Posts Tagged ‘Tight Money’
Tuesday, January 24th, 2012
Obviously, the conduct of monetary policy is extremely important to the nation’s economy. A properly conducted monetary policy can be very beneficial, whereas errors in monetary policy can have severe effects on the economy, either due to the creation of too much or too little money.
Who should make such important decisions? Some people believe that the financial experts at the Bank of Canada, who possess specialized knowledge of monetary matters, should have the responsibility and the power to decide the nation’s monetary policy. Other people disagree. They argue that such important policy decisions should not be made by the appointed officials at the Bank of Canada, but rather by the government, which was elected by (and is ultimately responsible to) the people.
The question of who possessed the final responsibility and authority for monetary policy remained somewhat vague until 1960, when matters came to a head in the celebrated “Coyne affair.” James Coyne, governor of the Bank of Canada, was pursuing a tight-money policy at the same time as the federal government was trying to stimulate the economy with budget deficits. When Coyne refused to alter the Bank of Canada’s policies, the government in effect dismissed him by introducing legislation declaring his position vacant. By this act, the government established itself as the final authority in the area of monetary policy. This was given legislative authority in amendments to the Bank of Canada Act in 1967, which stated that in the event of disagreement between the government and the Bank of Canada, the government can direct the central bank in writing as to the monetary policy to be followed.
Supporters of the government’s authority over the Bank of Canada argue that, without this authority, the government cannot ensure that the Bank of Canada’s monetary policy is consistent with the federal government’s fiscal policies, and point to the Coyne affair as evidence on their behalf. Critics of the government’s authority over monetary policy have little faith in the economic judgement of politicians.
Puerto Morelos Dental Clinic
Guest Blogging Services
http://www.forexforexforexforex.com/
Tags: Amendments, Bank Of Canada, Budget Deficits, Canada Act, Canada Government, Coyne, Disagreement, Economy, Federal Government, Financial Experts, Fiscal Policies, Important Decisions, Important Policy, Legislation, Legislative Authority, Monetary Matters, Monetary Policy, Money Policy, Policy Decisions, Tight Money
Posted in Uncategorized | No Comments »
Friday, January 20th, 2012
In Chapter 9, we saw how the federal government’s Department of Finance uses fiscal policy to influence the level of aggregate demand in the economy. Since the monetary policy of the Bank of Canada discussed in this chapter also influences aggregate demand, we should review briefly how monetary and fiscal policies can interact so as to affect the performance of the economy.
During a recession, when aggregate demand is inadequate, a budget deficit (achieved through increased government spending and/or tax reductions) is usually combined with an easy-money policy consisting of lower interest rates and increased availability of loans. The objective of these policies is to increase the demand for goods and services by households and businesses. This increase in spending will be added to by the respending effect of the multiplier, and will be in large part financed by increases in the money supply resulting from increased bank lending. Also, it is possible that increased consumer spending may cause businesses to increase their investment spending (the accelerator effect), a process which would also be financed by the increased money supply through bank lending, encouraged by reductions in interest on loans. The overall result would be to stimulate output and employment in the economy.
During a period of inflation, aggregate demand for goods and services is so high that the supply of them cannot keep pace, with the result that prices rice with unusual rapidity. To combat inflation, a combination of a budget surplus (tax revenues in excess of government spending) and tight money, with loans relatively scarce and interest rates high, is appropriate. The objective of these policies is to depress the demand for goods and services, so as to relieve the pressure of excess demand on the supply and on the prices of goods and services. Government spending will be held down, while tax increases and high interest rates will restrain borrowing and spending by consumers and businesses. With total demand depressed in these ways, the rate of inflation will tend to decrease.
By combining the the fiscal policy of the Department of Finance and the monetary policy of the Bank of Canada in these ways, the effect can be considerably stronger than if either were used by itself.
In summary, then, tight-money policies are used to combat inflation by depressing the level of aggregate demand. While these policies will slow down inflation, they also tend to slow down the economy and increase unemployment, and they have particularly severe effects upon certain industries.
