Bank of Canada rates to hike this month

[Pixel Shooter]

expecting 5 rate hikes this year. and so it begins

https://www.bnnbloomberg.ca/bank-of-canada-will-hike-rates-this-month-j-p-morgan-1.1706717

[Map Maker]

yeah, and then the USA farts in the wrong direction and they lower the rates again.

The banks screwed up the long term financial stability of the country for short term gain.
There is no way they can get the interest rates to a sustainable rate (ie 6%) without bankrupting 1/4 of the country.

It will be the downfall of capitalism.

IMO

[Drewski Canuck]

Um, you did not get too far in math or Economics class, did you.

IF the prime rate goes to 6 %, ...

AND the biggest Debtor in Canada is The Federal Government and a number of Never Do Well Eastern Provinces ...

AND these levels of Government already cannot pay their debt, let alone the interest on the debt, at .5 % ...

THEN THE WHOLE COUNTRY GOES BROKE if there is ANY increase in the Prime Rate!

This is the story for the US, Japan, AND Europe, not to mention all the Third World failed states being propped up by the International Monetary Fund.

I laugh at all the Anti Vaxer / Anti New World Order crowd. They think that Covid and Vacines is the tool that the "New World Order" will use in conjunction with the United Nations to force a One World Government.

When I point out the cumulative Global Government Debt (think Thousands of Trillions of USD) then the next collapse is not because of some Virus, it is because of Global Inflation that no one wants but everyone is getting.

Inflation is the "Economic Virus" that Governments around the World are spreading with their out of control spending. This Economic Virus is fatal to all Governments and the people who are ruled by these Over borrowed Governments.

The reality is that there will be no One World Government as feared by the Anti Vaxers / Anti "New World Order" crowd. There will be no money to pay for it, and any Agent of Global Government will need that "money thing" to keep the World from slipping into total chaos.

In the mean time, BM Trudeau will lead the charge to global collapse with his Champagne Socialist buddies who think that "budgets take care of themselves" as these so called leaders keep borrowing and spending.

So Class, how's the lesson in Macro economics going so far?

If any of you have any pull to send this to your local politician to ponder, go ahead. But it won't make a bit of difference if the Prime rate is 6 % or 600 %. Any increase is fatal.

Drewski

[Map Maker]

Yep. Easy to be arse on a computer.

So if prime rate went to 6%, you said that would be fatal.
When was the last time the prime rate was 6%?

2007.

I may not be the smartest but sure don’t see a rosy future having banks run the country.

[Drewski Canuck]

Not being an Arse on the Computer. I am only a Scared person who sees a bleak future for myself and my Children because of the actions of Governments. You should be too.

I'm pointing out that it is not a 1/4 of the Country that goes broke at 6% Prime rate. It is 100 % of the Country that goes broke, along with most of the other over borrowed Governments of the World.

Does that help you understand my point?

In 2007 when Inflation was at 6 %, what was Canada's National Debt?

What is it now?

We need a new leadership in Canada, as well as most of the other Governments of the Developed and Developing World.

This leadership has to understand that the Government spending and borrowing has to be brought under control.

When the first Nation defaults on its debt payments with increasing Interest rates, it will be a domino effect of defaults around the World.

This almost happened when the PIGS of the EU (Portugal, Italy, Greece, and Spain) basically went bankrupt, and the EU and IMF had to bail these countries out.

This almost happened when Korea and New Zealand had to be bailed out by the IMF.

The IMF will not be able to stop the domino effect the next time around because too many Governments will default on their debt payments.

Drewski

[tranq78]

yeah, and then the USA farts in the wrong direction and they lower the rates again.

The banks screwed up the long term financial stability of the country for short term gain.
There is no way they can get the interest rates to a sustainable rate (ie 6%) without bankrupting 1/4 of the country.

It will be the downfall of capitalism.

IMO


This is not on the banks. Our big 6 banks are private companies. They have to deal with the same problems caused by inflation. You may or may not like banks and bankers but they aren't the fall guys here.

The troublemakers are the feds, in this case Canada's federal government. Printing money out of thin air is what causes inflation.

Voters who thought they could get something (like free money) for nothing (no inflation) are wrong. They and you and I are gonna pay and pay. The "free money" is being sucked away by inflation, it ain't free after all.



