Federal Reserve boss tells Congress to get its house in order: Don Pittis – July 18, 2018
My go-to guy contributor on the CBC is Business columnist Don Pittis. You can read his article in full by clicking the link below:
After reading that article you get to see U.S. Fed chair Jerome Powell in a proper context, I’m actually more interested in listening to the U.S Fed chair now than I would have been just a few months ago. My interpretation and I’m going to have to do my research on this regarding U.S. Fed chair Jerome Powell is that he’s going to do what the Federal Reserve was designed to do and that’s it. WOW! I don’t think people understand what that means.
As an example former Fed Chair Ben Bernanke took on the role of being an economic God. His Fed policies revolved around Helicopter Ben’s personal ideology. Meaning if Helicopter Ben deemed it necessary he’d print money to stop deflation. The interpretation I’m beginning to understand about the new U.S. Fed chair Jerome Powell is that he’s going to do his job and that’s that.
Why this is important is because of President Trump’s leisurely spending. If the economy looks good U.S. Fed chair Jerome Powell is going to keep raising rates, what does this mean for the rest of the world exactly? Being that I currently reside in Canada what does this mean for Canada? Well, my dear reader, it means the cost of borrowing, as well as the cost of living, is in jeopardy.
Yes, I tend to lean more to the political right, but I’ve been saying for years that Stephen Harper and BoC governor Stephen Poloz were setting the Canadian economy up for disaster. However, at the very least former prime minister Stephen Harper was smart enough not to intentionally run a deficit. Had Trudeau not ran a deficit intentionally and not grown the private sector the truth is right now even with the trade war the Canadian economy would be it’s boring old self. However, Trudeau created a lot of public sector jobs and this unexpected Trump character seems hell-bent on restructuring all the private sector trade deals that involve the United States.
A large portion of the private sector in Canada is reliant on good trade with the United States. A lot of large companies in Canada that trade with the United States remain in Canada primarily because of the lower loonie. One of the reasons Poloz lowered interest rates under Harper was because under Harper the Loonie at one point reached parity with the Greenback. Now, what did that do? That made Canadians start to look south of the border to go shopping which leads to more protectionism on Canada’s part as Canadian taxpayers started to ask well why is it that the exact same item in Canada cost’s 25% more than it does in the United States when our currencies are equal.
This also put a strain on tourism as there was now less incentive for Americans to travel to Canada. Don’t forget that Vancouver’s main industry is tourism. So with the happenings of these events, Canadians turned a blind eye to Poloz and his destructive policies. Now in comes Trudeau, when Trudeau was making all of his promises to his supporters he said over and over that because of low-interest rates his government would intentionally run a deficit. His voters voted him in. Now here we are, 2 rare breeds of men in control of the U.S economy.
Trump promised his followers he would put America first and Jerome Powell is promising to simply do his job. This could very well lead to a crisis in the United States, however, unlike the last time Canada is now trapped between hyperinflation and deflation. Trudeau has maxed out Canadian protectionism, this deficit could balloon if the BoC raises rates and if the BoC doesn’t raise rates to match the U.S hyperinflation could rule Canada for a very, very long time. Plus to add to this disaster is our looming trade war, Trump can simply do NOTHING and the Canadian economy could crash hard. Currently, Canada is not in a negotiating position, because Trudeau maxed out all of our resources.
Trudeau’s current negotiating position is to tax Canadians with more tariffs, the tariffs aren’t hurting the United States they’re hurting Canada and companies located in Canada in a hyperinflationary scenario may simply close their doors and reopen in the United States. Then there are the housing and rental markets all over Canada. Because Poloz artificially devalued the Canadian currency a few years back the Canadian real estate market as a whole is very distorted. Deflation to this Canadian housing market would be disastrous and this is where the balancing act will take place. Poloz will be in a position where he might be forced to raise rates.
If Poloz is forced to raise rates, there’s a lot of debt in Canada namely home equities that will explode.
Interesting times ahead.