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I believe the haircut was 50% but only for private borrowers. The ECB has not had its debt holdings reduced by one cent, which I fail to understand the reason for.

Further, if you read Richard Gwyn's recent biography of Sir John A. Macdonald, (our first Prime Minister and the man who made us as a country, genauer) it is clear that one of Gwyn's principal themes is that Macdonald always favoured pragmatism over doctrine. Canadian politics has always heavily favoured pragmatism. Canada is often described as a country that should not work at all in theory but in practice works very well. We don't let theory stand in the way of a good pragmatic solution and never have.

@genauer:

The Federal Government controls 33% of spending, the provinces control 66%. The Federal Government and the provinces each collect nearly 50% of revenues. The Federal government distributes approximately 3% of GDP through transfers. One third of the Federal Government's budget is devotes to transfers to provinces, only one third is spent on direct Federal programs for federal matters.

Both levels of government collect income tax directly from taxpayers and both collect VAT or GST, consumption taxes. The Federal government also transfers "tax points" to the provinces which means the Federal government lowers its income tax rate while a province increases theirs. This is not accounted as a "transfer" in formal graphs but it is a redistribution of money.

http://www.budget.gc.ca/2007/plan/bpa1-eng.html

In Canada the Constitution gives provinces responsibility for health, education and most social programs. The truth is that our Constitution dates from 1867 and nobody at that time thought about a welfare state. Further when powers were divided between the levels of government, it was done very quickly, it got the same amount of time spent on that critical section as it took to type this message. 1867 was a different time and people had different expectations of government. Further Quebec's desire to take its own course has resulted in provinces being very powerful in Canada.

@Determinant

thanks a lot for your data work. "Follow the money" is very often a good hint to where the real power is.

Just one short question: "Both levels of government collect"
does that mean same income / VAT tax levels for every province, or do I have to understand that as very similar to the US system ? Or .. ?

Sorry, I understand the US system pretty detailed, so similarity helps me, and you can probably relate to that much easier, and summarize efficiently, than I can look up many CAN pages.

In short, there is a national income tax collected federally from all Canadians. Each province then has its own provincial income tax. In all provinces except Quebec, the Government of Canada is the tax collector. There is one form with two sections, a federal portion and a provincial portion. The provincial portion has its own credits, allowances and rates. They work in parallel. The nine provinces pay for the Federal Government to be the tax collector, operate tax courts and look after the minor and daily administration of the tax system.

Quebec is different, it has its own tax collection agency and you have to file two separate return documents, there are two completely separate tax laws and administrations. But federal and Quebec tax regulations are integrated for practical reasons and don't create friction with each other. Quebec has certain political opinions that other provinces don't have.

Careful about money, make no mistake the Federal government is still the most powerful level of government. Due to practical political reasons a lot of government is "devolved", for instance in health Ottawa has a national Health Act with broad standards, the provinces actually deliver health care and decide where hospitals should be built, etc.

Ottawa can override a good deal of provincial decisions but chooses not to or chooses to have the provinces harmonize their policies. Ottawa has a lot of powers that most of the time it chooses not to use.

Sales taxes are more complicated. It used to be that provinces each set their own sales tax rate, had their on sales tax law and collected their own tax. Then Ottawa introduced the GST, a true VAT levied nationally. It pressured each province to harmonize its sales tax and just take a cut of the GST, a setup called HST or Harmonized Sales Tax.

Ontario, New Brunswick, Newfoundland and Nova Scotia all use the HST. British Columbia tried to have the HST but it was repealed and they went back to their old sales tax system. Quebec sort of harmonized its sales tax but it is a special case. Alberta has no sales tax and Prince Edward Island and Saskatchewan still have their own sales tax systems.

Constitutionally the federal government can tax anything it likes, the provinces specifically can tax incomes. In 1867 the Federal government got customs duties, then the main source of government revenue and provinces relied on property taxes. Sales taxes and especially income taxes weren't used but the provinces did have the specific ability to impose an income tax, don't ask me who wrote that in or why.

Many things in Canada gets solved by Federal/Provincial agreements and co-operation. Like I said, don't look at the theory, look at the result and the practice. I told you the theory was ugly.

Nobody in 1867 thought much about income taxes because we didn't have one and didn't have sales taxes either. The Welfare State was far in the future and it took WWII to get it off the ground.

