Wheat from the Chaff

How Wall Street Lobbied Itself Into A Crisis

In today's Globe and Mail (Dec. 31, 2009: B5), economics reporter Kevin Carmichael discusses a recent report from the IMF that draws a direct connection between Wall Street, political lobbying, and the current financial crisis. The IMF report has apparently caused quite a stir in the blogosphere and among the American political class. Here is the opening portion of Carmichael's article:

The case against Wall Street is getting stronger.

Since the financial crisis plunged the world economy into recession in the autumn of 2008, there has been a swirl of reports suggesting that financial firms used their clout in Washington to avoid tighter regulations in the years leading up to the meltdown. Most of those reports, however, have been anecdotal.

Now, in a landmark analysis, three economists at the International Monetary Fund have pulled together the public lobbying records of U.S. mortgage lenders and have drawn an empirical link between the money spent influencing politicians and firms' tendencies to engage in high-risk lending.

Their report, published this week as a "working paper" and therefore without the official stamp of the IMF, supports previous accounts in The Wall Street Journal and other publications that lenders such as Ameriquest Mortgage Co. and Countrywide Financial Corp. spent millions in the years ahead of the financial crisis to defeat legislation that would have curbed their ability to issue home loans to riskier borrowers.

Aside from documenting the persuasive power of Wall Street, the paper also highlights another challenge facing U.S. President Barack Obama and the various legislators leading the effort to diminish the risks facing the financial system. The findings suggest that some financial firms sought to profit by shaping the regulatory system to fit their business strategies or to position for a government bailout. To reduce that risk in the future, policy makers may need to weaken the financial industry's political influence - but it's not clear how that can be done. (The authors of the report declined to give specific solutions.)

"[O]ur analysis suggests that the political influence of the financial industry can be a source of systemic risk," Deniz Igan, Prachi Mishra and Thierry Tressel wrote in their conclusion....

According to the report, the most intensive lobbying came from the firms that ended up with the highest rate of financial "delinquencies".

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A few things come to mind after reading the newspaper article and the International Monetary Fund report.

My first thought is, "Is this actually news?" It appears that only economists and business reporters are surprised by the report's conclusions. Left-wing critics have been making similar critiques of the current financial crisis for many years. [For example, check out virtually every edition of The New York Review of Books for the last 4 years, or the critiques of David Harvey.] Indeed, the relationship between capitalism and the state has been an essential part of the socialist analysis of capitalism for 150 years. Nevertheless, it is interesting that such a direct rebuke of Wall Street and America's capitalist system has come from an organization that is emblematic of the American (and global) financial system. And, as the writers of the report add, "To the best of our knowledge, this is the first study to examine empirically the relationship between lobbying by financial institutions and mortgage lending in the run-up to the financial crisis."

A second point is that the current Wall Street example illustrates how corporate capitalism exists in large part because the government has provided a regulatory environment where short-term profits override responsible, long-term decision making. Government is, in this example, integral to capitalism. It is not the enemy of the market society. It is not minor player or a neutral night watchmen. It makes and implements policy which is absolutely essential for capitalism to pursue its interests, however short-sighted they turn out to be.

This example also sheds light on the Ralph Miliband-Nicos Poulantzas debate about the nature of the state in a capitalist society. Poulantzas, for whom I have great respect, argues that the state is the "unifying element" in capitalism. In this, he follows people like Karl Polanyi, who believes that the historical development of the modern market economy and the modern state were tightly and inevitably linked. But Poulantzas goes beyond this analysis, and explores the idea (building on Gramsci and Althusser) that while the state and capitalism are intertwined, the state nevertheless does (and must) have a certain degree of autonomy. The state must have this "relative autonomy" because, according to Poulantzas, the capitalist class is a fractious group that is dominated by short-term interests, and often pursues policies that are inimical to itself. If capitalism is to survive, it requires a state to save capitalism from itself.

Under Clinton and Bush, the corporate class almost succeeded in convincing the American government that short term profit was in everybody's interest. If the state was potentially autonomous, it did not utilize its potential. It will be interesting to see if the Obama administration wants to take a longer-term perspective and repair American capitalism, and, assuming it does, if it even can.

Is modern music going down the drain?

I recently came across an interesting article on the musical legacy of our current decade (2000-2009). The article, written by Kris Millet for Culture Magazine, takes a dim view of this century's musical output. His central thesis is that the technological fragmentation of the last 10 years has destroyed our ability to follow a band for any significant length of time, and that a fragmented music press prefers short-term bandwagons that disrupt the long-term appreciation of a band.

