Bank of Canada Now Owns 40% of Government of Canada Bonds. Fed a Saint in Comparison. Taper on the Table

“Makes you wonder if there’s a potential mid-QE-life crisis taking shape in Ottawa”: strategists at the National Bank of Canada in a note that would be hilarious if it weren’t so serious.

By Wolf Richter for WOLF STREET.

The Economics and Strategy shop at the National Bank of Canada, the country’s sixth largest bank, sent a missive to clients today that would be hilarious if it weren’t pointing at such a serious and massive issue: It celebrated “40,” referencing a 40th birthday, but instead of a birthday, it referred to the Bank of Canada’s ballooning holdings of Government of Canada (GoC) bonds, which will hit a stunning 40% of all GoC bonds outstanding this Friday.

By comparison, the Fed holds 17.6% of all Treasury securities outstanding: It holds $4.94 trillion in Treasury securities, of $28.1 Trillion outstanding. We – that’s the universal “we,” meaning “a few of us” – complain about the Fed’s crazy buying of Treasury securities and all the distortion and craziness this causes. But compared to the Bank of Canada, the Fed looks like a saint.

The Bank of Canada announced a couple of weeks ago, citing “moral hazard” associated with its central bank nuttiness, that it would unwind its crisis liquidity facilities, and that this would reduce its total assets by about C$100 billion, or by about 17%, from C$575 billion at the time, to C$475 billion by the end of April. In October, it had started a mini-tapering of its purchases of GoC bonds and is jabbering about tapering its GoC bond purchases further. And its total assets have started to drop over the past two weeks:

Its total assets are dropping because it is unwinding its liquidity facilities, including its term repos that are now maturing one after the other and rolling off the balance sheet without replacement (black line), and short-term Government of Canada Treasury bills that are also maturing and rolling off the balance sheet without replacement (purple line).

But it has continued adding to its pile of GoC bonds (red line), though at a slightly slower pace since October. The remaining asset categories – the colorful spaghetti at the bottom of the chart – have mostly been unwound or are minuscule. These GoC bonds are going to be the main issue going forward:

So here are Chief Rates and Public Sector Strategist Warren Lovely and Rates Strategist Taylor Schleich at Economics and Strategy at the National Bank of Canada in their note [comments in brackets are mine]:

“With the settlement of its latest tranche of Government of Canada bond purchases, the Bank of Canada today (April 6th) owns precisely C$343.8 billion of GoC bonds. At this moment, there are C$862.1 billion of domestic Canada bonds floating around, which means the BoC ownership share is now within a hair’s breadth of 40%. That psychological threshold looks to be technically breached Friday, April 9th.

“So this is 40, and we thought it appropriate to mark the milestone. We’re not really celebrating mind you, but that’s what tends to happen when your age (or in this case bond ownership share) gets elevated. So put the streamers and balloons away. [The authors added this image].

“Actually, it makes you wonder if there’s a potential mid-QE-life crisis taking shape in Ottawa. As in, when, where and how quickly to taper outsized bond purchases? How much unconventional support does the economy still need? How badly are bond purchases distorting the market? When and how fast will the Fed be tapering?

“These are but a few questions Tiff [BoC governor Richard Tiffany “Tiff” Macklem] and Company are presumably pondering.

“It’s taken just one year to radically transform GoC bond ownership. Pre-COVID, the central bank held a fairly constant ~13% of outstandings, a position accumulated via less-than-invasive/normal course auction participation.

“But since setting up its GBPP, BoC ownership has all-but-raced through key ownership milestones, surpassing 20% last May, breaching 30% last September and arriving this week at 40%.

“Of note, an October 2020 QE taper (from C$5 billion to C$4 billion per week), slowed but did not arrest the crowding out effect in the GoC bond market.

“With more and more term repos now rolling off, GoC bonds account for a larger share of total BoC assets (62% and rising).

“Looked at another way, central bank purchases offset 95% of what was overwhelmingly record net GoC bond issuance in the just completed 2020-21 fiscal year—an absorption rate that’s really hard to overemphasize.” [meaning, in the fiscal year, the BoC has monetized 95% of net issuance of GoC bonds; one of the resulting distortions is Canada’s spectacular house-price inflation].

“Strip out RRBs [inflation-adjusted Real Return Bonds], where the Bank owns less than 5%, and our central bank actually blew through 40% ownership of nominals some time ago.

“With issuance set to moderate, additional tapering moves (plural) are needed to halt the increase in BoC ownership.

“The way we see it, steady reductions in QE could cap the BoC’s share at just under 45%. The BoC has an opportunity to do what most people desire but are not physically capable of: stopping the clock. So after turning 40 on Friday, here’s hoping that’s the last major BoC milestone we need to recognize.”

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  227 comments for “Bank of Canada Now Owns 40% of Government of Canada Bonds. Fed a Saint in Comparison. Taper on the Table

  1. 2banana says:

    And not even a reserve currency?

    Isn’t there some UN Treaty on this or something?

    “it referred to the Bank of Canada’s ballooning holdings of Government of Canada (GoC) bonds, which will hit a stunning 40% of all GoC bonds outstanding this Friday.”

    • Mike says:

      It could be worse. It could be 90%+ like Japan. (trying to look at this cup half full here….)

      • Al says:

        Yes, but – for the time being, at least – Japan is in no real danger because of the Yen’s/BOJ’s relationship to the carry trade. And it remains (again, for the time being) I sought after location for entities that want independence from both the USA and China.

        These are susceptible to change with time, of course.

        • cas127 says:

          Al,

          “Yes, but – for the time being, at least – Japan is in no real danger because of the Yen’s/BOJ’s relationship to the carry trade.”

          Could you step us thru your thinking a bit?

          I know that the “carry trade” means borrowing very, very cheaply in Yen and lending overseas at higher rates.

          But I am unclear as to how that really protects domestic Japan from the consequences of printing money (the means by which Yen rates are driven towards zero).

          I guess the lending overseas bit could mean that the lending multiplier results in *overseas* monetary inflation…but then what is really the gain of ZIRP to the domestic Japanese economy?

          Either the new money stays home and inflates (maybe increasing production) or it goes overseas and inflates (but then any increased production/employment is overseas too).

          So how does the carry trade per se help the domestic Japanese economy?

        • Jerome J Brick says:

          I don’t know about the carry trade, but I can’t help but think that Japan’s enormous foreign exchange earnings (autos, electronics, etc.) affords them a great deal of flexibility in how they manage their internal finances.

      • MonkeyBusiness says:

        I feel in the future we’ll look back and it’s basically down to people betting that Japan would still be around while the US will not exist in the current form.

        I wrote this on a different article somewhere on this website, but basically the concept of society still exists in Japan, while in the United States, its almost gone. And without a society a country can not exist.

        • 2banana says:

          One day in the future, having babies in Japan will be popular and cool again.

          And Japan will still be Japan.

        • MonkeyBusiness says:

          With the threat of climate change, having less people makes sense.

          I realize this is not why the Japanese are not having babies, but regardless, when the outcome is somehow optimized for a future that is all too possible, then it may not be a bad thing after all.

          And yeah, Japan will always be Japan.

        • w says:

          What good is society if everyones very sick or dying from Fukushima radiation?Yeah,That is still going on and I heard someone thought it a good idea to dump radioactive water into the ocean so it comes to Hawaii and westcoast. As far as u.s. Society,I agree that any basic social contract,expectations,manners are in tatters in many areas,but not all.There subgroups and regions that still struve to maintain basic human manners,decency,morals,character.Our society was and Is a target of Intentional attack from many directions Specifically so it is Not resilient and cohesive=easier to divide and conquer.People need to Wake Up and see past the manipulations and lies.We used to be able to have articulate,respectful debates and disagreements about many things without the Animosity or childish namecalling.

        • Greg says:

          Canada debt to GDP is approx 45% while america’s debt to GDP is closing in on 150%. The % of debt BoC owns if Canada had the same 150% debt to GDP is approx 10%.
          Not alarming at all considering Canada needs to keep its C$ competitive with its biggest trading partner America’s US$.
          In 08 Harper gvt mada a mistake and didn’t QE in lock-step with America and the C$ strengthened over 1.05 to the US$ which crushed export biz in Canada.

        • Wolf Richter says:

          This article was about what percentage of the national debt outstanding the central banks has monetized. And for the BoC it’s 40%.

          It wasn’t about anything else.

      • Dave says:

        And 40%+ of all stocks on the Tokyo Stock Exchange.

      • David Hall says:

        Japan bought 7-11 convenience stores, Alaska commercial fishing, Hawaiian real estate, auto maintenance and tire companies, etc.

        Canadian Pacific is buying the Kansas City Southern Railroad. They bought Circle K convenience stores.

        Part of the S&P 500 revenue is from sales abroad.

      • Ralph Hiesey says:

        The reason central banks are (now) getting away with this is easily explained.

        It’s caused by the (crazy) extremely low –even negative–world interest rates. There is no opportunity cost for the wealthy to hold cash. So as soon as it is printed by the CB’s it then piles up silently frozen as held wealth (zero velocity)– not having any economic effect in the goods/services market..

        Except for purchase of assets by the wealthy (housing/stocks) as an attempt to save their butts before all that cash gets loose and only then worthless.

        With that huge stack of now unused cash, it will be impossible to EVER raise interest rates.