The Irish times also found it useful today to explain ordoliberalism to their readers

http://www.irishtimes.com/newspaper/opinion/2012/0301/1224312582050.html

The German wiki Ordnungspolitik has only a chinese translation, interesting,

but http://en.wikipedia.org/wiki/Ordoliberalism is not too bad

The article's conclusion is wrong though. It's not a matter that these other countries "need more time". More time will never be enough. "Ordoliberalism" as described can only work if there is a central government handling the Soziale Marktwirtschaft over the entire economy. Otherwise the problems as Determinant has described remains. The Ordnungspolitik simply cannot encompass the EU situation. It can only handle Germany.

Lest I be completely misunderstood, by the way, I happen to agree that there are a lot of things that Germany has gotten right compared to other countries, though I think Canada does a few things better than Germany. The problem is that the model doesn't work inside the Eurozone without major political changes to the Eurozone which German citizens would be themselves, perhaps quite rightly, unwilling to accept.

I think it describes the German positions pretty well, I do not see much difference to what I said here.

That we think, we already compromised too much, I underwrite as well.
That these economic ideas have served as well, is, pretty obviously, not just a belief.

That you don't like the German position, is noted, we know that.

Now, who wants money from whom ?

What I like about the Irish, e.g. http://www.irisheconomy.ie/index.php/2012/02/28/ireland-to-hold-fiscal-compact-referendum/#comments
is, that, of course they have their own interest in mind, but also a pretty realistic few on the negotiation positions, strength and weaknesses.

erm, should read: "served us well". I got in general a little sloppy with typos and grammar here.

genauer: "Now, who wants money from whom ?"

This is almost hysterical.

Genauer, you tend to speak of trust. There is no trust as soon as money is involved. We even have a saying: do not lend money to your friends unless you want to lose them.

Germany is a clear failure as a European leader. Why does it pretend to be one then? I live in Austria which in recent history demonstrated much better economic results than Germany. And there are plenty of Germans around because they can not find work in Germany.

I feel sorry to observe how Viennese Austria is politically forced into germanization. (Un)fortunately Austria is a federation of 6 countries plus Vienna.

Eurozone with Germany as such is doomed. Ordnung muss sein. For Germany it has always been pure business. No need or place for trust.

Written by Kurt Tucholsky in 1923:

I saw a dog the other day — a dog going to work. He was like a stuffed, cylindrical sofa-cushion with long fur-tassels wobbling down Leipziger Strasse towards Berlin. With full sincerity he walked, looking neither left nor right, sniffing at nothing. And did none of that other something, either. He just went, without any doubt, to do his business.
And why would he have done otherwise? Everyone else was doing it.
The stream of business-goers whispered through the city. Morning on morning they did the same. They trotted thither, to that holiest holy a German knows; to work. Actually, the dog had no business being there — but if even a dog went to business, no doubt it’d be welcome.
There sat two serious men on a train, smoking, rotund, shaven and perfectly content, looking out of the windows. At such moments, one longs for a miracle, say, for balloons to float out of that soldier-policeman’s helmet, there, on the corner, so that, if just once, everyone would unbolt their muzzle and nose! The train passed by a tennis court. The golden sun played on the pale-yellow surface — it was beautiful weather, far too beautiful for Berlin. And one of the serious gentlemen grumbled: “Look at that! Nothing to do! Mornings at eight and playing tennis! They should be off to work —!”
Yes, they should. After all, work is why we’re on this planet, serious work, the kind that fills in all of you. Whether it makes sense, whether it harms or helps, whether it’s pleasant or not (“Oooh, work’s to be plezzun’ now is i’? Yuh’ve lost yer marbles mate!”) — it’s all the same. There must be work. And mornings you must be able to go to it. Otherwise, life has no meaning.
And should everything jam up at work, or the rail workers strike, or even if it’s a bank holiday: then they sit around at a loss as to what to do. There’s nothing inside them, and nothing outside them either: so what can be done? Well, nothing whatsoever.
So they walk around like schoolchildren, suddenly at a loose end because of some cancelled lesson. They can’t go home, and they don’t feel like having any fun… They doze and wait. For the next workday. For this, among other reasons, the German Revolution failed: they had no time for revolting; they had to go to work.
Then again, it’s true one can doze off during sport, which is run like a card game nowadays: highly regulated and outstandingly dull. But of course it’s always better to train than to make mischief in a black cap and gown.
Yes, they go to work. “What do you do for a living?” — “We don’t do anything, sir. It does us.”
The dog didn’t jump. One doesn’t hop down the street. The street serves to — we know that already. And that enticing, low-hanging, patriotic poster … the dog didn’t even consider it.
He went to work.

