Yet another DEFLATIONARY indicator: According to Equifax, Canadians have run their credit card debt up to a record high – November 1, 2022,
One of the reasons it’s hard for me to imagine CENTRAL BANK interest rates coming down is because of all of these DEFLATIONARY indicators, my position on CONSUMER PRICE INFLATION differs from how the Bond Market functions. The bond market is signaling that the Central Banks will soon start cutting interest rates, which, even I admit, makes perfect sense. However, PRIVATE BANKS don’t want the risk, so the central banks lowering interest rates, doesn’t equate to ANY stimulus for the economy.
If I’m the owner of a private bank, the data suggests that the GOVERNMENTS of the western world have NOT stopped overly regulating the economy and BORROWING money to make up for their tax SHORTFALL. It’s a debatable issue, but for someone like myself, Franklin Delano Roosevelt(FDR) EXTENDED the great depression with his NEW DEAL policies.
World War 2 got the world SPENDING because it was all the wars that started under FDR that created the modern U.S empire. What I’m getting at here is that REGULATIONS on the U.S economy has led to nothing but MORE DEBT for the U.S government, the U.S went from a surplus to the most indebted nation in the world, but the real question is why does the world continue to go along with the U.S led monetary system? The answer is the WELFARE STATE.
The Canadian Welfare State and the PERMANENT debasement of the Canadian dollar
America, in the business world, is known for having the FEWEST tariffs on consumer goods. In Canada as an example, if I spend more than $50 in the United States, I get slapped with a Canadian tax, in Canadian dollars, to bring that U.S purchased product into Canada. Now, you might think to yourself, this isn’t a big deal, but in actuality, it is because it LOWERS the standard of living for Canadians as they’re FORCED to spend INFLATED prices for a lot of things.
Tariffs or duties and taxes are also priced into the FOREX MARKETS, as a lot of Canadian businesses will typically SELL Canadian dollars if the Canadian central bank signals that it will succumb to inflation. What I’m getting at here is if the current Bank of Canada Governor Tiff Macklem decides to start CUTTING interest rates in an environment ripe with consumer price inflation, the FOREX markets, in order to SAVE their purchasing power in U.S Dollars, might sell the Canadian dollar.
Like it or not, EVERYTHING is priced in U.S dollars; you might think this is because of the strength of the U.S military, but it’s actually not; at one point, the Swiss Franc was the defacto reserve currency if you wanted to protect your purchasing power, HOWEVER, currently the Swiss Central bank has been engaging in behavior to REPELL the forex markets from hoarding its currency.
Most countries are FEARFUL that their exports will become UNCOMPETITIVE if the strength of their currency gets too strong, and you should ask why this is the case. The reason why countries like Canada don’t want the strength of the currency getting too strong to the U.S dollar is that our WELFARE STATE is a SHAM! If a country can’t pay for its welfare State WITHOUT going into record levels of debt, then that country’s welfare state is SHAM.
Now, although the U.S government is TRILLIONS of dollars in debt, its economy is STRUCTURED to drive down consumer price inflation; with that said, we can’t ignore the economic and financial stupidity of Joe Biden, who decided to declare war on the PETRODOLLAR, but even under those circumstances, the welfare state in the U.S is still in better shape than the welfare State is Canada.
The Canadian economy is structured in a monopolistic manner that is INCREASINGLY becoming more reliant on IMPORTS. The labour unions have tremendous powers over the Canadian economy, and even if you like labor unions, it’s important to comprehend that labor unions drive UP prices. One of the slogans of a labor union is to imagine that if you, as a business owner or government, can’t pay the union wage, then you don’t deserve to be in business.
As you might expect, this leads to FEWER manufacturing jobs existing in Canada, I argue that labor unions in countries like Canada, America, U.K, Australia, etc., helped to build China. A lot of the things that used to be built in Canada are now built in China and imported by Canadian businesses. Although the Chinese workforce is paid in Renminbi, everything is actually priced in U.S dollars.
When you control the means of production, it’s easier for a government to get away with PRICE CONTROLS, however whenever your country is RELIANT on imports, ENFORCING price controls becomes EXTREMELY difficult, which is the problem the Bank of Canada now faces with Justin Trudeau’s war on fossil fuels. I actually predicted that the Bank of Canada(BoC) would go to NEGATIVE interest rates, and the reason I initially thought this was because of DEBT; when I imagined negative interest rates, I imagined CONSUMER PRICE INFLATION running rampant and the BoC MISREADING the data.
Apparently, the BoC is comprehending the data, and it’s either raising rates to so it has wiggle room to lower them in the future, or it’s raising rates because it sees the same problems I see. The systematic problems I see in the Canadian economy revolve around the Department of Canadian Heritage. Most of the PRICE CONTROL mechanisms in Canada revolve around this government department.
Now, because Canadians have gotten used to price controls, and likely don’t know the main culprits for why consumer prices were so high-PRE-WAR-ON-FOSSIL-FUELS, the reality of AUSTERITY measures hasn’t made their way into Canadian consciousness yet. Even when I listen to Pierre Poilievre, the man who very well could replace Trudeau, I’m not sure he understands that the Bank of Canada has always been POLITICAL and the systematic problems he’s going to be faced with as Prime Minister.
