Today's discussion:

Don’t bet on low interest rates returning anytime soon

Those expecting the Bank Rate to go back down to 1 percent once declines begin are in for a big shock. Indeed, even the Bank of Canada is on the record stating that the very low rates from 2008-09 are unlikely to return and will lead to a world where they are higher than we have grown accustomed to.

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Michael B

For those who bought properties while rates were low they were stress tested by the mortgage lending institutions – our major banks. As a result only 0.18% of mortgages were in arrears at the beginning of 2024 – the lowest level in decades. Obviously, a borrower at serious risk of default will sell their property, but I’ve seen no evidence of that occurring in the number of properties for sale in my city, quite the opposite.
From my perspective the far more serious problem concerns the irresponsible spending habits of our gov’ts. Their programs are never “stress tested”, nor properly evaluated. The resulting debt and rising servicing costs are causing a fiscal crisis for which there are only a few solutions – cut social programs, raise taxes, “print” cash or some combination of these actions. Under the control of an incompetent gov’t the consequences will be grave.

25th March 2024 at 9:19 am
Paul Attics

I was reminded of the observation that ‘the average depth of 10 centimeters was of little consequence to the man who drowned in the river’.

If there was a model, let alone a simplistic one, that predicted the future of interest rates accurately, it would currently be at the heart of somebody’s endless money-making machine. Economists that make their predictions publicly certainly don’t have it. Investors make their bets on it using a risk-based analysis, but they invariably win and lose.

Our global economy is an incredibly complex system, perhaps more so than climate given that human behavior, rational and irrational, across billions is a core contributing factor. This incredibly complex system responds in real-time to new, good or bad, information (events, actions, speculations, aggregate emotions), making anything but short-term predictions a crap shoot. Even if there were a reasonable accurate model, the system would likely adjust organically to make it inaccurate.

25th March 2024 at 8:06 am
Paul Attics

// Those expecting the bank rate to go back down to 1 percent once declines begin are in for a big shock.//

Some may be hoping for this, perhaps even wishing, but expectation? What practical aggregate action would demonstrate this expectation? Perhaps the proportion of people choosing a variable interest rate when their mortgage renews?…’bet’ is certainly the right word.

25th March 2024 at 8:00 am
Kim Morton

First, there are some, let’s call them misconceptions about inflation. The real inflation rate is about double the stated rate, and since covid many items were much closer to 20% per month. Almost all building supplies are double 2018 prices. The “official” rate is based on a few Cherry picked items, not on day to day living expenses. For a quick check, just look at how much your taxes have gone up in the last 10 years. Or gas prices. The only things that have not gone up at the rate of inflation is wages and pensions.

25th March 2024 at 10:15 am
Paul Attics

If you are ostensibly going to clear up some misconceptions about inflation, shouldn’t you be a little more precise than “The real inflation rate is about double the stated rate…”? Is there some analysis that you can point to that supports the assertion?

25th March 2024 at 10:26 am
Paul

My industry has been suffering high inflation since before the pandemic. Some things, like machinery have doubled in price in the last three years. 40% on such items in 2021 alone.

25th March 2024 at 1:04 pm
Lauraine

It seems that the Canadian public cannot handle very low interest rates, they take it as a signal to spend, spend, spend without any real considerations, using more of the planets resources, causing more global warming. Nothing can be seen as separate from climate change.

25th March 2024 at 2:12 pm
Morna Felicity Faith Spence

Why can’t they lower Rates; they are rich? We need to stimulate the Economy. Waiting for the End of time? What happens in the Event of Nuclear War? Where does the money go?

26th March 2024 at 1:25 am
Greg

The idea that the only purpose of interest rates is to control consumer inflation is misguided. The last few decades have seen wild asset inflation (housing, stock market, crypto, ….) as well as tremendous wealth disparities. One hopes the Central Bankers will have learnt enough to avoid making that mistake again. Reasonable interest rates are essential to help guide productive investment and sensible behavior.

26th March 2024 at 12:59 am
Brian Staden

This is only because the B.O.C and mafia criminal trudope wants it this way…part of their world domination plan.

25th March 2024 at 7:23 pm
Xiaoming Guo

The zero interest rate of the last decade does not fit into any economics and definitely is not sustainable. 5% is nothing in the last few centuries. The present rate is not high. The present rate is normal. What is not normal is the zero interest rate of the last decade. Canada is in a stagflation. Stagflation is the result of high energy prices. But we are an energy-rich country and we have net energy export. The new code war kills our economy. Why do we want to distance ourselves from the present world economic engine, China? What’s the reason for the corporate welfare that subsidizes foreign companies to build battery plants? This is not a market economy. This is worse than a planned economy.

25th March 2024 at 5:19 pm
Michael F

People were told over and over that low interest rates would not last forever. A lot of people took on too much debt because of these artifically low rates and got caught in the squeeze when rates jumped.

25th March 2024 at 2:56 pm
Paul

I am enjoying the higher interest rates. I have substantial amounts of money on deposit. It will get used up over the year for cash flow. But in the intervening time I make good money on the interest. A few years ago one could make nothing on deposits. Interest was well below the inflation rate.

25th March 2024 at 1:01 pm