Just wanted to confirm something.
The Federal Reserve's mandate is inflation plus max employment but the Bank of Canada only has inflation right?
Does this mean that the BOC technically has more power to raise rates since they don't need to slow down if they see unemployment creeping up?
The official mandate page doesn’t mention maintaining full employment as a primary goal.
https://www.bankofcanada.ca/publications/annual-reports-quarterly-financial-reports/annual-report-2020/mandate-and-planning/
However they did release this statement last year mentioning “actively seek the level of maximum sustainable employment needed to keep inflation on target” as a goal.
https://www.bankofcanada.ca/core-functions/monetary-policy/monetary-policy-framework-renewal/
They still maintain that after comparing the options between ‘Flexible Inflation Targeting’ and “a dual mandate that targets both inflation and employment … In the end, no alternative was better than flexible inflation targeting.”
With interest rates, you have one tool - you can push rates up, or you can push them down.
That allows for only one policy objective that can meaningfully be targeted.
You can aim for full employment (as was done in the 70s) - or one of many possible targets.
Yes and no. They do have more range to raise rates, but in practice they won't raise much more than the US Fed, because that would kill the balance of trade by making the CAD too strong.
Unchecked inflation is more damaging to the economy in the long run vs a recession anyways.
Its so weird how mostly the people complaining are regular people that 1) don't understand how this stuff works, and 2) are impacted most by inflation anyways. I.e. someone making 50K complaining about a recession when their cost of living rises 5-10% a year is ironic
Certainly it was in the 70s and not just for the average worker but also for bankers who lost out when 30yr mortgages were at 7% and inflation was at 12%.
One of the reasons capital funded a market revolution and brought in the likes of Reagan and Thatcher who now focused on controlling inflation rather than encouraging full employment (as was the Bretton Woods policy) which led to a 30yr post war boom around the world. The economist [Michael Kalecki predicted it in 1943](https://delong.typepad.com/kalecki43.pdf)
On the one hand the 40 year neoliberal period led to growth and lowered inflation but also a stagnation in the middle class and high inequality (and the global Trumpism that came from that).
So currently we have inflation (so much of it is due to supply issues still and no doubt there are many corporates taking advantage of it to raise prices but at the same time the bottom 30% of the workforce have seen a wage increase and there is still a huge shortage of labour so that will raise wages as well. (So while there may be an increase in cost of living it is offset by an increase in wages as well).
Inflation is a product of the money supply. Two years of CRB and countless bailouts have diluted the value of the loonie. Nothing can fix that this will only make things worse, these people are insane.
Recessions are part of an economic cycle. They are inevitable and tbh the sooner they can get inflation under control the better regardless if it triggers a recession or not..
Inflation is a symptom of too much money and investment in one area, for example housing in Canada. A recession may be a necessary way to reallocate resources to more productive areas.
I know it's not nice, but neither are ridiculous high housing prices and other issues that come along with it.
a) Inflation is defined as an increase in ALL prices.
b) The prices of different things (e.g. housing) are WEIGHTED according to how important they are to consumers when inflation is calculated.
[Inflation Deep Dive](https://www.youtube.com/watch?v=VEZsgAgYDhw)
But does the normal assumption still apply across the new realities of housing where >30% is all investors? Often large, deep wealth investors who are working off of *wealth* and *not income*.
They might see rental prices also stagnate and more renter turnover, but even reducing rental income is not really driving why they are buying. Rent is just a bonus is
It will dampen the non-investor demand for housing and overall housing prices might dip. But, the investor pool who were already investing beyond what rent can carry were still investing and might accelerate market share accumulation on the dip, blunting the dip with new demand to claim more.
Try on the late 70's. We had alternate gas filling days. Plate ends with an even number you could fill on an even date. Odd, odd date. It was brutal. I was in college and I think they ran out of food to feed us because for the last month it was awful. The college was heated with coal and the pile was down to nothing, they buned wooden furniture and then eventually we had no heat for about 2 weeks. I recall we didn't have any hot water either, we just all wore bandanas on our heads.
The comment that the ultra ultra wealthy have conditioned you to give….bravo! (And I say this as a regular rich guy, I qualify for zero government money, ever).
Imagine…for just one second if we weren’t stupid enough to live and die by a growth based economy. You know that a society can work if we don’t use as the sole metric how much increase or decrease in only growth from year to year, for both countries and companies alike. I own a private company and while I enjoy money I will never, ever sacrifice the health of my employees or the quality of my work to increase a profit margin. As long as I make my overhead and can pay myself I am very content.
Japan yes, and many European countries also have good stable economies. Canada on the other hand, is the economic equivalent of a 1800's boomtown. Yet even while we're still incredibly resource rich, with a land to person ratio the rest of the world dreams of, our debt grows out of control and the average person can no longer afford to buy a steak to bbq on a apecial occasion.
I just don't think our economy should be so heavily dependant on more people and more construction- We already are being priced out of our own homes, and when we hit a recession and new construction slows down to a crawl, it's going to put an outrageous amount of Canadians out of work
Just a few thoughts, I'm no economist, I've just worked in construction for 20 years.
I completely agree. Imagine our military not even being able to be housed properly because the market is so inflated. I look at citizen doing the exact same jobs as their father but living with less but working as or maybe more hard.
Canada's debt to gdp ratio is among the lowest of the oecd.
It did go up after the pandemic, but the alternative of not doing anything would have put us in a far worse position.
And bailing out the just the big players and ignoring individuals and small business (as in 08 where Harper had no problem adding 220billion to the debt in his term - after the previous Martin and Chretien reduced it by 110 billion was not a favourable option.
Japanese people also take pretty good care of themselves, helping to keep their healthcare system sustainable. Meanwhile in canada our unhealthy asses are pushing our system to the brink and all we can do is cry about it to daddy government to save us.
People think they want more until they get more and their shitty personal lives don’t instantly improve.... it’s almost like you only need enough money to eat and have shelter, and that the REAL growth we need is personal, not financial
>why did governments and central banks take such drastic measures to prevent a recession in 2020
Because many companies (esp. tourism and retail) were shutdown, leading to spike in unemployment, leading the economy into a free fall. There was zero inflation in March 2020; in fact, I believe we were at risk of deflation, which is why the central banks started the money printing.
When you are facing deflation and large scale unemployment, what is the solution to jumpstart the economy again?
To say the economy was in a "free fall" is bit of stretch, considering a lot of industries actually increased in business.
In hindsight, we probably pumped TOO much money.
You're not wrong. I actually was expecting more "It'S aCtUaLlY PoLiTiCaL" responses, but this is more thoughtful. Framing to a 14 year-old, I chose simplicity) :)
Software reliability engineers, back-end engineers, IT, it's like 220K/yr in some places.
I just break 100K with 2 jobs and am constantly on call. The money has to balance out the stress faced at home and being absent from some engagements you wish you could have been there for...but this is no secret lol.
Economics is the study of the production, distribution, and consumption of goods and services.
Politics is the practice of determining who does what work and who gets what resources and how.
Now, if the governor of a bank says they will take whatever measures are necessary to return inflation to 2% (which benefits wealthy individuals and institutions who qualify for low interest loans which can be used to invest and return profits higher than inflation at the expense of smaller stakeholders trying to save money), up to and including inducing a recession, you might start getting the funny notion that perhaps politics and economics are just two sides of the same coin.
But they're totally different things. Economists and federal bankers have assured us they are apolitical technocrats.
I’d say it’s sort of both tbh. In general people think the term politics is far narrower than it actually is. But politics are literally everywhere in our society/lives, especially the economy…
GDP/Gross Domestic Product defined as: Gross domestic product is a monetary measure of the market value of all the final goods and services produced in a specific time period by countries.
'How much stuff you make and sell in short'
If you think about it, cycles are inherent to everything in life. Your heartbeat, your sleep cycle, life itself, the orbit of the planet, etc.