While I sympathize with his viewpoint, I think there are other forces at work, too. The biggest one would be economic. Millet's discussion of long-term support for U2 is a perfect example. What record label now can afford to support a band for four albums before it hits the big time? Not many, I would think. I know it's old hat to blame record labels for everything that's wrong in modern music, but their increasingly obsolete business model does have some upsides: money for promotion, grooming and time to learn.

I also wonder if songwriters are running out of ideas. Could it be that there is a finite number of good melodies? It would be impossible to measure, I guess, but maybe time will tell. Who knows - maybe in 10 years every rock and pop act will only be recording cover tunes. Then modern music will be just like classical music!

Inequality Makes Us Ill

Inequality makes us ill. And depressed. And violent

Across all the Western democracies, there is a consistent pattern in which outcomes worsen as inequality increases

BY WILL KYMLICKA

A Review of The Spirit Level: Why More Equal Societies Almost Always Do Better, by Richard Wilkinson and Kate Pickett, Allen Lane, 331 pages

http://www.theglobeandmail.com/servlet/story/RTGAM.20090515.wbkspirit16/BNStory/globebooks/home

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Will Kymlicka, a noted Canadian scholar on politics and multiculturalism, has provided a well-written and thought-provoking review of a book by Richard Wilkinson and Kate Pickett. Their book addresses a topic - inequality - which remains on the fringes of economic and political discussion, even though I believe it's at the center of our current economic malaise.

Kymlicka discusses Wilkinson and Pickett's point that inequality is not just a moral issue. It has real human costs and tangible impacts.

... Once a country reaches a per capita income of around $25,000, there is simply no correlation between levels of national wealth or health spending and levels of health and human development....

...So what explains why some countries do better than others? A growing consensus points to the quality of people's social relationships, whether in the home, the neighbourhood or at work. In some societies, these relationships are toxic, putting health-damaging stresses on individuals. In other societies, these relationships are supportive, helping individuals deal with life's challenges.

However, Wilkinson and Pickett argue that these different factors are all symptoms of a deeper issue — namely, inequality. Among wealthy countries, Norway and Japan do better than the United States or Switzerland because the gap between rich and poor is smaller. Among less affluent countries, Spain and Greece do better than Portugal because they have less inequality.

This is true of rates of infant mortality, illiteracy, obesity, mental illness, incarceration, homicide, drug use and teenage pregnancy (although not, interestingly, of suicide). Similarly, as inequality rises, social trust and social mobility decline while violence increases. This is true not only between Western countries, but also within them. For example, if we compare the 50 states of the United States, these indicators are worse in states with greater inequality....

...The result is an impressive body of evidence, presented in an easily digestible form, which is highly relevant for debates here in Canada. Polls show that most people believe that inequalities have grown too large in recent years, and this book will surely reinforce that sentiment. Many of us feel that the growing level of inequality is unfair, and harmful to a sense of shared citizenship and community cohesion. But as Wilkinson and Pickett show, it is also harmful to our health....

Kymlicka responds that there are many issues that help determine social stability and community health:

[I]t's not just income inequality that matters, but also the nature of the labour market, the stability of people's jobs and housing, the strength of community organizations and so on.

Moreover, there are many sources of status anxieties in modern societies — such as racism or homophobia (or attitudes toward beauty) — that are only indirectly related to income inequalities. So, income inequality seems a very crude measure for the almost infinitely complex array of status hierarchies in our society, and the link between the two is something of a black box in the book.

Kymlicka then concedes that many of these problems, though not a necessary outcome of inequality, usually do arise in unequal societies if other mitigating factors do not appear.

The authors would probably respond that, whatever these complexities, the data show a clear tendency for income inequality to generate worse health outcomes. So for practical policy purposes, we should just focus on inequality.

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So here we have another argument in favour of tackling inequality. It has real and debilitating effects. We are not made stronger by inequality; as a tendency, it retards and constricts, and is a real threat to our belief in the equality of opportunity. Moreover, equality in this sense is a relative concept that bespeaks of our social nature. Unlike the Fraser Institute, which argues that equality should be measured in absolute terms, Richard Wilkinson and Kate Pickett show that social interaction defines equality in relative terms. It's cold comfort, and largely irrelevant, that a poor person in Chilliwack is surviving on the same caloric intake of a person in Haiti. Social trust, social mobility and violence are realities that make sense only in social terms, with the people who live in our own community or nation.

