If the Bank of Canada follows through on raising the prime rate all the way to 2% within the year, the economic fireworks will make the pandemic seem like a picnic in the park.
Perrault thinks inflation, which accelerated to its fastest pace in more than 30 years in December , will force the central bank to raise its benchmark rate to two per cent by the end of the year from 0.25 per cent currently.
Suppose a manufacturer has a long term loan up for renewal at the end of the year, a loan that it is now paying 2% interest on, for a business plan with a return of 4%. What will be the effect on that company’s business plan when it finds the cost of borrowing suddenly 8% or higher? If anyone thinks supply chain issues are a problem now, just wait until a bunch of those suppliers are bankrupted.
My guess is that they won’t get past half a percent before the financial markets crater. The economy is teetering on a very thin knife edge right now.
so what seizes up first, those with revolving lines of credit or those with short term loans?
Huh, finally going to stop punishing the “savers” a little.
I truly hope so. My first mortgage was at 16% back in 1983. My parents, who were mortgage-free, made out like bandits with their savings accounts and RRSP’s.
Would love to see history repeat itself (I am now mortgage-free).
But the economy grows from the heart out.
Who cares about inflation? Justin sure doesn’t.
We’ll just print a bunch more currency and everything will be wonderful!
“I don’t think about monetawy powithy.” So it’s all our fault for failing to be born with silver spoons in our mouths…..
Justinbecile is a charter member of the 2+2 = 22 socialist maroon brigade.
Clueless about economics does not begin to describe those effers, who are burning the middle class at the re-election stake.
For what.
All on behalf of their elite betters, and the Yuri Bezmenov described real puppet masters.
Including the cursed legacy of Gramsci, and the Frankfurt school of traitorous useless parasites.
Beijing smiles
A glut of money. What did they expect?
We are so screwed now there is no way out. If interest rates go up, half of Canadians will be homeless because they can’t afford to pay their mortgage. If they don’t go up there will be a shortage of the wheel barrows people will need to carry their money to the half empty grocery stores where they hope to find a potato.
The only choice a government has at this point is to raise taxes, slash spending and pay it’s bills, but that is never going to happen, so we get poverty through high interest rates or poverty through hyper inflation. Welcome to Weimar Canada.
Well, that won’t happen, except maybe raising taxes. That’s almost a given at this point.
They’re constantly finding new ways to decimate the middle class, not to mention the family, and while they’re at it, a little (de)population control couldn’t hurt either.
They should never have let the rate get that low to begin with.
It’s by design IMO. Drop your pants .. here “cums” some more news. Fouck. It’s a big club and we ain’t in it. GC.
bverwey
What seizes first is businesses with inadequate capital, or with poor capital structures. Same as always. Then the cascade effect is on. In this case, there is both demand pull, and cost push inflation, so the Keynesian model will not work well, inflation expectations have to be wrung out of the system, that will require a deep and lasting recession ala 1980 to achieve.
On another note, the provinces and Feds will have their finances exploded, debt service tripling would consume the entire budget, although in the case of the Feds, it is owed to the BoC so theoretical, watch what happens to the northern peso when that becomes obvious. The BoC will have to print it’s own interest due it, should be good for a whale of a time. Or a great reset.
BoC has been purchasing the provincial debt too. You didn’t think real investors would be buying it, did you?
Provinces will do what Feds say or else.
You will have nothing and like it.
The Liberal economic Plan working exactly as it was intended, perhaps the final nail for the Post Nation State… fingers crossed.
I’ll believe it when I see it.
Macklem can’t raise rates before Powell does, unless he wants to send the loonie through the roof and drive exporters in Ontario and Quebec out of business.
Powell isn’t going to raise rates.
Wall Street were happy to see Greenspan sabotage the economy in 2007 so they could thrust Hillary Clinton into the White House (they got Barack Obama instead, but that’s another story). Their SOB Joe is nominally in charge now, and they’re desperate to keep him there.
Hey TWAT
wall street wanted the O’Butthole in the white house, and got him. He was the easy BUY, shillery was too independent and harder to control . And it was barney Fwank, the Jew, who tanked the economy , with the help of wall street!
I think we are looking at 4 – 25 basis point increases this year. I think they will go with 1 – 25 basis point increase with the lockdowns in place, and the remaining 3 will be done with the economy open… no lockdowns or vaccine mandates. After that 1 percent (total) increase is done, they will watch what happens at home and around the world, then look to add more. I don’t think they will go 7 – 25 basis point increases this year because of the US mid-terms. If things get a little shaky down south, Canada will go into a holding pattern and wait for the final decision from the US electorate.
I’m thinking carbon taxes are going to get hit as they are low-hanging fruit.
The financial markets should not be as big a part of the economy that they currently are. Crash ’em. Bring back ‘Jump you bastards!’
And if they say 2%, it will be at least 5%, and it needs to be 7%.
It is not too late to get your money out of Canaduh. Create a minor run on the loonie and watch the fun begin.
Well that’s one way to fix the housing affordability problem. Watch these clowns implement a few historic tax hikes while they are at it you know to generate the cash they need to pay income support to everyone who is unemployed after they crash the economy.
Is this a pissing match between the BoC and the PMO?
“He wants you to keep the interest rate where it is, you know how he gets”
BoC:”get this, I don’t work for him”.
Puh=Leeze. This is Canada. Central Bank independence? Supreme Court independence? They are order takers. Everyone and everything falls in line with the Liberal Party as the chosen vehicle of the Laurentian elite to run the country for their benefit.
From the FP comments, because some people do get it, like James for example.
“James Bolt
15 HRS AGO
Lost in the conversation is that interest rates and infaltion rates are not exclusively proportional to each other
You can’t just raise rates and think that infaltion will simply drop.
If these global supply problems are not sorted – and they will be – inflation is not going todrop in Canada because our interest rates are raised”
If your business plan only projects a 4% rate of return, it probably needs to be rethought.
Good lord, in the 1980’s, when I worked at Mitel, our internal hurdle rate was 20% – there were so many things to do, we had to make sure we were doing the most valuable things first. In a chaotic business world like ours is today, I can’t think of a way a plan could project a 4% return confidently, when so many things we used to take for granted – getting stuff shipped, getting it across borders, steady demand – can be turned on and off at will.