Park Mazda
Guest Blogging Websites
http://www.forexforexforexforex.com/
Tags: Aggregate Demand, Bank Of Canada, Budget Deficit, Budget Surplus, Chapter 9, Consumer Spending, Department Of Finance, Easy Money, Excess Demand, Fiscal Policies, Government Spending, High Interest Rates, Monetary And Fiscal Policy, Money Policy, Money Supply, Multiplier, Rapidity, Tax Increases, Tax Reductions, Tight Money
Posted in Uncategorized | No Comments »
Monday, January 16th, 2012
Businesses, on the other hand, tend to have smaller profit margins and therefore be more dependent upon borrowing to finance capital investment projects and less able to afford high interest rates. As a result, the scarcity of credit and high interest rates associated with tight money tend to hurt small businesses more than big corporations.
Tight money also affects some industries more severely than others. Construction is probably the industry most severely affected by tight money, because high mortgage rates and scarce credit discourage the buying of new homes and commercial and industrial buildings. Because investment spending is depressed by high rates, tight money also tends to have bad effects on all the capital-goods industries, such as building materials and industrial equipment. In the consumer-goods sector, the effects of tight money fall the hardest on the “big-ticket” items such as cars and appliances, which involve considerable borrowing and/or tied to sales of new houses.
Governments seeking to combat inflation with tight money often encounter political problems due to the high mortgage interest rates associated with such a policy, which are especially burdensome to prospective home buyers. Rising mortgage interest rates have a dramatic effect upon the monthly payments faced by homeowners. While home buyers are hardest hit, all borrowers are adversely affected high interest rates. This problem is really a political one more than an economic one, but this political reality places a limit on the level of interest rates and, thus, on the effectiveness of tight money as an anti-inflation weapon.
Park Mazda
Implants Cancun Playa del Carmen Mexico
http://www.forexforexforexforex.com/
Tags: Big Ticket Items, Borrowers, Capital Goods Industries, Capital Investment, Consumer Goods Sector, Del Carmen Mexico, Dramatic Effect, High Interest Rates, Industrial Buildings, Investment Projects, Mortgage Interest Rates, Mortgage Rates, New Houses, Playa Del Carmen, Playa Del Carmen Mexico, Political Reality, Profit Margins, Prospective Home Buyers, Scarcity, Tight Money
Posted in Uncategorized | No Comments »
Thursday, August 4th, 2011
During a period of “easy money,” when the banks have plentiful reserves and are ready to make numerous new loans, interest rates tend to fall, to encourage borrowers to borrow additional funds. Thus, “easy money” tends to involve two characteristics – increased availability of loans and lower interest rates – both of which tend to stimulate borrowing and spending by consumers and businesses.
During a period of “tight money,” the scarcity of loans causes interest rates to rise, so that the available loans tend to go better credit risks and the highest bidders among them. These two characteristics of “tight money” – reduced availability of loans and higher interest rates – both tend to depress borrowing and spending by consumers and businesses.
Thus, monetary policy can influence the money supply through either the supply of loans or the demand for them. By increasing or reducing the banks’ reserves, the Bank of Canada can influence the availability (or supply) of loans, and by altering interest rates, the Bank of Canada operates in both ways, influencing both the availability and the cost of credit.
Winnipeg Waverley Honda Lidenwoods 2010 Odyssey
Winnipeg St Vital Hot Water Heaters One Hour
http://www.forexforexforexforex.com/
Related Websites - A Peer To Peer Loan Can Help You Erase Credit Card Debt Over the last several years, a large number of people have decided to use a peer to peer loan to reduce the amount of money that they are spending on their credit card expenses. Many people use a peer to...
- Look Your Debt in the Eyes Whenever we are in a situation where we have a problem to solve, the best place to start is by admitting there is a problem. This is the same rule when it comes to our money problems and debt. We...
- Same Day Cash Loan Facts and Benefits of a Same Day Cash Loan There will be a time in your life where you face a life threatening emergency and you need the money as soon as possible. It could be anything from an unexpected...
- Damn usary laws I was about to lend another investor $15k at 3% interest per month with a 6 month ballon or an extension with a 6% penalty but the escrow company told me that its against texas's usary laws!I spoke to a...
