Canada’s monetary system is on fire. The flames of inflation roar and drown out bureaucratic reassurances that “everything is alright.” Everything is not alright. Just ask homeowners on variable-rate mortgages.
To fight a fire, you must starve the fire. After all, fire needs fuel to burn. Take that fuel away, and the fire dies; eliminate the money supply, and inflation dies. The money supply (M2) must be choked-off because M2 is the fuel that keeps inflation burning hot. The more M2 we have in the economy, the more inflation spreads and grows; the less M2 we have in the economy, the more inflation withers and contracts.
It’s also evident that interest rates are an insufficient weapon to quell the fires of inflation. Raising interest rates by quarters of a percent cannot conquer worthless money any more than a man with a glass of water can quench a burning forest. Does anyone seriously think that a .75% hike in interest rates will return inflation (nearing or past 10%) to manageable levels?
Not at all.
More than that, are interest rates the best tools for the job? It doesn’t seem so. Switzerland, for example, has an interest rate of -.25%, and Japan’s is -.1%. Their inflation rates are 2.9% and 2.5%, respectively.
On the other hand, Argentina has an interest rate of 49%, and Turkey’s is 14%. Their inflation rates, respectively, are 60.7% and 73.5%.
Thus, it’s clear that higher interest rates do not necessarily mean lower inflation. Milton Friedman used to lament,
“I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.”
Instead, to properly fight the fires of inflation, the BOC and the Federal Government must starve the fuel at its source. They must destroy stacks of money to increase the value of dollars that remain. Paradoxically, in order to extinguish the fire of inflation, the BOC must set M2 ablaze. There’s no other way to fight it; everything else—bailouts, relief packages, price ceilings—only treats the symptoms of inflation, and not the cause.
Education like this is a major reason why the Alberta Prosperity Project (APP) exists. Though we primarily focus on the benefits and merits of Alberta’s independence, we’re not fighting for Alberta alone. We are fighting for all of Canada. Our provincial neighbours are our friends, and we do not want to see them abandoned in the maw of a progressive abyss. Instead, we want to see them open, free, and flourishing.
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