Sergei, may be you would consider to live a little less in the World of 1923, and a little more in the present. What do you think you say about the present world, citing a newspaper article from 1923 ?

You are something like nr 865. It is always the same, bringing up some nazi, kaiser stuff, and then trying to draw conclusions for today, mostly the kind, that Germans should shut up and pay. Boring, doesn't work any more, pal. It just reflects on you.

Potentially interesting books reflecting on trust and business would be Francis Fukuyama: "Trust", and "Virtual Corporation"

Hofestede Cultural Dimensions could be worth to google for you.

I found Sergei's post topical. It describes a very large number of Canadians actually.

Try saying that a business can be a pig-headed and stupid as an individual. You get stares. Say you're unemployed. You get patronizing suggestions. Try getting a job. Get in line, and don't make noise, you're a nuisance.

About the whole Kaiser/Nazi stuff, which I prefer to avoid, surely it makes a difference when an Austrian is making the accusation?

Determinant, I actually did not accuse anybody but the German leadership. On this basis Germany does not deserve the position it occupied. People like Stark, Schäuble, Weidmann and so on (we can also easily include a couple of big guys from business) are a human disaster that the rest of Europe has to bear. I personally did not choose them to represent my opinion as a tax-payer in a bail-out or non-bail-out of anybody. That is not to say that the Austrian leadership is better but at least it does not occupy the "leadership" spot on behalf of the whole Europe.

genauer, I do not understand your references to nazi, kaiser etc. Did I mention any of those? I just quoted an article from 1923 from the German press by a German writer which imho nicely highlights the difference of worldviews (credits for translation do not go to me). You could change 1923 to 2012 but I guess nothing of substance would change in the article. Listening to you, genauer, it sounds like "the whole world is against Germany". Well, I think in reality and to most people it looks like "Germany is against the whole world".

And since I feel like in a quoting mood I will give two more quotes.

The first one is by an unknown thinker :) "When the facts change, I change my mind. What do you do, sir?" So what do YOU do, genauer? And since you like to give others directions to literature I will allow myself to give you one direction as well. Please read about the Pygmalion effect. You can wiki it. As an MBA and PhD you should be capable to reflect on it.

The second quote is from Bruno Kreisky who was a Chancellor in Austria in the 70ies and early 80ies. When asked about the reasons behind the economic success of Austria after the 2nd world war he answered something like: Ouch, that is due to exports. We exported all our economists to the US (that is Austrian school of economics). Germany never intended to do it.

Should Germany shut up? I think so. Germany was given a voice and the euro-mandate to steer the solution and it failed miserably. Two years down the road and we are in an ever bigger mess without any resolution in sight. It is just plain scary to live in it.

Pay? Sorry, Germans have already paid for everything. Germany exported everything Germans produced without any intention to import back. So do not mix things up. Finance is just a tool to realize economic politics. It is NOT a price to pay. Your references to the neighbor 7 meters away are thus completely off point. Your leadership now wants to take from her even more after what it has already been taking for decades via exports. Somehow everybody accuses China for what it is doing but also praising Germany for doing exactly the same.

And for the record there are also Hungarians, Slovaks, Croatians, Italians etc working in Austria. It is just the way Austria is. Maybe it helps Austria to change its mind when facts change. Maybe not.

@Determinant

Originally I wanted to end the discussion here, because I felt I got the most out of it.

like:
- The Austria examples shows that a facto currency union can work, without any other formal ties.
- It is the right thing with Greece, to say, from now on it is tough love.
- Ireland with a higher GDP per capita and less interest payments, gets credits, but no handouts
- I really start to dislike MMT

But your "unemployed" comment touched something worth to comment on:

A few years ago, the company I worked for, went bankrupt, and well, I was "unemployed", (doing a little MBA on the side, for fun). And I got this condescending talk too, often from people with some (sometimes justified) inferiority complex. The first times it surprised me, later on I actually started to play a little with it. And those late-20ties "program directors" a.k.a. project secretaries, looking down on this middle age "process engineer", smells like shop floor. Sometimes it was fun, but often you just realize the bad character of many people. And to be sure, in former times I most likely did that also to some degree.