Yep. Easy to be arse on a computer.

So if prime rate went to 6%, you said that would be fatal.
When was the last time the prime rate was 6%?

2007.

I may not be the smartest but sure don’t see a rosy future having banks run the country.

2007 was in the context of bond yields falling from ~15% to near zero over more than 30 years. That era is now over. North America not gonna experiment with negative real rates like Europe.

We are now talking about economic growth that may be weak and inflation, which will trigger higher interest rates.

If prime rates went to 6.00% then mortgage rates will be much higher. At 12% mortgage rates a house cost $100k. At current 2-3% mortgage rates a house costs $300-600k. If mortgage rates went above 6% then people will be dropping off their keys at the lender. Even if they have locked in they are just delaying the inevitable if mortgage rates double from current levels.

Today's 2-3% mortgage at $500k is the same as 12% mortgage on $100k. I think stuff like this is what DC is talking about (correct me if I'm wrong, DC). Lots of people will be losing their homes at over 6% mortgage rates, that's pretty fatal to the economy because no one will be spending money on anything and everyone will be squirrelling savings away to pay for food and shelter, shelter as in being able to make the next mortgage payment.

Banks do not control interest rates and they do not control inflation. Banks are private companies, they have the same problems running their business with high inflation as I do running my household. You can't even blame the Bank of Canada (they control interest rates), their job is to deal with inflation.

You are being mad at the wrong parties. It's the Minister of Finance and Govt of Canada that are responsible.

[Drewski Canuck]

Well said Tranq78.

For a Bank Mortgage that is CMHC insured, the Bank does not take the loss. The Crown Corporation Canada Mortgage and Housing Corporation does. If CMHC suffers a loss, it is the Government of Canada that guarantees the default payment to the Bank.

See who the real sucker is in this scenario? The Tax Payers.

How do these defaults of Mortgages come about on a renewal when interest rates are at 8 - 12 %?

Because the Prime Rate paid by the Private Bank (the cost of borrowing for the Bank from the Bank of Canada) has gone up.

But don't you worry, when Justin Trudeau said he was all about Families, he was talking about his own Family.

Not yours and mine.

Drewski

[6.5 shooter]

Elect a clown government expect .......:budo:

[waldedw]

An interest rate hike is bad for anyone that lives on credit and borrowed money including the private sector, companies or the governments of the world, the inflation train is just pulling out of the station.

[Ken07AOVette]

An interest rate hike is bad for anyone that lives on credit and borrowed money including the private sector, companies or the governments of the world, the inflation train is just pulling out of the station.

And a lot of the problems lie within the banking industry itself. I was told several times that it is crazy, horrible, stupid to not carry a mortgage or loan of some kind, to keep my credit rating up :bad_boys_20:

'you really should have a current load, or invest in a 'whatever 3 letter term was the push of the day' which gives the bank interest and the person that signs the loan to me likely a bonus or commission of some sort. 'if you do not have a loan with us (credit union) you will only get a very small portion back the end of the year based on your use. :snapoutofit:

Being told not to be debt free, especially now with interest rates possibly climbing is bad? :shark:

can someone explain this to me? :test:

[Dean2]

5 rate hikes will amount to 1.25%. 6% would be a BIG problem but up to 2% they can send a message and not affect much.

[Map Maker]

This is not on the banks. Our big 6 banks are private companies. They have to deal with the same problems caused by inflation. You may or may not like banks and bankers but they aren't the fall guys here.


You are being mad at the wrong parties. It's the Minister of Finance and Govt of Canada that are responsible.

I disagree.
I remember when I went in for my first mortgage and got approved. Then I went back and asked for the approved amount to be raised 20% ( I couldn’t find anything I liked).
The bank approved, then the bank said, “do you want to know how much we would lend you? Because it’s a lot more than your asking. “
I said no, I don’t need a bank telling me how much I can take in debt, because it will be theirs until I pay it off.

The banks giving out loans and letting people just pay the interest with no principal payment, is the reason why people are driving up the house prices.
The banks are just full of tricks to make everyone think YOLO.
Also, wasn’t it the private banks that almost crashed the US market during that subprime fiasco.

So to me, the private banks are running this country and driving it into the ground.

