*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[bizaro86]

Originally Posted by GGG

The government could have increased taxation broadly as a means to fight inflation and then the measures could have been targeted more and rather than banks and bond holders getting the money the government would to pay down debt. That is the way MMT is supposed to work.

Whether that’s better or worse for the average person and whether it works is up in the air but they did have another choice.

Politicians want to take credit for the spending that caused the inflation during the emergency, but they don't want to take the blame for the much higher taxes that would be required to fight it.

Easier to make the central bank do it and blame them if it doesn't work out.

[blankall]

Originally Posted by GGG

The government could have increased taxation broadly as a means to fight inflation and then the measures could have been targeted more and rather than banks and bond holders getting the money the government would to pay down debt. That is the way MMT is supposed to work.

Whether that’s better or worse for the average person and whether it works is up in the air but they did have another choice.

We're potentially entering a global recession, with the USA already in a recession. Broad taxation during a recession is typically a bad idea.

[GGG]

Originally Posted by blankall

We're potentially entering a global recession, with the USA already in a recession. Broad taxation during a recession is typically a bad idea.

A recession induced by high interest rates. High interest rates stifle economic growth in a similar manner to interest rates by removing money from the system.

This recession is intentional right now to fight inflation.

[blankall]

Originally Posted by GGG

A recession induced by high interest rates. High interest rates stifle economic growth in a similar manner to interest rates by removing money from the system.

This recession is intentional right now to fight inflation.

The reasons for this recession are a lot more complex than just raising interest rates. Not a lot of good options unfortunately.

The other side of the coin is that if you have low interest rates and high taxes, your could end up seeing housing affordability spiral further out of control.

[Slava]

Originally Posted by blankall

We're potentially entering a global recession, with the USA already in a recession. Broad taxation during a recession is typically a bad idea.

The USA isn’t in a recession though. Last quarter their GDP was 2.9%. It’ll be interesting to see where the CPI figure comes in tomorrow though and what happens on Wednesday.

[GGG]

Originally Posted by blankall

The reasons for this recession are a lot more complex than just raising interest rates. Not a lot of good options unfortunately.

The other side of the coin is that if you have low interest rates and high taxes, your could end up seeing housing affordability spiral further out of control.

In my opinion housing affordability is based on supply as the demand will always be as much as people can borrow. Higher interest rates don’t change housing affordability as the payment remains constant as value fluctuates with interest rates. So it’s just a transfer of wealth from existing owner to bank.

But there would certainly be unexpected consequences from tax increases. I think the interest rate increases affect certain people much more severely then a general tax increase to reduce money supply. But the tax increase would affect more people less severely.

[blankall]

Originally Posted by GGG

In my opinion housing affordability is based on supply as the demand will always be as much as people can borrow. Higher interest rates don’t change housing affordability as the payment remains constant as value fluctuates with interest rates. So it’s just a transfer of wealth from existing owner to bank.

But there would certainly be unexpected consequences from tax increases. I think the interest rate increases affect certain people much more severely then a general tax increase to reduce money supply. But the tax increase would affect more people less severely.

A problem I see with raising taxes is that a lot of businesses, particularly small businesses, are already hurting. Another issue is that tax hikes often get passed to the consumer. So you can actually make inflation worse by increasing taxes.

Then again, I guess raising interest rates affects any business already in debt.

Unfortunately, once again, I don't think there's any pain free way out of this.

[Fuzz]

Originally Posted by blankall

A problem I see with raising taxes is that a lot of businesses, particularly small businesses, are already hurting. Another issue is that tax hikes often get passed to the consumer. So you can actually make inflation worse by increasing taxes.

Then again, I guess raising interest rates affects any business already in debt.

Unfortunately, once again, I don't think there's any pain free way out of this.

That's the logical conclusion. It's not like the BoC or all the experts who know how the systems work want us to suffer. It's not as if they have secret levers that could fix this they aren't pulling. Can you criticize timing or size of moves? Sure. But the general solution is always going to be the same.