I had a bicycle accident, I was unshaved, had sweated, and simple clothes on me, not this colored, "functional" stuff. And the nurse was talking down on me. Until the point, she looked on my ID and saw the "Dr.". Then she became very suddenly so nice. LOL.

If I then talk a little more about what I am doing now, that I am not exactly a "little poor sucker", the conversation climate often changes dramatically. Some are kind of "sucking up", for some, their principled antagonism against those "higher ups" kick in.

Now, back to Austria. They were the German Kaisers until 1806. With their multi national Empire, they got later kicked out of the "Germany" business 1866 "kleindeutsche Lösung", after 1918 all other language areas where amputated, and with 7 million people, left, lots of agriculture, later tourism, this did not exactly feel like empire any more.

And of course many Germans, especially from the "capitaol" Berlin were looking down, in their vacations. There is an epic movie, "Piefke Saga" about it.

One little detail, many German companies have since many decades an internal rule, to have a certain fraction of "foreigners" in the management ranks, and austrians were a convenient way to fulfil these quotas, and not worry about that they "look the same, and talk the same .... "

Now, after reunification, Germany went through a rough patch, high unemployment, and people did the right thing, find greener pasture, higher wages, somewhere else, like in Austria or Switzerland, both the same german language.

And for some Austrians suddenly the "upper/lower" situation turned around, with saxonian maids and waitresses. They enjoyed it. When a lot of german medical students came (pretty difficult to get into a german university, we have too many doctors), often with better grades, they stopped laughing and got inventive in new requirements, like understanding austrian dialect :- )

Sergei, which is not a typicaly austrian name, mentions also that the Rest of Austria seems to be / feel pretty different from the "Capital" Vienna, who are arrogant as all "Capital" people, London, Paris, New York.
The difference in Germany is, that Berlin is the poor house, and if it gets to much, we say, we re-erect the Wall, and then rent it out to Poland or Russia, that they are at least good for something : -)
Works like a charm. Berlin people are not seen as workaholics by the rest of the German people.

I come from a tribe in between, and sometimes I can enjoy the show.

For our Tucholsky from 100 years ago, it is actually an interesting example, how people project something, they have intense emotional feelings about, even into a dog.

Thanks again for your information on the Canadian System. This would have been much more difficult to stitch together from the outside. And that a lot of things are in that way just because of history, thats the same for Germany and its "Länder", little functional genius behind that. Last thing : the offical federal budget here is 400 b$, of which 40 % "social", with a GDP of 2.96 t$, could be made similar to 8.1% "real" federal. VAT is uniform, 7 % on food, books and similar things, 19% on most other things.
But who is officialy responsible for what, and who really decides conditions, an epic story as well.

@ Sergei,

Often it makes sense to differentiate between the Government and the people, especially in non-democratic countries.

In this case, Schäuble, Merkel, etc. do reflect German thinking and the will of the people. Well, I would like them to be a little harder.
This is reflected in the very broad majorities all these decisions get in the Bundestag. With the excpetions of the Communists, who vote against anything, on principle.

And when you say "represent me as a tax payer", may I be curious and ask what you are, German, Austrian, or ?

The facts / mind quote is good, I also use it frequently. I like the Kreisky quote too.

You are not the only one somehow fixated on German exports. Just look at the scorecard, I referenced about. The "net international position" is now at 38%. With a plus of 6 %, calculate it back, it was effectively ZERO in 2005,because all the trade surplus was used up for tourism. These frequent allegations, that we dont ever want to get our surplus back, are completely crazy.

Germany was not "given an Euro mandate". The Euro waS invented to let not only Germany de facto decide monetary policy as before. If we would decide for ourselves, interest rates would be at 4% to avoid overheating.

We have a high exposure to people from all over the world. We are still number 1 in international tourism (wiki it, we have lots of people from other countries living here.

Go to table 2 of:
http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Migration_and_migrant_population_statistics
The number of non-member citizens is higher than for nearly all others
(notable exceptions Estonia and Lithuania, with their russians)
Do all these people come, because wetreat them so badly ?

http://diepresse.com/home/panorama/oesterreich/713590/Mehr-Deutsche-weniger-Tuerken-in-Oesterreich

You remind me of some leftie german girl I talked to a few months ago.
She was bitching away that the Austrians are now the real Nazis, and her evidence was that they voted for Haider. I told her, that there were a lot of specific reasons, like people getting fed up with the former 2-party system, etc. No, the slander went on. Then I asked her, how often she has been there, and with how many Austrians she talked,none. In her whole Life. And then she went angry and called me a Nazi. Typical case, people get caught with missing or false argmuents, and then start the insults.

