It was a seemingly innocuous remark in Stephen Harper's eloquent eulogy to his fallen former finance minister.
Recalling Ottawa's response to the financial crisis, the Prime Minister lauded Jim Flaherty for having "put constraints on any excessive experimentations in monetary policy."
With a few choice words, Mr. Harper laid bare years of simmering tensions between his Conservative government and former Bank of Canada governor Mark Carney.
To the outside world, the pugnacious finance minister and the smooth Harvard-educated investment banker formed a tight team, safely guiding Canada through the recession and a treacherous global financial crash.
But it wasn't always so harmonious behind the scenes, according to people familiar with the situation. Mr. Harper and Mr. Flaherty resented Mr. Carney's rising star and his emergence as the country's leading economic figure during the crisis – a voice they could neither control nor contain.
Those tensions surfaced during a vigorous internal debate about the merits of so-called quantitative easing – the massive operation deployed by the U.S. Federal Reserve to flood the financial system with cash by buying U.S. Treasuries and mortgage bonds.
It's no secret that Mr. Flaherty wasn't a fan of QE. He often complained that printing money was "not good" public policy and urged the Fed and other central banks to wind it down as quickly as possible.
Mr. Carney thought otherwise. Faced with a world on the brink of a catastrophic financial meltdown, Bank of Canada officials believed it was prudent to put in place a QE contingency plan – if only to publicly reassure markets the bank was ready for anything, however remote.
And in early 2009 – half a year after the collapse of Lehman Bros. – that's exactly what the Bank of Canada did. Its spring monetary policy report that year outlined a series of principles under which it would deploy QE, including a commitment to shield the bank's balance sheet from undue risk and to act in a neutral fashion. The bank also pledged to co-ordinate its actions with the federal government to ensure that easing credit conditions would "achieve the best outcome."
Those caveats would not significantly tie the hands of the central bank, which by law operates independently from the government.
The bottom line is that QE was never deployed, nor seriously contemplated.
So if Mr. Flaherty thwarted Mr. Carney's "excessive experimentations" – as Mr. Harper suggests – then the finance minister nixed a policy tool the bank never wanted to use.
Neither the Prime Minister's Office, nor the Bank of Canada, would comment directly on Mr. Harper's reference to excesses.
Bank officials insist that all policy responses to the financial crisis were co-ordinated with the government. And PMO spokesman Jason MacDonald said Mr. Harper was simply praising Mr. Flaherty's "clear-headed, practical approach" to the crisis.
Praise, yes. But also a pointed jab at Mr. Carney – a reminder that an unelected government appointee doesn't occupy the country's economic driver's seat. Central bank independence, be damned.
The bank's QE guidelines reflect misgivings that prevailed at the Department of Finance Canada. Mr. Flaherty and his officials worried that QE could put the bank, and indirectly the government, in a financial hole. They also thought it smacked of picking winners in the marketplace.
QE wasn't the only area where Mr. Carney and Mr. Flaherty sparred. Friction was a constant undercurrent of their relationship. There were disagreements about the drafts of speeches and statements, and even co-ordination of public appearances. And they sparred over specific policies, including the government's guarantees to the mortgage market as well as Mr. Carney's fascination with shifting to more aggressive price-level targeting of monetary policy, according to people familiar with the matter.
There were also tensions over the respective powers of the bank and the Finance Department. Mr. Carney wanted to bring financial regulation under the bank's umbrella – a realignment he has since piloted at the Bank of England. Mr. Flaherty pushed back hard, perhaps sensing a power grab.
Five years on, this all might seem like water under the bridge. Mr. Carney is Governor of the Bank of England and Stephen Poloz runs Canada's central bank.
But when Mr. Carney was on his way out the door, Mr. Flaherty took a personal and unusually active interest in hand-picking his successor.
Quantitative easing remains an emergency weapon in the bank's monetary arsenal.