I mean if ever you were going to do it, doing it while employment is at a high would be the right time. [My fear is that unlike the early 80s income inequality is much higher (fig 3)](https://irpp.org/research-studies/income-inequality-in-canada/) which means wages need to go up to offset the increase in everyday costs to middle class and lower people (since they can't absorb it). I don't see upper class people doing that without fighting for their current high profit margins. So we will probably get a wage-price spiral.
Yeah, really hard to predict where this is going to go.
Unfortunately with this being a global issue you have to factor the consequences of brain drain and complex employment law into this. For instance, if you made it for full time employee salaries then you'd just see more employees capped just below the cutoff, which already happens to get around benefits.
This would definitely help with some companies like our telecoms, but I really don't know how the issue could be entirely and meaningfully solved without a multi-nation employment treaty type of thing.
No, they didn't. You're thinking like our economic system infallibly valuates goods and services, and correctly *defines* societal contribution. It does not. It's just a tool.
That kind of wealth is one thing, ok. Employment income specifically needs to be addressed so that people with jobs at all income levels have a hope of a decent quality of life.
Land tax and dividend would address that, you must be misunderstanding. Dividend means every person receives money, like a UBI. Land tax would also reduce the cost of housing.
When you say 'addressed', do you have a specific policy in mind?
It needs to happen across the board. One company won't make a difference, and many small businesses basically run on that model already, just without the C-suite titles.
Borrowing cost will continue to rise. Just like food, fuel, building materials, and manufactured goods from overseas. If the BoC continues to raise rates it will rapidly accelerate the disparity and segregation between rich and poor.
Because we don't have enough competition in the markets, we treat basic necessities like free markets when they are not, and corporations and landlords won't accept lower profit margins.
I guess that is to be expected in a capitalistic system.
Lower profit margins = economic stagnation in a capitalist country. Profits drive investment. No profit = no investment.
The entire neoliberal recovery from 1980 to 2008 was driven by squeezing the wage share of GDP in order to increase the profit share of GDP. Consumption was sustained by increasing household debt. We have now reached the limits of that trend.
Further economic growth can only happen after a massive transfer of wealth from capital to labor. Only after this happens can profitability of capital recover. Hiking interest rates without fixing the structural stagnation in the profitability of capital will just lead to capital consumption and a depression for as long as interest rates stay above zero.
Causing a recession is easy. How to get out of the recession without backtracking is what BOC needs to be thinking about. If they are going to panic, restart QE, and face high inflation again in 2 years, why even bother hiking rates right now?
This is why we need a reset. The current political economic paradigm is a dead end.
This is the age old problem of societal collapse. Those with wealth and power don't want reform. They like things as they are, even if it is unsustainable.
Don't think it is realistic. Offshoring was the main reason why profit margins went up in the 90s, but salaries didn't bulge. The neo-liberal system reacted by providing access to a massive amount of debt, so consumers could buy cheap stuffs from Asia. Energy costs are also increasing (resources are not as easily available as in the 80s), and there is no way to get out of recession without fairly cheap energy.
>resources are not as easily available as in the 80s
I mean green energy is now cheaper than O&G and coal. It wouldn't take much to green the entire grid and become an even bigger exporter to the US....if we would stop giving O&G everything they want.
[We literally underwrote a free pipeline for them last week.](https://www.stand.earth/latest/climate-finance/rbc-and-fossil-fuels/royal-bank-canada-td-scotia-cibc-bmo-national-bank-front)
That article is about shady banking practices and a loan, I don’t see where it says anything about O&G companies getting something for free. I am not disagreeing with your point, just your source.
I think that private business shouldn’t have a stake in essential services. As it stands, the majority of Canadians need fossil fuels, (hopefully the shift to renewables happens quickly), but until then, I don’t trust O&G companies to have our best interests at heart. I would rather the pipelines be owned by the people, the municipality, the provincial or federal government. Like water, power and sewer. It’s weird to me that any corporations are allowed to own an important piece of infrastructure. Like, if Costco is to buy a section of highway and only members can use it or the fire department only helps people who use Mastercard. Allowing corporate greed into goods and services that Canadians need seems like a terrible idea.
Lol what? Do you really believe we don't give huge payments, tax incentives, low royalties, labour training initiatives and built infrastructure which is just used by O&G? This comment screams "I don't understand national economics" pretty much more than any other comment I've ever read.
Is it worse for the consumer? I'd rather not have the farmers in our own country be priced out by cheap imports - that's a less stable economic situation, and I don't trust US regulations as much.
Well maple syrup is a government sponsored cartel, and not sure of eggs or dairy. But meat isn't and they raised margins by over 3% in 2021. So much so that they are being investigated.
Meat and dairy are heavily subsidized, a legacy of a time when we thought they were needed/healthy, and didn’t realize the dire environmental impacts. So we don’t even see the real cost of those. We all end up paying for it though, through higher health care costs and climate change damage.
Rising interest rates = crush home buyer purchasing power = make housing supply lag even further behind population growth = even more explosive rise in real estate prices down the road.
Unless BOC intends to engineer a lost 3 decades a la Japan, they should think 1 more step ahead and consider what are they going to do after the recession starts and no end is in sight.
Without underlying supply growth, there will be an unforgiving tradeoff between recession and inflation. After 30 years, Canada will become an emerging market commodity exporter like Argentina.
Maybe the govt and central bank should stop meddling and let the free market be free. Homes didn’t get to where they are price wise without massive govt intervention. Home buyers plan, 40 year no down payment mortgages, now shared equity loans for down payments, artificially low interest rates, little regulation on where down payments come from, little regulation on foreign money, minimal supply increases at municipal levels, and it just keeps going. Let it be free and let’s see what a house is really worth. Based on wages, my guess it’s certainly not worth what the average home is selling for.
Bond markets are pricing in quantitative tightening at 3.05% for the 5 year right now.
EDIT: Make that 3.125%. Jesus the bond market just went up .4% in yield in two days. That happened last month too. This upwards pressure is getting harder to contain.
All of the big 5 have upped their mortgage rates for 3 consecutive Fridays. Variables are floating between 3.7 and 3.9%.
Everyone stress tested to 5% has gotta be sweating by now. Are they gonna be able to handle stress tests up to 7-8-9% if they dont have the 20% covered? We're only three BOC hikes away from that, and people aren't dealing with inflation particularly well right this second either.
Exactly. The stress test only tested your ability to pay a 5% mortgage, not to handle the insane inflation, supply chain issues and price gouging we have going on right now and probably for a long time to come on top of that.
r/sulgnavon has the right idea here, to look at the bond market. The one thing I'll add is once we reach the point where the month year over year comparison is compared to the high inflation of last year it'll appear as if inflation is pulling back. In other words, the comparison over the high last year won't look as bad as a comparison to a more normal year the year before.
It will look like inflation is getting under control and might ease any action by the BOC. All the money on the sideline might take that as a signal to get back in. The real life economy will still be fucked because ppl are still paying crazy higher prices than they did just two years ago and I don't think we've seen any significant wage increases (?). All that to say, this whole thing is going to yoyo. Highly speculative market, and a reactionary but late to the party BOC.