A battle-hardened James charges on, leaving her minders behind her

By Justine Hunter
From Friday's Globe and Mail
April 24, 2009 at 5:40 AM EDT

... Ms. James acknowledged she is facing more pressure this time around. And she sounded frustrated that she still is confronted at every turn with the baggage of former NDP governments.

"We are a long way from getting past that polarization," she said. "I truly don't believe that our province is going to grow up and be a real player until we get past that." ...

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Though recent scandals and polls seem to be hurting the BC Liberals, I still believe that they will win a handy victory over the NDP.

The Liberals laid the foundation for their likely victory many years ago, when they worked to appopriate as much of the environmental agenda as possible. Through a series of initiatives, from the carbon tax to household renovations to small car rebates, they have worked to create an impression that they are an environmentally conscious government. Whether these initiatives are truly substantive or effective remains to be seen. Recent polls suggest that they still continue to follow the NDP and Greens on environmental trustworthiness. Nevertheless, they have blunted the NDP attack on the environment, and have made a few allies like the Suzuki Foundation. The NDP, in response, has offered a fairly muddled cap-and-trade alternative (though admittedly it gets little detailed coverage in the corporate press). The point is this: the Liberals have broached new ground, and have managed to steal some thunder from their opponents.

The NDP, on the other hand, have not broached new territory. They continue to reiterate their commitment to public education, public health, welfare, the environment, etc. Unfortunately, this is preaching to the converted. Their supporters already know these are the NDP's (perceived) commitments, so why regurgitate what everyone already assumes? Where is a new emphasis on economic policy, a topic that's traditionally dominated by a right wing perspective? The NDP does have many good economic arguments to make, but they seem disinterested in the topic. For example, they should have a hundred different arguments ready to defend the last NDP governments, whose economic records were much better than the Liberals and Canwest give them credit for. If James thinks that this can be wished away as mere "polarization", then she's really not up for the job. The NDP record needs to be addressed head-on, effectively and repeatedly. There should be an entire war room dedicated to responding to right wing propgaganda about the 90's. But no, James says we should grow up. Wishful thinking, perhaps?

The problem for the NDP is this: in BC's political landscape, the leading left wing party usually gets between 35% to 45% of the vote, while the leading right wing party gets the balance. So the math doesn't favour the NDP. The best the NDP can hope for is that the right wing vote is split. In fact, every NDP victory in BC, from Dave Barrett's government onward, has been because of a significant split in the right side of the spectrum (often because the right wing party has overstayed its welcome). Unfortunately for Carole James, the only real split right now is on the left side, protestations from the Greens notwithstanding. So, if anyone needs to blaze new paths, it's the NDP, not the Liberals. But since the NDP seems unwilling to do this, the result seems preordained. No new supporters, like moderate Liberals who are disaffected by Liberal mistakes, will be found, and the math will continue to haunt the NDP.

If the NDP are not prepared to tackle economic policy as their central policy issue, then an election like this - where the economy is very important - seems tailor made for another right wing victory. I'll grit my teeth and vote NDP (again), but it won't be because I'm happy with their current electoral performance.

Debts and deficits lead to higher taxes as night follows day

Jeffrey Simpson is one of those typical right-wing columnists who ensures The Globe and Mail's firm commitment to the I'm-all-right-Jack philosophy that pervades Canada's corporate media. Nevertheless, he is sometimes capable of refreshingly honest and atypical commentary. Here he talks about the inevitability of higher taxes that must follow a period of high debt. What is irritating - yet so predictable - is the lack of responsibility that he and his fellow corporate columnists take for the "twilight zone of veracity" that he decries below. Why can't politicians talk about raising taxes? What has happened to our "political culture" that makes paying for our expenditures (or exhorbinantly high interest rates, like in the 1980's) so poisonous? Given the concerted campaign from the CD Howe and Fraser Institutes (among others) for lower taxes, and the willing championing of this cause by the media arms of Hollinger, Canwest, Bell, etc, isn't the corporate media part of this problem? If one is skeptical, compare the number of articles in any given month that discuss the benefit of taxes with those articles that assume we must lower taxes. Anyone who consumes a lot of the corporate media in North America already knows the result. In any case, no answers are given by Simpson. All we see is his acknowledgement of the problem. And I guess that's better than nothing.