[EZM]

5 rate hikes will amount to 1.25%. 6% would be a BIG problem but up to 2% they can send a message and not affect much.

agreed - a quarter to half point move at a time at best. I also doubt they will roll 5-6 rate hikes in a year - quarterly reviews are the norm and it's somewhat unusual to have them all follow suit and go up in succession.

Yes, if it jumped, somehow, to 6% prime we would all be in deep trouble as a country. Anyone with a moderate to heavy debt load would be in serious trouble.

Having said that, I don't trust Trudeau, I am not a banker or qualified to make a statement - but I can also apply common sense and lean on the fact that we should all be prepared for this - even when times are good and we are borrowing for free and the cost of cash is wooden nickels compared to tougher times.

[Drewski Canuck]

It's not the rate hikes to prime rate in a successive year that worry me so much.

Governments sell Bonds for 10 year blocks, which work in the increased interest rate that is forecast for the long period of time.

Governments then have to pay the 10 year bond each year of the bond to
the investor.

Selling bonds with the prospect of inflation means that the Government is at risk of paying a high bond yield immediately to attract the Investor.

What our cost of borrowing through the Bond Market is will be added to either the Deficit or the Debt of the Country. The worse the debt, the higher the bond.

When Alberta lost its AAA Credit Rating, The NDP were borrowing money in Europe, and it was not at .5 % interest rates.

What happens when Canada has to compete on the Global Bond Market with other Nations scrambling to cover their debt in an inflationary environment?


Drewski

[Twisted Canuck]

So pay off your debt, buy tinned goods, coffee, whisky, ammunition, and some gold and silver. And a generator isn't a bad idea either. Check.

[Mulehahn]

What is the approximate correlation between prime and mortgage rates? Right now prime is at .25% while advertised mortgage (I know you can get lower but just for argument) is at around 2%. That is an 8 fold increase.

If prime went up to 1% would mortgage rates go to 8%? Even if they went to 6% a large number of the people in this country would not able to afford it.

[HyperMOA]

What is the approximate correlation between prime and mortgage rates? Right now prime is at .25% while advertised mortgage (I know you can get lower but just for argument) is at around 2%. That is an 8 fold increase.

If prime went up to 1% would mortgage rates go to 8%? Even if they went to 6% a large number of the people in this country would not able to afford it.

I’m pretty sure most mortgage rates will be 3%+ right now. Some odd brokerages like ratehub you might find 2.something.

[tranq78]

I disagree.
I remember when I went in for my first mortgage and got approved. Then I went back and asked for the approved amount to be raised 20% ( I couldn’t find anything I liked).
The bank approved, then the bank said, “do you want to know how much we would lend you? Because it’s a lot more than your asking. “
I said no, I don’t need a bank telling me how much I can take in debt, because it will be theirs until I pay it off.

The banks giving out loans and letting people just pay the interest with no principal payment, is the reason why people are driving up the house prices.
The banks are just full of tricks to make everyone think YOLO.
Also, wasn’t it the private banks that almost crashed the US market during that subprime fiasco.

So to me, the private banks are running this country and driving it into the ground.


Don't understand why you are blaming banks for what Trudeau has done. Banks ask if you want to buy more of their products. McDonalds asks if you want to fries with that. Car dealer asks if you want to add leather seats. Homebuilder asks if you want to add built-in vacuum.

Making profit is not evil. You have something called free will.

That means you can say no to an upsell whether it's more credit or more fries. You can choose to not have a mortgage at all and the banks can't do anything about it.

And no, paying interest only on a line of credit vs. paying a mortgage is not driving up house prices. It's 40 years of falling interest rates that has caused house prices to go up across the country, Toronto/Vancouver being special exceptions. A 12%/$100k house is the same as a 2%/$500k house. You can work out the mortgage math yourself to verify. The banks are not trying to rip you off, it's how the math works.



agreed - a quarter to half point move at a time at best. I also doubt they will roll 5-6 rate hikes in a year - quarterly reviews are the norm and it's somewhat unusual to have them all follow suit and go up in succession.

Yes, if it jumped, somehow, to 6% prime we would all be in deep trouble as a country. Anyone with a moderate to heavy debt load would be in serious trouble.

Having said that, I don't trust Trudeau, I am not a banker or qualified to make a statement - but I can also apply common sense and lean on the fact that we should all be prepared for this - even when times are good and we are borrowing for free and the cost of cash is wooden nickels compared to tougher times.