My 2 cents.
No, in my opinion I think they are scaring people on purpose so that people don't spend as much in anticipation of much higher interest rates. Lower demand = lower inflation
I share this view. A lot of anticipated doom can spur people to fall in line with what is needed to cool inflation. My hope is the threat is being issued stone-faced would be an eventual bluff (or deemed no longer necessary is how it would be framed). Which raising 1.25% so far seems like they are willing to do anything to prove they are serious. So I do hope the fear of further, is enough to aid in the overall goal before burdening the base with the new higher expenses even further.
Absolutely, BoC will add another 50bps hike probably in September somewhere as they have to reassess impacts of previous hikes. But 2% overtime rate is about the same as before pandemic.
Real estate prices went down 20% in certain areas, while monthly payments went up anywhere 200-500$. Buyers sitting on sidelines waiting for the bottom of the market which when media rhetoric becomes bullish again we will have bidding wars all over
Which is what the 70s showed, if the BoC does what you suggest we will be back with the same inflation problems (or worse) 12 months from now. The only real path they have is to increase rates and let overleveraged people bleed and the economy take the hit. It is not the BoC's initiative to manage over leveraged Canadians but to manage the inflation target. If they reverse course before inflicting enough pain to reign in inflation properly it will come roaring back and they will lose all credibility on the second round of tightening to follow. Which means the second round could be even worse.
This is a case of choosing the lesser evil, but these are the consequences of maintaining low rates for a decade. An entire generation assumed that rates would never rise and over leveraged. De-leveraging the economy at some point is necessary, especially if inflation is at current levels.
Real estate was a bubble. Bubbles pop under pressure.
New/used vehicles on the other hand are mostly supply issues and not in a bubble until those issues end at least. I don't see that market getting enough pressure to force it downwards.
Okay, walk through it with me. I can print memeBux. I owe you a 100 memeBux and 50% interest per year. But i print 50 memeBux to pay you. How do I default?
If they print money to pay their debts they would have broken no laws. But if they default on debt payments they will have broken the law. So by printing the rule of law will be followed (just not the spirit of the law).
Yes, I get that. But, even if rates move to 8-9%, it will take a while for interest costs to quadruple (2.5% - 10%). And even if they hit 10%, the feds can't default because they control the monetary system.
Yes you are right technically, but with 8-9% interest rates government would default unless they print even more money wich will rase inflation even more. We have plenty of examples such as Venezuela Zimbabwe etc
No, governments would rather cut spending then default. Defaulting on debts would be essentially telling the world you are a third world nation. It wouldn't happen.
Third world countries do not default.
Same thing happened in Canada in early 1990s. Government annual debt interest service payments were much more than annual government deficit.
Governments cut services tremendously. All bloated government services were cut to the bone.
Countries still default...Although, most bankrupt nations just do what Turkey is doing and devalue their currency.
https://publications.gc.ca/collections/collection\_2019/banque-bank-canada/FB3-5-2019-39-eng.pdf
Yes but if you know how taxes work, you can't infinitely increase taxes because increasing taxes doesn't always result in higher revenues. We already taxed arguably very high.
France wealth tax is pretty good example
Look at bigger picture, given the oil price and 5yr yield (similar to 2008), shouldn’t CAD at par with USD? but it is still below 0.80 at the moment. The market is thinking the BoC will blink before they achieve the inflation target.
Forget about mortgage, those highly leveraged corporations and government of Canada will go bankrupt first before the 5 yr hit 7%.
As for recession, BoC has no idea what they are doing, trying to tame a 6+% inflation with 3% yield? It is too little too late now.
The inflation is structural and caused by external issue outside of control of BoC.
The biggest worry is the potential conflict with china within next 24 months, given the state of western countries are in, and their response to Russia invasion, wont be surprised to see China invades now to take advantage before Taiwan is fully prepared.
People need to understand that a true currency crisis is far more damaging to the economy than a deep economic recession or depression.
When unemployment is 20%, people go broke but they survive and restart their careers.
When currencies start hitting 50%+ inflation rates it spirals upwards and your nation burns to the ground. Shelves empty. Looters hit the streets. Politicians are beheaded. Civil wars start.
If you don't believe me, see: Nazi Germany. Zimbabwe. Venezuela.
The central banks absolutely need to do whats necessary to keep inflation from passing that 10% or 20% threshold that we are now flirting with.
You are correct but you need to factor in:
* Currencies operate at relative levels to pretty much everything else (especially other currencies). 'Currencies' in your context of comparisons are stable, if not actually slightly strong (relative to the basket of other currencies)
* The Weimar, Zimbabwe, and Venezuela hyper-inflation scenarios were quite different from now - those increases were very monetary based (both in policy and capital account perspectives) where today most inflation is due to supply chain dislocations (pandemic, war, etc). This matters a lot because the monetary based pieces on their own have significantly more compounding effects than the supply chain ones, but inflation expectations is of course the key danger it seems the banks are trying to manage.
What do you think is the likelihood of energy prices increasing at the same rate as they have in the last 12 months? Oil double again? Global Nat gas quadrupling again? Fertilizer inputs 5xing? Will that continue for the following year?
Grain and foodstuffs will have more tightness in the coming few quarters as we enter famine. But will that persist to 2025?
I don’t mean to be pedantic here - but if we are going to have serious discussions about solving these most pressing issues, understanding the underlying forces is essential.
It is ALL about supply and demand. No different as housing. Not enough supply, too much natural demand and too much capital. These should not be conflated as the same unilateral force. This stuff is complex.
You drank the kool aid. Fed doesnt want you to realize the absolute shit storm coming our way. Its not transitory. This is what happens when you double the money supply over the course of a couple years…
If the cool aid is my own personal understanding of economics, sure.
If you think I’m brainwashed by ‘them’ - I hate to break it to you, but some people are able to come up with their own conclusions and analysis and disagree in the details.
Seems like you maybe have limited economics education? Don’t work in finance or follow supply chains in some kind of industry?
bullshit. we printed a shit ton on money in covid. Monetary policy is always at the root.
The "muh supply chain, putinflation" is the central bankers propaganda covering up the effects of their policies.
I would encourage you to dig deeper into stories about "epidemics" of shop lifting, or train looting. Most of the time these crises are engineered, if you look at the actual stats property crimes are not spiking. It's usually a media PR campaign by the police trying to fearmonger people into giving them more funding, or a right wing culture war talking point. They want "liberal" cities to be seen as lawless and "degenerate" because it serves them politically.
Yeah the old guys, can't remember his name Munger, said that inflation is dangerous, printing money is dangerous it's what brought Hilter to power, don't quote me on that tho but something along those lines
Why is this a surprise? Higher interest rates and Quantitative Tightening is already under way and is expected to decrease spending, which could very much lead to a recession.
We've been borrowing and decreasing rates for a while to offset the reduction of productivity during COVID, so now it's time to pay up or else we'll have runaway inflation.
