Inverted Yield Curve risk | Page 2 | General comparisons | Discussion forum

Loonie said
I'm not an economist but it seems to me that lower rates encourage more borrowing. This is bad for consumers because it creates more indebtedness that may not be sustainable. And corporations are not reinvesting like they should be so lower rates won't do much good there either. I can't imagine the banks even like it because it reduces their spread.

As an aside, the other day I was at a credit union branch and the rep told me with great excitement that their five year mortgage rate was now X (very low). He knows I have no interest in mortgages, that I'm only interested in higher rates, not lower. It kind of turns my stomach when I see them getting so excited about things like this. It seems like the only thing that gets their juices flowing is more loans, but these can't fuel the future if they can't ever afford to raise the rates because people won't be able to afford to sustain the loans  

Totally on the mark Loonie. A rate drop is a bad idea. But the government wants to sell their bonds easily so they can keep wasting money. It all depends on the BoC team and whether their focus is on serving the government or serving the greater good health of Canada.

Edit: but governments love it, lowering interest payments on the bonds they issue.

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Kidd said
In 2006, the TOTAL Canadian government debt was $2.7 TRILLION. That's federal, provincial and municipal debt. I have no idea what the total government debt in canada is today BUT i would hazard to guess a LOT higher. Canada has a population of 37 million, Italy has a population of 60 million. 2006 numbers are according to the fraser institute... link below.

https://www.investmentexecutive.com/news/research-and-markets/total-canadian-government-debt-2-7-trillion-fraser-institute-says/  

Lol, you have to compare apples to apples. Federal debt without unfunded liabilities is just under $694 billion.

If I go with 2.38 trillion euros as Italy debt converted to Canadian dollars its $3.52 trillion Canadian dollars to Canada $694 billion. The population difference is 1.62 and yet Italy’s debt is 5 times ours. Yikes!

Vatox said
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Lol, you have to compare apples to apples. Federal debt without unfunded liabilities is just under $694 billion.  

True, but I'm of the opinion we should be including unfunded liabilities and contingent liabilities at all vertical levels of government. Governments (especially B.C.), federally and provincially, like to distinguish between "taxpayer-supported debt" and "Crown corporation-supported debt," but at the end of the day, there is only one taxpayer/ratepayer. Thus, that's government spin.

Cheers,
Doug

Liability that is funded implies that there are assets to pay for them. So they really isn't a problem, this is similar to people borrowing money from their HELOC to invest (assuming the underlying assets does not lost value).

Crown company's debts are NOT equivalent to government debt because government only have limited liability over those companies, just like the private owner of a company. It is a misconceptions by the market that it believe they are the same.

The "wrong investment by company" implies that companies are borrowing money to buy back stock instead of expanding their business. This suggest management team does not believe the economy have a rosy outlook. Additionally, borrowing money to buy back stock create demand for stock of the company, which make the bonus from stock options become more lucrative for the management team themselves.

The interests of shareholders doesn't always align with the interest of management team.....

(Fix a few mistakes)

Loonie, you say corporations are not as free as I say, then you repeat what I said: they're subject to the law. Ok. And it's stating the obvious that laws change, we all get that doesn't really affect the fact corporations must adhere to the laws, whichever ones are in place at any moment.

Also you do not mention that corporations, indeed proprietorships and partnerships too, all structures of businesses, do sometimes fail in our economy. In downturns the bankruptcy trustees are busy people. I think what you're referring to re grants and bailouts are the very few largest corporations, and it's true that often the public will, expressed via their elected representatives, is that Canadian jobs (especially unionized) are saved using taxpayer money for grants, tax breaks, bailouts, etc. That's not really news.

Jon, that's a very useful observation, that the interests of management often clash with those of shareholders, i.e. when we say "corporation" who do we mean? Corporations include various stakeholders: employees, managers, owners, the communities and societies in which they operate, often even suppliers and customers, and all their interests are usually not perfectly aligned.