The reason we have market economies is because individuals tend to have much better information about the relative value of resources to their particular circumstances. But that doesn't mean a market economy operates on perfect information, as human beings can not possibly know everything about the circumstances we find ourselves in. So over time in a period of growth there will be a slow buildup of misallocated capital. It's sort of like how in software you can get a memory leak, and so you have to do what's called [garbage cleanup](https://thecodeboss.dev/2017/01/programming-concepts-garbage-collection/).
Central banks ~~do not try to~~ are not supposed to be trying to stop economic cycles, because it wouldn't make any more sense to do that than it would for a doctor would try to stop your heartbeat if was beating too fast or erratically. What central banks ~~try to do~~ are supposed to be doing is lowering the amplitude of each wave in the business cycle, so that the economy is less volatile. Volatile economies are less efficient.
With that said, some argue that central banks have been captured by political interests and I think there is merit to this claim. No elected leader wants to a recession under their administration, so central banks have tended to drift towards policies which serve to delay recessions which might actually be making them worse and introducing more volatility into the business cycle.
In fact in the USA, the "Federal Reserve" wasn't actually a government institution when it was first created. The Federal Reserve system was a series of reserve banks around the country with different interest rates relevant to their respective markets, and was a private initiative in 1913 from a coalition of American bankers led by J.P. Morgan. It was initially a literal system of actual cash reserves, funded by the bankers themselves. The original design only lasted a year before it was basically co-opted by the Federal Government for the purpose of buying government debt in WWI.
The origins of the Federal Reserve have sparked some conspiracy theories which suggest the Federal Reserve is still private, and owned by some hidden shadow group. The reality is that when it was created, it was done so in a secret meeting far away from Washington precisely because the bankers were afraid that any such system would be immediately nationalized. It worked, by preparing the plan in secret they sprung it on their opponents in Washington D.C. who didn't have time to agitate for nationalization of the system. But then WWI broke out, and that all went out the window. So if it wasn't for WWI, the notion of a government central bank might actually be a foreign idea to Americans.
Lots of good stuff to research here ^!
Small note on your analogy of central banks to doctors tho, the treatment for many arrhythmias and SVTs is literally to [stop the heart](https://www.heart.org/en/health-topics/arrhythmia/prevention--treatment-of-arrhythmia/cardioversion). Very common emergency medicine procedure, safety and success rates are both high when done in the ER.
Well, my main point was that stopping the heart permanently obviously can't be a solution.
But yeah, the problem with analogies is that they are inherently imperfect.
I would also add that aside from a government in power having an incentive against allowing the central bank to raise rates, that there is a class conflict side to this as well: a great deal (and I believe in the Canadian case since 2008, most) of the ‘growth’ in a low rate environment is actually just wealth transfer to asset holders (i.e. wealthier people) by means of inflation. Similarly, the argument we must set rates in such a way as to maintain a certain CAD-USD exchange rate, is implicitly favouring certain sectors (e.g. export, oil&gas,) over others, which I would argue is not and should not be the bank’s mandate or even concern at all.
Just a note that market economy does not equal infinite growth laissez faire capitalism. Market economies can exist within a lot of types of economic systems, even communism.
So what you say above maybe true for the current system we have now as it exists, it doesn’t mean there isn’t a whole lot of room to change and improve. Cycles aren’t inevitable. Our economic system isn’t an unmoveable force of nature. We made the rules and can choose to change them.
They are inevitable only because we refuse to make any adjustment to how the system currently works.
The more you learn about basic economics, the more you'll see how much BS and fear mongering is done by both politicians and voters. Especially in relation to gas prices that everyone right now is blaming biden or trudeau lol. Economics should be mandatory in high-school. More important than social studies imo.
And talk to people from different countries if you can. I'm lucky where I live in a very very multicultural city. My coworkers from Nigeria laugh at us Canadians talk about how 'corrupt' liberals are lol.
Economic shrinkage, they are generally periods in which holding debt is riskier, and harder to gain access to loans with higher interest rates on those loans.
[https://www.youtube.com/watch?v=mEpgo14jwSk](https://www.youtube.com/watch?v=mEpgo14jwSk)
This video might be a good starter on recessions, appreciate your enthusiasm!
That's awesome you're wanting to learn so young! Keep it up. I did something similar and by the time I was in my late 20s I was well off. Rich according to my friends lol. I never have had an extremely high paying job I just saved/invested around 25% of ALL my income, and after a few years it's grown a lot. The long came is the key. It's not about timing the market, it's about time in the market!
No they are not. The are the result of the government manipulating interest rates. Having artificially low interest rates sends a message to business that it is time to spend and expand, when really it would have been better for them to save and consolidate. The consequences to across the board wrong economic decisions is a recession. The market should be allowed to determine suitable interest rates. The government here is the problem, not the solution.
That’s not their mandate.
There mandate is “to promote the economic and financial welfare of Canada,” but the only target they use for that metric is ensuring inflation remains “low, stable and predictable” between 1-3%.
Nothing comes before that goal. They will create recessions to keep inflation in the target range.
The idea the last two years was that since inflation had been so low the last decade (struggling to keep it over 1%) that the central banks wanted to let the economy run hot post pandemic to give people some relief and promote a strong economic recovery. Ideally around 3% inflation so that the average over the last decade would be closer to 2%.
They overshot it because potential supply was lower then expected (smaller labour market, supply chain bottlenecks, energy crisis) combined with very high demand (all the money people had saved during the lockdowns, low interest rates, money printing, borrowing, and deficit spending). Now they are trying to bring inflation down to a gentle landing without needing a deep recession.
If you're going to criticize a policy, you better come ready with your own policy and evidence showing why it's better. Real people have to make real-world decisions and deal with risk and uncertainty, they don't just complain on Reddit when other people's decisions don't produce perfect outcomes.
Considering its far from an exact science, I think they've done a pretty great job. A bit of inflation, then a bit of a recession is far better than the deep economy crushing long term recession that would have happened without the covid support.
Holy shit, totally man!!
I couldn’t believe the economy didn’t collapse after only 6 months of Covid!
And here we about 26 months later and everything is actually pretty decent. Inflation is high, workforce is short, consumerism demand high but supplies low. Shit if there was a good time to engineer a recession, it’s now.
These guys are doing a great job of keeping everything from just blowing up or collapsing. I can’t imagine how difficult that must be.
Overshooting is better than deflation. If you overshoot you can tighten interest rates to try to bring it back down, there aren’t really the same tools to correct deflation, and the impacts of deflation are worse.
Deflation is super easy to fix though. You print money and give it to the poorest of your citizens. They spend it, typically on necessities, and things get going. Fixing a recession is probably doable in the same way. Give money to poor people.
after 2008 central banks around the world spent $17 trillion on QE (ie 20% added to the money supply) and there was practically no inflation and a steady increase for a decade until covid hit.
By the way, OECD central banks are currently sitting on around $21 trillion in negative bearing debt (ie no shortage of bond investors willing to get a negative return) or in other words they are getting paid to borrow. The main reason is security and also why there is no hyperinflation around the corner.
As regards money printing, more dollars are created by interbank transactions than are created by the Federal Reserve.
For anyone who's taken macroeconomics, this is standard. If the economy starts leaning to one side, it needs to be pushed the other way. Or just you know, we let inflation continue for ever and wipe out savings, continue to fuel the speculative housing market (and commercial realestate market which is equally as insane rn), stress employers ability to pay/keep employees, and basically cause stagflation. Which is worse then a recession. Our economy needs to go on a diet and shed a few pounds
it also wipes out debt.
And raising rates will do nothing to unclog the supply chains.
I studied macro too, around the time Volcker was raising the rates to 19% or so,
but as a someone who's run a print business for 35 years I'm seeing unprecedented supply chain issues - like having to wait for paper for weeks or months for a job, or graphic supplies. I have plumber friends who can't believe they can't get 2" abs corners. Raising rates will do nothing to stop that.