[calgarygeologist]

Originally Posted by Fuzz

That's the logical conclusion. It's not like the BoC or all the experts who know how the systems work want us to suffer. It's not as if they have secret levers that could fix this they aren't pulling. Can you criticize timing or size of moves? Sure. But the general solution is always going to be the same.

I'm not entirely sure in the suffering bit but what is pretty clear is that the BoC has a pretty ####ty way of communicating things to us commoners. It doesn't sound very encouraging to hear the BoC saying things like high employment is causing inflation and that people should expect to lose their jobs and that wage increases are driving inflation.

Tiff has been going pulling pages out of the Prentice playbook and using the "look in the mirror" reasoning on us.

[Slava]

Well the CPI figure for the US was lower than expected this morning and as a result it would indicate less urgency to raise rates, which helps improve the likelihood that the fed can pull off the "soft landing". Rate decision from the Federal Reserve comes tomorrow, and is pretty widely expected to be 50bps, but the signaling about the future increases and such will be what people are really watching.

Canada is in a very similar position, and this is a pretty good indication that inflation peaked earlier this year.

[blankall]

My major gripe is that you had the BoC telling people that interest rates would be low for a while, in a situation where it was very obvious that things would be unstable:

https://www.bnnbloomberg.ca/interest...klem-1.1465901

They encouraged people to buy homes to simulate the economy during COVID. That's fine, but encouraging people, many first time buyers, to overly extend themselves or lock into variable rates seems almost criminal.

[Slava]

Originally Posted by blankall

My major gripe is that you had the BoC telling people that interest rates would be low for a while, in a situation where it was very obvious that things would be unstable:

https://www.bnnbloomberg.ca/interest...klem-1.1465901

They encouraged people to buy homes to simulate the economy during COVID. That's fine, but encouraging people, many first time buyers, to overly extend themselves or lock into variable rates seems almost criminal.

Well the issue is that things change. I don't know what date that article has on it, but was there a war in Ukraine? Could they have known that inflation was going to spike at that time, or is this all just "easy to see" because we know the outcome?

So, things changed and the central banks (around the world, I'll note) had to change their strategy as a result. Even if you want to hammer them for saying things like this or calling inflation transitory, I'm not sure we would be in a good position if they basically said "well, we said that we'd keep rates low, so we're sticking at 0.25% and we'll just let people get wrecked by infaltion". How would that be at all a responsible tactic?

[Izzle]

Originally Posted by blankall

My major gripe is that you had the BoC telling people that interest rates would be low for a while, in a situation where it was very obvious that things would be unstable:

https://www.bnnbloomberg.ca/interest...klem-1.1465901

They encouraged people to buy homes to simulate the economy during COVID. That's fine, but encouraging people, many first time buyers, to overly extend themselves or lock into variable rates seems almost criminal.

With specific regards to this, folks shouldn't have gone for the cheapest rate or the most expensive house that the rates could sustain at that time. Not having any sort of buffer is their fault.

[The Fisher Account]

Originally Posted by Izzle

With specific regards to this, folks shouldn't have gone for the cheapest rate or the most expensive house that the rates could sustain at that time. Not having any sort of buffer is their fault.

Man, this self-righteous victim blaming is getting tiresome.

[bizaro86]

Originally Posted by Izzle

With specific regards to this, folks shouldn't have gone for the cheapest rate or the most expensive house that the rates could sustain at that time. Not having any sort of buffer is their fault.

I mean, the governor of the Bank of Canada went on TV and said Canadians should spend money because he'd keep rates low for years.

A reasonable person could have used that information to make decisions around variable vs fixed, etc. He should have known better since he was actively participating in causing inflation.

The people who think the system is out to get them, stuff like that is what causes it. A powerful government figure lied to Canadians ina way that probably really hurt some people.

[Fuzz]

Originally Posted by bizaro86

I mean, the governor of the Bank of Canada went on TV and said Canadians should spend money because he'd keep rates low for years.