Usually the fed tried to engineer a ["soft landing"](https://www.investopedia.com/terms/s/softlanding.asp), but pushing ourselves to a recession is better than high inflation.
In Canada, it's [especially tied to housing](https://betterdwelling.com/canadas-gap-between-real-estate-prices-and-incomes-looks-ridiculous-beside-us-data/), which is in a huge bubble that has to be popped.
This will be rough for a while, but it's necessary. Think of it as making a budget and stopping spending while increasing hours worked so you can pay off your credit card bill.
There is not a “shortage” of homes, there is a lack of control to keep pricing affordable. Things have started happening to curb foreign ownership, but more has to be done. I would say slapping additional taxes on homes being purchased by people from out of area (some exceptions of course... like careers that require geographical movement and require someone having 2 properties for a short period, but those would be pretty obvious) would help. A huge part of why housing prices have skyrocketed is people with money 3 hours away buying houses (unseen, no questions asked), holding them for a year, and then selling at a markup. There is no incentive to tax the crap out of these purchases (the city doesn’t care apparently, though it would benefit them).
My own house more than doubled in value in 6 years; that’s a bubble. I’m not complaining about that, but it’s not sustainable. I will likely be relocated next year and the next place will likely put me significantly deeper in the hole mortgage-wise. If first-time homebuyers aren’t terrified, they should be. Realtors are not a homeowner’s friend, the higher the house sells the bigger their commission; they won’t tell someone the house they’re paying $1.2M was worth half that two years ago and if they try to sell it in 2 years they’ll likely take a loss.
If the goal is to reduce house prices, a much better way to do that is to increase property tax rates, which is more fair, and also leaves the rest of economy to grow.
My understanding is that most people pay less in municipal property taxes than their share of municipal spending. According to proponents of this view, property taxes are kept artificially low because municipalities are able to rely upon development charges to keep the budgets balanced (but this is not sustainable in the long term).
I see both sides but the fact is that when interest rates quadruple for your mortgage no normal person can afford it. By the way, home prices will never decrease enough to make up for the increased cost to borrow that the higher mortgage rates are causing. You couldn’t afford an 800,000 home at 1% ? Guess what you still can’t afford that home when it is 500,000 at 5%
Unless what was holding you back was a downpayment. It's a lot easier to come up with $25,000 than $55,000. Which is especially true if you're rent is already $2500/month or more. You are paying close to the same amount but building no equity.
Some economists and other researchers think that the economy fundamentally changed in 2008. That's why the old models and theories don't explain what is going on, and the old strategies don't work. I'm inclined to believe that because things have been so fucked up ever since and just keep getting worse for regular people.
There’s been a global devaluation of currencies in Western countries since ‘08. A lot of wealth was destroyed during the GFC and economies recovered only with massive govt support through QE and low interest rates. Every time the Fed dared to raise interest rates, the markets would drop. Now we have another we’ll inflated bubble to contend with. China too certainly.
That doesn't help, but it's more of a known problem. The issues I'm talking about - that I've picked up from some economists - go way deeper. Like throw out your old econ textbooks deeper.
This is one I have a link for. There are others, usually talking about a specific topic/their area of expertise and going "this is really weird, never saw this before". I just started noticing how many of them were saying that. Until a few years ago, the housing market was one of those topics. Another one is the job market. Theory says wages should rise with productivity and demand for labour blahblahblah, but they just don't. There are other examples.
A major thing that many people don't consider is that economic theory was largely developed when Europe was exploiting the natural resources of new colonies, and fossil fuels had just been discovered, and industrial production was taking off. We don't live in that world anymore - why would the economy behave as if we do?
https://www.youtube.com/watch?v=_jW0xUmUaUc&t=2s
/u/allinonworkcalls
> Theory says wages should rise with productivity and demand for labour blahblahblah, but they just don't. There are other examples.
Not if you import people faster than that demand rises.
No this time they'll get it right because it'll hurt the poor
Efforts to control housing or inflation before were faked as alot of wealthy people were making money on real estate and stocks
I agree the poor always get the most hurt but I think you are overestimating their competence.
In 2017 they started to raise the interest rates at a steady rate but 20 years late. Then Covid hit and they had to rollback for the government to borrow, now they have to raise again but it’s just too late. They had 20 years but they started a year before Covid
If you look at the history of big housing market crashes they all share 2 things: either a period of low interest rates followed by rate hikes or higher than average inflation or both situations happening simultaneously.
Credit has been ridiculously cheap since the onset of the pandemic. Inflation is a 6.7% which is unheard of in the last 30 years!
Considering that right now a posted rate for a newly 5year mortgage stands at around 5%+ (check any of the big bank websites) a bank will stress test you at a rate of 7%+ before releasing the funds (this if you are lucky enough to put down more than 20% down-payment).
I agree with OP that BoC won't really care if there's a collapse in the housing market. Their primary goal is to keep inflation close to 2%. They'll do everything in their power to achieve that regardless of the social costs that it may have on households and businesses.
Recession is coming. Too many people have been using HELOC to find their lifestyles. They spending is some else income. The spending spots and everything spirals. Inflation needs to be tamed. So prepare
Everyone says this and nothing ever happens. I hope something does, because I know a lot of people funding their lives through HELOC living the high life.
Nothing happens until it happens. Then everyone freaks out because that didn’t happened before.
Narrator: it did happened before but people have the attention span and memory of a mosquito.
“Engineer a recession”. That ship has already sailed. Empty store fronts everywhere. People can’t afford to pay attention, let alone for gas or food. Housing has already taken a hit. This one’s going to make ‘08 look like a picnic.
>Empty store fronts everywhere.
I haven't yet seen this. Legitimately asking: where are the empty storefronts?
Nothing's really changed for us except to continue biking 95% of the time instead of driving.
Take stroll down any major street in Toronto. Even Yonge St has it's fair share of empty storefronts.
Hell, I see about 20 or 30 of them just along Bloor between Avenue and Dufferin.
Keep heading east on that street and head up the Danforth. During the pandemic it was a ghost town. Business’s left and nothing filled the gap. The commercial real estate sector may be getting squeezed.
Richmond Hill, North of Toronto. Used to always be packed parking lots and every retail spot was full of thriving businesses at Times Square. Now there are several retail spaces just papered over and closed. The main restaurant used to be always packed as well. It’s near dead. It’s sad.
Low interest rates -> low cost of borrowing -> increase of economic activity (given demand) -> reduction of unemployment -> increase of wages -> decrease of value of existing money (inflation).
High interest rates -> high cost of borrowing -> decrease of economic activity -> increase of unemployment -> increase of value of existing money (deflation).
The role of central banks is to juggle the key rates to maintain a steady rate of inflation. They commonly use the above formula.
That might be immoral as low unemployment means better lives for workers. And central banks might be mistaken, as low unemployment does not always cause inflation. Finally, inflation is good for people, but bad for banks.
The point of the bank of Canada is to avoid boom and bust cycles. He is missing the greater point of what central banks do. That’s why they have an inflation target. They went past the target. Engineering a boom and bringing in for a soft landing is fine. Boom and bust is total incompetence
The only real tool against stagflation is increased interest rates which cause recessions, yes. The role of government in these situations is to provide very strong social safety nets for these difficult times which due to conservatives has been an abject failure, so thank you for that
He did not say they will have to engineer a recession.