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Debts and deficits lead to higher taxes as night follows day

By Jeffrey Simpson
http://www.theglobeandmail.com/

April 24, 2009

Lesson one for Liberal Leader Michael Ignatieff: Don't answer hypothetical questions in a sound-bite era. Lesson two: Don't even hint at the truth.

Last week, in answer to a question about what he might do if the federal deficit reached $80-billion, Mr. Ignatieff said he couldn't take any policy options "off the table," including raising taxes. Boom, the media pack went into action, and the Conservative yapping brigade hit him for espousing higher taxes. Such is political life.

Mr. Ignatieff did not call for higher taxes; indeed, he stressed that "no one in their right mind wants to shut off the recovery by raising taxes in any capacity." But in ruminating about the hypothetical, Mr. Ignatieff danced around a certain truth: Taxes will eventually go up to pay for the deficit and increasing debt brought on by the recession and government responses to it.

The Harper government has forecast $64-billion deficits in the next two years. Forget about it. They will be higher, because the economic circumstances are gloomier than anticipated. The Western world is awash in debt, led by the United States, whose projected deficits are astronomical, whose financial-sector debts are gigantic, whose personal indebtedness is enormous but whose political culture still refuses to acknowledge that, at some point, the piper must be paid.

As long as the United States refuses to face this fact, it will struggle to recapitalize itself. And as long as that recapitalization is delayed, the country's long-term economic future will be cloudy and the relative decline in which it now finds itself will continue.

High debts and ongoing deficits lead to higher taxes as night follows day. Canadians should know this truth. That was the Canadian experience once federal deficits began in the mid-1970s. The Mulroney Conservatives and, in their early years, the Chrétien Liberals raised taxes (and cut services) because there was no other realistic way to fight the Siamese twins of ongoing deficits and higher debts.

There was plenty of nonsense in those years about solving the problem with industrial strategies, pro-growth measures, eliminating "waste" in government spending, laying off civil servants. Everyone who wanted to avoid hard truths had a formula, just as so many do today. Eventually, the truth hit home, as it will after this recession. That Canada is heading toward more debt will merely increase the subsequent tax load. But, of course, politicians live in the twilight zone of veracity, suspended between what they know privately to be right and what their instincts and handlers tell them the political culture will allow.

So neither Mr. Ignatieff nor Prime Minister Stephen Harper will tell the whole truth about what lies ahead, in part because the truth will play itself out long after the next election. And since the country's economic literacy is so low, there is no point allowing your political opponent to embark on a scare campaign.

Deficits are dangerous for liberals, but especially hard for conservatives, to talk about sensibly. A mantra of conservative parties is that deficits are bad, but the way they govern invariably produces deficits, or at least weakens the fiscal position of the government.

This observation is heretical to conservatives and counterintuitive to others, but the evidence in Canada and the United States bears it out.

In opposition, then in office, conservatives promise lower taxes, and try to deliver them, as the Harper Conservatives did with their two-point cut to the GST that cost the treasury about $12-billion.

Having eroded the government's fiscal capacity, conservatives then promise to eliminate "wasteful" spending. When that effort produces meagre results, as it always does, the government either cuts programs (but never enough to make up for the tax reductions) or lets spending proceed apace, as the Harper crowd has done.

Twenty years of Republican administrations under three presidents followed this formula: a political campaign based on lower taxes and an attack on "wasteful" spending, followed by lower taxes but higher spending, with resulting chronic deficits.

Deficits of the kind conservative parties left in Saskatchewan, Ontario and Ottawa (Alberta was the exception because of energy royalties) also suggest that deficits and conservatives go together, rhetoric notwithstanding.

World Economic Forum

In a world where economic discussion is still overwhelmed by neo-liberal cant, it's refreshing to see a generally pro-business organization capable of seeing competitiveness and productivity in (somewhat) broader terms than Milton Friedman's disciples. The World Economic Forum is a Swiss-based think tank that promotes international dialogue on a variety of key global issues. Perhaps the Forum's biggest contribution is its annual competitiveness rankings. Unlike traditional right-wing economic observers, the WEF agrees that competitiveness is based on a wide variety of factors that go beyond the traditional neo-liberal pillars of low taxes and deregulation. It defines competitiveness as "the set of institutions, policies, and factors that determine the level of productivity of a country." These elements include such things as financial stability and market efficiency, but also health and education, reliable political institutions, and technological readiness. Its not exactly a left-wing menu of economic analysis, but it certainly goes beyond what we see from the ideologues at Fox News, the Fraser Institute or the Heritage Foundation.