        Checkmate!

        .

    • Wolf Richter says:

      2banana,

      The Canadian dollar is the 7th largest reserve currency, right behind the renminbi :-]

      https://wolfstreet.com/2021/03/31/us-dollars-status-as-dominant-global-reserve-currency-drops-to-25-year-low/

    • Chauncey Gardiner says:

      RE: … “and not even a reserve currency?”

      Telling point, 2banana. The Fed’s QE policy has been counterproductive from several perspectives. One such issue is that the Fed’s massive purchases of Treasuries under its QE programs deprive the global financial system of collateral for repo funding in the eurodollar market. Related demand for Treasuries as repo collateral has contributed to negative real short-term US Treasury rates.

    • Paulo says:

      It is a reserve currency, just not the largest. The Country is smaller than CA in population, after all.

      Estimate % Govt debt per GDP for 2020 (final numbers not out yet).

      US 131.2 %
      Canada 114.6%

      Some of the things that are actually wonderful about living here:

      Single payer health care (I don’t even pay premiums in BC)
      Parliamentary system with 5 federal parties
      Election cycle that lasts 30-40 days
      Ban on assault style weapons
      Handguns restricted with ban pending
      Murder rate per 100,000 40% that of US
      Incarceration rate per 100,000 7% of US rate
      Govt actually functions with minor partisan griping

      From Investopedia:

      Taxes can also be a key differentiator for the two countries. While U.S. federal income tax brackets span from 10% to 37% for individuals, in Canada, tax rates are between 15% and 33%. However, in the U.S., singles making over $40,126 annually pay 22% in taxes, whereas Canadian singles making less than $48,535 only have to pay 15% in taxes.

      According to the website numbeo.com, the cost of living is higher for Americans than Canadians. The Numbeo Cost of Living Index estimates that consumer prices in Toronto are about 24.83% lower than in New York City, and Toronto’s rent price is approximately half the price of renting an apartment in New York.4 This Index looks at rent, groceries, restaurant prices, and local purchasing, which are all higher collectively in the United States ($ in USD):

      We do pay Provincial income taxes on top of Federal, as well as a sales tax and a value added tax so I believe our total taxation rate is much higher in Canada than the US. It pays for the bennies.

      I was born in the States and used to feel great kinship towards the country. Our favourite holiday was a camping trip down the Oregon coast. My sister is America and we always stopped both ways. We have actually decided never to return. My brother has made the same decision. I think the country is falling apart, to be honest.

      • Antwan says:

        Saying that America is falling apart is a bit rich coming from the province that feels holier than thou with people that keep vandalizing out of province cars.

        • Pelican says:

          +1. My minivan got vandalized (windows broken, glove box ripped apart, personal belongings stolen) in Whistler, British Columbia while parked at a gated community private rental which was supposedly safer. I haven’t returned to BC since that horrific experience. Have heard similar things about gangs and crime rings in Vancouver, BC as well. Hope this covid downtime is seriously impacting this criminal enterprise with no easy-prey out of state visitors.

      • BMK says:

        Bye Felicia

      • RightNYer says:

        “Ban on assault style weapons
        Handguns restricted with ban pending”

        Unarmed citizens are subjects, not free men.

        • bb says:

          You mean easy pickins or targets?! :-)

        • Prairies says:

          it’s pretty weak policy to look good for the liberal base. All the guns “banned” are as narrow as ar15(style) cause it’s fashion, grenade launchers( which if i knew i could own one.. I would have bought one obviously) and elephant gun caliber shot guns(no clue why)

          my gun storage was not on the list and my province isn’t even implementing the ban anyway.

        • Rand Passmore says:

          You are living in the past. Power in the future will be knowledge based.

        • Fat Chewer. says:

          Tell me, how is it freedom to be forced to buy a gun for self protection? Oh right, I have the freedom to be gunned down by a gun nut. Silly me.

        • char says:

          A man armed with an assault rifle is unarmed against a tank. The foolish idea that you can revolt against a government who has a lot of tanks, aircraft, trained troops with assault riffles is something weirdly American. In reality a demonstration armed with sticks is much more likely to defeat a government than one armed with riffles.

          It is really simple to see why. Order troops can stand down against sticks knowing they wont get killed because they will still carry guns, They can’t against riffles. And you can use artillery against gun carriers but not against demonstrators who only carry sticks.

        • RightNYer says:

          Prairies, and I suspect most Canadians have 30 round AR mags from the U.S. buried somewhere in case things get out of hand.

          Char, people continually trot out this nonsense, yet are unable to explain why the U.S. was not able to easily defeat insurgents in Afghanistan and Iraq.

          The idea that having tanks and drones means you don’t need boots on the ground is a delusion. Not to mention that you are assuming that all military men will follow orders. Given how many servicemen were at the protest at the Capitol indicates otherwise.

        • intosh says:

          “Unarmed citizens are subjects, not free men.”

          The Wild West mentality dies hard.

        • Swamp Creature says:

          Agreed.

          The DC Swamp is becoming the crime Capitol of the USA like it once was. I am not a big fan of guns, and don’t own one, but if I lived down there I would definitely own one and get trained on how to use it. I have a “Marksman” certification from my Navy days.

        • char says:

          @RichtNYer

          The US lost in Iraq against the mass demonstrations organized by the Shiite. Not the Sunni fighters. In fact the reason why they could stay was because the Afghan style armed freedom fighters. And they were armed with a lot more than assault riffles.

      • Anthony A. says:

        “We have actually decided never to return. My brother has made the same decision. I think the country is falling apart, to be honest.”

        With this kind of attitude towards our country, why do you even bother to come here and post?

      • Wolf Richter says:

        Paulo,

        I love you but these kinds of off-topic anti-American and holier-than-thou-Canadian diatribes of yours get old after a while. I understand you, as former American, have a grudge against the US, and need an outlet, and so I hope you feel better.

        Those off-topic diatribes also hijack the comments because that nonsense riles people up. And they want to pick it apart, understandably. If it starts doing that, I’m going to delete your comment, and everything attached to it will disappear, including my comment.

        Bringing up taxes in this clueless third-grade manner is BS because taxes are complicated. If you know what you’re doing in the US, and you structure your financial life accordingly, you don’t pay 22% in income taxes. We certainly don’t. I don’t think I ever have, not even as a single. You just have to figure out how the tax rules work and use all the options that they give you. Is it fair? Nope. But I didn’t write the tax code. I’m just using it.

        But you never did your taxes in the US, and so you’re clueless, but it’s good enough for your diatribe?

        And comparing cost of living doesn’t depend on the country but on the place where you live. Cost of living in Oklahoma is a tiny fraction of what it is in Vancouver, BC, believe you me. To trot those kinds of generic comparisons out to make some kind of point because you have a grudge against the US is just ludicrous… on an article about central banks!!

        • Rand Passmore says:

          WR….what about the quality of life? Canadians feel that we are overall happier, nicer people, more civilized etc. We love the USA but see alot of pretty negative things there too. Life is not just about money and wealth.

        • Wolf Richter says:

          Rand Passmore,

          Sure, I understand you feel that way, and many Americans feel that way about the US. The thing is everyone has their own preferences, and that’s good. It’s already too crowded in the US.

          And just don’t post this my-country-is-better-than-your-country stuff here.

        • Rand Passmore says:

          Yes, I am comfortable enough in my personal finances but looking at the big picture worldwide is so disturbing . Bank of Canada gone too far lately. But excess is widespread and it all makes your head spin wondering if alot of bubbles will burst and bitcoin etc will all destruct and teach humans some tough lessons in what is real and possible.

        • VintageVNvet says:

          Good start Wolf, but the fact is that IF the frozen north were such a great place, at least half their citizens who MOVE to FL every year wouldn’t, eh?

        • Petunia says:

          There’s a lot of political oppression in Canada because of the coviet19 kabuki. Protesters are being beaten and arrested and they are even targeting churches for shutdowns. I’ve seen some videos that would make the brown shirts envious. Even before coviet, Canada was imposing capital controls on people by limiting withdrawals.

          I hear Canadians have a hard time leaving the country these days, except if they want to fly directly to China, that’s ok.

        • td says:

          Wolf, I agree with you that broad comparisons between countries rarely stand up to detailed scrutiny. That being said, the headline for this article is a little off-base, since the per-capita holding of Canadian bonds by the BoC is only about two-thirds of the Fed’s holdings of treasuries, adjusted for population and exchange rate. While the BoC’s growing book worries me, the Fed are by no means saints by comparison. They’re both playing in the same ballpark.

        • Wolf Richter says:

          td,

          This article was exclusively about what percentage of the national debt the BoC has monetized = 40%. It was not about the debt itself (or whether it’s excessive or not), but the extent of monetization of this debt by the central bank. That’s the only thing this article was about.

        • Depth Charge says:

          “Canadians feel that we are overall happier, nicer people, more civilized etc. We love the USA but see alot of pretty negative things there too.”

          Google “virtue-signaling.” It’s not attractive – EVER.

