{"id":57232,"date":"2021-03-24T08:52:57","date_gmt":"2021-03-24T13:52:57","guid":{"rendered":"https:\/\/olduvai.ca\/?p=57232"},"modified":"2021-03-24T08:52:57","modified_gmt":"2021-03-24T13:52:57","slug":"bank-of-canada-announces-balance-sheet-reduction-suddenly-worried-about-moral-hazard","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=57232","title":{"rendered":"Bank of Canada Announces Balance Sheet Reduction, Suddenly Worried about \u201cMoral Hazard\u201d"},"content":{"rendered":"<header>\n<h3 class=\"entry-title\">Bank of Canada Announces Balance Sheet Reduction, Suddenly Worried about \u201cMoral Hazard\u201d<\/h3>\n<\/header>\n<div class=\"entry-content\">\n<p><strong>\u201cOnce crisis tools have served their purpose, central banks should scale them back.\u201d<\/strong><\/p>\n<p>The Bank of Canada will unwind its crisis liquidity facilities, will further reduce its purchases of Government of Canada bonds, which it already started tapering in October, will let short-term assets \u201croll off\u201d the balance sheet when they mature, and will as a result reduce its total assets from C$575 billion now to $C475 billion by the end of April, announced Bank of Canada Deputy Governor Toni Gravelle in a\u00a0<a href=\"https:\/\/www.bankofcanada.ca\/2021\/03\/market-stress-relief-role-bank-canadas-balance-sheet\/\" target=\"_blank\" rel=\"noopener\">speech today<\/a>.<\/p>\n<p>Most of the speech was focused on the reasons for the QE and liquidity programs that the Bank of Canada unleashed starting in mid-March last year, in a two-fold role: In its role as \u201clender of last resort,\u201d to deal with the \u201cextreme stress\u201d in the markets, as liquidity dried up and markets weren\u2019t functioning or had \u201cseized completely\u201d as everyone was trying to sell everything in a mad \u201cdash for cash.\u201d And in its role as provider of stimulus as the economy that was spiraling down.<\/p>\n<p>But these actions ballooned the balance sheet fourfold, to C$575 billion, and it created the possibility of \u201cmoral hazard.\u201d<\/p>\n<p>\u201cMoral hazard emerges whenever market participants or other economic actors feel that they can engage in risky behavior without bearing consequences if things go wrong,\u201d Gravelle said, a year after moral hazard became forever the guiding principle of the markets.<\/p>\n<p>But moral hazard can be limited \u201cby ensuring that such actions have a predetermined expiry date or are unwound when they\u2019re no longer needed,\u201d he said.<\/p>\n<p>\u201cOnce crisis tools have served their purpose, central banks should scale them back to show that they are emergency measures and don\u2019t reflect business as usual,\u201d he said.<\/p>\n<p>\u2026click on the above link to read the rest of the article\u2026<\/p>\n<p>wolf richter, central banks, bank of canada, wolfstreet, canada, housing bubble, mortgage bubble, interest rates, qe, quantitative easing<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Bank of Canada Announces Balance Sheet Reduction, Suddenly Worried about \u201cMoral Hazard\u201d \u201cOnce crisis tools have served their purpose, central banks should scale them back.\u201d The Bank of Canada will unwind its crisis liquidity facilities, will further reduce its purchases of Government of Canada bonds, which it already started tapering in October, will let short-term [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[942,103,124,406,431,18919,661,662,4254,4255],"class_list":["post-57232","post","type-post","status-publish","format-standard","hentry","category-economics","tag-bank-of-canada","tag-canada","tag-central-banks","tag-housing-bubble","tag-interest-rates","tag-mortgage-bubble","tag-qe","tag-quantitative-easing","tag-wolf-richter","tag-wolfstreet"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57232","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=57232"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57232\/revisions"}],"predecessor-version":[{"id":57233,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/57232\/revisions\/57233"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=57232"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=57232"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=57232"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}