Though the USA is traditionally strong in these rankings, so too are countries with high business, income and sales taxes, and large social safety nets. According to neo-liberals, this can't possibly be true. Workers in competitive and productive economies should give much and expect little, and be grateful that the upper class is doing so well. Or so the story goes.

For more information, visit the World Economic Forum's website:

http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm

Provincial deficits for 2009/2010

Here are some interesting stats re: provincial deficits. We see that Alberta has a huge per capita deficit, thanks largely to Alberta's reliance on irregular resource and exploration taxes, and not on more stable income and sales taxes. This is a good example of how debt and deficits are as reliant on what you tax as how much there is to tax in the first place (e.g. GDP).

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O'Neill, Katherine and Dawn Walton. "Healthy savings and no debt will save Alberta." The Globe and Mail, 9 April 2009: A6.

The giant Ponzi scheme that is Florida

Florida used to be the golden child of free-wheeling neo-liberal capitalism: low taxes, little regulation and scant attention paid to the future. But now that people need help from their government, Floridians are reaping what they (didn't) sow. Here's a selection from a recent article:

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By Neil Macdonald
CBC News
http://www.cbc.ca/world/story/2009/03/10/f-rfa-macdonald.html

... Gary Mormino, a professor at the University of South Florida, has compared the economy here to a giant Ponzi scheme, the confidence game in which investors are paid with the money of new investors.

The Ponzi State. The phrase is catching on and it's making Mormino famous.

He says Florida's economic setup has always depended on ever more people, often retirees on fixed incomes, arriving from out of state with money to spend. Since 1970, the state has grown by an average of 350,000 new residents a year — or a thousand a day. To accommodate them, politicians in Tallahassee basically let developers build whatever they wanted just about anywhere they wanted. Usually, that has meant apartment towers and minimally inspected cinder-block homes on concrete slabs. The construction barely paused and neither did the waves of tourists — as many as 80 million vacationers a year, all ready to pay hotel taxes and rental taxes and restaurant taxes and sales taxes.

Now, everything's flat. In fact, more residents might be leaving than arriving. And the tourists are staying away. For Mormino, Florida is just a palm tree fantasy with a tax structure "that was insane." And now, he says, "we're paralyzed." Unemployment is nightmarish and rising. Tax-hating Floridians, turning to their government for help, are finding a stunted, business-driven entity with nothing to offer. "When people began looking behind the palm trees and into the account books," says Mormino, all they discovered was "massive fraud and lack of oversight." ...

Resource financings keep Bay Street flush

Here are some telling statistics that help describe the magnitude of the American economic tailspin:

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BOYD ERMAN
From Monday's Globe and Mail
April 6, 2009 at 4:19 AM EDT

Take that, Wall Street.

Bay Street bankers are finding themselves in the unprecedented situation of being just as busy selling stock as New York financiers, with Canadian companies raising almost as much money so far this year as those based in the United States.

Canadian companies raised about $9.2-billion selling stock in the first three months of 2009, according to figures from Thomson Reuters. That's just behind the $9.6-billion raised on U.S. markets - with both figures calculated on the same basis and in Canadian dollars to make them comparable.

Usually, Canadian common stock sales lag far behind U.S. levels, given that the United States is much more populous and has long been the centre of the financial world.

The fact that Canada closed the gap in the first quarter is less a story of this country's stellar performance and more about the dismal state of U.S. markets. Companies in the United States have all but shut down fundraising on stock markets amid the last year's unprecedented volatility.

In Canada, the value of common shares sold was little changed from the first quarter of 2008. Business held up thanks to a spate of gold and energy deals, a sale by resource-hauling Canadian Pacific Railway Ltd. and one big financial stock sale - the unloading of a big stake in ING Canada Inc. by the insurer's parent company in Holland.

Add in $5.2-billion of preferred shares, mostly sold by the country's banks, and it was the best quarter in the past two years, said Roman Dubczak, who heads the department that arranges stocks sales at the securities arm of Canadian Imperial Bank of Commerce.

"On a global basis, outside of financials, the deals that are getting done are resource-based, and because of the heavy resource bias in Canada they're getting done here," Mr. Dubczak said.

In fact, Canada's steady performance counted for a big share of all the global stock sales in the quarter, which totalled $47.3-billion (U.S.)....

With economy so bad, Bank of Canada my revert to printing money

Didn't they try this in Germany after World War One? Perhaps I'll need to be more cautious when I gloat about my variable rate mortgage!

