The Conservatives have long argued, to themselves and to the public, that they corner the political market through sound fiscal management, that they are the strong stewards of the economy, and that they can win. elections on this basis. Their new leader, Erin O’Toole, has said he hopes the next election will be contested for precisely that – which party can best push Canada towards recovery.
But Exhibit A of their approach is a relentless attack on the integrity of the Bank of Canada, the institution whose job it is to issue currencies, keep inflation stable, ensure financial stability, and guide growth. economic on a sustainable path.
In their latest round of attacks, Tory MP Pierre Poilievre accused Bank Governor Tiff Macklem of being in cahoots with the Liberals – funding their spending plans without considering the consequences of inflation and throwing Canadians out low income under the bus in the process.
The criticism targets the sacred independence of the central bank directly and raises the question: What would the conservatives do with such a corrupt central bank if they actually won the next election?
As the Bank of Canada leads the world in scaling back its pandemic measures and taking the next step in the recovery, the Conservatives are looking in the other direction.
Macklem caught the world’s attention last week when he officially announced that he was limiting the support the bank had injected into the economy, now that we are rebounding more easily than expected and vaccines are on the way out. impose themselves.
The bank has already reduced the amount of provincial debt it had purchased under a huge program to ensure the proper functioning of financial markets and also facilitate borrowing conditions during the pandemic crisis.
In other words, the bank had already canceled parts of the very quantitative easing program that the Conservatives find so malicious, and now Macklem has started reducing the federal debt from the equation as well.
At one point the bank was funding around $ 5 billion per week, but as of this week that amount will grow to $ 3 billion per week because the markets and the economy no longer warrant that kind of help, Macklem said.
But Poilievre took that as a sign.
In a committee hearing with Macklem this week, the MP said the central bank’s $ 3 billion in weekly bond purchases suspiciously matched the debt financing needs of the federal Liberals, also of about $ 3 billion a week, and he accused the governor of resorting to quantitative easing. to fund Liberal political priorities – while printing more and more money, creating the conditions for inflation that would erode the economies of ordinary Canadians.
Poilievre is no longer the Conservatives’ finance critic, having recently been replaced in this role by the less provocative Ed Fast. But the party brought him back to the finance committee this week specifically to question Macklem, signaling that Poilievre’s months of attacks on the central bank are not just the business of a stubborn MP with a bee in his hat.
The point is, the Bank of Canada is actually reducing its bond buying stake even as the Liberals ramp up their stimulus spending. The bank said it would slow its purchases to around $ 1 billion a week within a year – a gradual decline, but still more aggressive than many other countries around the world.
“In a sense, the Bank of Canada is the only major policy maker in Canada legitimately willing to reduce extreme accommodation,” write National Bank economists Warren Lovely and Taylor Schleich.
They examined how well changes in central bank holdings and government needs aligned during the pandemic and found that this was not alarmingly frequently.
“No one should be surprised by the apparent relationship / correlation between the Bank of Canada’s balance sheet and measures of economic and financial health,” they say.
When interest rates are so low that they can’t be lowered any further but the economy is still struggling, the best option for the bank is to turn to asset purchases instead, they explain.
“The alternative is to stay in your hands, watch individuals and businesses suffer needlessly and resign themselves to failed political goals. Is this really a viable or attractive option? Of course not.”
Of course, there are a lot of tough questions politicians could ask the central bank about its handling of the pandemic. Why is it cutting its quantitative easing faster than the United States or other countries? Or maybe it should act more aggressively to keep inflation at bay? Does the bank’s new emphasis on reducing inequality mean that it is prepared to tolerate a little more inflation than in the past, in the name of increasing employment levels?
Of course, there is a long tradition of politicians of all stripes trying to bend the words of central bankers to sound like an endorsement of the policies of the day. Sometimes they are successful. The Liberals tried this again in committee this week, and Macklem quickly told them to back off.
But the Conservatives are not playing this superficial game. Rather, they raise the specter of runaway inflation and accuse a central and respected institution of playing dirty – accusations that simply do not serve the public well.