        • Swamp Creature says:

          What’s Paulo complaining about with regard to the USA taxation? He doesn’t know what he is talking about. I’m just on the border of the 22% bracket. So I’m still paying only 12% in Federal Taxes. Even if I go over into the new bracket, only the portion above that will be taxed at 22%. So either way it’s way lower than Canada. Also, I can move my investments into tax free income sources like muni bonds which I’ve already done. or buy precious metals to keep out of the higher brackets. Also, with a small business I buy a lot of Computers and write them off to keep my Schedule C profits down. I just upgraded all my PCs from Windows 7 to Win 10. As far a guns, I don’t own any but with the crime rate going up in DC I would own one if I lived down there. Canada is more socialist than the USA. And I don’t like the weather up there. Its a good model NOT to follow.

        • Holier than thou says:

          This is what Paulo does. One of the most fantastic internet take downs I have ever seen was when James Kunstler finally got tired of Paulo whining about the content of his essays and told him off.

          I don’t get these people who feel like other people’s blogs are the place for self-aggrandizement and ranting.

        • kam says:

          Canada is a mirage. Not unlike the USA, those that live off government directly or indirectly, think it is a great place to live.
          Canadian Medical? Every rich Canadian goes to the USA for serious work. Everyone else? Line up in the queue.
          Paulo’s Vancouver Island? The timber has been logged off and without government money and government induced house inflation, it would be as active as a corpse.

        • cb says:

          Wolf said: “If you know what you’re doing in the US, and you structure your financial life accordingly, you don’t pay 22% in income taxes.”
          _____________________

          Wolf, you could sell that tutorial. Most commoners I know pay 22%.

        • Wolf Richter says:

          cb,

          “Commoners” making $150k individually with no tax planning?

          Look, the 22% tax bracket goes from $40k to $85k. And that’s only on the amount over $40k. The first $10k are at 10%. From $10k to $40, it’s 12%. But you have a standard deduction of $12.4k for individuals with no kids. So just guessing, at the most primitive level: if you make a salary of $40k, you deduct $12.4k to get $27.6k. You pay 10% on the first 10k. and 12% on the rest = $1k + $3.3k = $4.3k. Of a total salary of $40k, you paid $4.3k in taxes at the most primitive level = 10.8%, not 22%.

          If you contribute to an IRA, you get to deduct the IRA contribution PLUS at this income level you likely get saver’s credit, which could be $1,000. You set up an HSA to go along with your high-deductible health plan, and you deduct those contributions. Now you’re in the 5% or below zone. And this is still at the semi-braindead level. If you have kids, your tax rate is likely 0%, or even negative, given the amounts of credits you get.

          Taxes are complicated and personal, and it’s impossible to figure them like this in the comments, but this gives you an idea. This is why about half of income earners pay little or no income tax (thought they pay the employment taxes).

      • Uncle Salty says:

        Ô Canada! Terre de nos aïeux,
        Ton front est ceint de fleurons glorieux!

        Car ton bras sait porter l’épée,
        Il sait porter la croix!

        Ton histoire est une épopée
        Des plus brillants exploits.

        Et ta valeur, de foi trempée,
        Protégera nos foyers et nos droits.

        Protégera nos foyers et nos droits.

      • Artem says:

        Paulo, the “Canada is cheaper” notion depends on your occupation. Prices are relative to income.

      • Swamp Creature says:

        One of the reasons we are falling apart, if we are, is we are trying to be more like Canada.

    • nick kelly says:

      Yes, and the UN will soon intervene to prevent the BoC from running amok.

      I think there is an apples and oranges comparison here.

      ‘According to the Federal Reserve and U.S. Department of the Treasury, foreign countries held a total of 7.07 trillion U.S. dollars in U.S. treasury securities as of December 2020. Of the total 7.07 trillion held by foreign countries, Japan and Mainland China held the greatest portions. Feb. 24, 2021’

      The BoC holds a greater % of Canadian govt debt than the Fed. This doesn’t mean there IS more Canadian govt debt relative to GDP. Lots of countries hold US dollar securities, they don’t do that with Canadian ones. Another way of putting this is that more Canadian govt debt is held internally.

      • Jack says:

        nick kelly

        You’re preaching “excuse the expression “ to the wrong crowd here!

        The problem that this article present is very simple;

        Most ( and unfortunately WR is amongst this most) American citizens when the US is criticized for lacking direction in both Economic and political realms, tend to go haywire and forget the point of criticism!

        Wolf here in picking Canada’s Debt is a prime example of ( lazy and well worn game) of you’re worse than us , so don’t criticize us!!!

        Last time I looked , the Debt to GDP for the US was 107% whilst the Canadian Debt to GDP was roughly 97%!

        This is in contrast to what the fake analysts try to use to determine the health of a country’s economy!

        Canadian Economy is strong enough to manage to feed its 40 million odd citizens and plus some!

        On the other hand the “free world leader Economy is in dire straits!

        It’s survival is incumbent on the Shambolic bickering going on in DC!

        The large injection of Money into the US veins have to be the most ever WASTED opportunity in living memory, damn it is the most waste in The Whole of known history!

        But let us criticize CANADA, to make us feel good?!

        It is another weakness in polluting this forum and taking the shine of it’s stated purpose. SAD.

        • Wolf Richter says:

          Jack,

          Please read the article. This piece was exclusively about what percentage of the national debt the BoC has monetized = 40%. It was not about the debt itself (or whether it’s excessive or not), but the monetization of this debt by the central bank. That’s the only thing this article was about. Your comment is completely off target.

    • Greg says:

      You don’t know if the REPOS have matured and are rolling off the BoC balance sheet. That is a guess. Government of Canada Bonds increased by 7 billion on the BoC balance sheet last week while REPOS decreased by 7 billion. Last year the BoC allowed REPOS of Canadian 2,5 and 10 year Gvt of Canada bonds to be used a REPO collateral by the banks. Obviously, wanted other parties bidding for the surge in Fed Bonds and obviously ordered tha banks to buy gvt bonds REPO them and collect the interest payments as guaranteed windfall for the banks. Now those bonds are trading way under water–the 10 year a loss of 10%–and the banks want them off their balance sheet. A 10% loss and mark to market doesn’t look good. I suspect the banks are offloading the bonds to the BoC! We will never know as they don’t say the counterparties or the trades.

  2. Willy2 says:

    – Look at the central bank of New Zealand (the RBNZ) who has bought (on a % basis) more new Zealand’s government bonds than any other Central Bank.
    – And I think the australian RBA is not far behind …………..

    • ru82 says:

      I knew the U.S. was turning Japanese but I did not realize other countries were ahead of us already in buying bonds

    • nick kelly says:

      I’m not sure but I think in addition to US govt bonds the Fed also owns some dubious corporate bonds, like BBB stuff. I don’t think the BoC does. Anyone know?

  3. andy says:

    Yes, but they still deal with Billions, not Trillions.
    And Wolf continues to believe in “tapering”.

    • YuShan says:

      I agree with Wolf about the tapering. They will start that at some point.

      However, the question is whether that would be enough. Letting Treasuries and MBS mature and raising rates with quarter points could be way too slow when the inflation beast is finally unleashed.

      If you are ever in London, go visit the Bank of England Museum (it’s free!). They had an exhibit there with some metal rod with a weight shifting on it (hard to describe) to demonstrate to the public how monetary policy works in fighting inflation. You could play with it yourself. First nothing happens but then suddenly the weight starts to respond to your policy (with a delay) and is then difficult to stop. The message being: the central bank has to preempt this because once inflation starts running hot you are basically too late. I wonder if that exhibit is still there… :)

      • Artem says:

        This taper annoucement is just forward guidance trying to prevent excessive leverage. Any serious taper will affect real estate, bonds and precipitate a recession, so this balance sheet can’t really be shrunk in any meaningful way without serious problems.

  4. All says:

    While this central bank scheming is not a welcome development – Canada doesn’t have near the risks that the USA would face if both were suddenly required to balance their current accounts.

    Canada has immense surplus natural resources that would be very much sought after by many nations in the world. It’s an “extractavist paradise”, if you will…

    • RightNYer says:

      Right, and only 1/10th the population to divide those resources among.

      • Wisoot says:

        So why are countries not valued in this way? Resource extraction owned by population density the world over – up to a max of 25 percent goes to expertise of extraction with a mandatory 75 shared by population. The parasitic international companies stealing country resources and spending wealth fluffing nests instead of building up forest resources – for oxygen – you know that gas we all grew up breathing loads of but have so little access to in 2021.

    • MonkeyBusiness says:

      Canada has one super big risk though and that is America. Push comes to shove, we’ll just make America North Again!!!

      • w says:

        Said it many times! :-) we need to invade canada a little!

      • MiTurn says:

        And this is why Canada doesn’t have a “real” military nor goes to the expense of maintaining one. They know that Uncle Sam wouldn’t tolerate a foreign army messing with its favorite neighbor (or is that, neighbour?).

      • MonkeyBusiness says:

        We don’t need to invade Canada, just like we don’t need to invade Great Britain!! America used Meghan Markle to great effect in order to blow up the royalty. I am sure we have another celebrity CIA agent or two that we can use to Make America North Again!!!

        Failing that, we’ll start producing our own maple syrup, and that’s pretty much it for Canada!!!

    • w says:

      Colony!! :-)

    • Petunia says:

      My understanding is China owns a disproportionately large share of Canadian mining resources already. And those Chinese companies only hire Chinese nationals there as well. It’s a form of outsourcing of Canadian good jobs.

      While Canada is largely underdeveloped, there’s a reason for it, people don’t prefer cold climates.

      • MiTurn says:

        90% of the Canadian population lives within 100 miles of the US border for a reason. It’s cold up there.

