Interest Rates

[Smokey]

How bad is it going to get before the Government raises interest rates? With anything of value rising exponentially such as food, commodities, vehicles, etc, while wages are stagnant, is it not time to raise them before major economic failout.

I'm looking for a new to me shopping cart to carry my money in for when I need some bread and milk.

[markg]

I wouldnt buy a Shopping cart I would talk to my financial advisor about buying Gold or Silver

[fishtank]

Pay down Mortgage or any big ticket item that will be effected by the rate hike . Assuming they are saying it in middle of 2022 and will be double (0.5) of what it is now (0.25)%.

[Twisted Canuck]

Don't worry, the government is taking on debt so Canadians won't have to. It's all gonna be great. Justin has a Magic Money Tree (MMT) where things like debt and deficits don't mater. What, me worry?

[buckbrush]

Originally Posted by Twisted Canuck

Don't worry, the government is taking on debt so Canadians won't have to. It's all gonna be great. Justin has a Magic Money Tree (MMT) where things like debt and deficits don't mater. What, me worry?

Right?!

I'm with TC, No worries, just going to wait for more free money to fix all of our problems....

[HyperMOA]

I don’t believe interest rates will rise (drastically). The government (at most levels) would likely feel the pain more than the average Canadian.

[Geraldsh]

Credit union called and offered me a lower interest rate locked in for 5 years. I assume they figure rates will remain relatively flat. I took the deal.

[Cement Bench]

APPROXIMATELY back in 1982-1990 my mortgage was at 16 % or so for 5 years

hang on boys and girls

[pdog15]

We had interest rates in the high double digits under the Liberals in the late 1970s. It seems we are headed there again under guess who. When the banks start offering piddling interest rates with a 5yr lock-in, something must be in the wind. The huge inflationary scenario, much being the result of Trudeau’s huge over-spending, is about to be exacerbated by another round of huge over-spending.

[Map Maker]

I’m trying to figure out what will happen.

Inflation is already happening with the price of goods rising.

That means our money’s buying power is less.

Banks that loan out money for 10 years ( ie mortgage) want more interest because they are taking on the risk and money is losing value.

Bank of Canada doesn’t want to raise interest rates because then economy can crash.

Yet people are buying everything they can including crypto money which has no value.

Land, gold, art I think will all be winners for next 10 years. Anything where demand never wanes.

Just my guess

[Buckhead]

I can see the BOC gradually trending the interest rate higher towards 2.0%.
That means 5 year fixed mortgage rates will increase from all time lows to around 3.5%.

If you look at the Canada 5 year bond yield and add 1.25 to 1.5 on top of that you will have a good indication of mortgage rate trends.

https://www.marketwatch.com/investin...countryCode=bx

I could be wrong but I just don't see sky high interest rates coming with the amount of money the government has borrowed. We would be talking about initiating a crash in real estate and all markets that would be unprecedented.
I am not saying that can't happen (because we are governed by morons) by its not likely.

Sure, we are seeing some inflation right now - but the reporting is a bit flawed IMO. Inflation rates are reported on a year over year basis - so what we are seeing is a comparison of prices as things start to normalize to the Covid crash lows. Its not a valid comparison.

We should be comparing prices now to pre-covid to get a true picture. Say 2019 at this time to right now.

As the supply chain picks up and people get back to fuller employment then we will get a true picture of what's going on.

That is going to take some time yet as Canada is still way behind on the vaccination numbers.

[Dean2]

I have said parts of this on a couple of other threads but thought I would post this here. PAY VERY CLOSE ATTENTION to what is happening right now. Gas is up 80% from a year ago, food 40%, Lumber 400%, copper 200%, housing is going up 30% a month in some places, even Edmonton and Calgary are seeing prices rising and short supply. There are severe shortages of everything from electronic chips to fresh produce. Despite what we see every day, the Fed tells us inflation is under 2%. Bank of Canada has changed its tone on interest rates, signalling possible rate hikes much sooner, and the liberal government has started knee jerk reactions to increase revenue and cool the Eastern Canadian and B.C. housing markets. If interest rates get to 5% it will take nearly all of the taxes raised from income tax just to cover the interest payments on our current National Debt. Income tax is still double what is raised on GST so increases to GST is not out of the question post the next election if the Liberals get in.

Between rampant inflation, higher taxes, and higher interest rates the financial health of many is going to take a real beating over the next 5 years. The advice I am giving the people I consult for, make sure your money is in assets that will increase with inflation and that you get as much debt paid down as possible, even debt where the interest is tax deductible. I would not be surprised to see interest rates on mortgages at 6% in the next 18 months. I hope I am wrong but given what is going on I think there is a 70% chance I will end up being right.

[tranq78]

Originally Posted by Cement Bench

APPROXIMATELY back in 1982-1990 my mortgage was at 16 % or so for 5 years

16% mortgage rates? Egads I'd be suicidal. I suspect even a 2% rise in mortgage rates these days will make a lot of people walk into the bank and drop the keys onto the table.

Originally Posted by Twisted Canuck

Don't worry, the government is taking on debt so Canadians won't have to. It's all gonna be great. Justin has a Magic Money Tree (MMT) where things like debt and deficits don't mater. What, me worry?

