaign by the BOC is crap. It is countering pig-ignorant disinformation by promulgating more pig-ignorant disinformation.
Did I support the BOC’s QE campaign? Yes, of course, we bloody well needed it. Did it ignite inflation? Of course it did, to some extent, that’s the whole point. There was a significant threat of deflation and that would have been far worse for everybody. Is QE responsible for current levels of 8%+ inflation? Academics will be teasing apart this question for years, but there are many other factors at work: supply and transport disruptions due to COVID, Russia’s invasion of Ukraine, a massive swing towards consumption of goods from COVID-restricted services, lots of things, all interplaying and making the question worthy of academic study..
But for the BOC to state blandly that they didn’t ‘print money’ with QE is simply a disgraceful attempt at obfuscation through technicality.
One of the great problems in the western world today is that distrust of government and its institutions has gone far beyond healthy skepticism into the realm of blanket denial and automatic rejection, encouraged by populist clowns like Trump, Bolsinaro, Putin and, here in Canada, Poilievre yearning to emulate them. The BOC’s decision to encourage this trend with a crappy Social Credit inspired pseuodo-defence of its actions cannot be allowed to escape criticism. The “Social Credit” system is brought up as a desirable thing every now and then (and has, to a certain extent, morphed into Modern Monetary Theory) – I remember a few years ago a 14-year-old made a video proposing that the BOC finance government oprations ‘the way it used to do’ and was mocked on PrefBlog and many other places for her naivety (I wasn’t mocking her so much, honest, she was only 14; I was mocking the movement that adopted her as a standard-bearer). It will be harder next time to beat back the something-for-nothing crowd. Thanks, BoC!
Also in Canada:
Canada’s economy grew at an annualized rate of 3.3 per cent in the second quarter, Statistics Canada reported Wednesday, driven by strong consumer spending and business investment in inventories.
This was offset by a fall in residential property spending and an increase in imports relative to exports, which pushed the quarterly GDP result below the Bank of Canada’s forecast of 4-per-cent annualized growth and the Bay Street consensus of 4.4-per-cent growth.
Preliminary estimates for July show that real GDP declined by 0.1 per cent. That suggests third-quarter growth is on track to undershoot the central bank’s estimate of 2 per cent, on an annualized basis, and could mark a turning point for the Canadian economy after a period of heightened economic activity that accompanied the lifting of pandemic-related restrictions.
On another note:
A chorus of European Central Bank policy makers called for decisive and swift rate hikes on Tuesday to combat soaring inflation, suggesting that the choice in next week’s policy meeting will be between a big move and an even bigger one.
With inflation likely hitting 9 per cent this month before heading toward double-digit territory on soaring gas prices, policy makers are increasingly worried that even long-term expectations may move above the ECB’s 2-per-cent target, indicating a loss of confidence in the bank’s inflation-fighting powers.
That leaves the choice for next week largely between a 50 and a 75-basis-point hike after the ECB raised the deposit rate by 50 basis points to zero last month in its first hike in over a decade.
Dutch central bank chief Klaas Knot and Estonia’s Madis Müller both said that 75 basis points should at least be discussed while Bundesbank chief Joachim Nagel argued for swift action, praising the benefits of front-loading moves.
And, right on cue, came the European inflation report:
Inflation in the European countries using the euro currency hit another record in August, fueled by soaring energy prices mainly driven by Russia’s war in Ukraine.
Annual inflation in the eurozone’s 19 countries rose to 9.1 percent, up from 8.9 percent in July, according to the latest figures released Wednesday by the European Union statistics agency Eurostat.
Here’s a straw in the UK wind:
A city centre pub in York has had to close after spiralling energy costs almost trebled its monthly bill.
Brian Furey, who ran The Gillygate for eight years, said payments had risen from £900 a month to £2,500.
It comes as some of the country’s breweries called for immediate government intervention on high energy bills this winter.
Mr Furey said: “It’s almost laughable, you get your bill and look at it and go ‘we can’t do that’.”
And another one:
A Michelin-starred pub said it has been forced to close because of the cost of living crisis.
The Fontmell in Fontmell Magna, Dorset, said it was closing with “immediate effect” blaming a £58,000 increase in utility costs and rise in supplier prices.
On the pub’s website the owner said it was “not a decision which has been taken lightly”.
The British Beer and Pub Association said businesses needed an energy cap.