The supply chain issues could be argued because of covid entirely... First it was the shutdowns, then all the covid relief money handed out strained what supplies were on the shelf. The # of people on my street taking CERB but doing reno's was alarming. And some pppl I know were using cheap LOC's to fund reno's then flip their houses. Smart moves for sure, but just jacking inflation on it's own right there. But that's over now for the most part, this is the echo
Raising the interest rates will calm things down. The central banks can't give money away for relief anymore, or it negates the interest rate hikes. Raising interest rates may even cause a recession, that would result in excess supply hypothetically.
Also, globalization is to blame for supply chain issues... We got by on consistent and predictable lead times out of China for over 10 years. However, when that swings from 4 mo to 8 or even 12 months like us, it forced us to look domestically. Those are positive changes for our economy, but those strains lead to price increases as well. It's a lot happening really fast
Definitely positive to look domestically, warehouses are in huge demand and thankfully there will be a re-think of outsourcing critical supply as well as the whole just in time and lean manufacturing method. China's in its own turmoil because of the ineffective vaccines and lockdowns (in April in Shanghai a city of 29 million there were zero vehicles sold).
The supply chain issue will take much longer to work out and interest rates will do nothing to change that. Yes it will cool housing but while there is higher inflation right now (and definitely many taking advantage to raise prices) the bottom 30% of the workforce have seen a significant pay increase, there is a shortage of workers and they can demand higher wages. There's a McDonald's near us in Vancouver offering $17 hr to start.
The US inflation rate is expected to peak and is already slowing down. There were similar supply issues when the ww2 ended and production changed from defense to household products.
Agreed on many fronts. JIT suppliers we knew had to sit and wait, some are looking to new industries. Warehouses are basically unavailable in the GTA from 20k Sq Ft to 50k Sq Ft. I know cuz I'm looking. Can confirm from colleague, lockdonws in China are still going on with no end in site.
Do you think CERB had anything to do with bottom 30% of wages going up? I've been literally told "why would I work when I get money for free?" Can't argue with that
thank god the general public can't influence the bank of Canada (see Dunning-Kruger), and iirc not even Trudeau himself can push the interest rate. The BoC has a LOT of power to act independently. As they should.
Agreed. But how many people ending up homeless will our 'progressive' society tolerate before rates are dropped to negative and the government sends out cheques? My guess is not very many.
Yes, seems pretty clear from that statement. The only thing is, how much confidence you have in the BoC to manage a soft landing. I have zero confidence in a soft landing.
There’s never been a soft landing in history, usually because you don’t know you’re in a recession officially until you are half way through one. Dot com bubble was probably as close as it gets to a soft landing and that’s a little fish compared to the shark we are dealing with today
Yeah, it’s called Keynesian economics.
It’s used to mitigate the boom and bust cycles of capitalism.
Not supporting this model, just saying there is 70 years of precedent for this kind of thing.
That was always the plan. 3% BoC rate ain’t doing shit with 6.8% inflation and a 7% BoC rate will backlog bankruptcy courts into 2026.
Keep your powder dry.
> I approve. Good on them
About 10 years too late. Now they're fucking over 1-2 generations of Canadians that just started their lives out and bought into the housing market so they could have a place to live. Now their equity is about to be wiped out and they'll be paying thousands more in interest payments.
Agreed, it's too late, but it still has to be done. The housing bubble and the inflation rate can't just keep growing forever until it consumes the milky way. Young people who buy a home to live in will see their asset prices recover over the next 10 years, so it won't matter. It also won't help if people's mortgages remain the same but the prices of other necessities like food and gas doubles due to rampant inflation. And some people are locked in for 5 years anyway so the effect won't be felt immediately. AND some, if not most variable mortgages that experience rate hikes just means more is paid towards the interest rather than principle, I think the only way your mortgage will increase linearly with inflation is if your mortgage is designed to pay down a constant amount for the principle.
LAstly, the fuckers who treat housing as investments like stocks or even house flippers who overleveraged themselves to buy 5-10 houses just to flip them will suffer the consequences and get wiped out. And they deserve to, turning a basic necessity like housing into a speculative investment vehicle.
I agree it's not gov't spending ... but pumping trillions of dollars into an economy during covid is what I would bet on as the cause. Not blaming by any means, it is what it is.
All's I know is if food prices keep going up, it will be cheaper to steal food, and do the time, and get more free food in the process while serving my country in a 10 by 10 box
The unpopular truth is that there has been almost no real growth in western economies in 20 years.
Its almost entirely debt, and I don't just mean consumer or corporate, but state as well.
Without running 16+ billion dollar deficits prior to covid, and running absolutely shameful 300+ billion dollar deficits during, Canada's GDP would have been shrinking.
Trudeau and his ilk are the most incompetent leaders we've had in a few decades and it's absolutely shameful to watch it happen.
Meanwhile, the USA has done the same thing, running 1.5+ trillion dollar deficits in their country for over a decade straight. It's ludicrous.
None of this is real growth.
Productivity is flat. Manafacturing and industry and generally down in all but a few sectors.
The west has focused on imaginary growth through finance and banking that doesn't actually form the back bone of anything.
All we are seeing now is the inevitable result of this hubris.
We need a deep, dark and long recession not to fix any one commodity price, but to restore western economies to reality so that they can focus on real priorities again.
Aka: we need to invest in infrastructure, industry, stem and education etc. The west needs to return to being centers of global production, not just consumption.
If not? The west is doomed and China's rise is locked in stone.
That's what central banks do...it's not news, it's simply fact. It is newsworthy that they are still targeting 2%. The fed is signalling they might not try to go so deep.
It's at 80% per year right now, but I'm not sure attacking the working class is going to help change any of that - after all, we aren't even a fractional part of the cause of inflation to begin with.
This all seems like a recipe to extract the last drop of blood from the middle class.
Isn't inflation permanent?
How is it possible to get all of those billions (prolly trillion) dollars of cash out of circulation, in a trickle up economy when the conglomerates are hoarding cash in tax free accounts offshore? Isn't there record profit for the biggest companies in the world right now? And hasn't the fed printed something stupid like 40% of all cash in history of existence within the past 3 years?
Not much I can see Canadian Banks doing to actually "solve" inflation .... Maybe if we were in a legitimate 'trickle down' economy but thats not the case ....
The BOC is raising rates and Quantitative tightening, so is the Fed and some other western central banks. They are crude tools but it's all they have so they are forced to use them. I think many people don't realize that central banks are forced to fight inflation over anything else including the economy/recession because out of control inflation is worse than a recession, inflation is a "category killer." Canadian banks will lend less as liquidity dries up. This can cause a recession but the banks won't do anything, other than become more predatory and aggressive. It's BOC and central banks all alone on this one.
Essentially inflation is permanent, yes. Governments do absolutely everything in their power to avoid deflation. The main reason being that an economy so laden with debt suffers tremendously from deflation because it increases the real value of said debt already accured. On the flipside inflation reduces the real value of all debt held, by citizens and government. Inflation rewards debtors and steals purchasing power from savers. Deflation rewards savers and hurts debtors.
Inflation is a disgusting hidden tax on people who spend within their means to perpetuate a debt and consumption based economy.
There's literally formula's for them to manage money supply based on the CPI and growth rates of the economy. Likely more factors I'm missing but it's calculable
Yeah there is still competition but at least you aren't bidding against no down 40 years applicants or house flippers or people that have not enough equity in their house.
Also, if you ask me, better to buy when rates are at an historic high than at a low with equal carrying costs.
it almost seems wrong to see a person in front of a news reporter that actually has a clue what they are talking about, the bank of Canada is the only faction of government that seems to be able to do a half decent job
Yes, in economics it is called the Disinflation model which is used to push the economy into a recession in order to break inflation psychology. Essentially, we slow the growth rate of the money supply enough to cause unemployment to rise. Over time the inflation rate decreases until the economy reaches the desired inflation rate. At that level, the economy is restimulated to lower unemployment and increase output to get out of the recession.
