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Email this3:50 pm
October 21, 2013
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It's common knowledge that Trump has issued all kinds of threats against NAFTA and various specific imports from Canada. While his blustering may be a negotiating tactic and his understanding of economics may be sketchy, it seems likely that he will create problems for both us and his own people by erecting trade barriers. We don't know the extent of it yet, but clearly he wants something final before the mid-term elections in November.
I am trying to figure out what this will look like. I am guessing that our interest rates will go up significantly as our dollar will be considered more risky on international markets, that the purchasing power of our dollar will go down, and that inflation will go up significantly due to retaliatory import taxes here and lower value of our dollar. However, I have no expertise in this area.
Would inflation keep pace with interest rates or would one outpace the other?
What do others think will happen?
And what are you doing to prepare for it?
5:05 pm
February 27, 2018
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My 2 cents.
Interest rates were artificially held down to encourage borrowing/spending. This was done to help grow the economy. This measure in my opinion failed. It only created debt, big debt. Saving accounts are now raising savings rates in an effort to secure cash. They need cash to offset the bad paper that they are carrying on their books.
Canadians on average owe $1.73 per $1 net pay. I owe nothing, I have no debts but my nothingness helps lower the average. Many Canadians owe $2, $3, maybe even $4 per $1 net. What will the young generation do with their million dollar house, when its value drops? They won’t walk, they will run. Credit card debt will not be repaid.
Does inflation exist? YES. Who created this inflation? The governments of Canada did. EVERY agency controlled by the government were able to increase their rates and prices. Businesses in Ontario were forced to increase their minimum wage, which in turn increased cost to the consumer.
Bell, Rogers and all media. Rate increases approved by the CRTC. March 12th 2018, Rogers internet is going up $8 per month.
Gas and electrical. Rate increases approved by the Ontario energy board.
Insurance both home and auto. Rate increases approved by the Ontario government.
All government/public sector employees have received raises.
Where are interest rates going???
Canada is going to stall. In my opinion, interest rates will be lowered to 0 or less, to help exports and to encourage more borrowing. Rates of less than 0 do happen. It’s to get your money out of the bank, and into the economy.
5:12 pm
July 10, 2011
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The bottom line is that Trump is going to do what is best for the USA and I expect Justin to do the same for us.. I just don't have any faith whatsoever in his ability to do so. Justins' lack of expertise in any department except gender equality and feminism is a massive downfall for Canada and the Canadian economy long term.
5:58 pm
October 21, 2013
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As far as I can see, it would be a lose-lose situation, regardless of who is PM, and will not benefit either country in the long term. Any PM's options are going to be limited.
My question assumes that this will be the case. I now want to explore the economic implications for us.
6:32 pm
September 11, 2013
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I agree it will be a lose-lose situation. But Trump is in sync with millennials, unions (I don't think US unions think Trump's way will cause problems, they like protectionism) and other locavores who would rather pay someone in their community $40/hr to make something that a person in Mexico, for example, might make for $1/hour. It's the anti-globalism movement, and we can all look back to the 1950s, the era well before "free" trade and globalism, to know how we'll live. Of course, technology is the new wild card, as it's replacing more and more human work daily, so the comparison with the 1950s might not be apt. I don't believe anyone knows how it will all play out, there's no way to prepare. And that's precisely what people will do, i.e. carry on as always and then react as it unfolds. Besides, everybody seems to think Trump is singular and is a 4-year aberration, so I'm not sure why they are getting exercised - his work can all be undone when he's gone.
10:17 pm
October 27, 2013
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I don't think a trade war will happen for long. There may be overshoot due to ego and irrationality, but saner heads will prevail. That said, there will be enough uncertainty for businesses to avoid much in the way of new investment until the dust settles. So there will be pressure on GDP, perhaps even a few quarters of a recession if the trade war goes on too long.
