The Richmond Review, Wednesday, June 10, 1981


by Graeme Elliott


When still a wee lad, I learned that it is best to save for a rainy day.
The solemn air with which my parents used to deliver this lesson in thrift awed me. I knew this was important, and with the earnestness of youth I resolved to put it into practice.
Unfortunately, my success has been limited. I blame my failure on the West Coast climate and on my habit of seeking refuge from the storm by sheltering myself in camera stores.
Then Mr. Gerald Bouey, governor of the Bank of Canada, came along with something called "monetarism," pronounced "money-terrorism."
I knew nothing about economics, and less about monetary policy, but I did know the rate of interest had suddenly passed the current rate of inflation, so I sold my rain guage, and deposited all the money I could into a term deposit.
The day I figured it out, I laughed all the way past the camera store.
Inflated with success, I became more interested in this policy Mr. Bouey has selected to guide us through these troubled times. After hacking away at the dense undergrowth of economic verbiage, I discovered that monetarism is intended to control inflation by using interest rates to control the supply of money. Monetarism is hard to understand only because Mr. Bouey does not explain it half as well or as simply as my parents taught me thrift.
"A dollar saved can earn 16.5% per cent."
That I can understand.
"Neither lend at less than 21.5, nor a borrower be." Shakespeare never said it so well.
If Mr. Bouey would deliver lines like these and then go on to say the main thrust of the policy
is to cut spending and reduce borrowing, we could understand that.
Spending, and borrowing to get money to spend, is one of the roots of evil inflation.
Mr. Bouey is merely trying to coax us, with high interest rates, to slow down our spending, and begin saving, as a way of reducing the amount of money in circulation and the demand for products.
"Save for several rainy days, preferably more than 30, in term deposits that penalize early withdrawal."
Mr. Bouey and his cohorts should forget the economic jargon and speak to us in homilies like these. These are the kinds of sayings one would enshrine in petit-point samplers and hang on the wall, next to "God bless our five-year-mortgage."
Mr. Bouey has also defended his policy of high-interest rates in Canada by saying they prevent money from flowing out of the country, particularly to the United States. If large amounts of money did flow south, our dollar would be further devalued, imports would cost more, and inflation would increase.
I doubt I would go to Point Roberts or Blaine to do my banking, unless the banks there also are open for Sunday service, but many large investors, notably banks and corporations would, so it is a point well taken.
Mr. Bouey needs no re-worked catch-phrase to explain this aspect of monetarism. The old litany, older than Canada itself, will do: "Damn Yankees."
One reason Mr. Bouey cannot present his message clearly is because he is such a busy man. Spending most of his day in the basement of the bank, signing new money as it rolls off the press. The Liberal government spending machine needs this money, and is always asking him to increase the supply of it, even while he asks us to decrease the supply. It is a Catch 22.5% position.
He might console himself with the thought you can't teach an old dog new thrift.

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