Fed continued to hammer home its point:
The U.S. Federal Reserve will need to raise interest rates somewhat above 4 per cent by early next year and then hold them there in order to bring too high inflation back down to the central bank’s goal, Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday.
“My current view is that it will be necessary to move the fed funds rate up to somewhat above 4 per cent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year,” Mester said in prepared remarks to a local chamber of commerce in Dayton, Ohio.
… with the job-openings number showing continuing strength:
Demand for workers remained strong in July, a sign that the U.S. labor market remains vibrant even as the Federal Reserve tries to cool the economy by raising interest rates.
Job openings ticked up to 11.2 million, the Labor Department reported on Tuesday as part of its monthly Job Openings and Labor Turnover Survey, or JOLTS.
The survey included a large upward revision for openings in June, to 11 million from an estimated 10.7 million. The figure reached a record of more than 11.8 million in March.
PerpetualDiscounts now yield 6.15%, equivalent to 8.00% interest at the standard equivalency factor of 1.3x. Long corporates now yield 4.88%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) has narrowed slightly (and perhaps spuriously) to 310bp from the 315bp reported August 24.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
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| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,502.5 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 4,799.9 |
| Floater | 6.32 % | 6.43 % | 67,794 | 13.19 | 2 | 0.0000 % | 2,766.2 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2084 % | 3,467.8 |
| SplitShare | 4.90 % | 5.40 % | 36,022 | 3.02 | 8 | -0.2084 % | 4,141.3 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.2084 % | 3,231.2 |
| Perpetual-Premium | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0427 % | 2,842.5 |
| Perpetual-Discount | 5.99 % | 6.15 % | 64,091 | 13.62 | 35 | 0.0427 % | 3,099.6 |
| FixedReset Disc | 4.73 % | 6.38 % | 97,388 | 13.29 | 58 | -0.4760 % | 2,505.7 |
| Insurance Straight | 6.03 % | 6.07 % | 79,280 | 13.88 | 19 | -0.8112 % | 2,986.3 |
| FloatingReset | 7.56 % | 7.64 % | 38,414 | 11.85 | 2 | 0.0308 % | 2,634.6 |
| FixedReset Prem | 5.09 % | 4.58 % | 103,382 | 1.81 | 6 | -0.5222 % | 2,599.9 |
| FixedReset Bank Non | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.4760 % | 2,561.3 |
| FixedReset Ins Non | 4.72 % | 6.66 % | 57,232 | 13.25 | 14 | 0.2316 % | 2,585.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| CM.PR.Q | FixedReset Disc | -12.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 7.09 % |
| TD.PF.D | FixedReset Disc | -6.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 20.60 Evaluated at bid price : 20.60 Bid-YTW : 6.80 % |
| NA.PR.S | FixedReset Disc | -5.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 20.90 Evaluated at bid price : 20.90 Bid-YTW : 6.66 % |
| BMO.PR.Y | FixedReset Disc | -3.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.43 Evaluated at bid price : 21.43 Bid-YTW : 6.41 % |
| BAM.PR.T | FixedReset Disc | -2.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 16.50 Evaluated at bid price : 16.50 Bid-YTW : 7.77 % |
| IFC.PR.E | Insurance Straight | -1.99 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.80 Evaluated at bid price : 22.15 Bid-YTW : 5.96 % |
| IFC.PR.C | FixedReset Disc | -1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 19.79 Evaluated at bid price : 19.79 Bid-YTW : 6.80 % |
| RY.PR.J | FixedReset Disc | -1.64 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.89 Evaluated at bid price : 22.15 Bid-YTW : 6.30 % |
| TD.PF.E | FixedReset Disc | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.52 Evaluated at bid price : 21.90 Bid-YTW : 6.42 % |
| BIP.PR.E | FixedReset Disc | -1.51 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 22.72 Evaluated at bid price : 23.41 Bid-YTW : 6.64 % |
| MFC.PR.F | FixedReset Ins Non | -1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 14.10 Evaluated at bid price : 14.10 Bid-YTW : 7.31 % |
| PVS.PR.J | SplitShare | -1.43 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2028-02-29 Maturity Price : 25.00 Evaluated at bid price : 22.82 Bid-YTW : 6.32 % |
| CM.PR.Y | FixedReset Prem | -1.16 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2024-07-31 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 4.34 % |
