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September 11, 2015 | The Irreconcilable

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.


Six sleeps only now until we know if the Americans will be raising rates. The current betting? About one in three that the hike will come on Thursday, two in three that it will be in October and three in three that it will be by the end of the year.

This is called “tightening of monetary policy,” in case your boyfriend happens to ask. It’s also referred to as “the removal of stimulus,” which might equally interest him. The US central bank wants to throttle back on cheap money since the economy there is growing smartly and (as with your mate) too much stimulus could lead to explosive consequences. So better to reduce the incentive to borrow and spend too much now before inflation jumps and pesky workers start demanding more raises.

The contrast between them and us is stark. While the Bank of Canada opted this week not to drop its key rate for a third time in 2015, lots of people still think another chop is inevitable. “The Bank of Canada’s decision to leave its key policy rate unchanged at 0.5% last week was largely as expected in light of the recent news that the real economy returned to growth in June,” says economist David Madani. “Nevertheless, we expect GDP growth to be pretty underwhelming in the second half of this year and, as a result, we still anticipate that the Bank will be forced to cut rates for a third time to only 0.25% soon.”

That would be a big deal – a rate cut in Canada happening just as the US moves rates higher for the first time in a decade. You can just imagine where that would leave the loonie. By the way, the next possible date for a Canadian rate change would be Wednesday, October 21st – just two days after the federal election, which will also be consequential. After all, if the tax-and-spend Dippers or the we-love-deficits Libs gain power, expect the dollar to already be wobbling. Should be one heck of a week.

Now, let’s talk about you.

The discussion here yesterday on whether or not it’s fair or insane to rein in TFSA contributions (as Mulcair and Trudeau have promised) nicely illustrates what’s going on in our society. On one side there are the bulk of people who have saved little, if anything, and believe anyone better off than them must be crooked, parasitic, exploitative, privileged or an evil, wealth-sucking ‘rentier’. On the other are those who have money or aspire to be affluent, and think the first group are commies.

Collectively, there’s no mistaking the fact we’re in serious crap. The gap between these two groups is growing wider by the day. There are only about 250,000 wealthy people in Canada (investible assets of over a million), even though 70% of us own property which is more inflated in value than ever. The trouble is, that real estate comes with massive debt, the extent of which we learned on Friday.

StatsCan says it’s hit a new high of just under 165% of after-tax income. Given the fact lots of people have no debt, the ones who do are shouldering massive amounts of it – mostly related to real estate. Mortgages and secured lines of credit are romping ahead about 6% a year. Overall credit growth was just under 2% in the second quarter of 2015, at which time income grew by 0.8%. So, yeah, debt is increasing more than twice as quickly as wages. If interest rates were not at historic low level, this would be an economic disaster.

That, of course, is why we obsess on this pathetic blog about the future direction of rates. Most people, including almost everyone under 35, believe rates will never rise again. Older people, in general, understand what a jump in the cost of money can do. They’ve lived it. Given the fact older people tend to have more assets and income than younger ones, this just adds to the fun we’re all heading for over the next two years.

By the way, if you think voting for the NDP or the Liberals will delay the inevitable Bank of Canada, mortgage fate and LOC increases, think again. Our central bank and bond markets have followed the US ones almost 95% of the time over the last quarter century, and there’s no reason to expect a change now. The federal government does not dictate interest rates, which have only one long-term direction in which to travel.

Well, after the discussion here yesterday there’s little more to be said. The divisions between us are stark and economic in nature. Irresponsible election candidates are making them worse. Telling people their lives will be improved if the affluent and corporations are dinged is a lie. Plain and simple. You could screw over every one of the 254,000 rich people in Canada and average families would see no benefit. Besides, you can be sure a bunch will leave. Wouldn’t you?

Maybe this weekend we should look at this through the eyes of a homeless Syrian family running from the cops down a railway line in central Europe. Let’s try it.

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September 11th, 2015

Posted In: The Greater Fool

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