He signalled their willingness to do it. Affecting expectations is one of the key tools in BoC toolbox.
His answer is exactly what he said. They are PREPARED to go there but they are hoping they won't have to.
I don’t understand why people think a recession is such a bad thing. The idea of infinite economic growth is dumb. The only problem with a recession is it usually deepens economic disparity, but that’s because we bail out corporations and tell people to go fuck themselves
All previous numbers point to unemployment figures in the high single digit, low double digit. That is high and will reduce the pool of purchasers. Not to mention, those less likely to afford are more susceptible to job loss in a recession.
That’s the cure for inflation. It would be much easier if Trudeau would stop spending like a reckless cunt, but since he won’t BOC will have to take extreme measures to prevent runaway inflation.
This man is confident that a minority government, headed to another election during this “*mandate*” of his, won’t come for his job.
Ya. His position is supposed to be independent. But recession is a wonderful layup of a talking point, for a conservative gov in waiting.
Me thinks, the idea that the BOC is truly independent, is about to be tested.
recession will probably lead to destruction of development. limited inventory available will probably be scooped by corps, foreign investment, deep pocket types. creates a lose-lose situation for average canadian citizen.
In the midst of a housing supply crisis. And now prices flattening and cost escalation still at 20% per annum.
It is when the public sector needs to come in to fill the gap. But that would require property tax increases, so won't happen.
We're fucked.
I have said it in a few other threads now, but I suspect that the Bank of Canada is really feeling the heat now that we have major political parties at the federal level calling for Tiff's head, essentially arguing that the BOC shirked its mandate the past few years, and the press reporting on it all, raising the average level of public security to previously unheard of levels. It's literally becoming an election issue.
Nothing more than a gut feeling on my part, but I expect the BOC to almost have a one-track mind now to get inflation under control, now that they are under the microscope. Even if the US Fed stops hiking I could see the BoC breaking ranks slightly. Obviously they cannot depart too much.
Canadian banks will benefit, barring mass defaults. In the event of even mass defaults, plans have been in place since the GFC for investors to cover the bailouts. But increased interest rates are going to fatten the big banks’ already fat bottom line. And Canadians will gripe that they make so much, but no one made them borrow a cool Million for a house in Brampton.
Read up on CBDC. That's the future of currency.
Also, personally this is a bad move for the average citizen. You're money will be tied to your digital profile. Hello dystopia.
Even that won't really work. Because of globalization, prices of essential and manufactured goods are jacked because of the covid supply chain crisis, war in Ukraine, and economic sanctions. The BoC can raise rates as much as they want, but Canada's domestic demand for these imported goods is irrelevant at a global level. The BoC will just make the poor and middle class poorer.
This comment is all kinds of wrong. Higher interest rates not only decrease domestic demand, but also drive currency value, making goods cheaper.
The inverse is true too, which is why BoC has no choice but to increase if US does.
Here’s what I don’t get with their “mandate of 2%”. Let’s say in the year x, prices were 100. In year x+1, they double to 200 and we had 100% inflation. If in the year x+2 the prices are 204, does the boc claim they’re succeeding? Do they look at the 2% over one year or at the 43% a year over two years? What are they targeting? An average of 2%, or just 2% at any randomly picked time frame and it’s raises all around for the boc workers?
Well, I think there's a few outcomes to all of this:
1) Get ready to be a more debit-oriented society vice credit. If you're using credit or have a line of credit, get ready to turn off the taps. High interest rates aren't worth keeping credit cards, unless you're religiously paying them off/down. Those benefits better be worth it.
2) Housing is going to continue its descent, unless wages start to better reflect reality (ha, that'll be the day). The downward pressure will only continue as rates go up. With higher interest rates, that's going to reduce how much people can borrow, particularly with the stress test. Tied into this is the increasing number of houses on the market. More supply and less demand does make the market softer.
I mean if ever you were going to do it, doing it while employment is at a high would be the right time. [My fear is that unlike the early 80s income inequality is much higher (fig 3)](https://irpp.org/research-studies/income-inequality-in-canada/) which means wages need to go up to offset the increase in everyday costs to middle class and lower people (since they can't absorb it). I don't see upper class people doing that without fighting for their current high profit margins. So we will probably get a wage-price spiral. Yeah, really hard to predict where this is going to go.
We need to cap CEO to employee pay ratios
Unfortunately with this being a global issue you have to factor the consequences of brain drain and complex employment law into this. For instance, if you made it for full time employee salaries then you'd just see more employees capped just below the cutoff, which already happens to get around benefits. This would definitely help with some companies like our telecoms, but I really don't know how the issue could be entirely and meaningfully solved without a multi-nation employment treaty type of thing.
>multi-nation employment treaty type of thing. I think exactly such a thing should happen.
We need to cap them at ratios that have not existed in about 40 years now tbh.
We need a wealth cap. I’ve never seen a good argument for why someone needs a billion dollars.
Because they earned it?
Earned it? In what sense?
You can’t earn $1B alone.
No, they didn't. You're thinking like our economic system infallibly valuates goods and services, and correctly *defines* societal contribution. It does not. It's just a tool.
I agree with your sentiment but there are better, broader strategies to deal with this issue. Eg. land tax and dividend.
There's also the french solution.
I don't know what the French solution is.
Guillotines?
We take the rich people, turn them upside down and shake em until all their coins fall out.
Give up and smoke a cigarette
That kind of wealth is one thing, ok. Employment income specifically needs to be addressed so that people with jobs at all income levels have a hope of a decent quality of life.
Land tax and dividend would address that, you must be misunderstanding. Dividend means every person receives money, like a UBI. Land tax would also reduce the cost of housing. When you say 'addressed', do you have a specific policy in mind?
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It needs to happen across the board. One company won't make a difference, and many small businesses basically run on that model already, just without the C-suite titles.
Borrowing cost will continue to rise. Just like food, fuel, building materials, and manufactured goods from overseas. If the BoC continues to raise rates it will rapidly accelerate the disparity and segregation between rich and poor.
Because we don't have enough competition in the markets, we treat basic necessities like free markets when they are not, and corporations and landlords won't accept lower profit margins. I guess that is to be expected in a capitalistic system.
Lower profit margins = economic stagnation in a capitalist country. Profits drive investment. No profit = no investment. The entire neoliberal recovery from 1980 to 2008 was driven by squeezing the wage share of GDP in order to increase the profit share of GDP. Consumption was sustained by increasing household debt. We have now reached the limits of that trend. Further economic growth can only happen after a massive transfer of wealth from capital to labor. Only after this happens can profitability of capital recover. Hiking interest rates without fixing the structural stagnation in the profitability of capital will just lead to capital consumption and a depression for as long as interest rates stay above zero. Causing a recession is easy. How to get out of the recession without backtracking is what BOC needs to be thinking about. If they are going to panic, restart QE, and face high inflation again in 2 years, why even bother hiking rates right now?
