Rising Interest Rates & The Perfect Storm
On Wednesday January 17th, the Bank of Canada (BoC) announced that they were raising target overnight interest rates by another 0.25% to 1.25%. Market expectations for this rate hike began to increase several weeks before the hike so it was almost fully priced into the market already.
The BoC said the hike was warranted due to strong growth in the economy and increasing job numbers. But what information are they really looking at (or what are they smoking)?
Yes, job numbers did go up in December and the Federal government wasted no time saying it was due to their shrewd tactics and policies. They didn’t bother mentioning that the job numbers had only climbed by 0.2% and that the job growth was primarily in Alberta (a province that they are doing everything in their power to hurt) and was due to global oil prices going back up as well as the global economy growing at a rapid rate. This had nothing to do with any work that the feds had done.
Canada’s unemployment rate has been declining since its most recent peak in the summer of 2009 and really has been declining since 1982 so the current government attempting to say any part of this is due to their misguided economic policies is a joke.
What about the “strong economy”? Well as mentioned above, the global economy is doing well and Canada is along for the ride so far. Problem is we have inexperienced people negotiating the NAFTA agreement on our side and we have both public and government opposition to the resource sector (basically our sole industry) that may not allow us to keep riding these coattails. When you add on the facts that our consumer debt is at record levels (we overtook Greece last year for the #1 spot) and that our housing prices are completely out of whack, this all amounts to a “perfect storm” of sorts.
Although I try to keep politics out of my columns, I need to go back to the government’s misguided economic policies again. A Fraser Institute report issued on January 11th (and examined and verified by countless media sources) showed that 90% of Canadians will be paying more taxes once the government’s new tax plans are rolled out. Some argued that mandatory CCP contributions (that are included in this report) can’t be called a “tax” but anything that is forcing you to give up your money to an underfunded “pension” plan and that give you a 1% rate of return at best is a tax in my mind.
Add on the Carbon “tax” and rising interest rates and there is no doubt that middle income families will have a lot less money left at the end of each month. After the spending spree that Canadians have been on since 2009, there will be a whole lot of our population that simply won’t be able to make ends meet, let alone save anything for retirement.
So, what can you do? Aside from anxiously await the next election where we can hopefully replace these crooks with a more fiscally responsible and balanced government (is that possible to find?), you can start preparing now for higher taxes and higher interest rates. Every step you can take today to reduce your debt load and bump up your savings will be amplified twofold once the tax and interest rate increases start to hit home.