Every time someone starts talking about MMT and how it works I'm reminded of what Phillip K. Dick said. “Reality is that which, when you stop believing in it, doesn't go away.”

MMT is another the big lie. Say it often and loudly enough and it becomes true until after the next election. Reality is much simpler, there is no such thing as free money.

Originally Posted by Dean2

Bank of Canada has changed its tone on interest rates, signalling possible rate hikes much sooner

The advice I am giving the people I consult for, make sure your money is in assets that will increase with inflation and that you get as much debt paid down as possible, even debt where the interest is tax deductible.

Good points Dean, particularly the snips. For anyone who has a mortgage or floating debt do not wait until rising interest rates actually happens. It's going to be way too late because fixed rates will go up well in advance of the Bank of Canada raising interest rates. BoC is telegraphing a rise in rates in 2nd half 2022 so mortgages will be going up 6-12 months beforehand. If you can lock in a mortgage or blend-and-extend, do it now.

[Buckhead]

For those who are nervous and have the means and aren't planning to move anytime soon there is also the alternative of locking in a 10 year mortgage at the low rates available and either plan to have it paid off in 10 years or just amortize it over 10 years and invest the cash.

Burning all your cash and paying everything down is not a good solution for everyone. There is a cushion required and opportunities always present themselves to mobilize cash - inflation or deflation.

Each person has to look at their own situation closely.

[kingrat]

Originally Posted by Twisted Canuck

Don't worry, the government is taking on debt so Canadians won't have to. It's all gonna be great. Justin has a Magic Money Tree (MMT) where things like debt and deficits don't mater. What, me worry?

Yup I'm not worried hes got our backs he said

[HyperMOA]

So if interest rates rise and then government credit ratings slide it could be disastrous. Maybe dehydrated food, gold, and a brass-powder-lead blend is a good investment today.

[harv3589]

I’m waiting and about in 5yrs there will be a lot of cheap guns, atv’s, trucks and holiday trailers to be had. There will be some hunting people soon…then thought the pandemic was tough financially.

[raab]

Originally Posted by Dean2

I have said parts of this on a couple of other threads but thought I would post this here. PAY VERY CLOSE ATTENTION to what is happening right now. Gas is up 80% from a year ago, food 40%, Lumber 400%, copper 200%, housing is going up 30% a month in some places, even Edmonton and Calgary are seeing prices rising and short supply. There are severe shortages of everything from electronic chips to fresh produce. Despite what we see every day, the Fed tells us inflation is under 2%. Bank of Canada has changed its tone on interest rates, signalling possible rate hikes much sooner, and the liberal government has started knee jerk reactions to increase revenue and cool the Eastern Canadian and B.C. housing markets. If interest rates get to 5% it will take nearly all of the taxes raised from income tax just to cover the interest payments on our current National Debt. Income tax is still double what is raised on GST so increases to GST is not out of the question post the next election if the Liberals get in.

Between rampant inflation, higher taxes, and higher interest rates the financial health of many is going to take a real beating over the next 5 years. The advice I am giving the people I consult for, make sure your money is in assets that will increase with inflation and that you get as much debt paid down as possible, even debt where the interest is tax deductible. I would not be surprised to see interest rates on mortgages at 6% in the next 18 months. I hope I am wrong but given what is going on I think there is a 70% chance I will end up being right.

Copper being up makes sense due to the infrastructure bill in the States and the push towards electric vehicles. Gonna needs a bunch of wire to upgrade the current electrical grid. The copper miners still aren't where they should be given the price in my mind. So people can make a nice return over the next 5 years on them as long as they value the business correctly.

On interest rates I see them going one of two ways. The first is up, and this will be due to inflation. If inflation stays high, then they'll need to raise rates substantially to control inflation, and will have no choice in the matter. In saying that the bank knows raising interest rates will kill the economy, and cause a recession. So IMO if they don't see inflation, or if inflation is transitory like they're saying, and we see prices drop once the supply chain is back at 100%. Then I see them continuing QE, which will take rates lower, and eventually into negative territory. As the last thing any banker wants is a recession on their watch. And since they let the QE cat out of the bag so to speak, if they stop printing money, were due for a recession. Really hard as an investor to know where to put money right now as a result. I might pull some out, with everyone and their neighbour currently in the market.

[raab]

Originally Posted by harv3589

I’m waiting and about in 5yrs there will be a lot of cheap guns, atv’s, trucks and holiday trailers to be had. There will be some hunting people soon…then thought the pandemic was tough financially.

Good luck, with the government printing almost 50% of the money supply(M2) in the last year, everything is up for that reason. Were just starting to see it in prices. The prices may come down some, but they won't be down that much unless they contract the money supply.(Raise Interest Rates) Which is possible, but I'll believe it when I see it. This is why the rich, get richer.

https://www.bankofcanada.ca/rates/in...key-variables/

[Buckhead]

Originally Posted by raab

Good luck, with the government printing almost 50% of the money supply(M2) in the last year, everything is up for that reason. Were just starting to see it in prices. The prices may come down some, but they won't be down that much unless they contract the money supply.(Raise Interest Rates) Which is possible, but I'll believe it when I see it. This is why the rich, get richer.

https://www.bankofcanada.ca/rates/in...key-variables/

One cannot just watch the BOC rate in isolation. One has to take into account the 5 year bond yield and what the US Fed is doing. That's the way I see it, anyway.

