Inflation is killing us in Canada, a make a good salary and I have to check my spending much more than a mere few months ago.
I can't imagine how a family with a average or slightly sub average salary is able to stay afloat
this post was submitted on 07 Jul 2023
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We are not. living paycheque to paycheque and using food banks
Yeah. And it's having no noticeable effect on inflation ... it's almost like they are turning the wrong dial. The people hurting most with these interest rate rises are those who can least afford it and consequently have least effect on inflation.
I don't understand the goal or value of these polls/articles. It seems like they are wrong half the time. The last one was wrong: https://www.reuters.com/markets/rates-bonds/boc-hold-rates-this-year-high-risk-least-one-more-hike-2023-06-02/
If someone can explain, that would be nice!
It feels like it's interest rates as a labor disciplining mechanism at this point (other than the fact that it's basically the only button they have).
High inflation is far worse for most workers than higher interest rates.
Maybe/probably but it's a false dichotomy. Interest rates are only one mechanism for controlling inflation, and a target coarse one.
Consider housing, increasing the interest rates makes it harder to buy a house, but it also makes it harder to build a house. Since this inflationary spiral we seem to be getting sucked into is at least partly (probably mostly) tied to restricted supply of "the stuff to buy" side if the balance, prolonged high interest rates could lead to stagflation.
This same high inflation also effects capital spending at any company seeking to expand production.
I'm not an economist, and I'm sure you'd get three different answers from two different economists, but I'm thinking we're getting into that tickle point where interest rate hikes might start putting us into stagflation. Fundamentally, central banks aren't going to fix this global inflation problem by playing with interest rates. You're dealing with a real loss in production wrt the pandemic, and now a major land war in a highly agriculturally productive area of the world.
Raising rates seems to do two things to housing:
- encourage targeting luxury housing - if you're rich, prices aren't as important
- encourage selling to larger landlords - more apartments, fewer condos/townhouses
Builders are still going to build, they just need to target people who can afford the higher prices.
Looking at the construction industry in Quebec, builders aren't building anything... There's zero clients right now...
Meanwhile in Ontario there's not enough labor in construction.
The problem is that people increasingly CAN'T afford the prices. Where are all they people that can afford near million dollar homes for 8% interest (or cash) come from?
At best, they'll be people who are landlords who already have significant wealth and will rent at sky-high prices...
Say that to the people who will eventual default on their mortgages and lose their homes. Economics is the only social science that behaves as if it were a natural science where everything is self-evident. That's not to say that low interest rate are inherently good but that the mechanism itself that is used to combat any form of inflation is a very limited tool.
Houses got stupid expensive because interest rates were too low. People bought houses uses cheap debt without considering the possibility that interest rates would go up, and bought houses they couldn't afford. Interest rates never should have been so low in the first place.
That's a pretty unfair characterization of the situation.
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Rates had been low for quite awhile. Will the rate eventually go up? Of course! But people can only guess when.
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We're required to consider the possibility of rates going up (the stress test), but I'd thought that for some borrowers we're already past what they were stress tested against.
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For many, this period of low rates felt like their last chance to get their foot in the door. Whether rates went up or not, it was looking like the barrier to entry (either price or mortgage eligibility) were going up one way or another. You either wait and risk never being able to buy a home (or at least not in the location you want), or buy and risk rates going up. Might some people lose that gamble? Yeah. Pretty easy to understand why they took it though
Some people definitely got screwed. Others though, who got in at like 0.5% on a variable -rate mortgage and were shocked when it went up... well they could have expected that sometime within the term of the mortgage that was going to be an issue...
Yes and that is part of the problem we are paying for now. We should have never had such low interest rates.
Many people bought homes they could afford, that they needed to live in, after passing a very conservative stress test because that was the way you are supposed to buy a home. Nobody expected the interest rates to more than double in a couple of years. It’s unprecedented. Nobody expected our government to do absolutely nothing about inflation and leave it all to the BoC to fix. You are vilifying and generalizing an entire class of people, most of whom do not fall under the cherry picked description you offered.
Repeat after me: most homeowners are regular people who borrowed responsibly under stringent criteria when they bought their homes.
without considering the possibility that interest rates would go up
More likely they did consider it, but when the BoC explicitly stated that they would not raise rates...
And the cost of renting was actually exceeding the mortgages, sometimes considerably, and for less quality
I agree that it’s unfortunate the central bank can only change interest rates. At the same time, fiscal policy often runs in the opposite direction. I wouldn’t be opposed to giving BoC some control over taxation, within a limited margin. It would give them one more tool so to speak.
I wouldn’t be opposed to giving BoC some control over taxation
Why not just raise taxes, then?
I think that would be a better signal. After all, the poor who drive consumer inflation aren't given loans and thus don't feel interest rates directly. Interest rates only directly impact the rich who can shoulder increases for quite a while. And only after they've been feeling the pinch for a while will they start to cut spending where the poor are found. It might work eventually, but it is not a quick fix. Taxes can directly impact even the poorest among us right away.