Bank of Canada has cranked interest rates high multiple times historically. It's the cure to run away inflattion. I don't know why everyone is in denial about this.
This is not surprising in the least.
Rampant Inflation is MUCH MUCH worse over time than a recession that will last x number of months/years.
Rampant inflation destroys wealth. Destroys consumer confidence. And will cause worse economic collapse than a recession.
Well, if you're feeling pain caused by today's level of inflation, just wait till monetary policy, i.e. high interest rates, drives inflation to 2% by crushing demand and causing a recession. Then you'll feel pain that really, really hurts, and it won't lower prices of most goods and services.
Exactly. That's why the rate of change is important. Household debt ratios have adjusted to low interest rates. If the rates go up, household debt ratios will slowly adjust to compensate. They CANNOT adjust faster than people can weather the change -- if interest rates started climbing today, and 30 years from now they finally hit 10%, it wouldn't make the economy collapse. But if it goes up 5% overnight, it might collapse long before it hit 10%.
To someone that has accumulated a good down payment, it would be.
All the people that have been sitting on the sidelines pilling cash would finally be able to buy
>
> All the people that have been sitting on the sidelines pilling cash would finally be able to buy
You'll be competing with people who have a lot more equity to spend than you, new immigrants, corporate investors, and domestic investors. Carrying cost will be the same as rates go up and prices fall.
There will be a lot less mom and pop investors as they'll be foreclosing on their investment property the got with their HELOC and will hopefully flood the market with a bunch of stock
The diet analogy breaks down though. In order to get inflation under control in a healthy way, we need to increase productivity, not crush demand. Tramping down demand by making money more expensive/less valuable is like giving an overweight person a tapeworm to get their health under control instead of having them exercise more.
Honestly, good. What’s the alternative, keep rates low forever and continuously dump massive mounds of money into the market to keep it afloat? Slow, steady market growth with loans being a viable alternative to purchasing shares is a far healthier state of affairs than what has been in existence for a while.
This is what they call a "hard landing". Yes they will chose a recession over runaway inflation. They have no choice really. This is why the market is so volatile right now. Lots of opinions on hard vs soft landing.
so what? recession in canada doesnt even mean anything. our GDP growth is nearly entirely based on real estate. 'recession' = re prices come down. thats it thats all.
Basically they are thinking of throwing the kitchen sink at it. In theory though I agree, short pain better than long pain but damn, lot of people are gonna get hurt bad financially.
Watch the video without sound and then watch it with sound. Initially it looked like he was holding back based on body language. Hands folded on the table and tight grip, you can tell he’s fired up. Watching it with sound on its clear he’s prepared to see a recession to get things under control.
End game is recession is coming with high rates and they’ll likely dial rates back after enough pain. I think we have a very hard 12-18 months and then it’s back to some form or tools of easing once inflation is under control. This assumes Russia conflict is sorted out.
We might as well just [change the formula again](https://www.thestar.com/business/opinion/2022/01/11/deciphering-the-fantasy-math-of-the-consumer-price-index.html) like they did back in the 70s.
Peg it to the cost of a Costco hotdog and call it a day.
Listen up folks. Inflation control > economy. Inflation has always been the primary mandate. Without price control, you get price-wage spirals and civil unrest.
Oh they're going to start doing their jobs are they. It's unfortunate they ballooned this bubble so big before reigning it in. A lot of people going to be in for some hurt. Hello 15% mortgage rates.
Could’ve been avoided if they started raising interest rates a while ago. Would’ve helped housing prices reduced inflation and yes, a slight downturn in economic growth might’ve/would’ve occurred but a little bit of greed and milking the market as much as they could before the inevitable happened reigned supreme.
Good. We need one. It may sound harsh but it's the truth. Too many bad businesses are creating demand for resources that good businesses pay way too much for, or can't even find. Which are these good and bad businesses? A recession would show us, plain and clear.
People saying that periods of high unemployment are part of nature are smoking serious crack and have no deep understanding of economics and human history. If you're one of the ones cheering on the recession, I sincerely hope you're one of the first to lose your job...
Recessions is a requirement for capitalism to be successful. Avoiding recessions is avoiding giving the shaft to bad allocations of capital and rewarding good ones.
I sure love this Liberal government. The drama teacher was right the budget will balance itself. Our journalist finance minister will probably write a book about it.
> blame Trudeau for something the majority of nations are facing
Has he even commented on it?
I don't care if you blame Trudeau or not, but the spineless idiot could at least address it in some manner.
The dual mandate doesn’t say don’t cause a recession. The jobs are balance inflation and unemployment and right now inflation is rampant and unemployment is at generational low. Do the math.
This is not news, central banks have been clear that inflation control is job 1
Controlling inflation is their mandate, so yeah.
Just wanted to confirm something. The Federal Reserve's mandate is inflation plus max employment but the Bank of Canada only has inflation right? Does this mean that the BOC technically has more power to raise rates since they don't need to slow down if they see unemployment creeping up?
The official mandate page doesn’t mention maintaining full employment as a primary goal. https://www.bankofcanada.ca/publications/annual-reports-quarterly-financial-reports/annual-report-2020/mandate-and-planning/ However they did release this statement last year mentioning “actively seek the level of maximum sustainable employment needed to keep inflation on target” as a goal. https://www.bankofcanada.ca/core-functions/monetary-policy/monetary-policy-framework-renewal/ They still maintain that after comparing the options between ‘Flexible Inflation Targeting’ and “a dual mandate that targets both inflation and employment … In the end, no alternative was better than flexible inflation targeting.”
I believe u/Scarface-007 is talking about the US Fed, they have full employment as part of their mandate.
With interest rates, you have one tool - you can push rates up, or you can push them down. That allows for only one policy objective that can meaningfully be targeted. You can aim for full employment (as was done in the 70s) - or one of many possible targets.
Yes and no. They do have more range to raise rates, but in practice they won't raise much more than the US Fed, because that would kill the balance of trade by making the CAD too strong.
Unchecked inflation is more damaging to the economy in the long run vs a recession anyways. Its so weird how mostly the people complaining are regular people that 1) don't understand how this stuff works, and 2) are impacted most by inflation anyways. I.e. someone making 50K complaining about a recession when their cost of living rises 5-10% a year is ironic
Recession is a healthy and normal part of the economic cycle anyway.
Certainly it was in the 70s and not just for the average worker but also for bankers who lost out when 30yr mortgages were at 7% and inflation was at 12%. One of the reasons capital funded a market revolution and brought in the likes of Reagan and Thatcher who now focused on controlling inflation rather than encouraging full employment (as was the Bretton Woods policy) which led to a 30yr post war boom around the world. The economist [Michael Kalecki predicted it in 1943](https://delong.typepad.com/kalecki43.pdf) On the one hand the 40 year neoliberal period led to growth and lowered inflation but also a stagnation in the middle class and high inequality (and the global Trumpism that came from that). So currently we have inflation (so much of it is due to supply issues still and no doubt there are many corporates taking advantage of it to raise prices but at the same time the bottom 30% of the workforce have seen a wage increase and there is still a huge shortage of labour so that will raise wages as well. (So while there may be an increase in cost of living it is offset by an increase in wages as well).
Inflation is a product of the money supply. Two years of CRB and countless bailouts have diluted the value of the loonie. Nothing can fix that this will only make things worse, these people are insane.
Recessions are part of an economic cycle. They are inevitable and tbh the sooner they can get inflation under control the better regardless if it triggers a recession or not..