Majority of economists in Canada are saying 5 rate hikes this year. But... by the time the discount rate is raised the cost of debt will have already gone up. Raising rates is only the last shoe to drop. Bank of Canada shut down quantitative easing. Canadian dollar vs USD is strong, I think we are at about 80 cents right now. These 2 events are de-facto tightening. By the time they get around to raising the overnight rate the cost of credit will have already gone up.

Trudeau spent like a sailor on shore leave during good times and bad. He left no gas in the tank for emergency maneuvers when you see a car pileup ahead. When you combine 5 hikes of the discount rate + no quant easing + a strong CAD$ + fiscal deficits + inflation, we gonna be in a world of hurt sooner or later.



It's not the rate hikes to prime rate in a successive year that worry me so much.

Governments sell Bonds for 10 year blocks, which work in the increased interest rate that is forecast for the long period of time.

Governments then have to pay the 10 year bond each year of the bond to
the investor.

Selling bonds with the prospect of inflation means that the Government is at risk of paying a high bond yield immediately to attract the Investor.

What our cost of borrowing through the Bond Market is will be added to either the Deficit or the Debt of the Country. The worse the debt, the higher the bond.

When Alberta lost its AAA Credit Rating, The NDP were borrowing money in Europe, and it was not at .5 % interest rates.

What happens when Canada has to compete on the Global Bond Market with other Nations scrambling to cover their debt in an inflationary environment?


Drewski


Too late DC, already happening! Interest rates across the entire Canadian yield curve have made a parallel shift upwards in the last 30 days. Voters gonna find out there ain't no such thing as free money.

[HyperMOA]

I have a different vision than others in regards to debt.

I agree that Canadians are in for a reckoning in the next decade or so. Inflation and trying to service government debt is going to come to roost. Cinch down the hat and hold on.

In regard to debt. I took a whole bunch in the last couple years. I foresee inflation going wild. So I bought some bigger ticket items that I needed just a few years earlier than planned as their price tags may balloon. Also borrowing is dirt cheap so I’ll keep my money working for me and finance at next to nothing.

I feel sorry for retirees and other fixed-income earners.

Also, anyone racking up debt with no cushion, they may have surprises coming.

[Ken07AOVette]

I have a different vision than others in regards to debt.

I agree that Canadians are in for a reckoning in the next decade or so. Inflation and trying to service government debt is going to come to roost. Cinch down the hat and hold on.

In regard to debt. I took a whole bunch in the last couple years. I foresee inflation going wild. So I bought some bigger ticket items that I needed just a few years earlier than planned as their price tags may balloon. Also borrowing is dirt cheap so I’ll keep my money working for me and finance at next to nothing.

I feel sorry for retirees and other fixed-income earners.

Also, anyone racking up debt with no cushion, they may have surprises coming.

Very smart looking ahead of the curve.

I did the same, do I need it today? Will I later? Prices and interest rates are rising, is the money in the bank today? All a very simple flowchart

[HyperMOA]

I disagree.
I remember when I went in for my first mortgage and got approved. Then I went back and asked for the approved amount to be raised 20% ( I couldn’t find anything I liked).
The bank approved, then the bank said, “do you want to know how much we would lend you? Because it’s a lot more than your asking. “
I said no, I don’t need a bank telling me how much I can take in debt, because it will be theirs until I pay it off.

The banks giving out loans and letting people just pay the interest with no principal payment, is the reason why people are driving up the house prices.
The banks are just full of tricks to make everyone think YOLO.
Also, wasn’t it the private banks that almost crashed the US market during that subprime fiasco.

So to me, the private banks are running this country and driving it into the ground.

The Canadian banking system is much different than US banks. That is why in the global recession, caused by US banks, Canadians faired rather well. Well, having the likes of Stephen Harper and not Justin Trudeau would be a huge factor too. Even though Stephen spent a lot of money too, it’s nothing like what Justin did.

[lmtada]

The Canadian banking system is much different than US banks. That is why in the global recession, caused by US banks, Canadians faired rather well. Well, having the likes of Stephen Harper and not Justin Trudeau would be a huge factor too. Even though Stephen spent a lot of money too, it’s nothing like what Justin did.