        But bless Canada for hockey!

      • Anthony A. says:

        I spent a week in Norman Wells in the Northwest Territories one winter. If you want to see why most of Canada’s population lives near the U.S. border, go to Norman Wells for a while. Don’t go in the summer because you can’t easily get there unless you hitch a ride on a black fly.

      • Al says:

        True. I always laugh myself silly when people complain about the scuttling of the Keystone Pipeline.

        All (ALL) of that heavy/sour crude was going to be on tankers out of Vancouver off to the PRC in a couple of years, anyhow. That pipeline would have stayed bone-dry by the time it was operational.

        I do feel bad for the workers who were building it, though.

        • ricardo2000 says:

          No one is going to buy the worst quality, and most expensive ‘crude’ on the planet because Canada isn’t a reliable supplier. Houston would merely need to snap their fingers, or some Senator start quacking about ‘sanctions’ for the VLCCs to stop sailing. The Saudi marketing plan for ARAMCO crude had them building billion dollar refineries tuned for their supply from Pakistan to China. The TransMountain marketing plan involves OToole, Kenney, and Harper pushing a battered shopping cart to the end of the pier. They stand there dirty and desperate with a large cardboard sign reading, ‘Will ship crappy crude anywhere for personal electronics’.

  5. Phoneix_Ikki says:

    Funny they even mention moral hazard, at the end of the day probably just jawboning the public to give it the illusion that their banking system do care a little about the people.

    US and pus boy Jerome won’t even pretend there’s moral hazard concern. It’s party all all the way, inflation run a little hot is good, keeping interest rate low is good…what moral hazard?

    • Artem says:

      Phoneix_Ikki, exactly

      However, the US real estate market has been a lot less frothy than Canada’s. Moral hazard refers to excessive leverage and overreliance on central banks’ proverbial put.

      • Al says:

        Housing markets are frothy everywhere. Including China, actually. Though the PRC is actually one of the very few countries that at least makes a pretense of trying to cool it down (at least in the secondary cities).

  6. Cobalt Programmer says:

    For argument sake and for real curiosity,

    What if all the debt government issued is purchased only by the Feds of the country. Lets say, in US all the government debt is purchased by the US FED, what will happen? Taxpayers still have to pay taxes for the IRS. Treasury will pay to FED. What is the difference between a private buyer of US bonds and a private bank (a member of the FED)?

    Just one more thing, the proverbial snake eating its tail is symbolic of “rejuvenation”. When we digest our own old thoughts and conventions, we form new ideas. Like a spring cleanup of the garage. Old thoughts giving rise to new ideas.

    • Wisdom Seeker says:

      Keep in mind that interest paid by the US Treasury to the Federal Reserve is remitted back to the Treasury (less overheads). So it’s not a net burden on the government financially. The Fed’s holdings mainly increase the national money supply, once the government spends the borrowed funds.

      But … the Fed’s holdings also make the federal government beholden to the bond market. Because the Fed’s holdings can be sold, and that makes it much harder for the government to borrow more. In principle Congress controls the Fed but in practice, Congressional control is erratic at best, and the Fed’s capacity to ubfuscate is legendary…

      • RightNYer says:

        Interesting, I hadn’t thought of that angle. The central bank owning a huge percentage of a country’s sovereign debt poses a risk to OTHER holders because you have one huge holder that can dump them at any time.

        • YuShan says:

          I don’t see them selling outright in large quantities because the market won’t be able to absorb the supply. But when inflation goes out of control, they will probably raise the interest rate on reserves as a way to drain liquidity from the market.

          That policy is very costly though, because it is in fact a kind of carry trade: the Fed owns Treasuries that pay almost nothing in yields while they now would have to pay (say) 4% on the money they have printed and want to drain from the market.

          The Fed’s profit/ loss goes to the Treasury, so basically the taxpayer has to pay for this. “But the Fed simply prints the money!”. No. Because if they need to do this because of out of control inflation, printing more money is throwing oil on the fire.

          IF inflation were to take hold and spiral out of control, this whole con game is really over. But because we haven’t seen that for a long time, people now think it can’t happen.

        • Al says:

          In theory, it’s really not inconceivable that the Fed *wouldn’t* dump treasuries. The Fed is able to post positive net income in the current environment – but if yields spike – it would quickly swing to losses. Say goodbye all those remittances back to the Treasury Department…

          In such an environment – if the Fed were to truly act like any other asset custodian – it would be forced to dump its non-performing assets quickly.

          Of course, it probably would just be absorbed back into the Treasury Department…

        • RightNYer says:

          Yushan, I don’t totally follow how raising rates on their own reserves would drain liquidity. Can you describe the mechanics of how this would work?

          I do agree, however, that we have become complacent to the risks.

        • RightNYer says:

          AI, but isn’t that already true? The bonds the Fed bought at .55% are already worth a lot less now that yields are up. If they sold them now, they’d realize losses, no?

        • char says:

          The central bank could dump its holdings but the owner of the central bank, aka the state, could also issue a large amount of new debt. In reality it is the same.

          @yushan

          central bank buying its own state debt is bad because it will create inflation so if the central bank sells its state debt than it will create deflation. I never really understood why the central bank should sell its state debt outside ideology that central bank shouldn’t print money.

          @al

          The fed prints money to buy those T-bills. They don’t have to pay interest on that printed money so even if interest rate would skyrocket and they keep those T-bills to maturity than they would not loose money.

        • YuShan says:

          @RightNYer

          “Yushan, I don’t totally follow how raising rates on their own reserves would drain liquidity. Can you describe the mechanics of how this would work?”

          If the Fed raises interest on reserves or offers some kind of deposit facility with a high interest rates, many banks would park money there instead of lending it out. So you drain liquidity from the market. The money gets demobilised so to say.

        • char says:

          @Yushan

          If you lend money to people/companies instead of the central bank than those people will a) have money in a bank, that bank can make more lending because of how fraction banking works or b) those people spend that money but the recipient of that money will have a bigger bank account and that bank can thus lend more. This wont happen if the money is parked at the central bank

        • YuShan says:

          @char, agreed. Isn’t that what I’m saying? When the Fed offers higher interest on the reserves that banks hold at THE FED, this money gets demobilised i.e. this way they drain liquidity out of the system. They can also offer time deposits AT THE FED (not commercial banks) for this purpose.

          So I think this is where the confusion comes from. I am talking about balances at THE FED, not commercial banks (who would loan out the funds).

    • cas127 says:

      “What if all the debt government issued is purchased only by the Feds of the country. Lets say, in US all the government debt is purchased by the US FED, what will happen?”

      Good question.

      1) A domestic US citizen/corp buyer of Treasuries is exchanging money earned via production. One result, the aggregate stock of real assets has increased.

      2) When the Fed buys Treasuries…no real asset production has occurred, just printing. So by definition, inflation has occurred since the ratio of aggregate real assets to money supply has fallen.

      Economies can only grow thru real asset increase…mere money printing does not accomplish this.

      (Although the Fed’s Dark Heart Secret is that by diluting existent private wealth thru Fed money printing, the Fed hopes to cattle prod citizens/corps into greater future production…in order to recoup the private savings stolen by means of the Fed’s print operation.)

      Think of it this way,

      Citizens/corps gets $ by means of real asset production.

      The Fed/The G gets $ by simply printing them.

      • RightNYer says:

        In theory, there’s nothing wrong with printing during actual crisis if you start removing that excess money from circulation IMMEDIATELY after it’s no longer needed. But that part never happens.

        • Old school says:

          In theory I agree, but if you look at long term history printing money is cocaine. It makes you feel good short term and kills you long term with a heart attack.

          Printing money means you don’t want to be responsible for your mistakes. It’s too easy of a solution. Let’s just use leaves for money and be done with it.

        • YuShan says:

          Exactly. In 2008 there was no other choice. But by 2010 you should be tightening again. Do it slowly and predictably and you’ll be fine.

        • RightNYer says:

          YuShan and Old school, agreed. The problem is when liquidity dries up EVEN for healthy companies that can not get financing from anyone. But the Fed considers it a problem when UNHEALTHY companies can’t get financing during a crisis. That’s where the printing shouldn’t be done and where the bankruptcy process should be used.

          And I agree that late 2009/early 2010 is when the 2008 QE should have been withdrawn. Instead, it didn’t start for many years later. They consider NOT adding more liquidity to be equivalent to reducing existing QE.

        • char says:

          Why should you remove it? I can see why printing is bad but not why keeping it in circulation is bad.

          ps. I mean a long term crisis. Not in the case of a few days, maybe a few weeks. Than the rules are different. But if the economy is used to the amount of print than i don’t see a reason to remove it. In fact Britain did remove the extra printed money after World War One and the 20’s were a complete economic disaster in the UK

        • RightNYer says:

          Char, because by leaving the money in circulation, what you’re doing is devaluing every existing dollar out there, whether held domestically or overseas. While a temporary increase is more akin to a temporary “seizure” of existing money, leaving it there is permanent.

        • char says:

          That is done when you introduce printed money but keeping printed money will not cheapen money further.

          ps. I think we look at different time scales. You are right* if the money was printed yesterday, i’m right when it was 100 years ago

          * theoretically right as there was no serious inflation between 2008 and 2018. covid period is different because the governments want desperately inflation. So many problems, Like B&M retail, would be a small problem with 20% inflation.

