Money supply

Re: Federal parties start to play their economic cards
 
The conventional wisdom is that whichever party forms government will not have much financial breathing room, especially with the collapse of world oil prices.  In fact, while there are ideological and eventual real resource restraints, there is no financial restraint for a federal government that owns a central bank issuing a floating, non-convertible fiat currency such as the Canadian dollar. 

Would anyone dispute that the money supply fluctuates? Two entities provide the monies that Canadians generally use to settle transactions. The federal government creates high-powered money in the form of coins, bank notes and bank reserves (deposits held by commercial banks at the central bank). Commercial banks leverage these reserves in the form of bank deposits (promises to pay government money) when loans are made to businesses and individuals. The coins, bank notes and commercial bank deposits constitute the money in circulation whose everyday volume changes.

The federal government can always make Canadian dollar payments simply by creating more high-powered money without paying any interest to private banks. The only practical limit to new money is the resource capability of the economy, beyond which lies inflation. However, since Canada has 1.3 million unemployed people and a large output gap, inflation risk is currently very low. So nothing should stop the federal government from spending on vital infrastructure renewal and targeted large-scale job creation, no matter the quantum of funds required.

Media and investigative reporters must reveal these facts to the Canadian public because our financial and economic elites definitely will not.

Larry Kazdan