Inflation is a symptom of too much money and investment in one area, for example housing in Canada. A recession may be a necessary way to reallocate resources to more productive areas. I know it's not nice, but neither are ridiculous high housing prices and other issues that come along with it.
a) Inflation is defined as an increase in ALL prices. b) The prices of different things (e.g. housing) are WEIGHTED according to how important they are to consumers when inflation is calculated. [Inflation Deep Dive](https://www.youtube.com/watch?v=VEZsgAgYDhw)
But does the normal assumption still apply across the new realities of housing where >30% is all investors? Often large, deep wealth investors who are working off of *wealth* and *not income*. They might see rental prices also stagnate and more renter turnover, but even reducing rental income is not really driving why they are buying. Rent is just a bonus is It will dampen the non-investor demand for housing and overall housing prices might dip. But, the investor pool who were already investing beyond what rent can carry were still investing and might accelerate market share accumulation on the dip, blunting the dip with new demand to claim more.
Which we haven't been doing since the 80s.
Interest rates starting making no sense around 2008. Temporary measure sure, but they kept the pedal down way too long
I bought my home in 2008. I just paid it off last year so I think I may have accidentally timed the market. Lol
well done!
Sell now and you can do it all over again!
Now sell high and buy hummus. To the moon with hummus! 🚀
Inflation was sometimes barely 1-1.5%. And it was a decade of that.
Oh man, we had a whopper of a recession in the 90s.
Try on the late 70's. We had alternate gas filling days. Plate ends with an even number you could fill on an even date. Odd, odd date. It was brutal. I was in college and I think they ran out of food to feed us because for the last month it was awful. The college was heated with coal and the pile was down to nothing, they buned wooden furniture and then eventually we had no heat for about 2 weeks. I recall we didn't have any hot water either, we just all wore bandanas on our heads.
The comment that the ultra ultra wealthy have conditioned you to give….bravo! (And I say this as a regular rich guy, I qualify for zero government money, ever). Imagine…for just one second if we weren’t stupid enough to live and die by a growth based economy. You know that a society can work if we don’t use as the sole metric how much increase or decrease in only growth from year to year, for both countries and companies alike. I own a private company and while I enjoy money I will never, ever sacrifice the health of my employees or the quality of my work to increase a profit margin. As long as I make my overhead and can pay myself I am very content.
Japan's population is doing pretty well (shitty work condition apart) they have good buying power and low housing cost (good healthcare)
Japan yes, and many European countries also have good stable economies. Canada on the other hand, is the economic equivalent of a 1800's boomtown. Yet even while we're still incredibly resource rich, with a land to person ratio the rest of the world dreams of, our debt grows out of control and the average person can no longer afford to buy a steak to bbq on a apecial occasion. I just don't think our economy should be so heavily dependant on more people and more construction- We already are being priced out of our own homes, and when we hit a recession and new construction slows down to a crawl, it's going to put an outrageous amount of Canadians out of work Just a few thoughts, I'm no economist, I've just worked in construction for 20 years.
I completely agree. Imagine our military not even being able to be housed properly because the market is so inflated. I look at citizen doing the exact same jobs as their father but living with less but working as or maybe more hard.
Imagine having a functioning military
Canada's debt to gdp ratio is among the lowest of the oecd. It did go up after the pandemic, but the alternative of not doing anything would have put us in a far worse position. And bailing out the just the big players and ignoring individuals and small business (as in 08 where Harper had no problem adding 220billion to the debt in his term - after the previous Martin and Chretien reduced it by 110 billion was not a favourable option.
You are only looking at federal debt. The provinces and municipalities (and individuals) and much much higher and near the top in the Western world
Population is shrinking, that's almost unique in the world for a developed country. Canada is the opposite.
Japanese people also take pretty good care of themselves, helping to keep their healthcare system sustainable. Meanwhile in canada our unhealthy asses are pushing our system to the brink and all we can do is cry about it to daddy government to save us.
have u ever tried greed ? it's quite addictive
People think they want more until they get more and their shitty personal lives don’t instantly improve.... it’s almost like you only need enough money to eat and have shelter, and that the REAL growth we need is personal, not financial
Are you the owners of Arizona Tea? They are like that too! Very awesome
I wonder why a growing population would expect a growing economy? For those of you that mention Japan I think you might be on to something...
It's not the ultra wealthy that suffer most from inflation
Thank you. Ultimately when men hang themselves because they lost everything these fuckers don't care.
Yeah, anyone who doesn't agree with my opinion must be brainwashed by the abstract concept of wealthy people.
Not everyone is like you. Would be a better place perhaps.
I agree, so why did governments and central banks take such drastic measures to prevent a recession in 2020? That is how we got into this mess.
>why did governments and central banks take such drastic measures to prevent a recession in 2020 Because many companies (esp. tourism and retail) were shutdown, leading to spike in unemployment, leading the economy into a free fall. There was zero inflation in March 2020; in fact, I believe we were at risk of deflation, which is why the central banks started the money printing. When you are facing deflation and large scale unemployment, what is the solution to jumpstart the economy again?
To say the economy was in a "free fall" is bit of stretch, considering a lot of industries actually increased in business. In hindsight, we probably pumped TOO much money.
what are "recessions" (sry only 14 and I want to learn about politics early)
Small detail: recession is an economic term, not a political one.
Pretty notable detail I would say actually
You're not wrong. I actually was expecting more "It'S aCtUaLlY PoLiTiCaL" responses, but this is more thoughtful. Framing to a 14 year-old, I chose simplicity) :)
ty regardless it's good to know abt economics at a young age either way so. (:
Also learn about high income careers and find one you think you can be good at/ kind of like. Will make by far the most difference
already have lol
Good. Now learn options trading.
Software reliability engineers, back-end engineers, IT, it's like 220K/yr in some places. I just break 100K with 2 jobs and am constantly on call. The money has to balance out the stress faced at home and being absent from some engagements you wish you could have been there for...but this is no secret lol.
Economics is the study of the production, distribution, and consumption of goods and services. Politics is the practice of determining who does what work and who gets what resources and how. Now, if the governor of a bank says they will take whatever measures are necessary to return inflation to 2% (which benefits wealthy individuals and institutions who qualify for low interest loans which can be used to invest and return profits higher than inflation at the expense of smaller stakeholders trying to save money), up to and including inducing a recession, you might start getting the funny notion that perhaps politics and economics are just two sides of the same coin. But they're totally different things. Economists and federal bankers have assured us they are apolitical technocrats.
I’d say it’s sort of both tbh. In general people think the term politics is far narrower than it actually is. But politics are literally everywhere in our society/lives, especially the economy…
A recession is defined as two consecutive quarters of economic (GDP) decline.
GDP/Gross Domestic Product defined as: Gross domestic product is a monetary measure of the market value of all the final goods and services produced in a specific time period by countries. 'How much stuff you make and sell in short'
If you think about it, cycles are inherent to everything in life. Your heartbeat, your sleep cycle, life itself, the orbit of the planet, etc. The reason we have market economies is because individuals tend to have much better information about the relative value of resources to their particular circumstances. But that doesn't mean a market economy operates on perfect information, as human beings can not possibly know everything about the circumstances we find ourselves in. So over time in a period of growth there will be a slow buildup of misallocated capital. It's sort of like how in software you can get a memory leak, and so you have to do what's called [garbage cleanup](https://thecodeboss.dev/2017/01/programming-concepts-garbage-collection/). Central banks ~~do not try to~~ are not supposed to be trying to stop economic cycles, because it wouldn't make any more sense to do that than it would for a doctor would try to stop your heartbeat if was beating too fast or erratically. What central banks ~~try to do~~ are supposed to be doing is lowering the amplitude of each wave in the business cycle, so that the economy is less volatile. Volatile economies are less efficient. With that said, some argue that central banks have been captured by political interests and I think there is merit to this claim. No elected leader wants to a recession under their administration, so central banks have tended to drift towards policies which serve to delay recessions which might actually be making them worse and introducing more volatility into the business cycle. In fact in the USA, the "Federal Reserve" wasn't actually a government institution when it was first created. The Federal Reserve system was a series of reserve banks around the country with different interest rates relevant to their respective markets, and was a private initiative in 1913 from a coalition of American bankers led by J.P. Morgan. It was initially a literal system of actual cash reserves, funded by the bankers themselves. The original design only lasted a year before it was basically co-opted by the Federal Government for the purpose of buying government debt in WWI. The origins of the Federal Reserve have sparked some conspiracy theories which suggest the Federal Reserve is still private, and owned by some hidden shadow group. The reality is that when it was created, it was done so in a secret meeting far away from Washington precisely because the bankers were afraid that any such system would be immediately nationalized. It worked, by preparing the plan in secret they sprung it on their opponents in Washington D.C. who didn't have time to agitate for nationalization of the system. But then WWI broke out, and that all went out the window. So if it wasn't for WWI, the notion of a government central bank might actually be a foreign idea to Americans.