      • Quanhe Liu says:

        All money should be created by equal

        • char says:

          The creation process or the end result?

          ps. You do know that cash money like coins are created differently from bank account money? I don’t mean the physics but the economics.

    • eastern bunny says:

      Its a valid question, and I think central bankers got away with monetizing government debt since 2010 because inflation didnt materialize as many of us expected.
      The printed money went into assets which given how inflation is calculated wont show up on indexes.
      So now they feel pretty confident that they can do stealth monetizing without worrying too much about inflation. I expect central bankers to eventually own all government debt similar to BoJ. There are days now that not a single government bond is exchanged in the japanese trade exchanges.
      But make no mistake, inflation is the ratio of total money supply to goods and services produced by an economy, any other definition obfuscates the truth about values and prices.
      It remains to be seen if inflation as calculated by our institutions will show up persistently and that might force Feds hand to take action. I expect them to dismiss it for a long time as transitory until it gets to double digits when all bets are off.

      • Old school says:

        Yes. We are all happy because our assets have doubled or tripled in 12 years, but if Fed generates enough inflation those asset value increases will be gone within a year. Remember the inflation days when PE of stock market was 7.

        • cas127 says:

          The thing about asset valuation is that it looks one way when few are trying to sell (when a few transactions merely *imply* a price for *all* units, including the 95% not on the mkt for sale) and quite a bit different when many more are trying to sell at the same time (then 2x or 3x the number of “normal” – qualified – buyers have to be found).

          It is the same danger of valuation misperception that applies when calculating stock “mkt caps”.

          It is much, much harder to find a real buyer than a hypothetical one.

        • RightNYer says:

          Only those who have assets are happy. The 25 year old who has a job making $55k and has just gotten married with a baby on the way who sees houses selling for 10x his income isn’t so happy.

        • RightNYer says:

          Cas127, that’s what I try to explain to people (including my otherwise smart friends) and they NEVER get it. Bitcoin’s price is high because many of its holders are “I will never sell” types. When you couple that with the millions that are permanently lost in broken hard drives and so forth, there just aren’t many on the market to sell. It wouldn’t take a lot of the “I will never sell” people to start selling to cause an avalanche.

        • char says:

          Asset inflation should have been attacked. and that is relative easy but wasn’t done because it felt good. Heroine also feels good.

    • topcat says:

      Of course this is MMT in practice, there is no reason why the BoC can not buy 100% of the government’s debt, it may well do so. The FED the BoE the ECB, they can all fund their respective governments (or multiple governments in the case of the EU) by simply printing money to buy the debt. I can not really see that is is any longer possible to deny that MMT is correct seeing as the whole world is acrually using it very successfully.
      Now, the problem is, that is is being done by CB’s who do not officially admit that they are doing it which makes it dangerous. The sooner they all move to MMT based accounting using the theoretical framework the better it will be for all of us.

      • joe2 says:

        topcat – “I can not really see that is is any longer possible to deny that MMT is correct … The Sooner they all move to MMT … the better”

        Then we can all stop paying taxes?

        So why is Biden raising taxes?

        • cas127 says:

          “Then we can all stop paying taxes?”

          And start paying inflation.

          In practice, we are paying both.

          Government isn’t magic…in practice, it is where magic goes to die.

      • ru82 says:

        Do people have to work in an MMT environment?

        Do they loose the incentive to work harder. MMT will probably allow big companies like Walmart and Amazon to not increase wages.

        Sort of like how 30% to 40% of the people who work for Walmart and Amazon on receiving some type of entitlement like food stamps, etc.

        • MiTurn says:

          Walmart has been advertising on the local radio station (a single AM channel) for workers. Starting wages were between $12-14 an hour.

          I’ve never heard them advertise otherwise on the radio.

        • cas127 says:

          MiTurn,

          We still have 8 million fewer people working this yr compared to 2019…so I can’t imagine that Walmart should really be hard up for applicants.

          Perhaps they are competing against the unemployment premia put in place last yr.

      • RightNYer says:

        It only works if someone, somewhere in the world is willing to perform actual work for that printed money.

      • Rcohn says:

        Let’s take your argument to its logical conclusion.
        Why should not the government increase its deficit spending by a factor of 2 with the Central bank buying all of the new debt. And why not then double its deficit spending by a factor of 4 and then 8 etc.
        The US and other countries have become banana republics without the resources of bananas.
        The depreciation of the currency will not happen gradually , but suddenly

      • YuShan says:

        It is completely zombifying the economy, because you print money without increasing value creation against it, as would be the case with genuine investment in viable businesses.

        The way I see it, it is just a big confidence game. I look at you and you look at me. We both conclude that the other guy is not panicking (yet) so why should I? But this could turn on a dime, triggered by some black swan event that we don’t yet know about.

        In 2020 the Fed saved the day (again). This reinforces the believe of an all powerful Fed. Yet when you look at history and use common sense you know this worldview can’t be right.

        • RightNYer says:

          Right. I’ve been saying that for a long time. It’s not that the Fed actually has the power to save markets or the economy. It’s just that people THINK it has that power, and acts accordingly.

          The black swan could be something as simple as a market drop that the Fed says it can’t or won’t do anything against.

    • Finster says:

      “ What is the difference between a private buyer of US bonds and a private bank (a member of the FED)?”

      The Fed creates the money to buy the bonds from nothing. Private buyers have to earn it.

    • Artem says:

      @Cobalt Programmer

      The risk is that the securities the FED holds lose value and can’t be unloaded, while tax receipts aren’t sufficient to keep everything liquid. We are very far away from that, but it is possible to bankrupt any bank, including the FED.

      Ultimately, the voter/taxpayer decides how to unwind this potential bankruptcy.

      • char says:

        Keep them to maturity and they will not lose value.

        Central banks can’t loose money on state debt in their own currency as long as the state pays, or the central bank pays lends them money to pay the central bank back

  7. Judith Stapleton says:

    In 2008 the lit fuse was mostly invisible. When Hank Paulson got the SEC to remove restrictions on borrowing so banks could bet even more of other people’s $ on bs*** investments (MBS), nobody twigged that the 5 biggest banks would flush the toilet, and taxpayers would donate their earnings to make them whole again.
    WE SEE YOU NOW.

    • Swamp Creature says:

      Not surprising. Hank Paulsen once called the people of the United States, the ones that work hard and play by the rules, “TAXABLE UNITS” .

      He was the ringleader in the 2008 bank bailout.

      • Swamp Creature says:

        T brought the same slimeballs into his administration. Gary Cohen, J Powell, Steve Mnucian. How can you Make America Great with these lowlifes.

        • RightNYer says:

          Yeah, when I saw that Trump’s idea of “draining the swamp” was bringing in Goldman Sachs alum (you’d think after Jon Corzine, Phil Murphy, and others, we’d have learned our lesson) to do anything in government, I knew that MAGA was going nowhere.

        • Swamp Creature says:

          T already had a bunch of slimeballs in Congress, Paul Ryan, Kevin Brady, who were screwing things up royally when he came in and he added more sc$mbags to the mix hiring those Goldman Sachs alumnis. The 2017 Tax cut and jobs act turned into a middle class tax increase for most people in the Blue states. They lost all their deductions and were forced onto the standard deduction. Without the personal exemption of $8,400 they are now paying more taxes than before. Here’s just some of the deductions that were lost

          SALT – gone
          Home equity interest – gone
          Medical – gone
          Charitable – gone
          Casualty – gone
          Misl – gone

          Maryland taxes – up as result of going to stnd ded.

          I had to pay more taxes as a result of T’s Tax cut & Jobs act.

          Now Biden wants to eliminate to small break that small businesses got. The 20% small business tax deduction.

          Another middle class tax break – Gone.

          So you wonder why T lost the election. Didn;t drain the swamp. Gave the top 1% all the tax breaks and socked it to the middle class.

          Thanks but no thanks!

  8. Wisdom Seeker says:

    It’s not that BoC holds more bonds, it’s that Canada as a whole has much less national debt than the US, relatively speaking.

    Compare the Bank of Canada holdings to GDP (instead of total issuance) and isn’t that about the same level as the Fed, roughly around 20%?

    However, they may still be hitting their national limit. My understanding is that a high debt level for Canada tends to be economically suicidal, because the otherwise great country is saddled with a commodity-fueled economy with a strong boom-bust dynamic.

    I think the sad reality is that people will use almost anything for credit-spending, as long as everyone else is doing it, until the insanity wears off.

  9. Depth Charge says:

    It’s clear to anybody with even a modicum of common sense that what the world is suffering from is the overfinancialization of everything, and central banks run amok. The only question I have is HOW it’s going to change. What will the impetus be? Because clearly things cannot continue on this path, where pigmen destroy society for a larger sty of slop.

    • cas127 says:

      If inflation can be correctly pinned on the G, then private suffering will also be correctly pinned on the G and political pressure will really grow to end how DC has “done business” for 50 years.

      The G has avoided this so far because most of the inflationary pressure has been manifested in things considered to be assets (stocks, homes, etc).

      (Even though barely 50% of citizens actually own much of such things).

      And…this cavalier attitude also overlooks the increased instability of asset prices, which have become less related to business operations, since ZIRP artificially distorts discounted cash flow calculations.

