Canada Case Study:
Decades of Extreme Money Supply (Creation) and Now High Persistent Inflation…
Inflation rate in Canada is set to be released on Wednesday with expectations of 6.1%, the highest level since 1992, and most accelerated increase since 1976. It should be noted the consumer price index undervalues the true inflation rate on the ground by at least 5% (12% or more is the real rate; ask any everyday consumer).
Higher interest rates is the main tool that central banks use to reduce inflation. Yet, because of all the debt due to decades of money creation, and the near zero interest rates of 0.25%, the interest rate increase since March, 2022 is at merely 1%. This low interest rate and the fact that the central bank is not aggressively responding to increasing inflation suggests that the economic situation is dire.
The federal government debt is at an all-time high of $1.16 trillion, and the national government debt is an all-time high of $1.66 trillion. In 2021, the national debt to GDP ratio was 109.88%, which means there was more debt than revenue being produced. That is a 9.88% ($199 billion), added to the national debt partly including a federal budget deficit of $36.5 billion. In 2020, the debt to GDP ratio was 117.46%, meaning 17.46% ($286 billion) added to the national debt partly including a federal budget deficit of $120.4 billion. In 2019, the debt to GDP ratio was 86.82%, meaning there is 13.18% more GDP than debt and still with a federal budget deficit of $39.4 billion.
M2 Money Supply is good indicator of money supply and future inflation. The more money supply the more inflation due to devaluation of the currency being created, and thereby less purchasing power by the everyday consumer.
Not surprisingly, Canada’s central bank, the Bank of Canada, attempts to cover up the M2 (gross) money supply by conflating it with other figures, and embedding the actual M2 gross in a numerical spread sheet.
However, in the image above, we show the M2 (gross) seasonally adjusted: In October, 2021 the money supply was $2.283 trillion. In January, 2022, the money supply was $2.317 trillion, and an increase $0.034 trillion or $34 billion (added to the national debt) from October 2021 to January 2022.
1% interest rate will do nothing to slow down inflation, especially with all the hundreds of billions of debt baked in, and more being added as shown the additional $34 billion not including any addition in February and March 2022.
Do the central banks want higher inflation or they are cornered between crashing the economy versus higher inflation? How else can the debt be serviced without facing insolvency?
Eventually something will have to give. Unfortunately, it appears that war is being used an excuse for economic issues, and while at the same time adding to them through the unprecedented sanctions on Russia.
With zero gold reserves (last remaining reserves sold off in 2016), Canada is reliant on the fiat US and Euro dollars as support for its own fiat dollar, which leaves the Canadian dollar highly vulnerable to fiat currency devaluation and even crash.
Although NCA supports building up the gold reserves to support the Canadian dollar, and even linking the Canadian dollar to gold on a case by case basis, the massive federal and national debts limit options. Clearly, the debt has to be reduced to a more manageable level such as 24% debt to GDP, but the cost of government will only increase especially now with rising inflation.
There is no easy way to fix the economic situation that is decades in the making.
We provide solutions to the everyday person that may help you protect your wealth in these highly precarious times: