When the Bank of Canada raised its benchmark interest rate for the first time in two years earlier this month, it sent an unmistakable message to borrowers that the era of cheap money was coming to an end.
While economists expect the bank to gradually raise its rate another half-dozen times or so this year, there’s a growing sense that the bank may need to start moving faster and more dramatically than anticipated to rein in inflation, which is already at its highest level in a generation.
I doubt that the B of C will get a chance to raise rates 6 times before a cascade of defaults start to occur, quite likely concentrated in the real estate market. The last thing these highly indebted borrowers can withstand is a bump, even a small one, in their monthly payments.
+++Dennis. Working people with 500k mortgages will be out in the first month of an 8.24% mortgage, which was what I paid on my first house in 1970. First house 8.24%, five years later I bought some apartments, 12.5%. The third house was 15.3%. Cheap money has created both inflation and a trap.
Maybe that’s the plan?
Doesn’t Canada have fixed rate mortgages?
Yes, your taxes and insurance may rise slightly, but hopefully your wages are going up too.
Dennis..
A good Friend of mine (known him since 2001), talked about this very thing near 18 yrs ago…as we watched Interest rates Drop like a stone while RealEstate rose like a Hydrogen blimp. Both of us queried what would happen when rates dropped as low as they are now…Sub 1% or so.
WE predicted this would happen….and its gonna get a whole lot MORE of FUGLY before the entire system collapses.
When a New 3 bdrm home-2 car garage in Calgary is ~550,000….Whose got the coin to buy that at say 3% or nigher.??? NOBODY…..except possibly some of Trudeaus newcomers… His supposed “refugees”
You have to destroy the economy before you can build back better
Back to the 1970s and 1980s they stimulate the shit out of the economy with massive deficit spending and then try to stop the resulting inflation with high interest rates. Only a retarded fcuking Turdeau would think that was a good idea. What’s next – wage and price controls? Create inflation with economic policy and try to stop it by outlawing it? Makes exactly as much sense as eliminating CO2 by taxing it.
“Only a retarded fcuking Turdeau would think that was a good idea.”
The Asshole couldn’t balance a check book. You think he has a clue about national monetary policy?
I believe his words were: “I don’t think about monetawy powithy.”
Precisely.
He has his strings pulled:
https://www.youtube.com/watch?v=iAykOz1gWi4
He’s definitely not Pinocchio. He lies all the time but his nose hasn’t grown.
What’s next – wage and price controls?
PET tried that, too. Didn’t work out too well, either.
I got sucked into thinking the inflation was transitory. Got my ass handed to me. I’ve raised my prices 30% this year and I’ll still make less than 2 years ago (net). Gas was $2.01 a litre yesterday near Milton for 91 octane. I joked that filling a truck would cost $200-$250, now the joke has gone to $250-$300. Our economy is run by pirates.
Curious Steve – why would you have bought the lie that inflation was transitory?? That would have been a real longshot given that Trudeau/Biden want inflation.
Back in 2019 it looked like inflation was rising due to the pandemic and supply-side problems. It looked to be limited to covid – at first. I did not realize the amount of printing being done by countries following the US Fed. Once I clued in it was too late. Now I’m chasing my increased costs, trying to match my margins with inflation but balancing that against customers who have already budgeted for my work who now see their costs going up. How much (inflation) do I eat and how much can I pass on? My revenue will go up but my margins are falling. I suspect I am a typical business in this matter.
Add to that the recent changes in corporate taxes that nobody is talking about, specifically how family members are treated for dividend payments. This used to be an effective way to reduce your tax rate but now they are taxed at my rate regardless of their income. Having a family trust doesn’t help at all. I know, why should you feel sorry for a guy who uses a family trust to reduce his tax rate? But understand that people like me are the ones who pay for their children’s university education, who help their kids buy a house, who put most of their profits back into their company. Well, not any more. I’m becoming a stingy, grumpy old bastard who doesn’t want the buzzards in Ottawa getting any of my money, even if I have to reduce my corporate income and apply for tax breaks.
1yr GICs up from 1.06% in Nov 2021 to 2.25% now. Still a long way to go before the real return is close to breakeven. The BOC does not want to tamp down inflation too soon before the real value of government debt is drastically reduced. It’s called the inflation tax.
Welcome to the late 1970’s redux.
Feckless Leadership? Check
Virulent and aggressive Russia, China, North Korea? Check
Energy Shortages and rising prices? Check
Inflation? Check
Just wait until the best and brightest in Washington DC decide to inflate the dollar “just enough” to make our current National Debt “manageable.” You know just 1/4 or 1/8 its current value. Get the debt level back to the equivalent of a 3-5 Trillion Dollar level. What could possibly go wrong?
Our economy can’t handle high rates.
I suspect we’ll top out at 1.25% before they’re forced to stop. Too much debt servicing costs.
Jeff,
Can you say Argentina?
No one HAS to buy Canadian Bonds.
Heck, No one HAS to buy US Treasury Bonds, unless the interest rate is acceptable. I think the 30 year T-Bond rates peaked at 20% back in 1981? If the dollar loses its international monetary reserve status? We will be in the same boat as Canada, except the numbers will just have a few more zeros.
Just a matter of when rd. Might be sooner than many think.
It is different this time. Sure no one HAS to buy Canadian Bonds. That is why the government is buying them. When the government is the one buying its own paper – that doesn’t smell good.
Back in the 1970’s when the debt to GDP ratio was what, 35%? It’s now well over 100%. USA is 130% and we are outpacing them.
Raise interest rates to 15% and Canada’s debt servicing costs would cripple the budget. Not going to happen.
Hyperinflation is the only path out and probably what they had planned all along.
If mortgage rates go much over 5% the housing market will crash and it will be all over.
Don’ understand how would the CeeBeeCee have any idea about economics, even very basic economics, where you gotta hava profit in order to run a business.
To the economic “experts” that is not necessarily true because they never had to run a business, that’s why they never left school, they found it an easy ride, virtually no effort, to make money.
The Communist Broadcasting Corporation never had to make a penny. The money is supplied by the so called “Liberal” government. The advertising dollares could make it go for a day, because it does’t have to.
In propaganda business, all you gotta get is a few “experts” from selected universities and you got a broadcast. The shit that comes out of that is irrelevant, though it fills the allotted time.
Conclusion, the CeeBeeCee’s opinion on economics is equal to 0.
Why does this seem like deja vu?
Didn’t we go through this entire scenario with the turds daddy?
Unacceptable debt, looming high interest rates, loss of high paying,skill related jobs.
A contraction of industrial capacity?
Canada is hooped.
The cost for selling your great grand children into perpetual servitude is about to come due.
Quadruple the debt in a generation is the current economic prospect for this country.
Look to your own, the loonies have broken the system earlier than anticipated.
You’re not going to be able to tax your way out of this one.
Cons win the next election only to oversee the selling off of the country! LOL
We need to cut up the government credit card because government spending on stupid crap is the biggest cause of inflation at the moment. Second, we need to forcibly reduce the snivel service by 50% as a start and restrict the government’s ability to hire or create stupid regulations that harm the economy.
I don’t know how this could be done given current circumstances, but if we don’t, the collapse will be a freefall.
We’ve seen this movie before … and yes … it will kill the economy deader than dead. Esp. now that massive inflation is baked into the gargantuan increase in the monetary supply … the middle class will increase borrowing to keep up … and will get crushed.
Exactly what the Marxists want … erase the middle class
After 2 decades of central banks worldwide collectively and artificially depressing interest rates, the game has changed dramatically. Interest rates are soaring everywhere, 1/4 point in the US in a week alone on the 30 year mortgage.
Expect currency devaluations, declining stock markets, plunging housing prices, and all kinds of other bubbles deflating.
If you thought the 30s were bad …