      • Depth Charge says:

        I’m starting to think that the massive increase in cheap heroin and Fentanyl on the streets is all by design. That keeps the homeless population in a stupor, and kills off large numbers of them – the people who have really been the losers in this country.

        Yeah, you can call me jaded, cynical, etc., but if we found out the CIA was running drugs into this country, partnering with the narcos, I wouldn’t even raise an eyebrow. This is remarkably sick and twisted country we are living in, now.

        • cas127 says:

          Maybe not heroin…but it isn’t hard to see the widespread okaying of weed as a typical capitulation of governments incapable of creating conditions for a better life for their citizens.

          The timing is simply too convenient.

          They can’t provide material improvement…but they can help you be too stoned to care.

        • cas127 says:

          Also, see…widespread free porn.

          Helps cut down on society wide violence among hugely increased numbers of young, poor males with no hope of being able to economically support a family.

          Doesn’t anybody else ever wonder how porn keeps getting produced if no production costs can ever be recouped?

        • Tom S. says:

          It has already started. People moving from big cities to the country…crime elevating in the cities. These are trends that will change the voting districts faster than they can be redrawn. Next thing you know you’ve got a whole new crop of well financed elected leaders that aren’t as inclined to print money to bail out the ol city slickers. Change can happen extremely fast in a democracy it seems.

          Unfortunately we aren’t going to innovate our way into sedating the middle class for too much longer. Hard to beat a portable brain in your pocket as far as innovations go. Weed and alcohol sales through the roof…then more crime then more restrictions then more organized crime its all happened before and culminated in us getting involved in wwii to keep the industries growing and people in productive jobs.

          This country has been about jobs since its foundation and it will always be about quality jobs no matter how many bankers are involved. You can’t financially engineer a society like America into prosperity. Too many people simply wont play the game and they got their own guns or their own army to protect their lifestyle if saving money at a bank fails.

        • Fat Chewer. says:

          Three points.

          1. During the depression, both weed and alcohol were illegal. It didn’t stop the soup kitchen lines.

          2. I am stoned right now and I care. I am absolutely outraged at how our so called “leaders” have ruined us.

          What’s more, in college debates, I was told I am some sort of radical because I didn’t accept the brainwashing that has led to this situation. Having concerns about the social outcomes of an enormous debt binge vs zero wage growth made me a “Commie Pinko”. It turned me off politics for life.

        • Fat Chewer. says:

          I was going to make three points but I decided that one was too contentious to print. Some of the more “woke” people can probably guess what it referred to (Caught In Act).

          Oh yeah, I was a “Commie Pinko” back then, but I am “woke” now, apparently. I wonder what new nasty moniker they will have for people like me in another 20 years. “Snowball” maybe?

        • YuShan says:

          You don’t need heroine for that. How about the stock market? You make some poor sod happy because his $1000 worth of stocks has gone up, while his earned income buys 5% less every year.

          And what about house owners? They are happy because their house is “worth” more in dollars. But it is still the same house and his tax bill goes up with the dollar value!

        • Petunia says:

          I can remember back to the creation of the drug expansion agency. We went from having a couple of junkies in our NYC neighborhood to drugs being everywhere. Looking back it was like flipping a switch.

          I’m sure it was a coincidence, the creation of the agency coincided with the increase of incarceration of minorities, confiscation of property, and the general erosion of civil rights for everybody.

        • kitten lopez says:

          “Doesn’t anybody else ever wonder how porn keeps getting produced if no production costs can ever be recouped?”

          since nothing’s about The Thing anymore, my understanding is that “free” porn now a loss leader, or a vehicle for ads for the website, as well as advertising for the performers– for sex work like dancing in clubs on tour or advertising for your own local escort services so they know what services techniques and specialties they’ll be buying.

          and as for drugs and porn being used to pacify outgoing predominantly male/yang “life liberty freedom or death” urges and power dis-satisfaction or rage, yeah, i’m with you. but now i tack on EVERYTHING as it’s ALL in the service of hush-be-quiet domestication and othering and yes… turning us all into N words.

          you put one’s most outspoken strong defiant leaders in jail and criminalize or incapacitate anyone willing to fight back.

          x

        • kitten lopez says:

          actually, NOTHING—since the tech boom in particular–is about “The THING” anymore. / forget the loss-leader porn, EVERYTHING is loss-leader now. i got out of writing pro (or it got out of me) when i realized publishing books was so you could go on tour and your fans could fxck you literally or figuratively.

          thankfully there wasn’t any pay and i couldn’t afford to rent my own lap dancing station any longer.

          so i revise and ammend what i wrote about the porn industry and would even apply it to tech workers themselves and even these new mythical american white guy plumbers who left the ivy league life to make multi-million dollar incomes unclogging effite urbanite toilets:

          we’re ALL N-words AND whores spending most of our lives pitching ourselves as the most fxckable and then edible to biomass fuel cow.

          and Wolf, that i would even deign to write N Word is a testament to my love and respect and appreciation for you. / and sorry this thread will have likely gotten long and skinny like the snake eating its tail (as well as it’s own young) to pick up on the metaphor of finance now.

          Zen and the Art of Collective Suicide. where’s Robert Pirsig when you really need him? / oh yeah… off with Leonard Cohen. waiting for that light to shine in these cracks, Brother Leonard… see? it’s not just bureaucracy; even our artists are completely unaccountable for their promises!

          anyhow, i’m learning the art of selfishness and We’re On Our Own. it’s actually quite freeing. i feel like i’m high when i’m completely straight. no lie.

          Jill Bolte Taylor found enlightenment and a guru gig in a stroke, so maybe this is the upside to a burned out endocrine system? a beautiful numbness and focus. frankly it’s a relief.

          x

        • char says:

          You mean like when the CIA imported cocaine to pay for the civil war in Nicaragua.

          Crack is obviously not as bad as heroin. Should i add that i mean this sarcastic?

      • Old school says:

        You ever notice how government passes the dirty work of collecting taxes and passing along inflation to business?

        • cas127 says:

          Without fictive villain fall guys, almost all governments would fall, since their failures would immediately and easily be traced back to them.

  10. timbers says:

    MHB’s, MHT’s – Moral Hazard Bonds and Treasuries.

  11. Ron says:

    Which country will default in this game of dominoes taking everyone with it the great reset or we’ll just have fake digital money and be enslaved to govt control good luck

    • topcat says:

      No sovereign currency issuer will default as they can always meet all of their obligations in their own currency by printing it. Even

      • 2banana says:

        True.

        But eventually, international creditors get wise and demand payment in a different currency.

        Happens at near the end of the road in debt can kicking.

        See Turkey or Argentina today.

        • Depth Charge says:

          “But eventually, international creditors get wise and demand payment in a different currency.”

          Not when every other currency is doing the same thing. That’s the agreement the FED has, among other Davos promises.

        • cas127 says:

          Depth,

          But private producers don’t have to agree to live in the fiat forgers hall of mirrors…they can demand a non-dilutional currency (Bitcoin, etc) or only trade on the basis of real asset barter.

          Over time, people don’t trade with known forgers.

      • YuShan says:

        Blockchain and distributed ledger technology are opening many escape hatches at this moment. Whether it is crypto currency of hard asset (gold, silver etc) ownership on distributed ledger. We have only seen the beginning of this yet.

        On top of this, we have the trend of de-globalisation. It is increasingly becoming an issue of national security not to be dependent on the currency of your rival/ enemy. So demand for your currency should be less taken for granted.

        In the future, I can see settlements moving towards some a-political currency. Whether that is a basket of fiat (like SDR), crypto or digitalised hard assets (gold). There are not that many options though, because you need very deep liquid markets for this.

        • char says:

          Yes, ponzichain is the solution to everything. Distributed ledger technology will save the world from the curse of ingrown toe nails.

        • YuShan says:

          @char, it is not the solution to everything but you cannot deny that it has enabled the emergence of parallel currencies. Simply abolishing cash won’t cut it anymore to keep you captive.

        • char says:

          A currency is something that is used to buy and sell things. Like cigarettes in prison. But ponzichain isn’t used for buying and selling.

          ps. except for buying and selling other ponzichains. But what is the usefulness of that

    • 2banana says:

      Revolution and changes of government usually comes before default.

      And war usually comes afterwards.

      • Jack says:

        2banana,

        There are two immediate tests thrust upon the US government foreign policy at the moment:

        – first, Taiwan’s problem with China slowly choking the Taiwanese economy.

        -second, The Philippines maritime boundaries and economic zone being infringed on by China.

        The are other flashing points in the Caucasus and Eastern Europe and Middle East that requires the US’s attention, but could be put on the back burner.

        However the Chinese belligerence is going to test the mettle of the US’s resolve to guarantee it’s allies’s safety.

        In my opinion the US is NO position to challenge China now!

        This is going to get very bad as the wounds fester in North and South Asia, the war that you speak of might come sooner than you think.

        and may precede the “revolution/s” that you speak about.

        • char says:

          I didn’t know that “attention” is a synonym of stoking.

        • Jack says:

          Char,

          although I don’t like to comment on the “ one liners “ that some like to lob here once in a while!

          I might have to ask you to think carefully in the future before you lob such silly comments!

          The US IS involved ( to the eye balls) in the regions mentioned in my comment.

          If you’re a citizen of this country and know this and ignore it it’s a complete disaster.