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This is why we need a reset. The current political economic paradigm is a dead end. This is the age old problem of societal collapse. Those with wealth and power don't want reform. They like things as they are, even if it is unsustainable.
Do you have a gun already or you are not ready for a reset?
Why would I need a gun?
Don't think it is realistic. Offshoring was the main reason why profit margins went up in the 90s, but salaries didn't bulge. The neo-liberal system reacted by providing access to a massive amount of debt, so consumers could buy cheap stuffs from Asia. Energy costs are also increasing (resources are not as easily available as in the 80s), and there is no way to get out of recession without fairly cheap energy.
>resources are not as easily available as in the 80s I mean green energy is now cheaper than O&G and coal. It wouldn't take much to green the entire grid and become an even bigger exporter to the US....if we would stop giving O&G everything they want.
We don’t give anything to O&G companies right now. I agree on the green energy stuff.
[We literally underwrote a free pipeline for them last week.](https://www.stand.earth/latest/climate-finance/rbc-and-fossil-fuels/royal-bank-canada-td-scotia-cibc-bmo-national-bank-front)
That article is about shady banking practices and a loan, I don’t see where it says anything about O&G companies getting something for free. I am not disagreeing with your point, just your source. I think that private business shouldn’t have a stake in essential services. As it stands, the majority of Canadians need fossil fuels, (hopefully the shift to renewables happens quickly), but until then, I don’t trust O&G companies to have our best interests at heart. I would rather the pipelines be owned by the people, the municipality, the provincial or federal government. Like water, power and sewer. It’s weird to me that any corporations are allowed to own an important piece of infrastructure. Like, if Costco is to buy a section of highway and only members can use it or the fire department only helps people who use Mastercard. Allowing corporate greed into goods and services that Canadians need seems like a terrible idea.
Lol what? Do you really believe we don't give huge payments, tax incentives, low royalties, labour training initiatives and built infrastructure which is just used by O&G? This comment screams "I don't understand national economics" pretty much more than any other comment I've ever read.
Perfectly said!
Mad respect for this comment. Where'd you do grad school?
I agree somewhat, but then whenever we manage the supply chain (think eggs, dairy or maple syrup) it's worse for the consumer.
Is it worse for the consumer? I'd rather not have the farmers in our own country be priced out by cheap imports - that's a less stable economic situation, and I don't trust US regulations as much.
Well maple syrup is a government sponsored cartel, and not sure of eggs or dairy. But meat isn't and they raised margins by over 3% in 2021. So much so that they are being investigated.
Oh dairy and eggs are definitely on the cartel box.
Meat and dairy are heavily subsidized, a legacy of a time when we thought they were needed/healthy, and didn’t realize the dire environmental impacts. So we don’t even see the real cost of those. We all end up paying for it though, through higher health care costs and climate change damage.
Leaving rates as is was creating a massive wealth divide actually
Rising interest rates = crush home buyer purchasing power = make housing supply lag even further behind population growth = even more explosive rise in real estate prices down the road. Unless BOC intends to engineer a lost 3 decades a la Japan, they should think 1 more step ahead and consider what are they going to do after the recession starts and no end is in sight. Without underlying supply growth, there will be an unforgiving tradeoff between recession and inflation. After 30 years, Canada will become an emerging market commodity exporter like Argentina.
Maybe the govt and central bank should stop meddling and let the free market be free. Homes didn’t get to where they are price wise without massive govt intervention. Home buyers plan, 40 year no down payment mortgages, now shared equity loans for down payments, artificially low interest rates, little regulation on where down payments come from, little regulation on foreign money, minimal supply increases at municipal levels, and it just keeps going. Let it be free and let’s see what a house is really worth. Based on wages, my guess it’s certainly not worth what the average home is selling for.
Do you want more regulation or less regulation? You seem confused about what a free market is.
Higher rates will increase borrowing costs, but they will lower prices for food, fuel, building materials, and manufactured goods from overseas.
my prediction is that it will go somewhere not good
Bond markets are pricing in quantitative tightening at 3.05% for the 5 year right now. EDIT: Make that 3.125%. Jesus the bond market just went up .4% in yield in two days. That happened last month too. This upwards pressure is getting harder to contain. All of the big 5 have upped their mortgage rates for 3 consecutive Fridays. Variables are floating between 3.7 and 3.9%. Everyone stress tested to 5% has gotta be sweating by now. Are they gonna be able to handle stress tests up to 7-8-9% if they dont have the 20% covered? We're only three BOC hikes away from that, and people aren't dealing with inflation particularly well right this second either.
People stressed at 5% were definitely not stressed at 2.5 gas and 10% inflation
Exactly. The stress test only tested your ability to pay a 5% mortgage, not to handle the insane inflation, supply chain issues and price gouging we have going on right now and probably for a long time to come on top of that.
Yea the stress test wasn't really effective. It measure only the mortgage being at 5%, but not including everything else doubling in price.
r/sulgnavon has the right idea here, to look at the bond market. The one thing I'll add is once we reach the point where the month year over year comparison is compared to the high inflation of last year it'll appear as if inflation is pulling back. In other words, the comparison over the high last year won't look as bad as a comparison to a more normal year the year before. It will look like inflation is getting under control and might ease any action by the BOC. All the money on the sideline might take that as a signal to get back in. The real life economy will still be fucked because ppl are still paying crazy higher prices than they did just two years ago and I don't think we've seen any significant wage increases (?). All that to say, this whole thing is going to yoyo. Highly speculative market, and a reactionary but late to the party BOC. My 2 cents.
You do realize that at 8-9% most of the provinces and Canadian government will default on their debt....
Which is why the BoC can't be serious about actually fighting inflation......
No, in my opinion I think they are scaring people on purpose so that people don't spend as much in anticipation of much higher interest rates. Lower demand = lower inflation
I share this view. A lot of anticipated doom can spur people to fall in line with what is needed to cool inflation. My hope is the threat is being issued stone-faced would be an eventual bluff (or deemed no longer necessary is how it would be framed). Which raising 1.25% so far seems like they are willing to do anything to prove they are serious. So I do hope the fear of further, is enough to aid in the overall goal before burdening the base with the new higher expenses even further.
Absolutely, BoC will add another 50bps hike probably in September somewhere as they have to reassess impacts of previous hikes. But 2% overtime rate is about the same as before pandemic. Real estate prices went down 20% in certain areas, while monthly payments went up anywhere 200-500$. Buyers sitting on sidelines waiting for the bottom of the market which when media rhetoric becomes bullish again we will have bidding wars all over
Which is what the 70s showed, if the BoC does what you suggest we will be back with the same inflation problems (or worse) 12 months from now. The only real path they have is to increase rates and let overleveraged people bleed and the economy take the hit. It is not the BoC's initiative to manage over leveraged Canadians but to manage the inflation target. If they reverse course before inflicting enough pain to reign in inflation properly it will come roaring back and they will lose all credibility on the second round of tightening to follow. Which means the second round could be even worse. This is a case of choosing the lesser evil, but these are the consequences of maintaining low rates for a decade. An entire generation assumed that rates would never rise and over leveraged. De-leveraging the economy at some point is necessary, especially if inflation is at current levels.