Of course, in Germany, there was a real shortage of goods and resources, as Germany was directly stripped of much of its resources by the Treaty of Versailles and by the requirements of reparation. Printing too much money was only one part of the story. In North America, for the moment, a shortage of resources and goods is not the problem. Hopefully Joseph Stiglitz is right: the relationship between inflation and money supply growth is weak when inflation is low. In other words, printing a lot more currency will not lead to hyperinflation IF the situation isn't aggravated by an increasing scarcity of resources. If so, we might be able to ramp up the money press for the time being without negative consequences. Nevertheless, I wonder if investors, especially major overseas institutions like sovereign wealth funds, will continue to hold large American investments. If they leave for greener pastures - and countries that will not devalue their investments - the American and Canadian economies could be in even worse trouble than they are now. Regardless of low inflation, we would probably be confronted by rapidly rising interest rates as the central banks attempt to recapture foreign investors.

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By Julian Beltrame, The Canadian Press
Mon Apr 6, 6:10 PM

OTTAWA - With economic recovery still looking shaky, the next move by the Bank of Canada may be to just start printing money.

Increasing the money supply, or quantitative easing as the term is known, has become the latest and perhaps last major tool open to central bankers to try and spark some life into the stalled engine of their economies.

The price can be high. Devaluation of the loonie and run-away inflation down the road. But, with economies running on empty, central bankers are inclined to focus more on solving the real mess at hand than theoretical messes of the future, say economists. "Printing money," says CIBC chief economist Avery Shenfeld, "looks like the key ingredient in preventing a global recession from tipping into a lasting depression."

Bank of Canada governor Mark Carney opened the door to quantitative easing last month when he cut the overnight rate to 0.5 per cent, all but emptying the chamber on the central bank's ability to directly impact interest rates. And although he appeared to close the door part way in a speech last Thursday, economists say it's unlikely Carney would have sent the signal in the first place unless he intended to carry through.

They note that nothing that has happened in the economy since Carney's original pronouncement would likely have changed the game plan. If anything, the prospects for a quick and strong recovery appears to have receded. "This is not going to be a V-shaped recovery," said Derek Holt of Scotia Capital Markets, referring to the traditional quick updraft that often follows a sharp downturn. Canada is getting the sharp downturn in spades, with estimates of an up to nine per cent contraction in economic activity in the first quarter of 2009, a post-Great Depression record. But the updraft is increasingly being discounted - the Organization for Economic Co-operation and Development now says Canada's economy will be flat at best in 2010.

Even Carney, who a few months ago held out hope of a strong recovery, warned last week that the potential for future world growth has become more muted, suggesting the same is likely true of Canada. "In the next few months, we're going to see the worst of the lag effects from U.S. supply chains catching up to Canada," predicted Holt. "And also, there had been a labour hoarding going on for much of last year because many Canadian businesses thought this was a U.S. problem and held on to their workers. Now you are going to get total capitulation by employers."

The economist is looking for another 80,000 jobs contraction to be reported on Thursday, which would bring total losses to 375,000 since October. Monday brought further evidence that the smattering of encouraging signals recently may be a mirage, as Statistics Canada reported the value of building permits plummeted by almost 16 per cent in February, four times worse than expectations. The Conference Board also downgraded its growth forecast for Canada to a negative 1.7 per cent, which is actually far better than the output contraction of between 2.5 per cent and three per cent envisioned by many other private sector economists.

Avery believes the fact the U.S. Federal Reserve and the Bank of England have started up the money printing presses to buy up government treasury bills and other market assets in order to free up credit makes the decision easier for Carney.

But with Canada's banking system still mostly functioning, Carney won't go nearly as far and may even devise a Canadian-made middle ground that allows him to achieve the benefits of quantitative easing - lower borrowing costs for consumers and businesses - without pumping up the money supply. The central banker could withdraw from the overnight market as much money as he needs to buy up such assets as treasury bills, and such non-bank assets as corporate bonds, or pools of auto leases and credit card credit, said Avery.

Other economists see Carney being bolder, although with the Bank of Canada's pre-occupation about keeping inflation at two per cent, they doubt he will go as far as the United and Britain. "When you start printing money willy nilly, you are flirting with a serious inflation issue down the road," explained Bank of Montreal economist Douglas Porter.

"Inflation is the least of anybody's concern in the immediate time, but we're running an experiment we haven't done in the post-war period, so I don't think anybody can say with confidence it won't eventually spark inflation."