          If you’re not, then accept my apology for my presumption of your knowledge of the US’s foreign policies.

          That being said, it should serve as another reminder for you Not to comment on issues that you have limited understanding of!

          The alternative here of course is to afford the person/s you’re replying to the respect and explain yourself a little bit more than a one sentence wonders.

          Thank You.

          as always, nothing is to be taken personally, it all pertains to your reply.

        • YuShan says:

          “In my opinion the US is NO position to challenge China now!”

          Also not in the future. If there is going to be a war over Taiwan and the US gets involved, the US would lose. Not because the Chinese army is superior (they aren’t) but because the losses they are prepared to suffer are so much higher than the losses the US is prepared to incur.

          Most Americans probably don’t even know where Taiwan is, but virtually all mainland Chinese firmly believe that Taiwan is their territory.

  12. Artem says:

    Variable mortgage rates in Canada are negative (in real terms).

    • Old school says:

      Rosenberg says Canadian housing bubble is bigger than US one in 2006 – 2007 bubble. One problem with housing bubble is all the resources have flowed into leveraged consumption instead of productive investment. Shelter is a necessity, but polished quartz countertop is not.

      • Artem says:

        @Old school
        “polished quartz countertop is not [a necessity]”

        Blasphemy, eh!

  13. In the event of a financial reset, what happens to Canada’s gold reserves, much of it held in public companies. Could the central bank shut down all exports of gold? They could back the money with gold, and anyone outside the country would pay dearly to get that gold out? The gold bugs say buy gold against a global financial collapse, but then they never seem to think out what the process would look like?

    • MiTurn says:

      Does the federal government of Canada have any gold reserves? I thought they were all sold off?

      • WES says:

        They have no gold.

        • Canada still has a high SDR rating, which is based on a number of things among them gold reserves. What is the IMFs logic there? CA sells their gold reserves, buys half the government issued debt, and still gets a passing grade? China is only slightly better in SDR allocation than Canada, and they have the world’s largest economy?

        • char says:

          Debt owned by other people is important. The billion dollar debt i own to my self is in reality no debt.

    • YuShan says:

      Yes, government confiscating your gold is certainly a risk. That is why many gold bugs want to have (part of) their gold in their own hands and hide it, and/or store it in a jurisdiction that they trust (like Switzerland or Liechtenstein).

      I know that Kinesis has recently almost drained their Hong Kong vaults because of the increasing political risk now that China has broken the treaty that they signed when Hong Kong was handed over in 1997.

  14. The Bank of Canada said they were going to taper bond purchases just over a week ago but didn’t give the exact cause or reason. They tried to blame the housing bubble on the low interest rates. The Chinese only show up when something starts to skyrocket and when home prices double every 3 years non-stop with zero wage gains then something has to be done about the Chinese or the next generation non-Chinese Canadians will all have to leave Canada due to rents being more than 100 percent of their take home pay, again all thanks tom the Chinese and the stupid Canadian government.

    • Antwan says:

      The Chinese aren’t the ones bidding homes $150k over asking in rural Ontario or Nova Scotia. The big metros where all the Chinese live have had the most modest price gains. Next you’ll be blaming the Chinese for bidding wars in Wyoming.

    • YuShan says:

      The cool thing with real estate is that it cannot be moved. This is something that (foreign) real estate speculators are going to find out to their horror in the next few years. All it takes is a populist government who confiscates it in some way (like taxing it to the hilt). This is one of the reasons why I’m not keen on real estate myself.

      • char says:

        Only partly true. The expensive district in town is expensive because all the rich people live there. If they don’t want to live there any more than it is wont stay the expensive district for long. There is a reason why the three L’s in real estate are location, location, location. If the location moves the values move too

        • YuShan says:

          @char, you just proved my point. You cannot move the building to another location. In the situation you describe you can either comply and pay your taxes or sell at a loss.

        • char says:

          I don’t think so. My point is that the value of real estate can be moved. Not the buildings themself. But the true value, the location can be moved. See the example of rich people moving or moving a railway station or an institute like the EA

          ps. I have plenty of youtube movies in which buildings did get moved but i think in most cases it would be more profitable to bulldozer the old building and build a new building on the new place

  15. MiTurn says:

    “The BoC has an opportunity to do what most people desire but are not physically capable of: stopping the clock.”

    But they won’t. The federalies will run it up, more and more debt.

  16. Petunia says:

    With stagnant wages, high home prices, and ridiculous carbon taxes, where would Canadians find money to invest in govt bonds. Forgot their C$ is also dropping.

  17. Micheal Engel says:

    1) Bank Of Canada Gov of Canada assets :
    2) Treasury Bills : C$70B.
    3) Gov of Canada Bonds : C$268B.
    4) Other Bonds C$13B.
    5) Total Assets: C$351B.
    6) When USD/CAD will rise from 1.25 to 1.5 the value of their assets will fall.
    7) Calgary RE might be worse than Houston. Toronto and Quebec City aren’t doing great either
    8) West Canada Select is still in troubles.
    9) Fred : Canada GDP (In the current USD) was $1.85T in 2013, when WTI was twice as high. It dropped to $1.5 in 2016, when WTI dropped to $26, up to a lower high @$1.7T in Dec 2020.
    10) Sucor oil co hit $75 in 2008. Today it’s $30.
    11) Bombardier forever gone. Royal Bank of Canada, TD and the Shopify are the Canadian whales.

    • Uncle Salty says:

      “11) Bombardier forever gone…”

      And we must not forget the greatest band of all time: RUSH

    • Dan Romig says:

      Michael,

      Number 11 may be premature as the Aston Martin Formula 1 cars of Lance Stroll (Dad owns the team, which is nice) and four time world F1 champion Sebastian Vettel have Bombardier sponsorship on each side of the air intake just above and behind the driver’s helmets.

      Cognizant is the main sponsor and BWT (Better Water Technology) is also a prime sponsor.

      The first light rail cars used in the Twin Cities were made by Bombardier in Mexico, but the current contract is with Siemens and they’re made in California.

      • Prairies says:

        Bombardier will never be “gone”, it is simply a husk of what it should be. The government continually pumps it full of taxpayer dollars as the company continues to fail at meeting contracts and paying bills. If it wasn’t involved in so much of the national infrastructure the company would have went under 20 years ago.

  18. George Sakrzewski says:

    I liken it to a python eating its tail. Commercial Banks buy bonds with (our (money) deposits, swap for a Central Bank Reserve against which they can use to loan new money to us, at a profit, Government uses (our) money from Commercial Bank Bond purchases to pay civil servants, military, stimulus cheques, infrastructure spending etc., for which it receives a spectacular return in the form of taxes. The Government owns the Central Bank so it virtually owns its own Bonds and pays itself interest. When we want our money from the Banks, they do that with freshly deposited funds. The ultimate ponzi scheme, smoke and mirrors.

    • YuShan says:

      I think the future for commercial banks is bleak. We are obviously moving towards a full reserve system with low interest rates. This is really bad for commercial banks.

      At the same time, fintech is eating their lunch. And they have a much lower cost base and are more in tune with modern times.

  19. MCH says:

    Wait, Wolf, did you just tacitly support addition multi trillion dollar stimulus and government spending, cause technically we are way behind the curve compared to other advanced economies like Canada. At least that’s the implication.

    Joe would like to thank you for your support of build back better (BBB) plan, heck, if we use the 40% metric and have the Fed print that much money, that’s enough to support the $10T in NGD by the bartender. Thank you, Wolf.

    CHACHINNNNNG… unprecedented pork, here we come. ??

    Yes, I know the difference between monetary and fiscal policy… although I am pretty sure the folks in the WH doesn’t care.

  20. Micheal Engel says:

    12) CNI rail road market cap @$USD 83B is x3 times higher
    than Suncor, the largest oil co that produce the oil.

  21. Maximus Minimus says:

    The BoC owns a bigger share of a smaller pie, while the FED owns a smaller share of a comparatively bigger pie, but I would quibble.
    All are the same bunch of crooks sporting fake economic credentials, and deserve the same justice.

  22. Micheal Engel says:

    1) We might enter a global recession.
    2) A new recession will follow the previous Covid recession.
    3) Recessions in repetitions lead to conflicts and wars.
    4) If US gov pileup debt will grow, to financing Covid, recession #2 and to finance a new war and to finance interest payments.
    5) If we lose that war and there will be nothing to show for, after such a high cost and losses ==> USD and our status as the strongest nation on earth will be gone.
    6) There is a constant war between wars.
    7) An Iranian spy ship blew up today.

  23. WES says:

    Two men are responsible for the majority of the gov of Canada’s total debt.

    Perrie and Justin Trudeau.

    • BuySome says:

      Nah….Shatner & Nimoy. Blame their fine performances for popularizing the idea of a rush toward a Star Trek credits future. Of course, they got paid in paper bananas like the rest of us.

  24. Avraam Jack Dectis says:

    .
    BOC are brilliant!

    Wait until there is an economic crisis that allows you to monetize your debt without inflation.

    Taxpayers were just relieved of forty percent of their debt.

    Timing is everything and they timed it well.

    It should be a standard move during low inflation crises.

    • Rosebud says:

      and the technology that produced the Standard grew FAANGS.

      so to Recap… be first, be smarter, or cheat

      posting on social media is easy.

