In this interview with BNN, Ed Devlin discussed the longer-term consequences of the Bank of Canada’s policies. Ed praised the Bank of Canada’s success in facilitating market functioning and use of quantitative easing to reduce interest rates Over the long term, though, the concern is how to reach the target inflation rate of 2%. There is a risk that low-interest rates have encouraged excessive risk-taking in interest rate sensitive markets, such as housing, negatively affecting the long term financial stability. The debt to GDP ratio has been increasing for not only Canada, but globally, and is now worse than in 2008.
Mr. Devlin was not concerned that the bank of Canada would run out of tools since it can always print money. Consequently, the Bank has the option of either continuing their policy of quantitative easing or to signal to the Canadian government that they can finance aggressive fiscal policy at the federal, provincial, and corporate level. According to Mr. Devlin, with interest rates as low as they are, fiscal policy would likely be a more effective option than continuing a monetary approach. However, long term success is dependent on the ability of the Canadian government to come up with a “wise and prudent” fiscal stimulus package. He later states that such a package would be a much better alternative to continuing the reduction of interest rates into the negative.
Mr. Devlin then went on to discuss his hopes that good economic policy could help the Canadian economy get through the crisis and into a greener and more sustainable future while avoiding falling back into the status quo. In his view, the best way of achieving this would be to avoid relying on the common tricks that have been relied upon thus far, such as targeting interest rate sensitive parts of the economy and instead of looking for innovative ways in which to create a stable 21st-century economy with a low carbon footprint. A potential obstacle that Mr. Devlin brought up as a hindrance to this goal if the Canadian government finds itself prioritizing the issue of income inequality at the cost of finding innovative ways to push the economy into the 21st century. While solving income inequality is certainly important, doing so without taking the growth of the economy as a whole could result in neither issues being properly addressed.