Why I Shouldn't read the NY Times
I'm starting to wonder about the quality of the US monetary policy. The recently announced new plan to counteract the continuing recession in the States sounds an awful lot like what Canada's central bank did within a week of the US Subprime crisis [Otherwise known as Savings and Loan Crisis 2.0]. I'll cut the US Government and Reserve some slack. Canada was only dealing with the shock waves and after-effects. Besides the last time this happened was around twenty years ago. Just because I'm too young to remember it, does mean Policy-makers can forget.
It's not like the crisis was unforeseeable too. I was bound to eventually happen. The Reserve should have started to rein in the US Financial institute before the crisis began. It had forewarning; it pulled the trigger with the assistance of the other developed nations.
The first world countries were demanding China stop deflating it's currency. Irrelevant tangent, No. The chinese Yuan was being deflated by inflating the US dollar [in terms of the exchange rate; In a market with no interference the yuan would be worth more than it was valued at in the world's currency markets and the US dollar worth less]. China did this by buying the US debt, thus lowering the relative demand for yuan compared with US dollars. Because the US dollar was the currency of global trade, and thus the benchmark for the world's currencies, the yuan's exchange rate was also artificial low compared with all the world's currencies. When the chinese government was forced, under treat of trade sanctions [Mostly tariffs: essentially, "if you don't properly value the goods you produce, then we'll do it at our border through taxes on imports from your country and you won't have any say in what we consider the proper value." The CRA (Canada Revenue Agency) takes a similar approach with people who don't file their tax forms. So file your taxes. Really, you won't like the result if you don't. The CRA has a really high interest rate.], to let its currency rise it stopped buying the US debt in bulk. This force the US government to snatch funds from the investment sector to pay its debt, which shrunk the pool of money available to bank and other financial organizations to support ridiculous loans. Sub-prime loans were marginally sustainable while the dollar was artificially high and stable. Without the stabilizing effect of China's monetary policy, the US economy could not be expected to handle the instability of the sub-prime loans. The World markets are hardly stable. They wobble a lot. Months before the sub-prime crisis hit, the Chinese stock market had a major wobble and the world wobbled with it. [The plummet in the chinese market was also immediately reflected in all the worlds market. If a stock market happened to be closed at the time of the drop, then prices plummeted as soon as the market opened. Heads of central banks around the world were pulling at their hair.]
The Reserve at least had time to come up with possible effective methods of dealing with such a crisis, even if it couldn't get legislation through the government to restrict sub-prime loans. Central banks can strong arm banks into doing anything. Seriously, their the dictators of a country's financial system. [I'll use canadian terminology: Governor=Chairman, Bank=Reserve] The heads of the national banks (the select few) choose the governor after which his/her every wish is their command.
The US may also be a victim of its banking system. The US system is mostly a collection of many small banks, whereas Canada's mainly consists of five big national banks. [Most people I know who have an account at a non-major banks also have an account at one of the big five] The US system is more fractured and not as well regulated for stability. Canadian banks pride themselves on being utterly reliable and sound. [If you want a solid investment you buy stock in one of the national banks. The stock price steadily increases and dividend are sent out every year.] Of course, Canada's banks are always under the claw [it was paw, but to me the Bank of Canada is just a cute puppy dog like Clifford] of the central bank and the bank regulator. The Governor keeps a close eye on all the books. The advantage is the central bank WILL bail out the banks if they get in trouble [The only major bank to collapse in canadian history did so because of fraud]. The US has more banks [and increasingly bigger banks], but the canadian system is much more stable [2nd in the world, just behind Switzland]. I'd rather bank at with the [Carribean] tortoise than the hare.
I guess it's unfair to ask the US government to complete with Canada's government in ability to regulate the national economy. Canada has much more experience and control. [The Bank of Canada once did to its currency what China is doing. (A "smart" group of investors tried to short the canadian dollar by artificial means on the world money markets. The Bank of Canada found out and made the dollar spike just in time for those "smart" investors to lose all their money. No one has tried that trick since.)] Government spending increases the government's ability to manipulate the national economy. The US's fear of social programs actually handicaps its fiscal policy.