I don't think BoC can/will do anything about interest rates, other than potentially lower them to keep the loonie as low as 70 cents to mitigate tariffs. There will be price inflation in a significant way simply because most of our goods are priced off the greenback, directly or indirectly. However, BoC can't afford to let the loonie fall too far and that will create a bottom in interest rates, maybe at current levels, especially if the US Fed continues to increase 2-4 times this year. It is a crap shoot.
Think best action by both BoC and the investor/saver is to just stay the course. The situation is too volatile to make big bets in any one direction. For me in withdrawal mode, I am keeping enough of my assets in fixed income to weather a s**t storm in potential equity market volatility for a year or two.
12:35 am
February 27, 2018
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Added note.
When Canada lowers their over night interest rates to less than 0. Your response will be... Hell, i am just going to withdraw all of my money and keep it in my mattress.
BOC as you know, cancelled the $500 and $1,000 note. They will NOT be legal tender. So, do you want your cash in, 20s, 50s and 100s? That's a bulky load to carry.
9:45 am
October 27, 2013
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Why do some posters feel interest rates would have to go to zero? The loonie will need some support when GDP falters badly, and to avoid rampant price inflation, no?
10:53 am
October 21, 2013
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AltaRed said
Why do some posters feel interest rates would have to go to zero? The loonie will need some support when GDP falters badly, and to avoid rampant price inflation, no?
I'm certainly no expert, but I would have thought rates might rise, in order to maintain investment in the Cdn$ when its value vis-a-vis other currencies could be dropping.
11:02 am
September 5, 2013
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BOC reiterates that "Governing Council will remain cautious in considering future policy adjustments" and be "guided by incoming data" and adds that while economic outlook "expected to warrant higher interest rates over time, some continued monetary policy accomodation will likely be needed" to keep economy near potential/inflation on target"
Of note, "Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks"
Some housing demand "pulled forward" into 2017 from beginning of 2018 ahead of new mortgage guidelines and other policy measures"
Impact of housing policies, changes to mortgage guidelines and new provincial measures on housing demand and prices will take time to fully assess: "Notably, household credit growth has decelerated for three consecutive months"
The BOC says it will be guided by data in assessing the economy’s sensitivity to interest rates, evolution of economic capacity and "dynamics of both wage growth and inflation"
"Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack"
Inflation close to target and core measures have edged up, "consistent with an economy operating near capacity"; inflation fluctuating due to temporary factors
The Loonie has been chopping around on Trump tariff and NAFTA headlines all week. CAD is little changed after the statement...
The CAD will tank because of BOC fault. They should raise the rate many years ago to contain the housing bubbles. But it is too late. I think I can only hold more cash and move some to other currencies to hedge. That's only thing I can do.
12:32 pm
September 11, 2013
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Brimleychen, there are assets other than financial instruments you can diversify into - land and buildings, and goats (and the means to defend them) come first to mind.
1:03 pm
February 27, 2018
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Interest rates are increased to combat inflation, or to slow a heated economy. Higher rates, result in a higher dollar (others will buy your currency for its % return, making it in demand, it becomes worth more). A higher dollar hurts exports. Higher interest rates, kills those who have debt. Higher interest rates reduce borrowing. Higher interest rates hurt the stock market, (if i can get 5% on a gic, why gamble on stocks?) So... is canada a heated econmy?
6:21 pm
October 21, 2013
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Bill said
Brimleychen, there are assets other than financial instruments you can diversify into - land and buildings, and goats (and the means to defend them) come first to mind.
Yes, these are good diversifiers, but they are more long term and don't provide cash to spend or deal with inflation - except maybe the goats! A rental property might work, but that's a big undertaking with a lot of management responsibility; and it might be worth less in a year or two. If this is going to be a short-term crisis, as some have suggested, then we need a short term solution.
Goats are hard to deal with here but city of Toronto is now apparently experimenting with allowing homeowners to keep chickens (for eggs), so I suppose I could raise chickens!...
6:45 pm
September 5, 2013
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Loonie said
Goats are hard to deal with here but city of Toronto is now apparently experimenting with allowing homeowners to keep chickens (for eggs), so I suppose I could raise chickens!...
