Featured Post

How To Deal With Gaza After Hamas

Saturday, October 10, 2015

Many Canadians are at risk of bankruptcy with a raise in interest rates that would come with a Liberal or NDP government

People vote with their pocketbooks.

With nine days to go until Canada's election, feelings about Bill C-51, whether women can wear niqabs while swearing the citizenship oath, and the war against ISIS will not steer the compass to which candidate gets an "X" from the average voter.

Which leader is most likely to keep my job sector be secure, can I make my mortgage payments, and will I be able to put food on the table will be the questions that decide the election.

To that end, interest rates will be a big factor, and it strongly favors the Conservatives.

The current Prime Interest Rate is 2.7%. Lots of people have below-prime mortgages and are able to live in their own homes because those rates are so low. Canadian banks have kept those rates low, thanks in large measure, to the economic policies put in place by Stephen Harper's government.

Liberal leader Justin Trudeau is promising federal deficits and more government spending at a massive scale.  To get an idea of what a Trudeau government's economy would look like, you only have to look at his mentor, Ontario Premier Kathleen Wynne.

Under Wynne's government, Ontario has become the largest non-sovereign debtor in the western world. There have been large tax increases, which she sometimes euphemistically calls "revenue tools," and her province is losing jobs to nearby US jurisdictions because of the high energy costs needed to run large-scale businesses in Ontario. Ontario's provincial debt rating has gone down under Wynne, and Trudeau's spending promises would do that to Canada as a whole.

The NDP's Tom Mulcair is promising balanced budgets, more government spending, and no significant tax increases. The NDP's recent plunge in the polls are for a variety of reasons, but almost certainly, one of them is that Canadians have concluded that Mulcair's promises on the economy are worthless. It doesn't help him that his candidate list is filled with people like Niki Ashton and Linda McQuaig who express admiration for policies that ruined the Greek and Venezuelan economies.

Consider what would happen to the average mortgage upon refinancing if the interest rate went up by only one percent. A $250,000 mortgage would meant extra payments of more than $200 a month for those households. Combine that with the inevitable tax increases that the Liberals and NDP would bring in, and a vote for those parties translates into a vote to take more than $300 per month away from your ability to make necessary purchases.

Harper will do what he can to keep interest rates low and Canadian household debt manageable. The increase in interest rates that would follow Liberal and NDP governments would result in many Canadians losing their ability to pay mortgages and the loss of their homes.

We pay for our governments, in one way or another. In essence, by voting, we're making a purchase of services. With that in mind, we always want the best service at the best price from a vendor upon whom we know we can rely. Given the available options, the Conservatives are, by a substantial amount, offering Canadians the best deal.


Unknown said...

Okay, this is factually wrong in a lot of different ways that are going to take some time to explain. Frankly, there's no reason for most people to know this shit, which is why most people don't.

The commercial banks don't set rates based on the elected government, but on the politically independent Bank of Canada. That's why central banking was created in the first place. Politicians tend to say crazy fucking things about economics to get themselves elected, which is why there used to be depressions every dozen or so years before the First World War.

The Bank of Canada's rate is tied pretty closely to that of the U.S Federal Reserve, for obvious reasons. If our rates are higher than that of the Americans, investment will necessarily go there because of the higher rate of return, which "interest" actually is.

So, in pretty much any scenario, the power doesn't rest with any of our political leaders. It all rests with Janet Yellin.

You know what else interest rates dictate? The bond market, which is what establishes the size of government debt. That's how government actually sells it, through bonds. And among "the economic policies put in place by Stephen Harper's government" was increasing the federal debt by 50%. Harper made exactly the same argument from 2008 through '11 that Justin Trudeau and Kathleen Wynne are making now. Almost word for word. If you want to avoid more "government investment", you should oppose unnaturally low interest rates. Most fiscal conservatives who aren't playing to the cheap seats to win an election already do.

I oppose that argument as a matter of principle, but Harper certainly doesn't. on the other hand, he lies about most things.