Yup. Justin Trudeau, liberals added more to Canadian Deficit in 5 years, than all Previous PM combined ($500 Billion). JT Never come close to balancing a budget. Hundred Billion added Deficit prior to COVID-19. Liberals never intended to balance the federal budget.

[tranq78]

So pay off your debt, buy tinned goods, coffee, whisky, ammunition, and some gold and silver. And a generator isn't a bad idea either. Check.

+1 on everything but gold & silver. You ever try to unload a large quantity of physical gold or silver? It's a royal pain. Plus remember the golden rule, if you got gold during the zombie apocalypse you gonna get robbed. Oh, and you'll have to take up reloading and trade with the guys who need mo' ammo.


What is the approximate correlation between prime and mortgage rates? Right now prime is at .25% while advertised mortgage (I know you can get lower but just for argument) is at around 2%. That is an 8 fold increase.

If prime went up to 1% would mortgage rates go to 8%? Even if they went to 6% a large number of the people in this country would not able to afford it.

Slight correction. The Bank of Canada policy rate is 0.25% but us mere mortals can't borrow at that rate. Prime rate at banks is 2.45%. So the spread over prime is 2.20% right now.

[Mulehahn]

Thank you, that makes a lot more sense.

[6.5 shooter]

Ahhh yes back to the good old 80's with 25% interest rates and drilling rigs rotting in the bush. But he has such nice hair and well you know the family name will carry us through the tough times. And he will only borrow 30 million for three years... voters are such sucks.. Enjoy the ride.

[Twisted Canuck]

Government spending is only a billion or so per day. Every day. What could possibly go wrong?

[nelsonob1]

5 rate hikes will amount to 1.25%. 6% would be a BIG problem but up to 2% they can send a message and not affect much.

agreed. i would like to see an initial 50 points to help calm the real estate market before 2022 bakes more correction into the household debt cake.

[fishtank]

+1 on everything but gold & silver. You ever try to unload a large quantity of physical gold or silver? It's a royal pain. Plus remember the golden rule, if you got gold during the zombie apocalypse you gonna get robbed. Oh, and you'll have to take up reloading and trade with the guys who need mo' ammo.




Slight correction. The Bank of Canada policy rate is 0.25% but us mere mortals can't borrow at that rate. Prime rate at banks is 2.45%. So the spread over prime is 2.20% right now.

try to unload physical metal in large quantities, 90% of the time you be on the short end of the stick . And tax man want their cut as well .

[bdub]

Today's 2-3% mortgage at $500k is the same as 12% mortgage on $100k. I think stuff like this is what DC is talking about (correct me if I'm wrong, DC).

I'm not quite following your math. Correct me if I'm wrong though.

Payments on 25 year mortgage at 3% interest on a 500000 starting balance equals $2371/month
FV = 0, PV = 500000, I/Y = 3/12 = .25, N = 25 * 12 = 300
PMT = 2371

Payments on the same 25 years at 12% on a 100000 starting balance = $1053/month.
FV = 0, PV = 100000, I/Y = 12/12 = 1, N = 300 months, PMT = 1053

If you budget is a payment of $2371/month, at 12% you can only afford a $225000 mortgage over 25 years vs the 500000 mortgage at 3%.
PMT = 2371, N = 300, I/Y = 1, FV = 0, PV = 225118

I get your point though on affordability on rising rates. With the amount of leverage in the system it won't take much to tip us over. The BOC is stuck between a rock and a hard place with inflation at 6% and the short end at .25%. Rates should have been somewhere much closer to the rate of inflation long ago. The amount of malinvestment and speculation in some assets is going to get wrung out eventually. We are in a mess.

[I’d rather be outdoors]

Government spending is only a billion or so per day. Every day. What could possibly go wrong?

The problem is willful ignorance. Even if you’re situated well to ride out the inflation storm, there’s plenty taxes they can dream up to bring you down with them.

[The Cook]

So pay off your debt, buy tinned goods, coffee, whisky, ammunition, and some gold and silver. And a generator isn't a bad idea either. Check.

Good advice. I can check all the boxes except gold and silver but in sketchy times I think brass and lead would be considered precious metals.

[HyperMOA]

try to unload physical metal in large quantities, 90% of the time you be on the short end of the stick . And tax man want their cut as well .