| GWO.PR.S | Insurance Straight | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.12 Evaluated at bid price : 21.12 Bid-YTW : 6.23 % |
| MFC.PR.K | FixedReset Ins Non | -1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 20.53 Evaluated at bid price : 20.53 Bid-YTW : 6.66 % |
| IAF.PR.I | FixedReset Ins Non | 1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 23.36 Evaluated at bid price : 24.08 Bid-YTW : 6.20 % |
| GWO.PR.R | Insurance Straight | 1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 19.78 Evaluated at bid price : 19.78 Bid-YTW : 6.08 % |
| NA.PR.G | FixedReset Disc | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 23.88 Evaluated at bid price : 24.32 Bid-YTW : 6.19 % |
| CCS.PR.C | Insurance Straight | 1.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.25 Evaluated at bid price : 21.25 Bid-YTW : 5.89 % |
| GWO.PR.Y | Insurance Straight | 1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 19.02 Evaluated at bid price : 19.02 Bid-YTW : 5.92 % |
| IFC.PR.I | Perpetual-Discount | 1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 22.88 Evaluated at bid price : 23.20 Bid-YTW : 5.91 % |
| CM.PR.O | FixedReset Disc | 1.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.45 Evaluated at bid price : 21.79 Bid-YTW : 6.21 % |
| MFC.PR.N | FixedReset Ins Non | 1.87 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 19.10 Evaluated at bid price : 19.10 Bid-YTW : 6.93 % |
| SLF.PR.H | FixedReset Ins Non | 2.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 17.72 Evaluated at bid price : 17.72 Bid-YTW : 6.81 % |
| BMO.PR.W | FixedReset Disc | 3.17 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.15 Evaluated at bid price : 21.15 Bid-YTW : 6.30 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| NA.PR.C | FixedReset Disc | 54,617 | YTW SCENARIO Maturity Type : Call Maturity Date : 2022-11-15 Maturity Price : 25.00 Evaluated at bid price : 25.00 Bid-YTW : 5.43 % |
| BIP.PR.B | FixedReset Prem | 50,594 | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-31 Maturity Price : 25.00 Evaluated at bid price : 25.26 Bid-YTW : 5.04 % |
| GWO.PR.I | Insurance Straight | 48,505 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 18.90 Evaluated at bid price : 18.90 Bid-YTW : 5.96 % |
| CU.PR.I | FixedReset Disc | 38,070 | YTW SCENARIO Maturity Type : Call Maturity Date : 2025-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.86 % |
| FTS.PR.M | FixedReset Disc | 19,825 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 19.15 Evaluated at bid price : 19.15 Bid-YTW : 7.23 % |
| CM.PR.O | FixedReset Disc | 17,700 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2052-08-31 Maturity Price : 21.45 Evaluated at bid price : 21.79 Bid-YTW : 6.21 % |
| There were 7 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CM.PR.Q | FixedReset Disc | Quote: 19.50 – 22.38 Spot Rate : 2.8800 Average : 1.6370 YTW SCENARIO |
| TD.PF.D | FixedReset Disc | Quote: 20.60 – 22.60 Spot Rate : 2.0000 Average : 1.3800 YTW SCENARIO |
| SLF.PR.J | FloatingReset | Quote: 15.56 – 17.00 Spot Rate : 1.4400 Average : 0.8698 YTW SCENARIO |
| MFC.PR.K | FixedReset Ins Non | Quote: 20.53 – 22.00 Spot Rate : 1.4700 Average : 0.9124 YTW SCENARIO |
| BMO.PR.Y | FixedReset Disc | Quote: 21.43 – 22.43 Spot Rate : 1.0000 Average : 0.6509 YTW SCENARIO |
| SLF.PR.E | Insurance Straight | Quote: 19.10 – 20.00 Spot Rate : 0.9000 Average : 0.6294 YTW SCENARIO |
james,
you are absolutely correct to take the BOC to task for that twitter mess. they were similarly roasted on the globe’s comment section.
if they truly were referencing the physical act of increasing notes in circulation then shame on them for insulting our intelligence. sweden, heavens to betsy, is basically cashless already.
“printing” is widely accepted as referencing a central banks balance sheet or impact that has on money supply
if however, they were attempting to argue that the ramp up in the balance sheet and settlement balances is a process that can be reversed and thus “printing” is not a permanent state then…
you would think they might have learned their lesson using the term “transitory”
until that balance sheet is wound down somewhat, printing most certainly occurred
[…] just hope that they refrain from intellectually dishonest obfuscation in those Tweets – their response to the ‘money printing’ accusations was disgraceful. […]