It would appear the BoC has the same problems as US Fed
Yes.
of trying to do too much using the wrong instrument.
No.
Although it's my suspicion the BoC has been trying, a good bit of the time lately to follow, rather than lead the market with its interest setting, I can't prove it, and I'm sure they don't do it all the time. And I have no idea how they'd manage it given that their visibility might be messed up a good bit of the time, just like everyone else's.
You're nowhere near getting the critical point. What you're saying is what you'll find in university courses in market dynamics. They state, "once the price is fixed so that market participants can start in fair positions, then the market can evolve into a natural equilibrium as long as government or some authority is there to make sure prices don't vary too much". Ever hear of currency bands or pegging currencies?
Specifically, the BoC can't calculate, determine, figure out, what the proper rate of interest should be and neither can any monetary authority. It's the height of pretense to knowledge to claim otherwise. This is what the FED board governors tell their students concerning markets for goods and services, but in the "real world" of money markets, they can't heed their own assertions. It wouldn't be right, it might hurt someone, they say. They're weaklings and hypocrites. It's no different than pro baseball players breaking all the rules they lay out for amateurs, because they are pros and so are above the truth of their claims, and then losing big time because they make rule breaking plays.
Markets must be free, must be free of artificialities like price fixings so that price can explore wherever it might. Indeed, it is the threat that price will find the worst of all worlds level that maintains the stable equilibrium because the participants won't be lulled into a false sense of security if they don't act with sufficient caution when they transact. Some claim that authority must be there to protect or guarantee that price doesn't go to infinity or zero, but it is that guarantee that precludes the market from ever reaching a true equilibrium.
Some of the lecture deals with the difficulties BoC had dealing with inflation and is relevant to your comment in post 3283
There is only one way for the monetary authority to deal with inflation. Get the hell out of the market. The authority doesn't want to do that because they fear the always presumed draconian moves that the market will take in order to get to equilibrium. Authority must protect, otherwise, the depression is on us all. But by protecting they create the very thing they fear.
In late '79 the FED had lost all credibility and had to stop fixing the fed funds rate, otherwise, there would have been a financial collapse. They started targeting non-borrowed reserves, a radical move to money supply targeting which was completely unknown. In order to do that they had to relinquish interest rate control and so interest rates climbed 500 basis points in several months to 21%. That's the rate that it took to break the inflation psychology.
Thiessen's sympathies seem to lie entirely with Coyne.
Look. These guys are hacks and amateurs. Their secret motive is always to control control in order to do good to the world. They think that with the right adjustments and fine-tuning that they can get the optimal policy. The problem is that such policy is evanescent. As soon as you have it, it's wrong. You would have to know the future in order to continually get it right.
That's why we have free markets. Markets don't know the future but they know the instantaneous present. Monetary authorities can never know the instantaneous present. They can only know the past and react to the past, and it's always too late. |