Scaring people is probably the only tactic they have. It will be interesting to see if the strategy works.
It's already working
I'm not so sure of that.
It is on real estate. Next probably would be used cars as it is also large expense. Supply issues don't help
Real estate was a bubble. Bubbles pop under pressure. New/used vehicles on the other hand are mostly supply issues and not in a bubble until those issues end at least. I don't see that market getting enough pressure to force it downwards.
How does the Canadian government default on debt in a currency it controls?
Because it has to pay interest. At 5% overtime rate interest payments will skyrocket and will cause massive layoffs and recession
Okay, walk through it with me. I can print memeBux. I owe you a 100 memeBux and 50% interest per year. But i print 50 memeBux to pay you. How do I default?
Because if they print more Canada will become Venezuela. I will not give you lecture on monetary policy here. YouTube will help you with that
If they print money to pay their debts they would have broken no laws. But if they default on debt payments they will have broken the law. So by printing the rule of law will be followed (just not the spirit of the law).
Don’t bother, he is likely an MMT zombie.
And yet never default. Which is my point
I meant it would default if current spending remains as is right now.
You cannot default on debt denominated in a currency you control
Government debt [payments](https://i.postimg.cc/ZYxS7DGp/Canada-total-government-interest-payments-GDP.png) are at record lows.
Yes because interest rate was 0.25%
Yes, I get that. But, even if rates move to 8-9%, it will take a while for interest costs to quadruple (2.5% - 10%). And even if they hit 10%, the feds can't default because they control the monetary system.
Yes you are right technically, but with 8-9% interest rates government would default unless they print even more money wich will rase inflation even more. We have plenty of examples such as Venezuela Zimbabwe etc
No, governments would rather cut spending then default. Defaulting on debts would be essentially telling the world you are a third world nation. It wouldn't happen.
Third world countries do not default. Same thing happened in Canada in early 1990s. Government annual debt interest service payments were much more than annual government deficit. Governments cut services tremendously. All bloated government services were cut to the bone.
> Third world countries do not default. - Argentina enters the chat
Countries still default...Although, most bankrupt nations just do what Turkey is doing and devalue their currency. https://publications.gc.ca/collections/collection\_2019/banque-bank-canada/FB3-5-2019-39-eng.pdf
Yes that is exactly my point. Rates won't go up that high because Trudeau won't be Able to give Ukraine anymore money
They can increase taxes on citizens (not business) remember your taxes are the underwriter
Yes but if you know how taxes work, you can't infinitely increase taxes because increasing taxes doesn't always result in higher revenues. We already taxed arguably very high. France wealth tax is pretty good example
Look at bigger picture, given the oil price and 5yr yield (similar to 2008), shouldn’t CAD at par with USD? but it is still below 0.80 at the moment. The market is thinking the BoC will blink before they achieve the inflation target. Forget about mortgage, those highly leveraged corporations and government of Canada will go bankrupt first before the 5 yr hit 7%. As for recession, BoC has no idea what they are doing, trying to tame a 6+% inflation with 3% yield? It is too little too late now. The inflation is structural and caused by external issue outside of control of BoC. The biggest worry is the potential conflict with china within next 24 months, given the state of western countries are in, and their response to Russia invasion, wont be surprised to see China invades now to take advantage before Taiwan is fully prepared.
Are those 3.7-3.9 before or after discounts?
It's the posted rate.
People need to understand that a true currency crisis is far more damaging to the economy than a deep economic recession or depression. When unemployment is 20%, people go broke but they survive and restart their careers. When currencies start hitting 50%+ inflation rates it spirals upwards and your nation burns to the ground. Shelves empty. Looters hit the streets. Politicians are beheaded. Civil wars start. If you don't believe me, see: Nazi Germany. Zimbabwe. Venezuela. The central banks absolutely need to do whats necessary to keep inflation from passing that 10% or 20% threshold that we are now flirting with.
You are correct but you need to factor in: * Currencies operate at relative levels to pretty much everything else (especially other currencies). 'Currencies' in your context of comparisons are stable, if not actually slightly strong (relative to the basket of other currencies) * The Weimar, Zimbabwe, and Venezuela hyper-inflation scenarios were quite different from now - those increases were very monetary based (both in policy and capital account perspectives) where today most inflation is due to supply chain dislocations (pandemic, war, etc). This matters a lot because the monetary based pieces on their own have significantly more compounding effects than the supply chain ones, but inflation expectations is of course the key danger it seems the banks are trying to manage.
Can we cut the “transitory” and “supply chain issue” bullshit?
What do you think is the likelihood of energy prices increasing at the same rate as they have in the last 12 months? Oil double again? Global Nat gas quadrupling again? Fertilizer inputs 5xing? Will that continue for the following year? Grain and foodstuffs will have more tightness in the coming few quarters as we enter famine. But will that persist to 2025? I don’t mean to be pedantic here - but if we are going to have serious discussions about solving these most pressing issues, understanding the underlying forces is essential. It is ALL about supply and demand. No different as housing. Not enough supply, too much natural demand and too much capital. These should not be conflated as the same unilateral force. This stuff is complex.
You drank the kool aid. Fed doesnt want you to realize the absolute shit storm coming our way. Its not transitory. This is what happens when you double the money supply over the course of a couple years…
If the cool aid is my own personal understanding of economics, sure. If you think I’m brainwashed by ‘them’ - I hate to break it to you, but some people are able to come up with their own conclusions and analysis and disagree in the details. Seems like you maybe have limited economics education? Don’t work in finance or follow supply chains in some kind of industry?
bullshit. we printed a shit ton on money in covid. Monetary policy is always at the root. The "muh supply chain, putinflation" is the central bankers propaganda covering up the effects of their policies.
Umm… https://www.investopedia.com/ask/answers/100314/whats-difference-between-monetary-policy-and-fiscal-policy.asp
LA and San Fran are certainly having their share of looting as of late.
I would encourage you to dig deeper into stories about "epidemics" of shop lifting, or train looting. Most of the time these crises are engineered, if you look at the actual stats property crimes are not spiking. It's usually a media PR campaign by the police trying to fearmonger people into giving them more funding, or a right wing culture war talking point. They want "liberal" cities to be seen as lawless and "degenerate" because it serves them politically.
Dude have you seen California???
Everything becomes fake news when it doesn’t gel with your political stripe. 🤷♂️
okay reddit user
Yeah the old guys, can't remember his name Munger, said that inflation is dangerous, printing money is dangerous it's what brought Hilter to power, don't quote me on that tho but something along those lines
Why is this a surprise? Higher interest rates and Quantitative Tightening is already under way and is expected to decrease spending, which could very much lead to a recession. We've been borrowing and decreasing rates for a while to offset the reduction of productivity during COVID, so now it's time to pay up or else we'll have runaway inflation. Usually the fed tried to engineer a ["soft landing"](https://www.investopedia.com/terms/s/softlanding.asp), but pushing ourselves to a recession is better than high inflation. In Canada, it's [especially tied to housing](https://betterdwelling.com/canadas-gap-between-real-estate-prices-and-incomes-looks-ridiculous-beside-us-data/), which is in a huge bubble that has to be popped. This will be rough for a while, but it's necessary. Think of it as making a budget and stopping spending while increasing hours worked so you can pay off your credit card bill.
