Saturday, September 8, 2012

Why the Bank of Canada Cares if Corporations are Hoarding Cash

The first time Mark Carney advised cash heavy Canadian corporations to release more of their reserves conservative bloggers and mainstream pundits roundly criticized him.
The tone was one of indignation.  ‘How dare a central banker give advice to private business,’ at length they all had to say.  Maybe it was a reaction to the MSM framing the advice as an admonishment to business.  It certainly wasn’t an order.  The BOC has no authority to give such orders.
When the punditocracy over reacted to the perceived chiding they missed the real story.  This is the reason the BOC was out there giving that same advice again yesterday.
The question nobody is asking is why are corporations hanging onto cash?  Why would you build up a store of cash or a store of anything?
This isn’t rocket science.  People, corporations, governments, and ant colonies, hoard resources when they expect scarcity in the future.  Our corporations are half expecting cash to be scarce.  That is to say they are afraid of the uncertain world economy.  They aren’t sure if the money they have now is the only money they will ever see.
I watched one of those faux debates about this on Lang and O’Leary.  Amanda Lang actually suggested that the government should force corporations to raise wages if they hoard cash.  All O’Leary could say was “don’t even try Amanda don’t even try”.  What O’Leary should have tried to say was that forcing corporations to spend money against their own interest is exactly what they are so afraid of.  Imagine Mulcair or some other well meaning idiot tried to legislate Lang’s idea?  Forget hiring new people they can’t afford.  Forget re-investing in their business for fear of being short come payroll.  This kind of thinking sends a chill through the economy as people and business hunker down to wait out the storm.  -or die in it. 
I said corporations are holding onto cash couple of weeks ago myself.  (before Mark Carney I might add.  I’m not always right, but I like to be right)  I did no research.  All I had to go on were my own instincts.  You may scoff at that, but instincts can be entirely rational.  Fear of economic uncertainty is entirely rational so long as Barack Obama remains president.
Obama is an unfolding disaster.  Only a Marxist could spend a trillion dollars with nothing to show it but bankrupt solar companies and half a pipeline.  He’s scorned his allies and encouraged America’s adversaries (not his personal adversaries, Putin endorsed Obama… and Assad). 
Fear is pervasive in the business community.  If you want to know what uncertainty looks like, watch this video of Obama.

Inspires confidence doesn’t he?
Europe is in trouble but I believe their days of stupidity are behind them at least.  It’s all about consequences for them now.  Surely Americans will see the folly in following Obama down that hard cul de sac road.
Obama is a disaster for America, for Canada and for the entire world.  The economy really does pivot entirely on the November election.  Democrats are running on a “hard road” of lowered expectations through a “great recession” which I’m sure they will deliver if they are allowed. 
Republicans will have a Romney boom that you can take to the bank.  The Republican White House will be rational rather than ideological for once.  They will not spend money on mystical environmental wishes nor will they block private money from being spent for practical purpose.  They will not pass thousands of pages of sweeping transformative and encroaching legislation that includes the highest tax hike on the middle class ever.  Their focus will be the economy first and foremost as it is here in Canada with its quantifiable successes.  Investors will have the confidence to invest and away we go.  Happy days for all.
So we have before us two vastly different futures.  A continued Obama presidency where he has the “flexibility” to create a community organizer's paradise is one where corporations will need to hoard and hide every dollar from the government.  Obama is an existensial threat to business.
A Romney government will produce the opposite.
This is what the Bank of Canada governor is really concerned about.  Everybody has a pile of money waiting for Obama’s exit.  If he does indeed exit, all that money, all that stimulus and quantitative easing will hit the street at the same time.  It’s common knowledge what happens then: inflation.
Suddenly money is everywhere and everyone is spending it.  All manner of goods become scarce and the price goes up.  Inflation is a problem currently, so imagine how it would be if the US got out of its socialist slump?  The Fed and the BOC would have no choice but to start destroying all the money they printed.  The only way to do that is to raise interest rates or see the currency lose much of its value.  Econ101.
Carney thinks Obama is hooped and so do I.  He’s right to encourage businesses to invest while the currency still has the power it does.  Money won’t be so cheap when things get better.  I think they even understand this but aren’t so sure.  Democracy is funny sometimes.  -Dangerous other times.  I can count 2 provincial elections so far that should have been a sweep for the opposition but somehow they weren’t.  Wasteful, corrupt lying crooks have managed to hold onto Ontario and Alberta when by all rational assessments they really should not have.
So hold your money if you want to be safe from Obama.  Risk it if you want to win with Romney.  Freedom is your ability to choose your own path based on your own perception of the future and the environment.  It is not freedom from good advice.  My advice would be to support Mitt Romney any way you can.

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