OTTAWA, Oct. 10, 2008 (CHPNews) – The CHP today corrected a serious mis-statement made this morning by Finance Minister Jim Flaherty, regarding the federal government’s emergency $25 billion injection of liquidity into the mortgage market.

“The government says the assets it is buying are worth what it is investing,” said CHP leader Ron Gray. “That may or may not be true. Housing prices have been slumping across Canada in response to the American sub-prime mortgage crisis, and no one knows whether the value of the homes will remain above the cost of the mortgages. It is true that the government is not ‘buying up bad mortgages’ like the United States government. And it’s true this is not exactly a ‘bailout’.

“However, Mr. Flaherty said the government action would be ‘at no fiscal costs to Canadian taxpayers’, and that is not true.

“The money for this $25 billion injection will come from selling treasury bills to the chartered banks-at a discounted price, as always. That T-bill discount rate is ‘interest-in-advance’ on a bank loan to the government.

“That interest charge constitutes a very real cost-about a billion dollars-that will be given to the chartered banks by the taxpayers when the T-bills are redeemed.

“That’s hardly ‘no fiscal cost’!

“It would have been better for Ottawa to implement the CHP’s Infrastructure Plan: to have the Bank of Canada create the funds provinces and municipalities require for badly-needed infrastructure projects, and loan that money to them interest-free to get those projects going. That way, Ottawa could have made a much bigger liquidity injection into the economy, to sustain economic activity over a longer period of time, and it would truly be ‘at no fiscal cost to taxpayers’.

“The move announced this morning by Mssrs. Harper and Flaherty may put the banks in a position where they can make loans, but it cannot ensure that they will make loans. Remember that when the Bank of Canada lowered its interest rate a half point, the chartered banks only passed on a quarter point of that to their customers. They are taking in cash and hoarding it, and that’s what is creating the liquidity crisis.

“And, unlike the CHP Infrastructure Plan, today’s government action does not leave behind any lasting benefit to the country.

“The CHP plan would be a better way to deal with the economic turmoil-and it’s still not too late to put it into practice.”

Source: http://www.chp.ca/en/news/news_2008-10-10.html

Category: National CHP News
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