Bad news for savers | Page 2 | General financial discussion | Discussion forum

If people took the 200% money and paid off their debts they'd now have no interest to pay, plus they could rack up new debts, so the increased demand resulting from their new extra spending power would indeed exert inflationary pressures.

Rolling bonds over into greater debt at lower interest levels can be a trap. Once this much greater new debt matures interest rates could be much higher, then you're in big do-do, especially if you've continued to add to your debt in the interim. Ask those with big mortgages - one of their main worries is come renewal time the interest rates might be much higher.

The central banks are printing money but not unlimited precisely because they fear too much printing leads to devaluation of currency. I do agree that the printing has led to less than dramatic impacts on inflation, so far, doesn't mean there's been no effect. Without the printing we could well be in deflation.

I agree Canada's not yet at capacity, it's why we keep borrowing. But re the celebrity autograph analogy, the more of one's autographs that are out there indeed the less each one is valued by autograph collectors. If everybody had a particular celebrity's autograph the value would be very little. The more dollars out there the less they're worth to its "collectors".

It would be nice if printing money had no side effects, but the fact governments make at least a pretense of limiting the printing suggests they know full well that printing at some point causes noticeable, "hyper" devaluation of currency. Otherwise they'd just print up every day whatever we need for any new gov't program or other spending.

There is always downward price pressure when supply increases, only exception is if demand has increased more in the same interval of time.

And though moving from free autographs to for-pay concerts is a fundamental change of assumptions, even in the concert example in fact there is pressure, almost immediately, though perhaps imperceptible to most observers, i.e. you say the 2nd show (unlike the 1st) didn't sell out, so presumably a 3rd show would have sold zero tickets, at least without a devaluation of the entry fee. That's a sudden and drastic change, from a sold-out 1st show to a not-viable 3rd show. That's how it works with inflation, you can have lots of time with moderate increases in prices and then, all of a sudden, like with the 3rd concert you've hit a tipping point in money printing (and/or borrowing, e.g. see Greece a few years ago), i.e. no-one is interested any longer in your printed currency or in lending you more money to be paid back in your ubiquitous printed currency, and now things change a lot. Suddenly.

I am just really happy that the participants of this forum have gained so much knowledge about monetary policy!

At the moment, the economy of developed countries have strong deflationary pressure due to aging population (reduce demand) and technological advancement (increase supply), the money printing is what keep us from getting into deflation.

However, it may still be a dangerous game to switch on the printing press 24*7. This is because as long as some kind of supply or demand shock happen (the most likely 2 situations are a war between China and US in the South China Sea that disrupt trade route, or a war by China to invade (reclaim) Taiwan which cause massive shortage in computer chips globally - TSMC is the largest and most advance manufacturer of computer chips by a significant margin), the velocity of money may increase rapidly as sudden increase in price of ICT products may induce panic purchase of all goods, even goods that have no relation with computer chips.

(Theoretical info: Price level multiply by real GDP is equal to money supply multiply by velocity of money. When government print lots of money, velocity of money only need to increase slightly to have massive inflation, as suggest by this equation)

However, in the very long run, I still have little trust in fiat currency, as most developed countries have rising healthcare and pension expenses (far beyond the level of inflation) due to aging population, while tax revenue may not increase fast enough as economic growth remain anemic. This means most counties' public finance are a ticking time bomb, and this implies the currencies that are issue by the said government(s) are going to turn into monopoly money when the public finance "bomb" gone off.

In regard to gold and silver standard that gold bugs like Bruford cares about, it may actually be a good idea to return to it, as economic and population growth around the world have slow down. In the past, when the economy and population is growing rapidly, it is a requirement to use fiat currency as there isn't enough gold and silver for everyone to use for trading, as there are more people, and they are all producing and consuming more. If gold and silver was used, the end result was significant deflation and depression, as money was harder to come by, which increased interest rate (price for money), and reduced investment and (most likely) consumption.

That being said, consider technically, most land in Canada belongs to the crown of the province, if we do have hyperinflation, we can use those land as a backing for the issuance of currency. This has been done before in Germany

I agree with what is being said re developed countries, i.e. aging population, deflationary pressures, etc. However not the case in much of the world, i.e. countries, continents, with large, young and growing (albeit at slower rates than previous generations) populations being lifted out of poverty every day, spending capacity increasing, so the future looks brighter than today for those places. Should not be overlooked by younger investors, but be judicious. And future debt problems of 1st world will definitely impact some places, e.g. lots of undeveloped countries not doing well during virus time due to 1st worlders not travelling and bringing their much-needed money with them.

ExtraSauce, to complete the comparison you need to indicate how much people were making when they bought those $3000 cars. A more accurate comparison would be how many hours did the average person have to work to buy that car vs today (plus also factor in vehicle longer life and better reliability today)?

In 1970, 54% of driving age adults in Canada had a car, in 2017 it was 87% (says the internet).

A starting engineer's wage in 1970 was about $7500 per year and minimum wage was about $1.60/hr. I know from personal history. It is non-productive to take things out of context.

mmlt said
Bad news for savers all right. Our finance minister wants to unlock all that money Canadians have squirreled away.
https://www.bnnbloomberg.ca/experts-answer-freeland-s-call-for-ideas-on-how-to-unleash-canadian-cash-hoards-1.1533891  

I heard more carrots than sticks, but the audio wasn't great and I didn't catch all of it.

Interesting that she noted the the economists have been wrong at every step in this crisis so far. Not surprising, but that's a longer story.

She said she is going to tax foreign-owned unoccupied properties, which sounds like a step forward to me.

She asks for ideas, i guess in lieu of relying on economists. I have a couple. I might send them along. Who knows?

Indeed. This from a person who was in such a financial mess personally that in her mid forties she needed help from her father to qualify for a mortgage on a house she wouldn't otherwise have qualified to purchase.

I will not be taking financial advice from this finance minister.