If this is déjà vu all over again, well it is. Fearing another crisis like the one in 2008, during the US election no less, those who control the supply of money are again swinging into action. And once again it's making me ask about our complacency about these things in Canada.
In the last hour as I write this, the central banks of Canadam the US, the Eurozone, the UK, Switzerland and Japan are once again coordinating currency swaps to prevent runs on the euro and the greenback. The rate the central banks are charging each other will be Fed Funds plus 0.5% -- or just under 0.7%; as well swaps that were due to expire in August of next year have been extended until February 2013. It seems to have had its intended effect at least short term -- the Euro went up nearly a cent and a half in the last hour and short term bonds in the US have increased their yields to just over 2% for the first time in quite a while.
So far this year, 90 banks have failed in the United States. The rate has slowed down considerably from the peak of 157 for all of last year which is a good sign, but it's a constant reminder that while we may have a structrually much more sound banking system in Canada we're not entirely immune. A lot of our banks' capitalization is still denominated in greenbacks and euros as are future debt obligations. A huge devaluation or revaluation (one way or the other) could have huge effects on a bank's stability. The Superintendent of Financial Institutions has the right to seize a bank, trust or insurance company if it is teetering, but even short term effects while that bank is being flipped to a more stable one can cause a panic.
Yes deposit insurance is supposed to stop a run on the banks, but there are a lot of people who don't even know such a thing exists, and they could either go postal or drop dead from the shock of a failure. Even in the best case scenario for a failure, it would be a huge headache to change payment authorizations for expected deposits from entitlements and pay cheques as well as withdrawals for bill payments. You just can't write an old cheque on a new bank account even if it is the same physical plant; and far as I know, although there is competition for B2B cheques, there is only one company that makes personal cheques in Canada and it can take two weeks to get the new wallet book (hello, Competition Bureau???)
Any time a central bank prints more money, or even creates it virtually, it makes me ask if things will get worse before they get better. Somehow Canada this morning found it was able to extend the loans it gave to the US for a few more months -- a couple years after it found $30 billion out of nothing at all. Is something wrong with this picture? If we were Joe or Jane Blow, our asses would have been foreclosed ages ago. State immunity my ass. The is real money we're talking about, money that shouldn't even exist.
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