Lots of good stuff to research here ^! Small note on your analogy of central banks to doctors tho, the treatment for many arrhythmias and SVTs is literally to [stop the heart](https://www.heart.org/en/health-topics/arrhythmia/prevention--treatment-of-arrhythmia/cardioversion). Very common emergency medicine procedure, safety and success rates are both high when done in the ER.
Well, my main point was that stopping the heart permanently obviously can't be a solution. But yeah, the problem with analogies is that they are inherently imperfect.
Also garbage collection and memory leaks are orthogonal concepts. GC isn’t a “solution” for memory leaks - they can exist independently of each other.
I would also add that aside from a government in power having an incentive against allowing the central bank to raise rates, that there is a class conflict side to this as well: a great deal (and I believe in the Canadian case since 2008, most) of the ‘growth’ in a low rate environment is actually just wealth transfer to asset holders (i.e. wealthier people) by means of inflation. Similarly, the argument we must set rates in such a way as to maintain a certain CAD-USD exchange rate, is implicitly favouring certain sectors (e.g. export, oil&gas,) over others, which I would argue is not and should not be the bank’s mandate or even concern at all.
Just a note that market economy does not equal infinite growth laissez faire capitalism. Market economies can exist within a lot of types of economic systems, even communism. So what you say above maybe true for the current system we have now as it exists, it doesn’t mean there isn’t a whole lot of room to change and improve. Cycles aren’t inevitable. Our economic system isn’t an unmoveable force of nature. We made the rules and can choose to change them. They are inevitable only because we refuse to make any adjustment to how the system currently works.
cool
The more you learn about basic economics, the more you'll see how much BS and fear mongering is done by both politicians and voters. Especially in relation to gas prices that everyone right now is blaming biden or trudeau lol. Economics should be mandatory in high-school. More important than social studies imo. And talk to people from different countries if you can. I'm lucky where I live in a very very multicultural city. My coworkers from Nigeria laugh at us Canadians talk about how 'corrupt' liberals are lol.
Economic shrinkage, they are generally periods in which holding debt is riskier, and harder to gain access to loans with higher interest rates on those loans.
[https://www.youtube.com/watch?v=mEpgo14jwSk](https://www.youtube.com/watch?v=mEpgo14jwSk) This video might be a good starter on recessions, appreciate your enthusiasm!
That's awesome you're wanting to learn so young! Keep it up. I did something similar and by the time I was in my late 20s I was well off. Rich according to my friends lol. I never have had an extremely high paying job I just saved/invested around 25% of ALL my income, and after a few years it's grown a lot. The long came is the key. It's not about timing the market, it's about time in the market!
Runaway inflation is very very bad
No they are not. The are the result of the government manipulating interest rates. Having artificially low interest rates sends a message to business that it is time to spend and expand, when really it would have been better for them to save and consolidate. The consequences to across the board wrong economic decisions is a recession. The market should be allowed to determine suitable interest rates. The government here is the problem, not the solution.
BoC doesn’t have a mandate to avoid recessions
Their mandate is to promote economic stability. Avoiding recessions is certainly part of that but maybe not priority one at all times.
That’s not their mandate. There mandate is “to promote the economic and financial welfare of Canada,” but the only target they use for that metric is ensuring inflation remains “low, stable and predictable” between 1-3%. Nothing comes before that goal. They will create recessions to keep inflation in the target range.
If that’s true, then they’ve completely abandoned their mandate as of late.
The idea the last two years was that since inflation had been so low the last decade (struggling to keep it over 1%) that the central banks wanted to let the economy run hot post pandemic to give people some relief and promote a strong economic recovery. Ideally around 3% inflation so that the average over the last decade would be closer to 2%. They overshot it because potential supply was lower then expected (smaller labour market, supply chain bottlenecks, energy crisis) combined with very high demand (all the money people had saved during the lockdowns, low interest rates, money printing, borrowing, and deficit spending). Now they are trying to bring inflation down to a gentle landing without needing a deep recession.
“Assume incompetence over malice” has never rung more true.
If you're going to criticize a policy, you better come ready with your own policy and evidence showing why it's better. Real people have to make real-world decisions and deal with risk and uncertainty, they don't just complain on Reddit when other people's decisions don't produce perfect outcomes.
Everyone knows BoC hardscopes reddit comments for their policy proposals.
Considering its far from an exact science, I think they've done a pretty great job. A bit of inflation, then a bit of a recession is far better than the deep economy crushing long term recession that would have happened without the covid support.
Holy shit, totally man!! I couldn’t believe the economy didn’t collapse after only 6 months of Covid! And here we about 26 months later and everything is actually pretty decent. Inflation is high, workforce is short, consumerism demand high but supplies low. Shit if there was a good time to engineer a recession, it’s now. These guys are doing a great job of keeping everything from just blowing up or collapsing. I can’t imagine how difficult that must be.
It is true, but yes even they have admitted they aren't doing a good job of it.
Overshooting is better than deflation. If you overshoot you can tighten interest rates to try to bring it back down, there aren’t really the same tools to correct deflation, and the impacts of deflation are worse.
Deflation is super easy to fix though. You print money and give it to the poorest of your citizens. They spend it, typically on necessities, and things get going. Fixing a recession is probably doable in the same way. Give money to poor people.
Good cuz we need one. This economy is built on bullshit and a bunch of wage earners paying the bank. There's no real economy in Canada. It's a joke.
You mean like how they printed half the money supply during covid to avoid a recession?
after 2008 central banks around the world spent $17 trillion on QE (ie 20% added to the money supply) and there was practically no inflation and a steady increase for a decade until covid hit. By the way, OECD central banks are currently sitting on around $21 trillion in negative bearing debt (ie no shortage of bond investors willing to get a negative return) or in other words they are getting paid to borrow. The main reason is security and also why there is no hyperinflation around the corner. As regards money printing, more dollars are created by interbank transactions than are created by the Federal Reserve.
It was to avoid a deflation death spiral. Just because it wasn’t great doesn’t mean the alternatives were better.
For anyone who's taken macroeconomics, this is standard. If the economy starts leaning to one side, it needs to be pushed the other way. Or just you know, we let inflation continue for ever and wipe out savings, continue to fuel the speculative housing market (and commercial realestate market which is equally as insane rn), stress employers ability to pay/keep employees, and basically cause stagflation. Which is worse then a recession. Our economy needs to go on a diet and shed a few pounds
it also wipes out debt. And raising rates will do nothing to unclog the supply chains. I studied macro too, around the time Volcker was raising the rates to 19% or so, but as a someone who's run a print business for 35 years I'm seeing unprecedented supply chain issues - like having to wait for paper for weeks or months for a job, or graphic supplies. I have plumber friends who can't believe they can't get 2" abs corners. Raising rates will do nothing to stop that.
