David Dodge is boastin'

From the CEP news:

16:34 12/12 (CEP News) Ottawa – Bank of Canada governor David Dodge heads into retirement at the end of next month satisfied that he will be leaving the Canadian economy in far better shape than it was when he first came on the federal scene more than three decades ago.

A candid and relaxed Dodge credited Bank of Canada staff and ordinary Canadians for making the changes required in the economy. “I, along with all Canadians, am quite proud of how we have developed since the beginning of the 1970s in terms of being able to seize better the opportunities presented by the world,” Dodge said in an interview with CEP News. “How we now understand it is important that public finances be kept in good shape; that we all understand the value of low and stable inflation.”

The outgoing governor, who retires Jan. 31, downplayed his own role, which he described as providing advice and working with the private sector and other central banks “so that we can do the best that we can to enhance the economic welfare of Canadians.”

Heading the Bank of Canada, he said, “has been a tremendous privilege because I just give the roar for 1,200 (people) who actually do all the work. It’s the people who do the innovative analysis, the hard, slogging work through crises … it’s those people who are really important. All I do is give voice to what they’re trying to achieve.”

There have been some major challenges, often international in nature, over the years, he said, including the Latin American debt crisis, American savings and loan problems, the Asian crisis and most recently the global credit turbulence. All of them have been difficult, and each of them has been different, he said.

The credit market meltdown, which continues to plague economies around the world, has proven tough to deal with because of its origins, Dodge said. “You can’t put your hands around it … so we’re all struggling to find ways the market can work this thing out but it is extraordinarily complex.”

It’s essential that the banking industry continue to function through the current difficulties, he said, and that was one reason several major central banks around the world, including the Bank of Canada, introduced new liquidity measures Wednesday.

If banks were forced into a disorderly unwinding of the complex financial instruments that lie at the heart of the credit market problems, the financial consequences would be enormous, he said, and would be felt all the way down to the average consumer wanting to buy a home or finance the purchase of a car.

Dodge said the Bank of Canada has been fairly successful in keeping its overnight lending rate on target during the credit crunch through the injection of short-term liquidity. Banks in other parts of the world rely more heavily on interbank financing on the one- to three-month market, he said, and “we’ve been discussing with our banks whether useful for us to operate in the term market and not just the overnight.”

That doesn’t mean that the longer-term liquidity measures announced Wednesday morning will become permanent, he said. Instead, it was recognition that “with heightened uncertainty it was worth acting together to try to the extent that we could to ensure markets functioning appropriately.”

Dodge defended the BoC record in using interest rates to battle inflation, and said it has followed a program that is clearly understood by Canadians. “There is huge transparency there. Everyone knows exactly what our paradigm is. It is very clear each time we write a report where we see the risks.

Those risks can change over time, he said, “but we clearly identify what we are concerned about.” Some analysts misread the signs around the early December rate announcement, he said, with one side betting the bank would wait and others predicting it would act. “There are times when the call is difficult … it is difficult for us as well.” But he said there was “much better anticipation around our December release than around December’s U.S. release.

“That’s not to say we do everything perfectly. But we try and ensure the framework around which make our decisions well understood, and if changes are needed, ensure we signal those changes.”

Dodge suggested that Canada is in for a period of prolonged economic growth, with emerging markets expected to place strong demand on commodities for a long period of time and consumers remaining in a spending mood.

--Like my mother always said, quit while you're ahead.