And things like this Velocity of Money (M2).

https://fred.stlouisfed.org/series/M2V

So far I am only seeing signs of transitory inflation - nothing to verify yet.

[harv3589]

Originally Posted by raab

Good luck, with the government printing almost 50% of the money supply(M2) in the last year, everything is up for that reason. Were just starting to see it in prices. The prices may come down some, but they won't be down that much unless they contract the money supply.(Raise Interest Rates) Which is possible, but I'll believe it when I see it. This is why the rich, get richer.

https://www.bankofcanada.ca/rates/in...key-variables/

The market will be flooded with stuff when people are faced with loosing their homes in 5 yrs. they will sell stuff cheap…most aren’t smart enough to look that far ahead and what happens when interest rates go up and they have to renew their mortgages

[raab]

Originally Posted by Buckhead

One cannot just watch the BOC rate in isolation. One has to take into account the 5 year bond yield and what the US Fed is doing. That's the way I see it, anyway.

And things like this Velocity of Money (M2).

https://fred.stlouisfed.org/series/M2V

So far I am only seeing signs of transitory inflation - nothing to verify yet.

So what do you think happens when we open up and velocity goes back to normal?

[raab]

Originally Posted by harv3589

The market will be flooded with stuff when people are faced with loosing their homes in 5 yrs. they will sell stuff cheap…most aren’t smart enough to look that far ahead and what happens when interest rates go up and they have to renew their mortgages

Your assuming rates don't go negative, which I don't think is out of the realm of possibility.

[HyperMOA]

Originally Posted by raab

So what do you think happens when we open up and velocity goes back to normal?

I don’t necessarily doubt that things go back to normal but do you think there is a possibility that many people change the way they live after this? Like condo dwellers moving to detached. Mexico travellers using the fifth wheel for years to come, etc.

[Roadhunter]

Originally Posted by HyperMOA

I don’t necessarily doubt that things go back to normal but do you think there is a possibility that many people change the way they live after this? Like condo dwellers moving to detached. Mexico travellers using the fifth wheel for years to come, etc.

Nope, no changes here, things still normal, just can’t go to Mexico yet.

[Buckhead]

Originally Posted by raab

So what do you think happens when we open up and velocity goes back to normal?

What is normal. It has been in a down trend since 1997. Is it going to stay flat, go down further, rise exponentially?

I can only watch and see what it does. It is one indicator - that's it. Right now it is barely moving to the upside from all time lows.

If I could predict the future I would be having dinner with Bill Gates and Jeff Bezos right now.

It appears that the US has had more than 20 years of deflation according to that chart - regardless of the amount of stimulus they push into the system.
Sure things appear more expensive based on the number of dollars but the dollar has lost so much value it's a wash.

Right now we are in supply chain shortage period. However, there have been plenty of shutdowns and idle facilities all over the world. Once the planes start flying again and factories all over the world are cranking out products I give this 6 months to a year before the inflation forces balance the deflation forces (such things as tech innovation and quantum computing). Then the deflationary trend will be in force again.

I feel we are in for some short term pain over the next year or 18 months before everything gets back on stream.

I don't see a big push for higher interest rates. The world is awash in liquidity. Money is not a scarce commodity. There is lots around and savers and companies have lots stashed away. All that new cash entering the market is going to drive interest rates lower - not higher IMO.

People are going to have to be enticed to borrow money. Tripling the interest rates is not going to achieve that. That is my take on it.

[bdub]

Remember the Fed only controls interest rates at the very short end. The longer maturities are set by market forces. The Fed has intervened in the interest rate market along the curve via their bond purchases. They don’t control rates out on the curve it but they do influence them to a large degree. They also want to and have been successful at keeping rates artificially low for a long time. These bond purchases/expansion of the Feds balance sheet means we have money (alot/3.7 trillions in the US) building up in the banking system.

This combination of inflationary forces pushing the long end of the interest rate curve up (despite the Fed) while the short end is held at zero has made the curve steep. This spread in rates incentivizes banks to lend out from their huge pile of reserves. So we have banks eager to lend which is going to begin stoking demand. We also have piles of cash sitting in peoples accounts from the government shovelling money out the door indiscriminately. Despite the shutdown, there is a big pile of personal savings built up in the hands of people who worked through this period. And they are itching to spend it.

On the supply side we have hundreds of supply chain disruptions due to covid response. Commodity production is suffering from a decade long lack in investment. The green esg movement has made it unpopular to invest and build out mines or produce commodities. That money would rather invest in electric car companies, Uber and fake meat. The world is going to find out it isn’t that quick or easy to bring on things like a copper mine. Takes years.

So we are in a supply crunch coupled with a pickup in demand and a flood of money. Rates should be going up, inflation is going up, and perhaps quite a bit. We’ll see I guess.