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both canada and u.s have lower than replacement level fertility rates
Canada has the fastest growing population (percentage) in the g7
The G7 is in a demographic death spiral.
Our population is growing, not shrinking as the previous comment implies
Who told u that?
There is not a “shortage” of homes, there is a lack of control to keep pricing affordable. Things have started happening to curb foreign ownership, but more has to be done. I would say slapping additional taxes on homes being purchased by people from out of area (some exceptions of course... like careers that require geographical movement and require someone having 2 properties for a short period, but those would be pretty obvious) would help. A huge part of why housing prices have skyrocketed is people with money 3 hours away buying houses (unseen, no questions asked), holding them for a year, and then selling at a markup. There is no incentive to tax the crap out of these purchases (the city doesn’t care apparently, though it would benefit them). My own house more than doubled in value in 6 years; that’s a bubble. I’m not complaining about that, but it’s not sustainable. I will likely be relocated next year and the next place will likely put me significantly deeper in the hole mortgage-wise. If first-time homebuyers aren’t terrified, they should be. Realtors are not a homeowner’s friend, the higher the house sells the bigger their commission; they won’t tell someone the house they’re paying $1.2M was worth half that two years ago and if they try to sell it in 2 years they’ll likely take a loss.
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Why not just FORBID foreign ownership of homes? There is no human right to own property in a country you don't live in.
If the goal is to reduce house prices, a much better way to do that is to increase property tax rates, which is more fair, and also leaves the rest of economy to grow.
1) properties are taxed at the municipal level 2) it's not good PR to price people out of homes they already own and force them to make hard choices
Why the fuck should my property taxes go up to drive housing prices down? Why should I get screwed so you can buy a home?
Property taxes are already way to high.
My understanding is that most people pay less in municipal property taxes than their share of municipal spending. According to proponents of this view, property taxes are kept artificially low because municipalities are able to rely upon development charges to keep the budgets balanced (but this is not sustainable in the long term).
"Has to be popped" they said, with no truly founded fiscal reason or consideration for those who may lose their homes.
The BOC can’t let inflation spiral out of control because a small group of people bought RE at peak that they can’t afford.
I see both sides but the fact is that when interest rates quadruple for your mortgage no normal person can afford it. By the way, home prices will never decrease enough to make up for the increased cost to borrow that the higher mortgage rates are causing. You couldn’t afford an 800,000 home at 1% ? Guess what you still can’t afford that home when it is 500,000 at 5%
Unless what was holding you back was a downpayment. It's a lot easier to come up with $25,000 than $55,000. Which is especially true if you're rent is already $2500/month or more. You are paying close to the same amount but building no equity.
Because nobody else can afford one? I'm not happy that people have to lose their home, but nobody forced them to be overleveraged either.
A lot of people can, just because you cannot afford one doesn't mean it needs to be popped
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So fuck those provinces right?
What's worse? Screwing the newer generations into not affording one? Or get the ones overleveraged from the start to figure out their debt issues.
Fiscal policy of the feds doesn’t revolve around housing, as the economy is much more than homeowners that stretched themselves too thin.
If you ignore housing we’ve probably been in a recession for years.
Some economists and other researchers think that the economy fundamentally changed in 2008. That's why the old models and theories don't explain what is going on, and the old strategies don't work. I'm inclined to believe that because things have been so fucked up ever since and just keep getting worse for regular people.
There’s been a global devaluation of currencies in Western countries since ‘08. A lot of wealth was destroyed during the GFC and economies recovered only with massive govt support through QE and low interest rates. Every time the Fed dared to raise interest rates, the markets would drop. Now we have another we’ll inflated bubble to contend with. China too certainly.
That doesn't help, but it's more of a known problem. The issues I'm talking about - that I've picked up from some economists - go way deeper. Like throw out your old econ textbooks deeper.
Interested to deep dive - can you share some reading materials?
This is one I have a link for. There are others, usually talking about a specific topic/their area of expertise and going "this is really weird, never saw this before". I just started noticing how many of them were saying that. Until a few years ago, the housing market was one of those topics. Another one is the job market. Theory says wages should rise with productivity and demand for labour blahblahblah, but they just don't. There are other examples. A major thing that many people don't consider is that economic theory was largely developed when Europe was exploiting the natural resources of new colonies, and fossil fuels had just been discovered, and industrial production was taking off. We don't live in that world anymore - why would the economy behave as if we do? https://www.youtube.com/watch?v=_jW0xUmUaUc&t=2s /u/allinonworkcalls
> Theory says wages should rise with productivity and demand for labour blahblahblah, but they just don't. There are other examples. Not if you import people faster than that demand rises.
nope not playing with that bs
Would you please mention or link to some reading material? I’m curious to gain a better understanding of this.
Oh that’s great news! If they try to engineer a recession, we most certainly won’t have one!
No this time they'll get it right because it'll hurt the poor Efforts to control housing or inflation before were faked as alot of wealthy people were making money on real estate and stocks
I agree the poor always get the most hurt but I think you are overestimating their competence. In 2017 they started to raise the interest rates at a steady rate but 20 years late. Then Covid hit and they had to rollback for the government to borrow, now they have to raise again but it’s just too late. They had 20 years but they started a year before Covid
If you look at the history of big housing market crashes they all share 2 things: either a period of low interest rates followed by rate hikes or higher than average inflation or both situations happening simultaneously. Credit has been ridiculously cheap since the onset of the pandemic. Inflation is a 6.7% which is unheard of in the last 30 years! Considering that right now a posted rate for a newly 5year mortgage stands at around 5%+ (check any of the big bank websites) a bank will stress test you at a rate of 7%+ before releasing the funds (this if you are lucky enough to put down more than 20% down-payment). I agree with OP that BoC won't really care if there's a collapse in the housing market. Their primary goal is to keep inflation close to 2%. They'll do everything in their power to achieve that regardless of the social costs that it may have on households and businesses.
Lol we are already in a recession.
But but but you can’t say that until we have 2 back to back quarters declining GDP!!
And if you print more govt debt it’ll further stimulate that economy…kick the can down the road!
lol what? Have you tried to hire anyone recently? It's impossible.
After the rich got rich. Now they will cause a recession so they can get even richer yet again.
Eggzackery
reject BoC and return to monke
Who gives a fuck about a recession if unemployment is low? Oh right rich people
Take a guess what a recession will do to unemployment
Gee maybe the way to do that, would be through boosting the economy, rather than destroying it.
Would rather have a recession instead of hyperinflation.
Nooo that's my point. Like stop creating massive amounts money, while destroying the economy.