  25. SpencerG says:

    That is a funny commentary. Any US bank employee who publicly got so cheeky about the Fed would be out of a job. Or moved to the Antarctica desk.

    • Wolf Richter says:

      Probably true. Criticizing the Fed is a career-ender for economists in the wrong jobs.

      • cas127 says:

        Thank God the US is a free country.

        Heh.

        But it is soo hard to be good with all those “domestic terrorists”(TM) running around telling the truth.

        • MCH says:

          Are you calling Wolf a ““domestic terrorists”(TM)? The Fed is probably keeping a close eye on the traffic to this site. When it hits a certain number, here comes the men in black.

          Then we’ll get only the “truth telling” Wolf, about how the Fed is doing a wonderful job, and treasury is looking out for the best interest of average joes like us.

      • Yushan says:

        This is the thing that scares me most. The group think in these circles is staggering. And group think leads to bad decisions.

        2022 global financial crisis:
        “Nobody could see this coming”

    • Yancey Ward says:

      Oh, I am quite sure there are unfilled banking jobs in Yellowknife.

  26. SpencerG says:

    If you were Canada (or for that matter Mexico) and saw that your biggest trading partner had just increased spending by 4.something TRILLION dollars in the past year (and was looking to do 50% more in the coming months)… why would you even bother engaging in potentially ruinous monetary stimulus yourself?

    Isn’t the smart play at this point to draft on America’s fiscal stimulus?

    • Bobby Bittman says:

      Wealth transfer by the 1% is done at the national level. Labour on the other hand is a global commodity. Your comment implies that leaders have a concern about the state of the nation.

    • Rosebud says:

      Practically the whole planet is drafting on the new standard. Its redefined essentially the Age.

      20 years ago we had one man, the Decider, now we have a mob of deciders called the Evaluator. But it’s a secret, so never mind.

  27. Yancey Ward says:

    “I like to think of Canada as America Jr.”

  28. Yancey Ward says:

    40% is piker stuff. They will eventually end up with all of it, and probably in not less than the next decade.

  29. zee raja says:

    Your comment implies that leaders have a concern about the state of the nation.

  30. Beardawg says:

    It all just smells like continued asset inflation – Canadian housing being #1 in line. Makes me think the US is just getting started on the same track.

  31. Blame “The Pigeon Feeders” ( Big Media,
    Big Tech & Big Government ) not the pigeons.

  32. Yerfej says:

    For all the talk about debt notice how NO ONE ever talks about whether there is any value for all the spending. It doesn’t seem to matter what country is throwing money at people it all just disappears and everyone is still faced with sad faces and hands out. Could it be a permanent situation of massive dependence on government? For Fidel’s son it might be Xanadu.

  33. Crush the Peasants! says:

    Who puts authority behind the keystroke?

  34. Micheal Engel says:

    1) BOC from Peking is a Ponzi scheme.
    2) The tiny Canadian BoC sent TSX to a new all time high.
    3) FTSE100 two lower highs.
    4) FTSE100 : Apr 2021 is < Jan 2020 high and Jan 2020 is the old dominion will crack.
    6) The CAC took off in Apr 2021. It made a new all time high, probably an upthrust, because the french stole Bombardier CS300.
    7) The CS300, Canada’s industrial gem, put a spell on Paris and Peking.

  35. Patrick McMullen says:

    @Wolf
    Another day another shell game.
    When are you going to accept BAT on your website?

  36. Mel says:

    I would guess that the bonds are funding the anti-Covid19 payments that keep the economy moving when it’s dangerous for people to go to work and get paid. When USA pays those $2000-600 checks, that money will have to get accounted for too.

  37. Les says:

    Much of the QE is done through pension funds. Japan’s GPIF has been buying US treasuries.

    https://www.reuters.com/article/japan-gpif-bonds/update-1-japans-gpif-to-raise-foreign-bond-allocation-target-to-25-sources-idUSL4N2BH35A

    US pension funds have reduced their fixed-income exposure below 24 percent over the last several years. That’s equal to 6 trillion dollars being reallocated to stocks.

    • Wolf Richter says:

      When a pension fund buys Treasuries, it’s like me buying Treasuries. It has nothing to do with QE.

      • Les says:

        It is the same since the domestic central bank will absorb the supply. It is the Bank of Japan telling the funds to sell the JGBs and prop up the US Treasury and equity markets. This was also done in the mid 2010s.

        Bernanke was quite clear in stating that he wanted foreign central banks to sell the treasuries and buy US equities.

  38. Swamp Creature says:

    Sears just closed their anchor store in Westfields Mall just a mile from me. They were there for 50+ years. The Mall was just renovated a few years back and now looks like a an empty warehouse parking lot. I wonder what Sears did with all the merchandise in there. Most of it was imported crap made in China.

    OVERSTOCK.COM????? anyone

  39. Micheal Engel says:

    1) New home prices are rising in US, because British Columbia GST + PST
    tax rate are 12%, and BC sale tax is 7%. BC woods are national
    treasures.
    2) WCS prices are falling to adjust to Canada 5% VAT in the pipelines.
    3) Low income in BC pay no VAT for health, pharma, dentists, long term
    resident rent, legal aid and barking in the woods…
    4) That’s why BC was invaded by China and Toronto was run over by people from the ME.
    5) BC and the west are totally dissected from the rest.
    6) R/R and the TM pipeline connect them.
    7) NYC liberal followed Trump, because there are zero taxes in FL.
    8) The more they hate, the more they make. FL RE transactions are booming and RE agents selling to people from their neck of the woods, feast on Trump crumbs.
    9) Jamie Diamond JPM promise land and Jeff Bezus platonic love,
    to replace donations, might be volatile next week, because Iran spy ship.

  40. JC says:

    This article talks about the Bank of Canada’s purchase of FEDERAL government bonds — what about its ownership of PROVINCIAL bonds?

    • Wolf Richter says:

      They’re in the second chart, green line (Provincial bonds) and light blue line (Provincial money markets) at the bottom. The amounts are too minuscule to even register.

  41. Micheal Engel says:

    Comment moderation : the more they hate, the more they come back.

  42. Micheal Engel says:

    Sorry about the slide tackle.

  43. 2BFrank says:

    The Fed has hundreds of agents holding treasuries, the Cayman islands are the largest holders of treasuries!, what all 400 of the population? if anyone at the Fed talks, or issues a statement or produces a chart, IT IS A L*E, its what they do best.

  44. Augusto says:

    Thanks Wolf. 40% is high and indicative of what is really going on in the economy (massive, unsustainable public spending and poor productivity). Unfortunately, Canadians are oblivious to the levels of public debt and spending but wanting more government spending every day. I expect a Canadian financial crisis before the end of the year either in the currency or the housing market or likely both.

  45. Auldyin says:

    Brilliant charts as usual Wolf
    A picture tells a thousand words!
    Is there any easy way I can lay my hands on a chart like that for Bank Of England Assets, by major category? I’m pretty sure they must be up to the same game but it’s never as clear as you show it.
    I think I recently learned at last how QE is actually operated day to day and I will fly it by the site for reactions sometime when a suitable subject crops up .

    • Wolf Richter says:

      I don’t cover the BOE, so I don’t know. But I would assume that they disclose on their website the data on their holdings. You should be able to download it. It might take you a while finding it.

      • Auldyin says:

        Thanks for that Wolf.
        I will investigate but I bet they won’t make it easy for non-participants.
        Cheers.

  46. Andrew says:

    The problem with the Canadian Federal Government buying bank bonds, I believe, is the taxpayer is ultimately underwriting the housing and mortgage market. The result is all these loans and mortgages are in forbearance, and the extend and pretend arrangements with the banks are inflating the housing market. Am I wrong on this?

  47. Isaac S. says:

    It appears that the US is, still again for GFC2, the ‘cleanest dirty shirt’ in the major economies world. UK BOE likely owns 40% of its debt by now, and EU is around 40% too. All 2x as bad as US. I have no doubt that the PBOC is effectively as bad.

    Wow!

    https://en.wikipedia.org/wiki/United_Kingdom_national_debt
    As of Q1 (the first quarter of) 2018, UK debt amounted to £1.78 trillion, or 86.58% of total GDP, at which time the annual cost of servicing (paying the interest) the public debt amounted to around £48 billion (which is roughly 4% of GDP or 8% of UK government tax income). Approximately a third of this debt is owned by the British government due to the Bank of England’s quantitative easing programme, so approximately 1/3 of the cost of servicing the debt is paid by the government to itself, reducing the annual servicing cost to approximately £30 billion (approx 2% of GDP, approx 5% of UK government tax income).

    https://www.bloomberg.com/news/articles/2020-12-31/bond-guzzling-ecb-will-shield-the-market-from-next-debt-tsunami
    ECB debt buying isn’t without its complications. As the central bank hoovers up unprecedented amounts of securities from the market, other investors are getting squeezed out. The institution is set to own around 43% of Germany’s sovereign bond market by the end of next year and around two-fifths of Italian notes, according to Bloomberg Intelligence. That’s up from around 30% and 25% respectively at the end of 2019.

    • Auldyin says:

      Isaac S
      Thanks for your work on that.
      Greatly appreciated.
      Cheers

    • char says:

      What is bad about it? Inflation in a case like the covid epidemic is what is needed and i still fear that there will not be the needed inflation.

      ps. We are in a bad situation in which every solution is bad. But the least bad is inflating the covid debt away

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