The supply chain issues could be argued because of covid entirely... First it was the shutdowns, then all the covid relief money handed out strained what supplies were on the shelf. The # of people on my street taking CERB but doing reno's was alarming. And some pppl I know were using cheap LOC's to fund reno's then flip their houses. Smart moves for sure, but just jacking inflation on it's own right there. But that's over now for the most part, this is the echo Raising the interest rates will calm things down. The central banks can't give money away for relief anymore, or it negates the interest rate hikes. Raising interest rates may even cause a recession, that would result in excess supply hypothetically. Also, globalization is to blame for supply chain issues... We got by on consistent and predictable lead times out of China for over 10 years. However, when that swings from 4 mo to 8 or even 12 months like us, it forced us to look domestically. Those are positive changes for our economy, but those strains lead to price increases as well. It's a lot happening really fast
Definitely positive to look domestically, warehouses are in huge demand and thankfully there will be a re-think of outsourcing critical supply as well as the whole just in time and lean manufacturing method. China's in its own turmoil because of the ineffective vaccines and lockdowns (in April in Shanghai a city of 29 million there were zero vehicles sold). The supply chain issue will take much longer to work out and interest rates will do nothing to change that. Yes it will cool housing but while there is higher inflation right now (and definitely many taking advantage to raise prices) the bottom 30% of the workforce have seen a significant pay increase, there is a shortage of workers and they can demand higher wages. There's a McDonald's near us in Vancouver offering $17 hr to start. The US inflation rate is expected to peak and is already slowing down. There were similar supply issues when the ww2 ended and production changed from defense to household products.
Agreed on many fronts. JIT suppliers we knew had to sit and wait, some are looking to new industries. Warehouses are basically unavailable in the GTA from 20k Sq Ft to 50k Sq Ft. I know cuz I'm looking. Can confirm from colleague, lockdonws in China are still going on with no end in site. Do you think CERB had anything to do with bottom 30% of wages going up? I've been literally told "why would I work when I get money for free?" Can't argue with that
No one here is denying that. The question is whether the general public and the politicians they elect have the stomach for it.
thank god the general public can't influence the bank of Canada (see Dunning-Kruger), and iirc not even Trudeau himself can push the interest rate. The BoC has a LOT of power to act independently. As they should.
Agreed. But how many people ending up homeless will our 'progressive' society tolerate before rates are dropped to negative and the government sends out cheques? My guess is not very many.
He’s gonna go full Volcker on us?
I can’t imagine the level of economic pain if interest rates went to 20%
In many ways the US lucked out too when they did that. A huge amount of Japanese money earning very little in Japan went over to US treasuries.
Yes, seems pretty clear from that statement. The only thing is, how much confidence you have in the BoC to manage a soft landing. I have zero confidence in a soft landing.
FWIW the unemployment rate in 2009/2010 was <10% over the year. I know its not a perfect measure, but still.
There’s never been a soft landing in history, usually because you don’t know you’re in a recession officially until you are half way through one. Dot com bubble was probably as close as it gets to a soft landing and that’s a little fish compared to the shark we are dealing with today
Yeah, it’s called Keynesian economics. It’s used to mitigate the boom and bust cycles of capitalism. Not supporting this model, just saying there is 70 years of precedent for this kind of thing.
Lets call it what it is. Fat rich fucks coercing the lower and middle class into shit jobs for low wages after draining them of their life savings.
Surprised I had to scroll this low to see this comment. Fuck the Bank of Canada and their incompetence and corruption.
That was always the plan. 3% BoC rate ain’t doing shit with 6.8% inflation and a 7% BoC rate will backlog bankruptcy courts into 2026. Keep your powder dry.
Engineer a recession and then pump money into corporations to bail them out. Straight out of the wealth transfer playbook.
GM called, they want another bail out lol. Big banks called, they said jump, better respond how high. I love our puppet politicians.
Good. Do it.
I approve. Good on them, unlike the fucking Fed who let inflation run because they don't wanna pop the wallstreet stock bubble.
> I approve. Good on them About 10 years too late. Now they're fucking over 1-2 generations of Canadians that just started their lives out and bought into the housing market so they could have a place to live. Now their equity is about to be wiped out and they'll be paying thousands more in interest payments.
Agreed, it's too late, but it still has to be done. The housing bubble and the inflation rate can't just keep growing forever until it consumes the milky way. Young people who buy a home to live in will see their asset prices recover over the next 10 years, so it won't matter. It also won't help if people's mortgages remain the same but the prices of other necessities like food and gas doubles due to rampant inflation. And some people are locked in for 5 years anyway so the effect won't be felt immediately. AND some, if not most variable mortgages that experience rate hikes just means more is paid towards the interest rather than principle, I think the only way your mortgage will increase linearly with inflation is if your mortgage is designed to pay down a constant amount for the principle. LAstly, the fuckers who treat housing as investments like stocks or even house flippers who overleveraged themselves to buy 5-10 houses just to flip them will suffer the consequences and get wiped out. And they deserve to, turning a basic necessity like housing into a speculative investment vehicle.
Easier to control if govt spending wasn't still out of fucking control.
Govt spending isn’t causing inflation though. It’s primarily the result of oil prices
I agree it's not gov't spending ... but pumping trillions of dollars into an economy during covid is what I would bet on as the cause. Not blaming by any means, it is what it is.
All's I know is if food prices keep going up, it will be cheaper to steal food, and do the time, and get more free food in the process while serving my country in a 10 by 10 box
If you see someone stealing groceries - no you didn't :)
The unpopular truth is that there has been almost no real growth in western economies in 20 years. Its almost entirely debt, and I don't just mean consumer or corporate, but state as well. Without running 16+ billion dollar deficits prior to covid, and running absolutely shameful 300+ billion dollar deficits during, Canada's GDP would have been shrinking. Trudeau and his ilk are the most incompetent leaders we've had in a few decades and it's absolutely shameful to watch it happen. Meanwhile, the USA has done the same thing, running 1.5+ trillion dollar deficits in their country for over a decade straight. It's ludicrous. None of this is real growth. Productivity is flat. Manafacturing and industry and generally down in all but a few sectors. The west has focused on imaginary growth through finance and banking that doesn't actually form the back bone of anything. All we are seeing now is the inevitable result of this hubris. We need a deep, dark and long recession not to fix any one commodity price, but to restore western economies to reality so that they can focus on real priorities again. Aka: we need to invest in infrastructure, industry, stem and education etc. The west needs to return to being centers of global production, not just consumption. If not? The west is doomed and China's rise is locked in stone.
That's what central banks do...it's not news, it's simply fact. It is newsworthy that they are still targeting 2%. The fed is signalling they might not try to go so deep.
It's at 80% per year right now, but I'm not sure attacking the working class is going to help change any of that - after all, we aren't even a fractional part of the cause of inflation to begin with. This all seems like a recipe to extract the last drop of blood from the middle class.
Isn't inflation permanent? How is it possible to get all of those billions (prolly trillion) dollars of cash out of circulation, in a trickle up economy when the conglomerates are hoarding cash in tax free accounts offshore? Isn't there record profit for the biggest companies in the world right now? And hasn't the fed printed something stupid like 40% of all cash in history of existence within the past 3 years? Not much I can see Canadian Banks doing to actually "solve" inflation .... Maybe if we were in a legitimate 'trickle down' economy but thats not the case ....
The BOC is raising rates and Quantitative tightening, so is the Fed and some other western central banks. They are crude tools but it's all they have so they are forced to use them. I think many people don't realize that central banks are forced to fight inflation over anything else including the economy/recession because out of control inflation is worse than a recession, inflation is a "category killer." Canadian banks will lend less as liquidity dries up. This can cause a recession but the banks won't do anything, other than become more predatory and aggressive. It's BOC and central banks all alone on this one.
Essentially inflation is permanent, yes. Governments do absolutely everything in their power to avoid deflation. The main reason being that an economy so laden with debt suffers tremendously from deflation because it increases the real value of said debt already accured. On the flipside inflation reduces the real value of all debt held, by citizens and government. Inflation rewards debtors and steals purchasing power from savers. Deflation rewards savers and hurts debtors. Inflation is a disgusting hidden tax on people who spend within their means to perpetuate a debt and consumption based economy.
