Maxime Bernier: How the central bank eats your money

There is no doubt that monetary policy has become one of the most difficult economic issues. But also, it has established itself as an issue of utterly crucial importance for the prosperity of Canadians.

It is already well known that, during the past week, the Bank of Canada increased its reference rate by a quarter of a percentage point to 0.5%. Clearly, during the last few weeks, there has been much speculation about the decision to finally raise rates after keeping them at a low level for more than a year.

It has been said that all these assumptions about the establishment of tariffs have nothing to do with capitalism and free markets. Being that it has more to do with central planning and government control of the money supply. In a monetary free market, the interest rate would be determined by the demand for credit and the supply of savings, as well as any other price in the economy.

A control that few are aware of

It is important to refer to government control over money, which has serious consequences that few people seem to be aware of. And one of them is that central banks continuously increase the amount of money that is circulating in the economy. In Canada, for example, if we use the strictest definition of money supply, it has increased between 6 and 14% annually during the last twelve years. The situation is the same everywhere.

In this way, it is understood that the effects of constantly creating new money from nothing have been a degradation of our money and a dramatic increase in prices. That being the case, the reason why general prices rise is not that companies are greedy, or because wages go up, or because the price of oil goes up. Ultimately, only the central bank is responsible for creating conditions for prices to increase by printing more and more money.

Now it is important to mention that the total inflation in Canada since 1990 until today adds up to 45%. This would indicate that your dollar can now buy the equivalent of fewer than 70 cents if compared to 20 years ago.

In fact, Ben Bernanke, who is the president of the Federal Reserve, admitted that inflation is the equivalent of a tax. The most insidious of all taxes, which affects the least able to bear it. It eats our purchasing power, our income, and our savings.

Source: National Post