In the U.K, Liz Truss INITIALLY imagined that lower taxes and stimulus would get the U.K economy back on track; I’m almost certain that someone whispered in her hear that AUSTERITY would be necessary in order for he to fix the U.K economy and once she realized what that could potentially mean, she ran for the hills.
What Pierre Poilievre may not understand right now, is that Tiff Macklem is indeed doing the RIGHT thing by raising interest rates, and Tiff Macklem was doing what most central bankers do when ANY politician is in power, which is to make them like SMARTER than they really are. When Trudeau launched CERB and created all of his “investing” ideas, it wasn’t in Tiff Macklem’s best interests to be HOSTILE towards Justin Trudeau in the middle of a pandemic.
The central bank was in the right to be ACCOMDATIVE, sure, as Leader of the Official Opposition of Canada Pierre Poilievre called Tiff out, but I guarantee you that when Pierre Poilievre is Prime Minister, he’s going to be faced with the EXACT same problem and whoever Pierre Poilievre chooses to be the head of the Bank of Canada, will do what’s in Prime minister Poilievre’s best interests.
I remind the reader that during the reign of Stephen Harper, former governor POLOZ lowered interest rates in order to help Stephen Harper pay down the deficit. Now, you could argue, “that’s different,” but if there was NO central bank, Stephen Harper would have had to pay down the debt with interest rates SET by the market.
Stephen Poloz was indeed being POLITICAL, making Stephen Harper look smarter than he was, and by Stephen Poloz playing politics, the HOUSING MARKET boomed under Stephen Harper, thereby transferring a lot of PUBLIC SECTOR debt into the hands of low-IQ real estate investors. I call them low IQ real estate investors because a lot of these real estate investors paid INFLATED PRICES for their real estate; in fact, most of the real estate mortgages in Canada can’t CASH FLOW, meaning that a lot of property owners with a mortgage in Canada are 100% reliant on PRICE APPRECIATION in order to PROFIT from their properties.
How this relates to the article I point to below is that a lot of real estate owners made OTHER purchases that they imagined their HOME EQUITY would pay for. Let’s for argument’s sakes, say that where interest rates are right now is the new normal. Well, if this is the new normal, this doesn’t guarantee that consumer price inflation is coming down, consumer price inflation went above 8%, and the central bank of Canada is at 3¾%,? Meaning that the Bank of Canada isn’t really fighting inflation; it’s trying to manage it,
I argue that until austerity measures are normalized, inflation is NOT going to stop; why? Well, OPEC+ now has a VICE grip on energy prices, meaning that if the GLOBAL economy deflates, OPEC+ can CUT the production of oil. To show you how dumb the people in charge are, “the arsonist is now the fire man” Joe Biden the President who declared war on fossil fuels, now wants to charge DOMESTIC Oil Companies a windfall tax, which will equate to SHORTAGES of domestic U.S oil production, meaning that OPEC+ will gain an even larger share of the Oil energy markets.
Biden warns of windfall tax on ‘war profiteering’ oil companies
US president criticises oil companies for making record profits amid the Russia-Ukraine war, warns of higher tax.
Now when OPEC+ gains a larger share of the market, as the economy DEFLATES, the price of ENERGY will continue to RISE, meaning that if the Bank of Canada makes the mistake of LOWERING interest rates when oil is priced in U.S dollars, and people begin DUMPING Canadian dollars, consumer price inflation will get even WORSE.
I don’t know if people describe the petrodollar differently from how I describe it, but in a nutshell, that’s the petrodollar how I see it, the U.S dollar is the PREFERRED medium of exchange, and as the GLOBAL economy deflates, in order to PRESERVE profits, market participants will PURCHASE U.S dollars, UNLESS say a bank of Canada presents them with an offer they can’t refuse.
Anyone doing business in Canada comprehends the DIRE STRAIGHTS Canada’s welfare state is in. Canada is obviously not alone in this; most of the commonwealth nations are in a similar situation; the difference between Canada and, says a New Zealand as an example, is that Canada still has a SUPPLY MANAGEMENT system, which is an IN YOUR FACE consumer price inflation indicator.
I can merely go to the grocery store as a Canadian and look at the price of eggs and PREDICT consumer price inflation. Some Farmers in Canada have FIXED costs, and the government of Canada REWARDS this UNION with the ability to RAISE prices based on those fixed costs. So if let’s say the Bank of Canada lowers interest rates, and the Forex Markets sell off the loonie. This will cause IMMEDIATE consumer price inflation as it relates to Canadian entities with monopolistic powers to raise prices WITHOUT the fear of competitive pricing.
In closing, why this all matters is that credit card interest rates were at 19%+ long before interest rates rose, but in the past, consumers could easily pay down that debt, well now it’s becoming more difficult, which has a COMPOUNDING effect, which is CLEARLY a deflationary indicator.
Under Stephen Harper, he made the private borrower take on debt; with Justin Trudeau, his vote-buying schemes are making the Canadian Federal government poorer, and the bank of Canada has to be aware that Public sector debt has to be paid by the PRIVATE SECTOR, meaning that HIGHER TAXES are coming, which also means that a RECESSION is likely coming. When I see this, I see much higher interest rates, but maybe I’m wrong!
Interesting times ahead!