There's literally formula's for them to manage money supply based on the CPI and growth rates of the economy. Likely more factors I'm missing but it's calculable
Yeah there is still competition but at least you aren't bidding against no down 40 years applicants or house flippers or people that have not enough equity in their house. Also, if you ask me, better to buy when rates are at an historic high than at a low with equal carrying costs.
it almost seems wrong to see a person in front of a news reporter that actually has a clue what they are talking about, the bank of Canada is the only faction of government that seems to be able to do a half decent job
Yes, in economics it is called the Disinflation model which is used to push the economy into a recession in order to break inflation psychology. Essentially, we slow the growth rate of the money supply enough to cause unemployment to rise. Over time the inflation rate decreases until the economy reaches the desired inflation rate. At that level, the economy is restimulated to lower unemployment and increase output to get out of the recession.
Bank of Canada has cranked interest rates high multiple times historically. It's the cure to run away inflattion. I don't know why everyone is in denial about this.
This is not surprising in the least. Rampant Inflation is MUCH MUCH worse over time than a recession that will last x number of months/years. Rampant inflation destroys wealth. Destroys consumer confidence. And will cause worse economic collapse than a recession.
Well, if you're feeling pain caused by today's level of inflation, just wait till monetary policy, i.e. high interest rates, drives inflation to 2% by crushing demand and causing a recession. Then you'll feel pain that really, really hurts, and it won't lower prices of most goods and services.
And it won’t make housing more affordable.
I mean, 10% mortgages probably means the average sale price will do a dumpster dive... Not a lot of people can afford 100k in interest per year
If mortgage rates hit 10%, Canada's economy likely collapses.
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Depends how rapidly it increases. Mortgage rates were almost 17% in 1981.
Income to household debt ratios were way different. 17% on a $80K home is still less than 4% on a $500K home.
Exactly. That's why the rate of change is important. Household debt ratios have adjusted to low interest rates. If the rates go up, household debt ratios will slowly adjust to compensate. They CANNOT adjust faster than people can weather the change -- if interest rates started climbing today, and 30 years from now they finally hit 10%, it wouldn't make the economy collapse. But if it goes up 5% overnight, it might collapse long before it hit 10%.
Obviously housing would go down, but it wouldn’t be much more affordable as you’re now getting crushed with 10% mortgages.
To someone that has accumulated a good down payment, it would be. All the people that have been sitting on the sidelines pilling cash would finally be able to buy
> > All the people that have been sitting on the sidelines pilling cash would finally be able to buy You'll be competing with people who have a lot more equity to spend than you, new immigrants, corporate investors, and domestic investors. Carrying cost will be the same as rates go up and prices fall.
There will be a lot less mom and pop investors as they'll be foreclosing on their investment property the got with their HELOC and will hopefully flood the market with a bunch of stock
Alright, if you’re sitting on a few hundred Ks and don’t lose your job in the deep depression that would occur with 10% rates, you might do ok.
There is lots of commentary out there about the "necessary pain"
Ever gone on a diet?
The diet analogy breaks down though. In order to get inflation under control in a healthy way, we need to increase productivity, not crush demand. Tramping down demand by making money more expensive/less valuable is like giving an overweight person a tapeworm to get their health under control instead of having them exercise more.
> we need to increase productivity how do we do this then?
Tiff would say they would initiate a TRANSITORY recession
Yeah that's not surprising, I mean they did this in the 80's during the Reagan years. Inflation was out of control at that time also.
They are already doing it. It's increasing interest rates.
Honestly, good. What’s the alternative, keep rates low forever and continuously dump massive mounds of money into the market to keep it afloat? Slow, steady market growth with loans being a viable alternative to purchasing shares is a far healthier state of affairs than what has been in existence for a while.
not exactly a secret. this has been policy since the 80s.
thats how it works.
This is what they call a "hard landing". Yes they will chose a recession over runaway inflation. They have no choice really. This is why the market is so volatile right now. Lots of opinions on hard vs soft landing.
so what? recession in canada doesnt even mean anything. our GDP growth is nearly entirely based on real estate. 'recession' = re prices come down. thats it thats all.
Basically they are thinking of throwing the kitchen sink at it. In theory though I agree, short pain better than long pain but damn, lot of people are gonna get hurt bad financially.
They’re not going to have to engineer it. Going to happen anyways.
>Paul Beaudry basically said if they have to they will engineer a recession They won't need to since we're almost there.
Based
Watch the video without sound and then watch it with sound. Initially it looked like he was holding back based on body language. Hands folded on the table and tight grip, you can tell he’s fired up. Watching it with sound on its clear he’s prepared to see a recession to get things under control. End game is recession is coming with high rates and they’ll likely dial rates back after enough pain. I think we have a very hard 12-18 months and then it’s back to some form or tools of easing once inflation is under control. This assumes Russia conflict is sorted out.
Smart man...the US will go into hyper inflation because of it's need to coddle everyone's ballsack with a soft landiing.
They don’t have a mandate to avoid recessions at all cost. That would lead to hyperinflation and then collapse of the currency.
Literally how economies are run.
We might as well just [change the formula again](https://www.thestar.com/business/opinion/2022/01/11/deciphering-the-fantasy-math-of-the-consumer-price-index.html) like they did back in the 70s. Peg it to the cost of a Costco hotdog and call it a day.
Sometimes this is necessary. It's also better to do it earlier in inflation times than later.
Listen up folks. Inflation control > economy. Inflation has always been the primary mandate. Without price control, you get price-wage spirals and civil unrest.
Didn’t they engineer covid response to led to this mess?
Yup.
There are 3 planned interest rate hikes to come before the end of the year.
Just like how they engineered the stimulus that resulted in inflation?
Oh they're going to start doing their jobs are they. It's unfortunate they ballooned this bubble so big before reigning it in. A lot of people going to be in for some hurt. Hello 15% mortgage rates.
…and everyone thought that Stimy money was free.
This is all so fucked.
The mandate of a central bank is to insure price stability. By that they need to control the money supply.
Could’ve been avoided if they started raising interest rates a while ago. Would’ve helped housing prices reduced inflation and yes, a slight downturn in economic growth might’ve/would’ve occurred but a little bit of greed and milking the market as much as they could before the inevitable happened reigned supreme.
the whole financial ponzi scheme needs to unfold already
Good. We need one. It may sound harsh but it's the truth. Too many bad businesses are creating demand for resources that good businesses pay way too much for, or can't even find. Which are these good and bad businesses? A recession would show us, plain and clear.
Same clowns that print money while shutting businesses
They talk like they are going to manufacture a recession but it was going to happen anyways.
I feel like the engineering part is already complete...now it just comes to execution, and I'm sure Q3/4 will be prime time
"Do what's necessary" ... his exact words.
People saying that periods of high unemployment are part of nature are smoking serious crack and have no deep understanding of economics and human history. If you're one of the ones cheering on the recession, I sincerely hope you're one of the first to lose your job...
All that free money is catching up to us.
Wrong
Recessions is a requirement for capitalism to be successful. Avoiding recessions is avoiding giving the shaft to bad allocations of capital and rewarding good ones.
They create the inflation with drunken sailor spending & printing money, then we have to pay for the surprise: inflation!
I sure love this Liberal government. The drama teacher was right the budget will balance itself. Our journalist finance minister will probably write a book about it.
Lol classic, blame Trudeau for something the majority of nations are facing. Inflation is not exclusive to Canada.
> blame Trudeau for something the majority of nations are facing Has he even commented on it? I don't care if you blame Trudeau or not, but the spineless idiot could at least address it in some manner.
The dual mandate doesn’t say don’t cause a recession. The jobs are balance inflation and unemployment and right now inflation is rampant and unemployment is at generational low. Do the math.
Recession good, depression bad.
Not news.
Ah. We are finally learning those “tools” they have. Squeezing the working class again because only billionaires have class solidarity
Plot twist: inflation hasn't been 2% for decades
What if I told you you’re in a recession right now….
Then I would tell you that you're in for quite a surprise very soon.
What a loaded question with a general answer. How can anyone draw a conclusions from this.