If your position reflects Harper's (and to be fair, I haven't seen any evidence at all that it does), it seems to argue for keeping interest at crisis levels ... just because. But "cheap money" tends to lead to rampant speculation and market bubbles, which is how we got here in the first fucking place.

Always remember, that interest rates are predicted on the idea that there's a value in borrowing money. You seem to be arguing that there either isn't, or that there shouldn't be. Two other political schools of thought believe that, communism and radical Islam.

The government shouldn't be responsible for "interest rates low and Canadian household debt manageable." That's the responsibility of first, the markets, and then, individuals. There's a really easy solution that will keep "Canadian household debt manageable." Don't borrow beyond your means to pay it back. And for Christ's sake, don't get an adjustable-rate mortgage!

Conservative supporters seem to making inherently contradictory arguments; that the economy is made entirely of awesome, but it can't withstand the lifting of artificial limitations placed upon it by an unaccountable government entity. And both, by definition, can't be true.

This is the difference between monetary and fiscal policy, which most people don't understand. In the case, it's in the government's interest that you don't understand it.

Like I said earlier, the enjoy lying to an unusually high degree.

Unknown said...

Your argument, if I understand it correctly, is what created the Great Inflation of the Sixties and Seventies - low interest rates, which were designed to create full employment - combined by with the "economic stimulus" of giant tax cuts.

It's also important to understand that, outside of the mostly meaningless GST cut, Harper hasn't "cut taxes." His soccer mom welfare, and his promising that the federal government will have a place in your finishing your basement are actually what is defined as "tax expenditures." The two are really different, but used interchangeably by people who don't know better, which is what politicians WANT.


Without getting political, I must say that the basic premise for this blog is correct. There are so many Canadian families strung out on debt, as a result of high real estate prices, high rent costs, the highest per capita debt in Canadian history, partially due to increased consumer demand and super low interest rates, that if there were to be a 1.5%+ increase in interest rates, many would not be able to carry their debt load. We have written several blogs on this topic, including, CANADIAN HOUSEHOLD DEBT: WE SEEM TO LOVE IT!
Read more at http://www.irasmithinc.com/blog/canadian-household-debt-we-seem-to-love-it/#70Rqc8yLIQYsGMbR.99

Unknown said...

The are at least three problems with that line of thinking.

First, low interest rates are one of the primary drivers of both household debt and real estate booms. It turns out that when you offer people "cheap money", people tend to borrow it.

Second, the same thinking that applies to households in this area applies even more so to government. It doesn't logically follow that you can bitch about the Ontario Liberals, yet demand a monetary policy that allows them to do the thing that drives you most crazy - heavy borrowing.

Third, government is almost biologically incapable of achieving its desired results. In keeping interests rates low as means of minimizing unemployment, the central banks have both incentivized family debt and exacerbated the real estate bubble. Now people are arguing that rates can't be increased to reflect the real cost of money because there's a lot of household debt and a housing bubble.

That's a vicious circle that is going to have to be broken soon, before it begins creating inflation. If you want to know what high inflation in a weak economy looks like, read up on the 1970's.

Finally, as I pointed out earlier, Stephen Harper has nothing at all to do with it because the Bank of Canada is independent of Parliament.

But, Jesus, it's great to watch people who are otherwise all about personal responsibility argue for government-mandated cheap money because the public can't or won't control its borrowing.

Unknown said...

It is possible to take out a lower floating rate mortgage and hedge it so that the effective rate remains unchanged even when the official bank interest rate is moved up or down. This uses futures over bonds and bills, but can save you a low of money over time. best mortgage rates ontario

Unknown said...

How mortgage loan rates are determined and what causes them to move is an absolute mystery to most folks - and those who think they know are usually wrong. As a former mortgage banker I can tell you that a lot of people in the mortgage industry can't even give you an accurate answer to that question. So Please take a look: www.omj.ca,best mortgage rates ontario