I believe it was also the time MMT solidly demonstrated its insight. Warren Mosler realized there was no risk of default in a sovereign currency and bought Italian bonds. Not only did he stare down ‘Bond Vigilantes’, he rubbed their noses in it by making a fortune. It should have been the end of the debate.
It was all a sham; austerity in search of an excuse. Incidentally, when I was looking at this in the late 1990s, internal Finance Canada data suggested that the Canadian economy actually went into deflation in June/July of 1994 (I am suspicious of the official numbers). I shall point this post ut to my colleagues.
Great article and context. I’ve been told by people involved (more accurately I’ve been around when they were telling a group of people the story) that there was a point where they couldn’t get anyone to lend them money. I have no idea how that actually played out, but that moment has been claimed as the ‘legitimate’ reason for the panic.
Sure, that’s what they told the politicians. But if you look at the 5-year yield, it was not exactly infinite at any point in time.
And as seen in 2020, the BoC could just knock heads around to break up market weakness. Refusing to do so is effectively pushing the government into default - and it is unclear whether that is part of their mandate.
I recently attended a conference at which Christine Desan was a keynote speaker. She’s a historian at Harvard Law and takes the discussion of money to another level - that it is a communal design but the design has been hidden and lost. And it can be changed.
Her presentation is only 15 of the 60 minutes but the following discussions are erudite too.
"Although [Canadian] policymakers panicked — they *voluntarily* panicked."
As did U.S. policymakers. This was the period when the bond vigilantes supposedly reigned -- when the Clinton administration bowed to the diktats of the bond markets, as articulated by Robert E. Rubin, former co-leader of Goldman Sachs, first director of the National Economic Council, and soon to become Secretary of the Treasury. See, for example, a New York Times think-piece from that era: https://www.nytimes.com/1994/06/12/weekinreview/ideas-trends-the-bondholders-are-winning-why-america-won-t-boom.html.
I have to admit this topic is a touchy one for me -- the hagiographies of Martin offered by the usual suspects in the Canadian establishment that stem from this era make me positively feral. The Federal decision to "download" responsibilities for services to Provinces as a result of its reduction in spending, cascading then from the Provinces to municipalities (thank you, Mike Harris! *eyeroll*) is in my eyes an act of public service vandalism perpetrated by Martin and Co precisely because they were in thrall to a "hard currency" understanding of fiscal policy space due to the hangover of gold standard era thinking left over from the by then long defunct Bretton Woods system. Anyone offering this as a sensible decision to be emulated is a macroeconomic illiterate without the first clue about fiat monetary operations.
I’ve commented before that I recently had the opportunity to review my municipal taxes - in Prince Edward County, Ontario. Taxes doubled in real terms between 1998 and 2005 (after Harris’s downloading) and then followed a 3% trajectory (again in real terms) of consistent annual increases. It means my municipal taxes are now four times what they were before Chrétien’s massive austerity bludgeon. Across the board, Canada’s social fabric has been shredded and it continues.
Austerity also led to today’s crisis in healthcare - in my municipality we are close to 40% of residents having no access to primary care, home care has been privatized, long-term care homes are shutting their doors, and hospital care is being privatized, too. Housing is in crisis because the Federal government stopped building affordable housing. Canada is rarely mentioned nationally or internationally as a prime example of the effects of austerity. In fact, it’s a case study.
It’s only through Brian’s work that I made the connection to Warren Mosler, who realized the so-called crisis was false and proved it so by buying Italian bonds (far ‘riskier’ than Canadian) and making a fortune by realizing there was zero risk of default.
We should be hauling the Canadian financial sector to account for what is probably the most wretched, grovelling, and failed policy in the western world. Instead, we are once again being led, without question, down the path of... more austerity.
I believe it was also the time MMT solidly demonstrated its insight. Warren Mosler realized there was no risk of default in a sovereign currency and bought Italian bonds. Not only did he stare down ‘Bond Vigilantes’, he rubbed their noses in it by making a fortune. It should have been the end of the debate.
I am so glad I found you on stubstack. I love to hear MMT about Canada. Some really great points in here.
Thanks!
It was all a sham; austerity in search of an excuse. Incidentally, when I was looking at this in the late 1990s, internal Finance Canada data suggested that the Canadian economy actually went into deflation in June/July of 1994 (I am suspicious of the official numbers). I shall point this post ut to my colleagues.
Great article and context. I’ve been told by people involved (more accurately I’ve been around when they were telling a group of people the story) that there was a point where they couldn’t get anyone to lend them money. I have no idea how that actually played out, but that moment has been claimed as the ‘legitimate’ reason for the panic.
Sure, that’s what they told the politicians. But if you look at the 5-year yield, it was not exactly infinite at any point in time.
And as seen in 2020, the BoC could just knock heads around to break up market weakness. Refusing to do so is effectively pushing the government into default - and it is unclear whether that is part of their mandate.
I recently attended a conference at which Christine Desan was a keynote speaker. She’s a historian at Harvard Law and takes the discussion of money to another level - that it is a communal design but the design has been hidden and lost. And it can be changed.
Her presentation is only 15 of the 60 minutes but the following discussions are erudite too.
https://www.youtube.com/watch?v=bCdKI5dGn9c
"Although [Canadian] policymakers panicked — they *voluntarily* panicked."
As did U.S. policymakers. This was the period when the bond vigilantes supposedly reigned -- when the Clinton administration bowed to the diktats of the bond markets, as articulated by Robert E. Rubin, former co-leader of Goldman Sachs, first director of the National Economic Council, and soon to become Secretary of the Treasury. See, for example, a New York Times think-piece from that era: https://www.nytimes.com/1994/06/12/weekinreview/ideas-trends-the-bondholders-are-winning-why-america-won-t-boom.html.
I have to admit this topic is a touchy one for me -- the hagiographies of Martin offered by the usual suspects in the Canadian establishment that stem from this era make me positively feral. The Federal decision to "download" responsibilities for services to Provinces as a result of its reduction in spending, cascading then from the Provinces to municipalities (thank you, Mike Harris! *eyeroll*) is in my eyes an act of public service vandalism perpetrated by Martin and Co precisely because they were in thrall to a "hard currency" understanding of fiscal policy space due to the hangover of gold standard era thinking left over from the by then long defunct Bretton Woods system. Anyone offering this as a sensible decision to be emulated is a macroeconomic illiterate without the first clue about fiat monetary operations.
Feh.
I’ve commented before that I recently had the opportunity to review my municipal taxes - in Prince Edward County, Ontario. Taxes doubled in real terms between 1998 and 2005 (after Harris’s downloading) and then followed a 3% trajectory (again in real terms) of consistent annual increases. It means my municipal taxes are now four times what they were before Chrétien’s massive austerity bludgeon. Across the board, Canada’s social fabric has been shredded and it continues.
Austerity also led to today’s crisis in healthcare - in my municipality we are close to 40% of residents having no access to primary care, home care has been privatized, long-term care homes are shutting their doors, and hospital care is being privatized, too. Housing is in crisis because the Federal government stopped building affordable housing. Canada is rarely mentioned nationally or internationally as a prime example of the effects of austerity. In fact, it’s a case study.
It’s only through Brian’s work that I made the connection to Warren Mosler, who realized the so-called crisis was false and proved it so by buying Italian bonds (far ‘riskier’ than Canadian) and making a fortune by realizing there was zero risk of default.
We should be hauling the Canadian financial sector to account for what is probably the most wretched, grovelling, and failed policy in the western world. Instead, we are once again being led, without question, down the path of... more austerity.