The less people know, the more they talk (nonsense).

Your Tucholsky quote was not technically Nazi/Kaiser, but as old. And it has the same purpose. Trying to slander present day Germany. As we see in your

"Should Germany shut up? I think so."

I thank you for your open admission. Most others would not admit it.

Thats why I told you, that it doesnt work any more. It just stiffens our resolve. Because we know that you are not good people.

Part 1:

@Determinant

Originally I wanted to end the discussion here,
because I felt I got the most out of it.

like:
- The Austria examples shows that a facto currency union can work, without any other formal ties.
- It is the right thing with Greece, to say, from now on it is tough love.
- Ireland with a higher GDP per capita and less interest payments, gets credits, but no handouts
- I really start to dislike MMT

But your "unemployed" comment touched something worth to comment on:

A few years ago, the company I worked for, went bankrupt, and well, I was "unemployed", doing a little MBA on the side, for fun.
And I got this condescending talk too, often from people with some (sometimes justified) inferiority complex.
The first times it surprised me, later on I actually started to play a little with it.
And those late-20ties "program directors" a.k.a. project secretaries, looking down on this middle age "process engineer", smells like shop floor.
Sometimes it was fun, but often you just realize the bad character of many people.
And to be sure, in former times I most likely did that also to some degree.

I had a bicycle accident, I was unshaved, had sweated, and simple clothes on me, not this colored, "functional" stuff.
And the nurse was talking down on me. Until the point, she looked on my ID and saw the "Dr.". Then she became very suddenly so nice. LOL.

If I then talk a little more about what I am doing now, that I am not exactly a "little poor sucker", the conversation climate often changes dramatically.
Some are kind of "sucking up", for some, their principled antagonism against those "higher ups" kick in.

Now, back to Austria. They were the German Kaisers until 1806. With their multi national Empire, they got later kicked out of the
"Germany" business 1866 "kleindeutsche Lösung", after 1918 all other language areas where amputated, and with 7 million people, left,
lots of agriculture, later tourism, this did not exactly feel like empire any more.

And of course many Germans, especially from the "capitaol" Berlin were looking down, in their vacations. There is an epic movie,
"Piefke Saga" about it.

Part II


One little detail, many German companies have since many decades an internal rule, to have a certain fraction of "foreigners" in the mamagment ranks,
and austrians were a convenient way to fulfil these quotas, and not worry about that they "look the same, and talk the same .... "

Now, after reunification, Germany went through a rough patch, high unemployment, and people did the right thing,
find greener pasture, higher wages, somewhere else, like in Austria or Switzerland, both the same german language.

And for some Austrians suddenly the "upper/lower" situation turned around, with saxonian maids and waitresses.
They enjoyed it. When a lot of german medical students came (pretty difficult to get into a german university, we have too many doctors),
often with better grades, they stopped laughing and got inventive in new requirements, like understanding austrian dialect : - )

Sergei, which is not a typicaly austrian name, mentions also that the Rest of Austria seems to be / feel pretty different from the
"Capital" Vienna, who are arrogant as all "Capital" people, London, Paris, New York.
The difference in Germany is, that Berlin is the poor house,
and if it gets to much, we say, we re-erect the Wall, and then rent it out to Poland or Russia, that they are at least good for something : -)
Works like a charm. Berlin people are not seen as workaholics by the rest of the German people.

I come from a tribe in between, and sometimes I can enjoy the show.

For our Tucholsky from 100 years ago, it is actually an interesting example, how people project something, they have intense emotional feelings about,
even into a dog.

Thanks again for your information on the Canadian System. This would have been much more difficult to stitch together from the outside.
And that a lot of things are in that way just because of history, thats the same for Germany and its "Länder", little functional genius behind that.
Last thing : the offical federal budget here is 400 b$, of which 40 % "social", with a GDP of 2.96 t$, could be made similar
to 8.1% "real" federal. VAT is uniform, 7 % on food, books and similar things, 19% on most other things.
But who is officialy responsible for what, and who really decides conditions, an epic story as well.

The Department of Finance is formally indicating it is willing to enter into discussion with Iceland about adopting the Canadian Dollar. What does everyone think?

http://www.theglobeandmail.com/report-on-business/economy/iceland-eyes-loonie-canada-ready-to-talk/article2356634/

Tim: Wow!