It’s your choice to trade over $10,000 at a time. If you are trading under $10,000 at a time, it’s your choice to communicate to the government. If you don’t understand what I’m saying there is no reason to go back and forth on this one.

[6.5 shooter]

The problem is willful ignorance. Even if you’re situated well to ride out the inflation storm, there’s plenty taxes they can dream up to bring you down with them.

Don't forget that The Lieberals, have now made it legal for them to steal your money out of your bank account, so even if you are ahead of the game they will take it all, if they feel the need to pay off THEIR debts. (For the good of the country of course.)

[Map Maker]

I have a different vision than others in regards to debt.



In regard to debt. I took a whole bunch in the last couple years. I foresee inflation going wild. So I bought some bigger ticket items that I needed just a few years earlier than planned as their price tags may balloon. Also borrowing is dirt cheap so I’ll keep my money working for me and finance at next to nothing.



I don’t know how you make that work with depreciation and how quickly things devalue as everyone wants the latest and greatest.

Like I said, everyone thinks they are outsmarting the banks, but in reality, the banks pretty much own everything. Take a look at your mortgage papers.

Blaming the government is a big cop out.
Trudeau senior drove interest rates to 22% and he screwed up the economy
Trudeau lite drove interest rates to the lowest and he screwed up the economy.
I don’t think it’s the feds other than them turning a blind eye.

[urban rednek]

While I do not profess to having an in depth understanding of economics, there is a glaring example on this thread of how brainwashing people in MMT has completely disassociated them from an understanding of government debt and how it eventually affects the economy. I'm beginning to believe it applies to their personal debt as well.

Free government money is good, personal responsibility is bad. :sHa_sarcasticlol:

Enjoy the decline.:angry3:

[BlackHeart]

IF the prime rate goes to 6 %, ...

AND the biggest Debtor in Canada is The Federal Government and a number of Never Do Well Eastern Provinces ...

AND these levels of Government already cannot pay their debt, let alone the interest on the debt, at .5 % ...

THEN THE WHOLE COUNTRY GOES BROKE if there is ANY increase in the Prime Rate!

This is the story for the US, Japan, AND Europe, not to mention all the Third World failed states being propped up by the International Monetary Fund.

I laugh at all the Anti Vaxer / Anti New World Order crowd. They think that Covid and Vacines is the tool that the "New World Order" will use in conjunction with the United Nations to force a One World Government.

When I point out the cumulative Global Government Debt (think Thousands of Trillions of USD) then the next collapse is not because of some Virus, it is because of Global Inflation that no one wants but everyone is getting.

Inflation is the "Economic Virus" that Governments around the World are spreading with their out of control spending. This Economic Virus is fatal to all Governments and the people who are ruled by these Over borrowed Governments.

The reality is that there will be no One World Government as feared by the Anti Vaxers / Anti "New World Order" crowd. There will be no money to pay for it, and any Agent of Global Government will need that "money thing" to keep the World from slipping into total chaos.

In the mean time, BM Trudeau will lead the charge to global collapse with his Champagne Socialist buddies who think that "budgets take care of themselves" as these so called leaders keep borrowing and spending.

If any of you have any pull to send this to your local politician to ponder, go ahead. But it won't make a bit of difference if the Prime rate is 6 % or 600 %. Any increase is fatal.

Drewski

Mostly correct....except that a massive run up in govt debt (and restriction of free speech) needed to save us all $$ from Covid lockdowns has set the current table. Now we will all get to eat that S sandwich of massive taxation (including new equity, inheritance and valuation taxes)with runaway inflation on food, gas and basics, combined with the difficulty of paying the interest on our mortgages and debts, while our major asset (homes) plummet in value and our retirement savings look like enough to buy groceries for a few days due to a currency that makes us wish we bought Zimbabwe dollars.

So in the end.......not many will oppose any new world order.....most will welcome it get them out of the starvation and debt/death spiral.

[kippered]

This is not on the banks. Our big 6 banks are private companies. They have to deal with the same problems caused by inflation. You may or may not like banks and bankers but they aren't the fall guys here.

The troublemakers are the feds, in this case Canada's federal government. Printing money out of thin air is what causes inflation.

Voters who thought they could get something (like free money) for nothing (no inflation) are wrong. They and you and I are gonna pay and pay. The "free money" is being sucked away by inflation, it ain't free after all.





