The Bank of Canada would be WRONG to ease off the brakes with their Interest Rate Hikes and see what happens – January 31, 2023
Canadians and many others globally continue to misinterpret the role of central banks as they focus their minds on the BUSINESS private sector, which really doesn’t care about interest rates. The FEDERAL Government sticking its nose where it doesn’t belong is actually the real problem with the rising interest rates
Debt was never meant to be given to given to people who DO NOT have the ability to achieve positive cash flow or positive returns using debt WITHOUT government assistance. As an example in Canada, most homeowners are the beneficiaries of Federal Government MISMANAGEMENT. Asset prices in general in Canada have been rising since the mid to late 1990s, primarily because the Federal Government got involved in the DEBT markets.
I write a lot about Canada Mortgage and Housing Corporation (CMHC), which is a CROWN Corporation (FEDERAL STATE OWNED Enterprise) that helps Canadians who otherwise couldn’t own a home to become homeowners.But what CMHC does unintentionally is that they provide a FLOOR for business savvy real estate investor who are banking BIG on the Canadian housing market NEVER crashing, meaning that they’re betting the Canadian dollar will HYPERINFLATE before the housing market crashes.
If the Canadian housing market crashes, CMHC, which is currently Canada’s most prosperous or one of Canada’s Richest State Owned enterprises, could QUICKLY become insolvent, as the CMHC agreement is to bailout bondholders and pay Private Banks for the insolvencies of Canadian homeowners who OTHERWISE would NEVER qualify for a mortgage, or be able to maintain the minimum MARKET payments required to pay for a mortgage.
Because Canadians have become accustomed to these buffoonish Big Government ideas, they’ve instinctively changed their behavior to imagine that the central banks and not the regulations on economic activity are the root causes of the problem. Consumer price inflation in the housing and rental markets has been a problem for over a decade now in Canada; however, because there were a lot of people BENEFITING from Asset/Consumer price inflation in the housing and rental markets, the beneficiaries of this Big Government fortune made sure to talk down to the people NOT benefiting from Asset price inflation.
So now that consumer price inflation has hit food and energy, primarily because of the current Left-Wing Progressive war on Fossil Fuels, the Bank of Canada has to react; why? Because if inflation is a problem in every single sector of the Canadian economy, this will lead to recession. The economy deflates if the money I earn from working purchases FEWER goods and services.
Now, unlike a house, when I buy food, there’s no potential for asset price appreciation, meaning that unless I get a pay raise from my employer, purchasing power is DWINDLING, which does a lot of damage to the overall Canadian economy as Canadians may even start receiving fewer IMPORTS, which could destroy entire industries, this could even hurt the Canadian dollar internationally because if fewer people use or convert it, the value of it internationally could go down, which also equates to consumer-prices going up.
Lines of credit cards, auto loans, and even some lines of credit usually add at least 4% interest along with other fees to their loans. So at least prime+ something, meaning that consumers weren’t really benefiting from the Zero percent interest policy(ZIRP) anyway. How consumers were benefiting was actually from the ENERGY BOOM.
Technology was helping the productive classes of society get more efficient with energy creation. Lower energy prices equate to lower consumer prices, well in the current economy, the Progressive/Left Wingers have declared an all-out war on fossil fuels, and these REGUALTIONS on the energy sector hurt Consumers. The only way to fight back is to raise interest rates, which will make it more expensive for the Federal government to spend money!
The role of the central banks is to keep government spending in CHECK; the central bank is one of the last lines of defense, now in certain Left Wing shit hole countries, the Federal Government is the central bank, so if let’s say Cuba wants an extremely far-left agenda, their central bank is NOT ALLOWED to object their Federal government, meaning that no matter how dumb the federal government’s ideas are, the central bank of Cuba will finance it, this is why investment in Cuba is NON EXISTENT.
Without knowing it, this is what a lot of conservative and Liberal Canadians are doing when they’re begging the Bank of Canada to stop raising interest rates. The Central bank of Canada should keep raising interest rates until they’re higher than the inflation rate; that’s how you keep federal government spending in check.
Any social spending the government wants needs to be paid for with taxes, not by getting into more debt. So far, Trudeau’s spending ideas haven’t panned out and it’s actually known in Canada that Trudeau is bad with the economy. Current Prime Minister Justin Trudeau lost the popular vote in the last two elections and actually had to merge with another political Party in order to the role as if he had a majority.
The results of this merger have been predictable, but what’s most interesting about this horrible marriage is how willing a lot of Conservative-minded Canadians are to finance this reckless spending, which is what Conservatives are asking for when they tell the Bank of Canada governor Tiff Macklem to ease the brakes on interest rate hikes.
Interesting times ahead!