Gut reactions: no! Bad for them, and possibly bad for us. Do we really want the Bank of Canada to be under any sort of obligation to act as lender of last resort to Icelandic banks?

Well, talking never hurts, as long as they can not put their non-existing army in place, which shouldn't be the case here : - ) And everybody should get a second chance.

But, as I read, the NL and UK are still itching for their 5, now probably 6 billion Euro outstanding. This could lead to some trade sanctions down the Road. Export partners (from the CIA):
Netherlands 30.71%, UK 12.73%, Germany 11.21%, Norway 5.75%, Spain 4.82% (2009) The first 2 are already mentioned, LOL, I don't think there is any sympathy for them in Germany, and Norway has enough fish and aluminium.

Otherwise be not only VERY careful with the wording, but also keep the Maastricht example in mind. Even with iron clad wording a lot of folks want to put you on the hook, for things, you have explicitly said NO to.

As it looks, most commenter's feel pretty fine about it, but be aware of the Icesave body in the dungeon.

Nick: The Canadian ambassador has already warned them that they (Iceland) would have no say on monetary policy. Agreed that it looks likes a terrible idea for Iceland. It seems nobody is learning the real lessons the EU mess should be teaching.

And I confess that I'm confused. What problem are they trying to solve? The article says volatility, and capital controls. The recent national bankruptcy aside, isn't currency volatility a good thing for a resource based economy? It acts as a shock absorbed. Sure, your sneakers are more expensive but at least you aren't unemployed. And if the capital controls are a problem, then loosen them! Isn't that a good thing? A sign they are climbing out of the abyss they fell into in 2008?

Genauer:

The Department of Finance and the Bank of Canada have been clear that if Iceland does replace the Krona with the Canadian Dollar, they will have absolutely zero control over monetary policy. The Department of Finance and the Bank of Canada respond only to Canadian concerns, not Icelandic concerns. They will surrender all power if they do this. It is either all in or all out, we aren't bargaining.

Though this happened once before, Newfoundland adopted the Canadian Dollar in 1895. Canadian banks became the dominant banks on the island, banks followed the dollar. If Iceland actually does this I expect that Canadian banks will start opening Icelandic branches.

Actually in much of the Caribbean Canadian banks are the retail banks. In the Bahamas the CIBC, Royal Bank and Bank of Nova Scotia are substantial retail banks for the Bahamian public and business sector, not the secretive offshore banks that have a single office in downtown Nassau and Cable Beach with only five staff.

Patrick, Determinant, my fear would be more:

whatever you write somewhere,

if the Dutch and the Brits go after Iceland, something not that farfetched,
they will be miserable,

and a lot of folks will try to make Canada somehow responsible,
and you will feel responsible, no matter what is written down now.

This is the German lesson out of Maastricht. Just don't mention the "no bail out" clause : - (

"For Canada, you have one federal Government, which controls, my guess here, about 75 % of all Government spending (including direct Gov, pensions, health care). Is this right ?"

Not even close. In 2009 Federal spending, including transfers to the Provinces, was $242 billion. In the same year, provincial spending was closer to $420 billion. Even if you look at own source revenues, the Provinces are still much larger economic entities than the feds. Canada is a federal with immensely powerful subnational governments.

Patrick: "And I confess that I'm confused. What problem are they trying to solve?"

I was asking myself the same question.

Determinant: "The Department of Finance and the Bank of Canada have been clear that if Iceland does replace the Krona with the Canadian Dollar, they will have absolutely zero control over monetary policy. The Department of Finance and the Bank of Canada respond only to Canadian concerns, not Icelandic concerns."

Understood. But even if the Bank of Canada ignores Icelandic inflation when it does normal monetary policy and targets inflation, would it be possible, in an emergency, for the BoC to refuse to act as lender of last resort to Icelandic banks?

As genauer says: "and a lot of folks will try to make Canada somehow responsible, and you will feel responsible, no matter what is written down now."

Yep. If Canada were the only one who could help, how could we wash our hands of poor little Iceland?

Unlike Genauer's claim, my position is that you either allow a full-on, no sacred cows default by Greece and let them start over, preferably with a new Drachma, or you bail them out. If you want to keep the EU together and recurring defaults, you need transfers. It's a choice.

Understood. But even if the Bank of Canada ignores Icelandic inflation when it does normal monetary policy and targets inflation, would it be possible, in an emergency, for the BoC to refuse to act as lender of last resort to Icelandic banks?