Conclusion: I like Canada's shrimpy economy better.
It's not like the crisis was unforeseeable too. I was bound to eventually happen. The Reserve should have started to rein in the US Financial institute before the crisis began. It had forewarning; it pulled the trigger with the assistance of the other developed nations.
The first world countries were demanding China stop deflating it's currency. Irrelevant tangent, No. The chinese Yuan was being deflated by inflating the US dollar [in terms of the exchange rate; In a market with no interference the yuan would be worth more than it was valued at in the world's currency markets and the US dollar worth less]. China did this by buying the US debt, thus lowering the relative demand for yuan compared with US dollars. Because the US dollar was the currency of global trade, and thus the benchmark for the world's currencies, the yuan's exchange rate was also artificial low compared with all the world's currencies. When the chinese government was forced, under treat of trade sanctions [Mostly tariffs: essentially, "if you don't properly value the goods you produce, then we'll do it at our border through taxes on imports from your country and you won't have any say in what we consider the proper value." The CRA (Canada Revenue Agency) takes a similar approach with people who don't file their tax forms. So file your taxes. Really, you won't like the result if you don't. The CRA has a really high interest rate.], to let its currency rise it stopped buying the US debt in bulk. This force the US government to snatch funds from the investment sector to pay its debt, which shrunk the pool of money available to bank and other financial organizations to support ridiculous loans. Sub-prime loans were marginally sustainable while the dollar was artificially high and stable. Without the stabilizing effect of China's monetary policy, the US economy could not be expected to handle the instability of the sub-prime loans. The World markets are hardly stable. They wobble a lot. Months before the sub-prime crisis hit, the Chinese stock market had a major wobble and the world wobbled with it. [The plummet in the chinese market was also immediately reflected in all the worlds market. If a stock market happened to be closed at the time of the drop, then prices plummeted as soon as the market opened. Heads of central banks around the world were pulling at their hair.]
The Reserve at least had time to come up with possible effective methods of dealing with such a crisis, even if it couldn't get legislation through the government to restrict sub-prime loans. Central banks can strong arm banks into doing anything. Seriously, their the dictators of a country's financial system. [I'll use canadian terminology: Governor=Chairman, Bank=Reserve] The heads of the national banks (the select few) choose the governor after which his/her every wish is their command.
The US may also be a victim of its banking system. The US system is mostly a collection of many small banks, whereas Canada's mainly consists of five big national banks. [Most people I know who have an account at a non-major banks also have an account at one of the big five] The US system is more fractured and not as well regulated for stability. Canadian banks pride themselves on being utterly reliable and sound. [If you want a solid investment you buy stock in one of the national banks. The stock price steadily increases and dividend are sent out every year.] Of course, Canada's banks are always under the claw [it was paw, but to me the Bank of Canada is just a cute puppy dog like Clifford] of the central bank and the bank regulator. The Governor keeps a close eye on all the books. The advantage is the central bank WILL bail out the banks if they get in trouble [The only major bank to collapse in canadian history did so because of fraud]. The US has more banks [and increasingly bigger banks], but the canadian system is much more stable [2nd in the world, just behind Switzland]. I'd rather bank at with the [Carribean] tortoise than the hare.
I guess it's unfair to ask the US government to complete with Canada's government in ability to regulate the national economy. Canada has much more experience and control. [The Bank of Canada once did to its currency what China is doing. (A "smart" group of investors tried to short the canadian dollar by artificial means on the world money markets. The Bank of Canada found out and made the dollar spike just in time for those "smart" investors to lose all their money. No one has tried that trick since.)] Government spending increases the government's ability to manipulate the national economy. The US's fear of social programs actually handicaps its fiscal policy.
Conclusion: I like Canada's shrimpy economy better.