A reasonable person could have used that information to make decisions around variable vs fixed, etc. He should have known better since he was actively participating in causing inflation.

The people who think the system is out to get them, stuff like that is what causes it. A powerful government figure lied to Canadians ina way that probably really hurt some people.

That's far from the correct word. He isn't an oracle.

[Slava]

Originally Posted by bizaro86

I mean, the governor of the Bank of Canada went on TV and said Canadians should spend money because he'd keep rates low for years.

A reasonable person could have used that information to make decisions around variable vs fixed, etc. He should have known better since he was actively participating in causing inflation.

The people who think the system is out to get them, stuff like that is what causes it. A powerful government figure lied to Canadians ina way that probably really hurt some people.

Oh come on. You know they weren't outright lying to people, and you're smarter than that. Did their predictions/forecasts end up off? Sure. But obviously they had to change course, and I'm not sure what else people would expect at that point?

[bizaro86]

Originally Posted by Fuzz

That's far from the correct word. He isn't an oracle.

It's strong but it isn't objectively wrong either.

1) he said interest rates would remain low

2) then he raised them

He has direct control over interest rates. I'm not saying he shouldn't have raised them, that was the right choice to fight inflation. But he shouldn't have said they'd remain low for years, because that caused people to make unnecessary economic mistakes. Basically making the economic pain worse for no gain.

I really hate it when powerful people hurt those weaker/less educated than themselves, which is absolutely what happened here.

He either knew or should have known that inflation was a likely outcome from worldwide massively expanding money supply and low interest rates, and that if it came through he'd have to go back on that and raise rates. I guess its also possible he's an idiot, but I think it's more likely he knew that wasn't true and said it anyway to further short term motives at the time.

[BlackArcher101]

So let me get this straight.... the people who are in dire straights are people, who in the middle of a pandemic and massive housing increases, sought out advice from the BoC on if they should buy a house, and then did so based solely on that advice. Then even though rates were literally bottom barrel, they thought variable was the correct was to go instead of a long term fixed rate, locking in that historically low bottom barrel rate?

Did any of us here do anything like that thinking "oh man, the BoC said that, so were golden, all in baby! No reason to worry about anything, were in the middle of a pandemic though so nothing could go wrong. Hell, lets get some HELOC's and LOC's and buy some cars!". Is that all it took? People were doing it anyways, they felt left out of the housing increases and where they were really lied to is that "housing always goes up, can't go wrong", then bought a $1mil house in ON.

Who in their right mind thought any of this was sustainable? And then to blame the BoC for not predicting the future?

Hell, I know when I bought my house, I sure didn't look up to see what the BoC thought was going to happen in order to make my decision. Certainly looked at many factors, went fixed, ended up paying about 0.5% more than if I stuck with variable, but hey, I'm not a risk taker.

Even as inflation and rates were going up, people were still recommending that variable rate is always better, in fact some never did switch to recommending fixed. And these are the people who are actually giving people mortgages, so where's the uproar over them? Or are we going to keep blaming the BoC like somehow they were the pariah of advice that everyone goes to for making their decisions.

[Johnny199r]

Originally Posted by bizaro86

It's strong but it isn't objectively wrong either.

1) he said interest rates would remain low

2) then he raised them

He has direct control over interest rates. I'm not saying he shouldn't have raised them, that was the right choice to fight inflation. But he shouldn't have said they'd remain low for years, because that caused people to make unnecessary economic mistakes. Basically making the economic pain worse for no gain.

I really hate it when powerful people hurt those weaker/less educated than themselves, which is absolutely what happened here.

He either knew or should have known that inflation was a likely outcome from worldwide massively expanding money supply and low interest rates, and that if it came through he'd have to go back on that and raise rates. I guess its also possible he's an idiot, but I think it's more likely he knew that wasn't true and said it anyway to further short term motives at the time.

Taking the word of some (quasi) gov't figure is not the wisest thing to do. Planning one's financial future based off the statement of someone, regardless of who they are, is crazy.