BOC: Macklem Cuts Rates Again.

With Canada's economy weakening partly as a result of Trump's trade policy and tariffs, the Bank of Canada cut its overnight rate by 25 basis points to 2.5 percent. That rate was also put in place, given that inflation is low and considered weak.

To no one's surprise, interest rate cuts are largely stimulative in nature. An acceleration in the money supply occurs as consumers increasingly take out loans, and banks are more than willing to accommodate them. Interest rate cuts also tend to boost consumer spending and personal indebtedness. 

However, if inflation begins to tick up, the BOC will then find itself at a crossroads: it will likely move to increase QE again, which more often than not has spurred increased inflation. In addition, any increase in the digitization of money (money printing) will reduce the purchasing power of the dollar, which inevitably pushes up the prices of goods and services. Again, price increases will also fuel further inflation, which, if it accelerates too quickly, will require the BOC to reverse course and hike the overnight rate to slow inflation.

All of this to say that the BOC is clueless as to what is required to create sound money. It should follow the lead of most other major central banks and increase gold purchases. Gold acts as a hedge against inflation and further currency depreciation. Gold also tends to, at a minimum, hold its own during inflationary periods and to spike during periods when inflation rises significantly and the currency's purchasing power is falling. 

The other problem, of course, is a political one, with economists largely wedded to discredited Keynesian economic policy. If Canada backed its currency with gold, ours would become one of the strongest and likely most stable currencies in the world in relatively short order. It would also counter the possibility of reckless fiscal policy, but the know-it-alls in Ottawa think they have all the answers, which time and time again they've proven to our collective detriment that they don't. However, it's true that given Canada's lack of economic might, a gold-backed dollar could only go so far in enhancing the credibility of the Canadian dollar as a major exchange instrument, something that Canada has never enjoyed to this point in its history.