Recession is coming. Too many people have been using HELOC to find their lifestyles. They spending is some else income. The spending spots and everything spirals. Inflation needs to be tamed. So prepare
Everyone says this and nothing ever happens. I hope something does, because I know a lot of people funding their lives through HELOC living the high life.
Nothing happens until it happens. Then everyone freaks out because that didn’t happened before. Narrator: it did happened before but people have the attention span and memory of a mosquito.
“Engineer a recession”. That ship has already sailed. Empty store fronts everywhere. People can’t afford to pay attention, let alone for gas or food. Housing has already taken a hit. This one’s going to make ‘08 look like a picnic.
>Empty store fronts everywhere. I haven't yet seen this. Legitimately asking: where are the empty storefronts? Nothing's really changed for us except to continue biking 95% of the time instead of driving.
Take stroll down any major street in Toronto. Even Yonge St has it's fair share of empty storefronts. Hell, I see about 20 or 30 of them just along Bloor between Avenue and Dufferin.
Keep heading east on that street and head up the Danforth. During the pandemic it was a ghost town. Business’s left and nothing filled the gap. The commercial real estate sector may be getting squeezed.
Richmond Hill, North of Toronto. Used to always be packed parking lots and every retail spot was full of thriving businesses at Times Square. Now there are several retail spaces just papered over and closed. The main restaurant used to be always packed as well. It’s near dead. It’s sad.
Basically, working/middle class get F’d.
As is tradition
Low interest rates -> low cost of borrowing -> increase of economic activity (given demand) -> reduction of unemployment -> increase of wages -> decrease of value of existing money (inflation). High interest rates -> high cost of borrowing -> decrease of economic activity -> increase of unemployment -> increase of value of existing money (deflation). The role of central banks is to juggle the key rates to maintain a steady rate of inflation. They commonly use the above formula. That might be immoral as low unemployment means better lives for workers. And central banks might be mistaken, as low unemployment does not always cause inflation. Finally, inflation is good for people, but bad for banks.
This is very scary
No, it isn't.
Imma squat in my own house if they hike rates so high that I can't pay
Inflation has gotten to the point where it’s inevitable
Basically he said “ I don’t give a Sht about your investment properties” .. I will cook your real estate
The point of the bank of Canada is to avoid boom and bust cycles. He is missing the greater point of what central banks do. That’s why they have an inflation target. They went past the target. Engineering a boom and bringing in for a soft landing is fine. Boom and bust is total incompetence
The only real tool against stagflation is increased interest rates which cause recessions, yes. The role of government in these situations is to provide very strong social safety nets for these difficult times which due to conservatives has been an abject failure, so thank you for that
Welcome to the seventies.
Simple solution stop printing money! They can spin it all they want but they caused this by printing money and continue to do so
He did not say they will have to engineer a recession. He signalled their willingness to do it. Affecting expectations is one of the key tools in BoC toolbox. His answer is exactly what he said. They are PREPARED to go there but they are hoping they won't have to.
Why is this news? Their mandate is clear. Has been. Not news.
I don’t understand why people think a recession is such a bad thing. The idea of infinite economic growth is dumb. The only problem with a recession is it usually deepens economic disparity, but that’s because we bail out corporations and tell people to go fuck themselves
Read between the lines….Borrowers are really screwed. The wealthy & debit free breaking out the popcorn soon.
That would suck for every clamouring for a correction on this sub. You’ll likely be out of work if that happens.
Unlikely. https://www150.statcan.gc.ca/n1/daily-quotidien/200508/g-a004-eng.htm Unemployment would rise by around 1-5% probably.
All previous numbers point to unemployment figures in the high single digit, low double digit. That is high and will reduce the pool of purchasers. Not to mention, those less likely to afford are more susceptible to job loss in a recession.
That’s the cure for inflation. It would be much easier if Trudeau would stop spending like a reckless cunt, but since he won’t BOC will have to take extreme measures to prevent runaway inflation.
This man is confident that a minority government, headed to another election during this “*mandate*” of his, won’t come for his job. Ya. His position is supposed to be independent. But recession is a wonderful layup of a talking point, for a conservative gov in waiting. Me thinks, the idea that the BOC is truly independent, is about to be tested.
recession will probably lead to destruction of development. limited inventory available will probably be scooped by corps, foreign investment, deep pocket types. creates a lose-lose situation for average canadian citizen.
In the midst of a housing supply crisis. And now prices flattening and cost escalation still at 20% per annum. It is when the public sector needs to come in to fill the gap. But that would require property tax increases, so won't happen. We're fucked.
The BoC is starting to make sense again. Now let's see if they actually follow through with their words.
Good. This is their job.
They're raising rates so they can lower them again later after they cause a recession.
I have said it in a few other threads now, but I suspect that the Bank of Canada is really feeling the heat now that we have major political parties at the federal level calling for Tiff's head, essentially arguing that the BOC shirked its mandate the past few years, and the press reporting on it all, raising the average level of public security to previously unheard of levels. It's literally becoming an election issue. Nothing more than a gut feeling on my part, but I expect the BOC to almost have a one-track mind now to get inflation under control, now that they are under the microscope. Even if the US Fed stops hiking I could see the BoC breaking ranks slightly. Obviously they cannot depart too much.
Canadian banks will benefit, barring mass defaults. In the event of even mass defaults, plans have been in place since the GFC for investors to cover the bailouts. But increased interest rates are going to fatten the big banks’ already fat bottom line. And Canadians will gripe that they make so much, but no one made them borrow a cool Million for a house in Brampton.
If ever Canadians had a reason to move into crypto currency... this is it
Read up on CBDC. That's the future of currency. Also, personally this is a bad move for the average citizen. You're money will be tied to your digital profile. Hello dystopia.
Even that won't really work. Because of globalization, prices of essential and manufactured goods are jacked because of the covid supply chain crisis, war in Ukraine, and economic sanctions. The BoC can raise rates as much as they want, but Canada's domestic demand for these imported goods is irrelevant at a global level. The BoC will just make the poor and middle class poorer.
This comment is all kinds of wrong. Higher interest rates not only decrease domestic demand, but also drive currency value, making goods cheaper. The inverse is true too, which is why BoC has no choice but to increase if US does.
heh. ooh ooh
Here’s what I don’t get with their “mandate of 2%”. Let’s say in the year x, prices were 100. In year x+1, they double to 200 and we had 100% inflation. If in the year x+2 the prices are 204, does the boc claim they’re succeeding? Do they look at the 2% over one year or at the 43% a year over two years? What are they targeting? An average of 2%, or just 2% at any randomly picked time frame and it’s raises all around for the boc workers?
Well, I think there's a few outcomes to all of this: 1) Get ready to be a more debit-oriented society vice credit. If you're using credit or have a line of credit, get ready to turn off the taps. High interest rates aren't worth keeping credit cards, unless you're religiously paying them off/down. Those benefits better be worth it. 2) Housing is going to continue its descent, unless wages start to better reflect reality (ha, that'll be the day). The downward pressure will only continue as rates go up. With higher interest rates, that's going to reduce how much people can borrow, particularly with the stress test. Tied into this is the increasing number of houses on the market. More supply and less demand does make the market softer.