Quote:
Originally Posted by Cappy
Central banks only have a limited number of tools in their tool box - partially as a method of limiting their overreach.
One could argue the very few tools that actually works is interest rate manipulation. With our high interests rates right now, we are in a better position to ease downturns in the future than we were in 2008 when interest rates were already low.
Also, i just want to shout out Opendoor - not because of him taking Yoho to the woodshed, but because his information on the money supply was very informative!
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My concern is with the level of overall debt levels across the board. The level of consumer, corporate, government debt is outstanding. Take Alberta for example, where I believe we hit approx $100 billion in provincial debt when as recently as 2004, less than 20 years ago, we were virtually debt free. I believe the current debt is approx 80 billion now. The servicing costs are sky high on that debt which takes away from funds to fund operations.
We have gotten away from basic fundamentals when it comes to finance for everybody. Everybody got addicted to cheap financing and spending when interest rates were virtually 0%. Now the piper needs to be paid. In my group of friends in their 30's and 40's, it used to be a pissing match as to who's house was worth more. Typical guy stuff. I would always say, when interest rates go to historic norms, it will hurt. Low and behold now, there is little bragging but extreme concern with mortgage renewals, ballooning payments and legit concern about making ends meet, despite earning significant income.
Although central banks may be able to lower rates in the future to stimulate growth, that just involves more borrowing for everybody in order to do so. That trick has been played for far too long, we all got addicted to it and it's going to cause more pain. Rate's aren't even at "historic highs", they are actually probably below average. What happens if and when rates hit 9, 10, 14%?
That is how we have average Joe's living in a home worth 1 million, driving a luxury car, with $1400 iphones, earning 6 figures yet struggling to pay bills and put a $90 prime rib on the table.
In a lot of "poor" countries where they don't have access to credit as easily, they retire with a 50% savings rate, living in basic accommodations, have multigenerational homes so that the grandparents can look after children while the parents work.
I think the system is a lot more fragile than a lot of people would like to admit and it's kinda scary.