As genauer says: "and a lot of folks will try to make Canada somehow responsible, and you will feel responsible, no matter what is written down now."

Yep. If Canada were the only one who could help, how could we wash our hands of poor little Iceland?

If Iceland adopts the Canadian dollar, it would be the same as when El Salvador adopted the US Dollar, they are just along for the ride. They can declare freely what their national currency is and we can't stop them, that doesn't mean the Bank of Canada will set up a branch in Rekjavik. In fact the Bank of Canada and Department of Finance have practically said that in fact no such branch will be set up. Icelandic banks won't be eligible to Bank of Canada accounts and Iceland will not be admitted to the Canadian Payments Association, which goes hand-in-hand with the Bank of Canada since the BoC is intimately tied to the Payments system, particularly LVTS. The Bank uses LVTS as the channel to implement its monetary policy.

So Iceland will be trading in the Canadian dollar with none of the governmental and institutional support customarily given to a currency. I say this is dangerous and it will end in tears.

AIUI the Bank of Canada cannot operate outside Canada and access to the Bank of Canada and the CPA is in practice controlled by the Minister of Finance. Iceland wouldn't get normal access to the CPA and the Bank of Canada unless the Minister of Finance and Parliament amends several of the key banking and financial regulation acts. So no, we are not taking responsibility for their debts, we're not taking responsibility for them at all. That is the message from Finance and the Bank.

On the other hand Canada is very experienced at telling Westminster to go fly a kite, something the Icelanders might appreciate. Though on a practical note I doubt they would like our paper money, particularly the $20 which features the Queen, it would be a reminder of the Cod Wars. I doubt many in Rekjavik have thought about this.

Now if Iceland wants to be admitted as the 11th Province that is an entirely different matter and we would be responsible for everything. Provinces admitted to Confederation as existing governments (not Manitoba, Alberta and Saskatchewan but including all the others) had 90-100% of their debts assumed by the Federal government when they entered Confederation, Newfoundland got this deal too even though it was 70 years since the last external admission of PEI in 1873. Newfoundland had 90% of its debts assumed by the Federal government and got to keep its wartime surplus entirely, so on a net assets basis it was debt-free when it entered Confederation.

Somehow I doubt Iceland is going to apply to enter Confederation.

Iceland's wish is funny in light of the fact that Canada invaded Iceland in 1941 to secure air bases for the Battle of the Atlantic (the real reason) and to prevent it from falling into the hands of the Germans (the public reason nobody believed).

One issue is to what extent the Canadian chartered banks would essentially take over the Iceland retail banking system as happenend in Newfoundland. Currently all the main retail banks in Iceland are currently under government ownership so I suppose if Canadian bank want a retail presence in Iceland I wouldn't be that difficult to pick one up. As to the Carribean I would argue that the Bank of Canada is already implicitely supporting much of the region's banking system by the fact almost all of it is Canadian owned. While CIBC First Carribean is technically a legally distinct subsidiary of CIBC Canada at the end of day everyone know when push comes to shove CIBC Canada, the Bank of Canada, and the Government of Canada would all support the operations of CIBC First Carribean. That's why in the latest revision of the Bank Act Flaherty is asking for direct authority to approve foreign acquisitions of Canadian Banks.

What is interesting in these Carribean countries is they all of use the US Dollar or local currencies pegged to the dollar through currency boards. Thus the Canadian banking system has a certain degree of indirect currency risk. Now all the major chartered banks can access plenty of US Dollar liquidity compared to the size of their US Dollar liabilities in the Carribean however, I think there is a case to made that if Canada is going to be as involved as it is in supporting the banking system of the likes of the Bahamas, Jamaica et all then preferably these countries should shift from using the US Dollar to the Canadian Dollar.

Suppose that Iceland had been using the Loonie when their banks all went bust in a very big way? What would have been the implications for Canada?

Until I feel confident that the answer would have been "nothing", I wouldn't want Canada to touch this one with a bargepole.

All Iceland+Loonie discussion now belongs on the new post. Feel free to repeat any of your related comments here on the new post. Just copy and paste if you want.

I'm not too surprised that genauer doesn't like MMT, considering everything he's written. MMT is pretty much explicitly a way of instrumentalising inflation for social purpose, and in order to do so, it has constructed a framework to deny the risk of hyperinflation. Pretty much the antithesis of the Ordnungspolitik described and lauded by genauer,

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