Tags: Bank Of Canada, Banks, Bidders, Borrowers, Consumers, Easy Money, Funds Money, Honda, Hot Water Heaters, Interest Rates, Loans, Monetary Policy, Money Rates, Money Supply, Odyssey, Scarcity, Tight Money, Waverley, Winnipeg
Posted in Uncategorized | No Comments »
Monday, August 1st, 2011
“Moral suasion” refers to attempts by the Bank of Canada to persuade the managements of the chartered banks to voluntarily cooperate with the central bank’s objectives regarding lending policies, interest rates or any other aspect of monetary policy. Due to the fact that there are so few banks in Canada,it is relatively simple for the Bank of Canada to discuss its objectives with the banks with a view to enlisting their support, which they are expected to provide.
In summary, the Bank of Canada influences the nation’s money supply through various policy approaches including “open-market operations”, changes in the secondary reserve ratio, changes in the Bank Rate and “moral suasion.” By using these policy measures, the Bank of Canada can generate “easy money”, in which lending by the banks and the money supply expand more rapidly, or “tight money”, in which loans are scarce and the money supply rises slowly or even declines.
Winnipeg Used Honda CR-V
Winnipeg Used Honda Model For Sale
http://www.forexforexforexforex.com/
Related Websites - Comparing Canada's Big 5 Banks Many people know that financials make up about 30% of the S&P/TSX. Many also know that Canada's banking system was rated the safest, most stable banking system in the world during the past financial crisis (and, in fact, is still...
- The Forex Market: The Largest Financial Market In The World Technology has changed the world we live in. Every industry in the business world has been revolutionized by the advance of the internet over the last 15 years, but one could argue that the forex industry is at the top...
- Community Banks Still Providing Top Interest Rates Back in early September (before the really bad economic news started rolling in), I wrote about the excellent interest rates available at community banks. Since that time there has been a lot of upheaval and change within the banking community. ...
- For High Interest Checking and Savings, Think Small, Look Local If you read other personal finance blogs (and I read dozens), you will be exposed to much information about high yield savings accounts from Internet banks. Account reviews, updates on interest rates, sign up bonuses, and advertisements - it's everywhere. ...
Tags: Attempts, Bank Of Canada, Banks In Canada, Chartered Banks, Declines, Easy Money, Honda, Honda Cr V, Honda Model, Interest Rates, Loans, Monetary Policy, Money Supply, Moral Suasion, Open Market Operations, Reserve Ratio, Tight Money, Winnipeg
Posted in Uncategorized | No Comments »
Wednesday, July 13th, 2011
As noted earlier, the Bank of Canada is empowered to require the chartered banks to maintain secondary reserves of 0-12 percent of their deposits. The more of their funds that they are required to place into secondary reserves (mostly very short-term government promissory notes, or “treasury bills”), the fewer loans the banks will be able to make. Thus, another way in which the Bank of Canada can influence the banks’ lending and the money supply is by varying the required secondary reserve ratio: a lower ratio will permit more lending and a higher money supply, while an increase in the ratio will have the opposite effect, creating a “tight money” situation.
Winnipeg Downtown Honda 2010 Accord for Sale
http://www.forexforexforexforex.com/
Winnipeg Hotels
Used Honda Winnipeg For Sale 2010 2011 2009
Winnipeg Air Conditioning
Related Websites - Ultimate Funded Proposal - Smokes The Competition Funded Proposal That Annihilates the competition [/caption] Good internet marketers are always on the look out for a good funded proposal. Unfortunately more often than not you end up buying some crappy program that is ghetto as all hell. Then...
- What Happens to Your Money If Your Bank Fails In the last several months, we have seen major financial giants such as AIG and Wachovia go under. Other major financial companies such as Citibank and Bank of America are near the edge of insolvency and a number of other...
- My Bank Experiences Right now I have three banks, each of which serves a different purpose. I have one bank I love, one I hate but use anyway because it's convenient, and one that gives a "high" (2.01%) rate of interest but I...
- 4 Benefits of Online Banking for Families Whether you’re a first time parent just getting into the sleepless swing of mother/fatherhood or a seasoned pro with a house full of rambunctious toddlers or teens, there’s no doubt that time is of the essence when it comes to...
Tags: Air Conditioning, Bank Canada, Bank Of Canada, Canada Banks, Chartered Banks, Government Promissory Notes, Honda, Hotels, Loans, Money Situation, Money Supply, Reserve Ratio, Tight Money, Treasury Bills, Winnipeg
Posted in Uncategorized | No Comments »