The ‘never again’ bank

My parents wanted to get married in 1932. But things sucked.

Archie taught in a rural one-room school in SW Ontario. His pay had just been cut to $500 – a year – from $810. Everything was coming off the rails.

Despite falling wages, people with jobs were grateful. The unemployment rate in Canada would hit 27% the next year. Everything was crashing. House values fell by almost two-thirds in the early Thirties. There was no inflation. Instead, deflation. Consumer prices declined 25% between 1930 and 1933, along with incoomes.

Finances were a mess. The interest rate on loans was 17% or so. The deposit rate was 3%. But few people had any money to save or invest. Many who were wealthy snapped up assets – land, buildings, farms – and came to profit hugely once full recovery came with the advent of the World War.

So, Archie and Doris put it off. They ‘courted’ for seven years, then got hitched on the front lawn of her parents’ house as the financial crisis ended and the military one began.

Making the depression deeper, longer, scarier, more painful and hopeless were the banks. They controlled the currency supply, the price of lending money, credit and mortgage rules and every aspect of personal finance. And the system failed. Miserably. From that failure came Canada’s central bank.

Vowing to never go through another time like that, the feds set up a royal commission. It said we needed a Bank of Canada to control rates, issue currency, stabilize the system and prevent crises. In 1935 it was created as a private entity with shares issued to the public. In 1938 it was nationalized, and has been an independent agency since.

The BoC works. In large part we have a stable economy, sustained growth, low unemployment, reasonable rates and healthy markets because of these guys. They control monetary policy (rates, inflation) and the politicians set fiscal policy (spending, taxes). When recession hits, or a pandemic, the CB floods the system with credit to keep the wolves away. When the economy booms excessively, credit is restricted to cool things off. So the bank fights inflation and price escalation. It defeats deflation and price collapse.

In stable countries the central bank operates apart from politics. Like here. And Britain or America. In screwed-up dictatorial places, leaders influence or control the central bank to accomplish political goals.

Like Turkey. There Erdogan fired the CB boss so interest rates could drop and the economy spurt. It backfired. The currency has lost almost 90% of its value. Inflation spiked to 85% three years ago, and is currently at 35%. The Turkish bank rate is now set at 46% and to attract investors to the country’s bonds, the return has bloated to 30%.

And here we are, grousing about 4% mortgages, a 2.75% bank rate and inflation that just soared to 1.9%.

Well, guess what’s happening in the USA? Yep, the American president is trying to influence the central bank, saying that (as in Turkey) interest rates should be immediately slashed. That would goose the stock market, inflate asset values, make the debt easier to service and paper over the impact of tariffs.

Trump is on a campaign to denigrate the chair of the Fed and erode his stature and influence. Lately he’s called him stupid and a numbskull. He’s said repeatedly Jerome Powell should resign, and is actively recruiting his replacement. By law the president can only fire the Fed boss for ‘cause’ so the White House is now alleging Powell is a criminal for overspending on renovations at the bank’s HQ. Seriously.

The alarm is sounded as Trump moves on Fed

Source: The New York Times

Trump knows what’s coming. The country’s $36 trillion federal debt will increase to about $40 trillion due to the policy agenda he signed into law on July 4th. Paying the interest on that after Turmp leaves office will cost at least $1.8 trillion per year. That exceeds the entire defence budget, and is wholly unsustainable without major American tax increases or the gutting of social programs. And nobody gets elected doing that stuff.

Meanwhile the US Fed issues and controls the American dollar – which is the global currency standard. This one fact has allowed that country to dominate for more than a century, forming the cornerstone of what we know as American exceptionalism.

“Even if the Fed makes mistakes, acting independently of politics supports its credibility, and that helps make the United States a more reliable, more attractive place to invest,” writes economist Rebecca Patterson. “Without that stability and predictability, the nation is in danger of losing what makes its economy and financial markets exceptional.”

If you’re liking the way MAGA is handling the Epstein files, you’ll love Trump’s Fed.

About the picture: “Hey, Garth, here is a wee puppy ( Mexi-mutt) that just arrived in Canada from Mexico,” writes Brian. “His name is Vinny and he lives with his mama Tracy on Redstone lake in the great white north. He has had a busy day swimming and being a puppy and he is catching a few Z’s!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/07/16/the-never-again-bank/