But, of course, the whole reason the central bank assumed the inflation target mandate is because tax increases don't sit well with the people. It is easier to have a "We tried nothing and we are all out of ideas. It is the central bank's problem now." scapegoat in the BoC. Giving them some control over taxes would defeat the purpose of them having the inflation target mandate (a mandate that only goes back to the 1990s).
That said, the BoC has a quantitative tightening lever they can use, in much the same way taxes could be used, to reduce liquidity. They are actively using this lever. Interest rates are not the only knob they have.
why not just raise taxes, then?
Because it’s politically unpopular despite being good fiscal policy. Give some control to the central bank, who aren’t beholden to angry voters.
I still don't follow the logic. If people want higher taxes to combat inflation, they can simply raise taxes. If they don't want higher taxes to combat inflation, why would they give power to the BoC to raise taxes to combat inflation?
Because people don’t want higher taxes. Raising taxes is always politically unpopular even if for a valid reason. Politicians often do the opposite, e.g Trudeaus grocery rebate just puts more money into circulation and contributes to inflation. The BoC can operate autonomously from the federal government and could conceivably raise taxes when a politician would not have the political capital to do so.
I still don't follow. The BoC cannot be given such powers without the people's approval. If the people don't want higher taxes, why would the very same people accept handing control to the BoC to raise taxes?
Do you foresee a small group of people at the BoC overthrowing our democracy? Like, how are they going to magically get this power? Will they swindle us under the guise of "Trust us. If we control taxes we will never raise them!" and the people will be none the wiser of their true intentions until it is too late?
Okay, so first of all, they currently have the power to raise and lower interest rates without the people’s approval. This isn’t some undemocratic seizure of power.
Secondly, I don’t think they should have carte blanche to raise and lower every tax. It could be within some range of the federally set tax rate, e.g 2.5 points above or below.
It’s merely an idea, as people often complain about the BoC only having “one lever”.
The BoC was created by the will of the people to be, just as it continues to be, a bank (to the banks). Of course it is going to raise and lower its interest rates, just like every other bank. That's what banks do. There was no need to seize power because the public explicitly wanted this bank to exist and for it to function as such.
It is told that the public does not want taxes to be raised. Why would those same people then give power to the BoC to raise taxes? The wanted a bank. They do not want higher taxes.
Trying to loosen the direct influence of democratically elected officials from certain types of decisions isn't a bug, it's a feature.
Politicians run popularity contests, and often time politically popular positions aren't actually very good.
For example, taxes are universally unpopular, and so even though often times targeted taxes are actually the best answer, politicians won't because it may PERSONALLY cost them thier jobs.
It's similar to why we have an independent judiciary. Mob justice and the court of public opinion would rule otherwise. Insulating judges from elections is good.
You can actually see an unfortunate bleed over between justice and democracy in US counties with elected sheriffs. Arresting 'certain types' of people is more popular among the electorate than others, and I'll let you come to your own conclusions to what type of systemic issues that incentivized.
The BoC has a job, there are metrics to it's success, and when they aren't being met there are mechanics to shake it up.
I don't see these types of bodies existing at arm's reach from elected officials as a threat to democracy... I actually see them as protecting democracy from itself. It terrifies me that someone like Danielle Smith could ever have the official jurisdiction to direct a judge or central bank rates. We need adults who are prepared to make expert decisions in these positions who can make them, even when they're unpopular, without fear of losing their jobs.
I still don't follow. Again, what would compel the people to give these bodies power over taxes when you say that taxes are universally unpopular?
In a similar vein, murder is universally unpopular, but then to think that the people will give power to the police to kill whoever they want, no questions asked... Why would they do that?
It is not undemocratic when done democratically, but you have failed to fill in the missing link that explains why the democracy would approve of such a thing. Without that, it very much would require a undemocratic seizure of power to make happen.
We need less people controlling the money printers and interest mechanisms in my personal opinion. Some of these changes is reactionary to the USA devauling their own currency through exsesive monintary sepending, which is now uncapped till 2025(since being uncapped their national debt has increased by 1trillion dollars now ~32 trillion). And since our economy and most of the world is tied up with the USD its now causing problems. There is sestemic issues in the central banking systems that we use today(fractional reserve banking) and they(the issues) have been exploited for too long. I believe the next viable solution is a decenterilized finacial system and to take lobbying for policy influnce out of our societies. Seperate note billionaires need to pay taxes, they sequester more wealth then smog from lord of the rings and pay less tax then you reading this. Any got to head back to my behind wendys shift, want to see even more under the stock markets fuckery visit whydrs.org or drsgme.org(warning rabbit whole)
No surprise here. The Bank of Canada has one tool and they will keep hitting everyone with it until they listen. They want to see something break before they stop. Fiscal policy is counter to monetary policy right now, which isn't helping. I wouldn't be shocked if we got one more increase by the end of fall.
Lol @ living outside your means by owning a house right now
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