2007 was in the context of bond yields falling from ~15% to near zero over more than 30 years. That era is now over. North America not gonna experiment with negative real rates like Europe.

We are now talking about economic growth that may be weak and inflation, which will trigger higher interest rates.

If prime rates went to 6.00% then mortgage rates will be much higher. At 12% mortgage rates a house cost $100k. At current 2-3% mortgage rates a house costs $300-600k. If mortgage rates went above 6% then people will be dropping off their keys at the lender. Even if they have locked in they are just delaying the inevitable if mortgage rates double from current levels.

Today's 2-3% mortgage at $500k is the same as 12% mortgage on $100k. I think stuff like this is what DC is talking about (correct me if I'm wrong, DC). Lots of people will be losing their homes at over 6% mortgage rates, that's pretty fatal to the economy because no one will be spending money on anything and everyone will be squirrelling savings away to pay for food and shelter, shelter as in being able to make the next mortgage payment.

Banks do not control interest rates and they do not control inflation. Banks are private companies, they have the same problems running their business with high inflation as I do running my household. You can't even blame the Bank of Canada (they control interest rates), their job is to deal with inflation.

You are being mad at the wrong parties. It's the Minister of Finance and Govt of Canada that are responsible.

Fractional reserve banking increases the money supply. If the reserve requirement for a bank is ten percent, and total deposits are worth 1000000, the bank only needs to have 100000 in reserve and hypothetically could lend out up to 900,000. Multiple claims on the same cash increases the money supply. The central banks and the government exacerbate the problem by artificially suppressing interest rates, which leads to an inordinate amount of "private loans". I.E more than what would occur in the absence of loose monetary policy. So in other words the private banks are in cahoots, or at the very least operating in an institutional framework somewhat out of their control. I would say they aren't the bad guys if they engaged in one hundred percent reserve banking..but hey, its kind of a game theory thing. If one guy does it everybody else does or they're the loser.

[tranq78]

I'm not quite following your math.

I get your point though on affordability on rising rates. With the amount of leverage in the system it won't take much to tip us over. The BOC is stuck between a rock and a hard place with inflation at 6% and the short end at .25%. Rates should have been somewhere much closer to the rate of inflation long ago. The amount of malinvestment and speculation in some assets is going to get wrung out eventually. We are in a mess.


Was working on getting a hunting rifle scoped today, didn't see your post until now. Let's not overthink and keep things KISS.

The lender sees your mortgage as a bond because that's what debt is and assume we can refinance every 5 years at same coupon (mortgage rate). Your mortgage rate is the coupon vs. prevailing interest rates which we'll proxy with a 30 year government.

We are starting in 1984 when the 30 year bond yield was 15%. Set aside P+I as most of payments at start are interest anyway and we'll keep things simple.

Go to an online bond calculator and put in the following below.

1984: market interest 15%, coupon rate 15% (assume you pay no premium for a mortgage), maturity = $100,000, term = 30 years (put in 25 if you want). PV = $100,000 mortgage. The price of house is +/- $100k because that's what the bank told you was the amount of debt they'd give you. Assume 15% down payment (KISS), you are still +/- $100k.

Current day: It's the same house but bond yield is 1.5% (crazy, I know). The limiting factor is the coupon, which is your mortgage payment as it can't really change by all that much -- if you are paying $XXX a month it's pretty inflexible. Coupon payment stays same. PV $425k ($380 if 25 yrs). Throw in a down payment and you can see $500k house price. Add some considerations, like speculators and pandemics, then you don't have to work to hit $500k. There is a recent thread about how prices on Vancouver Island are going crazy.

Stretch out to a 40 year term for that house and the PV is over $500k. That's just the mortgage portion before any down payment.

If interest rates start going up again then the mortgage amount you can afford will go down. That means the price of house you can afford is less. Can you imagine the chaos caused if house prices went down even by a modest 10-15%? Any politician will be instantly un-elected because voters will be angry and want to take it out on someone, cuz they was promised free money.

Now throw in a bunch of people who's only equity is their house and that's what they need to retire on. They're going to be told their retirement wealth is going down.

We can slice/dice nuances but math follows specific rules, unlike politics where you can believe anything you want. Sooner or later reality catches up with political beliefs. And BTW, MMT is absolute bull manure.