If Trump gets his way, you don’t need to raise chickens, there will be no supply management for our dairy / chicken farmers, and that will be good for us as consumers. BTW, the chicken pilot project in Toronto will be for selective areas only, and I guess the city will soon have a tax / Levy for that:-) It’s not a joke to be a landlord in Toronto, either. I still think 4% GIC is easy.
8:31 pm
February 27, 2018
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I love this topic. Again i stress... this is only my opinion.
Whether nafta is or isn't, i believe the canadian economy will faulter. Brimleychen is correct, other currencies is a safe hedge BUT which one? And is it too late, our dollar is at 78 cents usa. Some will cry buy gold, buy gold.
With a 0 or less than 0 interest rate. The canadian dollar will drop below 60 cents, maybe even closer to 55 cents. This will be done in an attempt to get saver's money, out of savings. It will cost you money to save money. Us savers have a large fortune stashed away and it could be used to kick start our country. Another option... if we savers don't throw our money into the econmy, reevaluate our currency, devaluation has been done in the past.
8:50 pm
July 10, 2011
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What I love is.. as a Liberal do you buy bitcoin (now) fearing what's coming? Trader wars.. 0 pct rates.. or sky high inflation? Targeted industries by Trump to fox trade imbalance and kill their debt at our (mexicos) expense.. again where is Justin and the Liberals.. the clock is ticking..
10:57 pm
October 21, 2013
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Yatti, what exactly do you expect Trudeau to be doing about this specific situation? Playing all his cards in the press?
He didn't start this mess, and I don't see that anybody on earth has yet figured out a reliable way to deal with Trump. The guy who was watching over the trade deals for him during all of his presidency just quit over the aluminum tax. Obviously he felt that he couldn't do anything about the situation, even as an insider.
I imagine the Conservatives are very relieved that this situation did not come up on their watch. They expect to make political hay out of it, no doubt, but I see no reason to think they would be any more effective in dealing with it.
Let's not play politics with such a serious issue. What are you doing or thinking of doing with your assets in view of the situation?
4:42 am
September 11, 2013
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"Let's not play politics......", but FIRST: let's defend Mr Trudeau's actions as well as have a couple subtle jabs at Mr Trump and Conservatives. Classic! (CBC would be proud!)
In any event, this thread is just for conjecture. No-one here knows what will happen re Nafta, etc or what the effects will be, it's all a guess.
8:36 am
September 5, 2013
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Kidd said
Interest rates are increased to combat inflation, or to slow a heated economy. Higher rates, result in a higher dollar (others will buy your currency for its % return, making it in demand, it becomes worth more). A higher dollar hurts exports. Higher interest rates, kills those who have debt. Higher interest rates reduce borrowing. Higher interest rates hurt the stock market, (if i can get 5% on a gic, why gamble on stocks?) So... is canada a heated econmy?
In fact, all the theories work when there were no central banks' intervention. Unfortunately, they created more problems (expectations) for our daily lives. Just look at the chart of interest rates.
9:28 am
November 7, 2014
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Loonie said
Yatti, what exactly do you expect Trudeau to be doing about this specific situation? Playing all his cards in the press?
He didn't start this mess, and I don't see that anybody on earth has yet figured out a reliable way to deal with Trump. The guy who was watching over the trade deals for him during all of his presidency just quit over the aluminum tax. Obviously he felt that he couldn't do anything about the situation, even as an insider.I imagine the Conservatives are very relieved that this situation did not come up on their watch. They expect to make political hay out of it, no doubt, but I see no reason to think they would be any more effective in dealing with it.
Let's not play politics with such a serious issue. What are you doing or thinking of doing with your assets in view of the situation?
Mr. Trump has now backed off on his tariff demands regarding Canada and Mexico, as I assumed he might, considering he's in the middle of trade negotiations with both. Much of what comes out of his mouth is spontaneous and often either doesn't go anywhere or gets amended, and is done for shock value.
Personally, I am going to sit tight and not over react to what may turn out to be unnecessary bluster.
Please write your comments in the forum.