[bdub]

Still not following your math but thats alright. Agree wholeheartedly with your last three paragraphs.

Hope you got your rifle scoped up.

[waldedw]

Back in the 80's my mortgage was at 12.75% how many households would fold at 1/2 that rate today, and my loan for my business was at 22%

[Bushleague]

And a lot of the problems lie within the banking industry itself. I was told several times that it is crazy, horrible, stupid to not carry a mortgage or loan of some kind, to keep my credit rating up :bad_boys_20:

'you really should have a current load, or invest in a 'whatever 3 letter term was the push of the day' which gives the bank interest and the person that signs the loan to me likely a bonus or commission of some sort. 'if you do not have a loan with us (credit union) you will only get a very small portion back the end of the year based on your use. :snapoutofit:

Being told not to be debt free, especially now with interest rates possibly climbing is bad? :shark:

can someone explain this to me? :test:

Lol, I literally can not be in the same room with a financial advisor and keep my pulse down. The one I am currently forced to deal with tends to say things like you mention, during our last conversation I was forced to point out that despite being over 20 years younger than him, my financial situation is actually much better... so far he's managed to keep his advice to himself since then.

[Big Grey Wolf]

It took almost 150 years for many different gubermunts in Canada to accumulate the first $500 billion of Canadian debt. Trudeau accomplished the same debt $500,000,000,000 in only 2 years.

[I’d rather be outdoors]

Lol, I literally can not be in the same room with a financial advisor and keep my pulse down. The one I am currently forced to deal with tends to say things like you mention, during our last conversation I was forced to point out that despite being over 20 years younger than him, my financial situation is actually much better... so far he's managed to keep his advice to himself since then.

Even better is that when you’re out of debt, they increase taxes (and whatever other cute names they can think of for fees) to take 100lbs of flesh. The sheeple (mostly in the east) enable this behaviour. I say bring on the high interest rates. Time for a wake-up call. The world isn’t all fairies & unicorns. Tough lessons ahead for some/probably most.

[HyperMOA]

I don’t know how you make that work with depreciation and how quickly things devalue as everyone wants the latest and greatest.

Like I said, everyone thinks they are outsmarting the banks, but in reality, the banks pretty much own everything. Take a look at your mortgage papers.

Blaming the government is a big cop out.
Trudeau senior drove interest rates to 22% and he screwed up the economy
Trudeau lite drove interest rates to the lowest and he screwed up the economy.
I don’t think it’s the feds other than them turning a blind eye.

I really don’t understand your reply to me.

I don’t recall blaming the government but it most definitely is their fault. Massive overspending and printing of money for sure will cause inflation and interest rates are used to try to control said inflation. 700 billion in deficit spending in 4 years is definitely going to effect our economy. That is 100% our governments fault; well arguably the voters that voted them in rather.

As for taking on debt in the last couple years yes I think I am making wise moves. I Never said I’m outsmarting the banks. I’ll give you an example. I bought a new truck 2 years ago that I planned on buying about now. Well that same truck today is already about 15k higher and 0% financing isn’t happening either. So I paid less and financed for less. I’m not economist, but I’d say I’m ahead of the game having made capital expenditures early at lower prices and lower rates.

I don’t sell every 2 years so depreciation isn’t a big deal to me. I will have my two new trucks for 15 years barring theft, or a bad accident.

[Map Maker]

I really don’t understand your reply to me.

I don’t recall blaming the government but it most definitely is their fault. Massive overspending and printing of money for sure will cause inflation and interest rates are used to try to control said inflation. 700 billion in deficit spending in 4 years is definitely going to effect our economy. That is 100% our governments fault; well arguably the voters that voted them in rather.

As for taking on debt in the last couple years yes I think I am making wise moves. I Never said I’m outsmarting the banks. I’ll give you an example. I bought a new truck 2 years ago that I planned on buying about now. Well that same truck today is already about 15k higher and 0% financing isn’t happening either. So I paid less and financed for less. I’m not economist, but I’d say I’m ahead of the game having made capital expenditures early at lower prices and lower rates.

I don’t sell every 2 years so depreciation isn’t a big deal to me. I will have my two new trucks for 15 years barring theft, or a bad accident.

My post was my thoughts on the overall thread. Just the first line was directed at you.

It’s great you are making/saving money in this environment.