Lee Friday – September 15, 2017
On September 6th, the Bank of Canada raised its overnight interest rate to 1.0%, an increase of one-quarter point. Canada’s five largest banks quickly responded by increasing their prime rates to 3.2%, also an increase of one-quarter point.
In its press release, the Bank of Canada said (emphasis added):
Future monetary policy decisions are not predetermined and will be guided by incoming economic data . . . Given elevated household indebtedness, close attention will be paid to the sensitivity of the economy to higher interest rates.
These are curious remarks from the Bank of Canada. It seems obvious that current economic data reveals the economy to be very sensitive to higher interest rates, not just in the future, but right now. On the same day the Bank of Canada increased its interest rate, the Canadian Press reported that (emphasis added):
A new survey by the Canadian Payroll Association suggests nearly half of workers are living paycheque to paycheque due to soaring spending and debt levels.
The poll found that 47 per cent of respondents said it would be difficult to meet their financial obligations if their paycheque was delayed by even a single week.
The survey, which polled 4,766 Canadian employees between June 27 and Aug. 5, also found that 35 per cent said they feel overwhelmed by their level of debt.
According to another recent poll (emphasis added):
“Three in ten home owners say that they will be faced with financial difficulties if the value of their home goes down,” the report read. “Even if home values don’t decline in the near future; more than a quarter of Canadians (27 per cent) who have a mortgage agree that they are ‘in over their head’ with their current mortgage payments.”
“Over seventy percent of Canadians rate their ability to cope with a [one per cent] interest rate increase as less than optimal,” the report reads. “The vast majority of Canadians (77 per cent) would have difficulty absorbing an additional $130 per month in interest payments on debt.”
So, a significant percentage of Canadians are already struggling with debt, and the threshold of an additional $130 per month in interest payments has now been breached for many households. Since those poll results were announced in July, the Bank of Canada has increased its interest rate twice, and the five largest Canadian banks have increased their prime rates by a half point, from 2.7% to 3.2%. Roughly 30 per cent of Canadians have a variable-rate mortgage, and a half point increase means many of them are faced with interest payments which have already increased by more than $130 per month. Note how the banks benefit from this arrangement!
Information gathered from such polls and surveys certainly qualifies as economic data. This data reveals the economic activities of Canadians to be highly sensitive to higher interest rates. Since the Bank of Canada must be aware of this data, what exactly does the bank mean when it says “close attention will be paid to the sensitivity of the economy to higher interest rates”? They did not elaborate, but silence speaks volumes. The Bank of Canada simply ignores the data, which means the economic wellbeing of most Canadians does not concern the bank.
The truth is that we are subjected to a government-imposed banking-monopoly, the purpose of which is to prevent the operation of the free market in the fields of money and banking. This allows the Bank of Canada to administer monetary policy on behalf of the major commercial banks as well as the government – always to the benefit of these groups, not the general public. I have written about this elsewhere.
Banks sometimes make bad loans. Regular citizens are sometimes unable to repay loans. But who receives bailouts? If you said “the banks”, then you know the system is rigged. If you said “nobody, because everybody knows Canadian banks were not bailed out during the global financial crisis of 2008 – 2010”, then you are misinformed. Each of the large Canadian banks received a massive bailout because they were all in serious financial difficulty.
Interest rates are still very low, and they are likely to go higher. How high? We will have to wait and see. Moreover, personal, corporate, and government debt are already at nose-bleed levels – this is a product of the coercive banking monopoly and it is unsustainable. Because it is unsustainable, significant economic disruption lies ahead. And when loans go bad, do not expect bankers to personally absorb the losses resulting from their own foolish mistakes. By one method or another, they will be bailed out. That is the way the system will continue to operate, to the severe detriment of the public, until such time as the public withdraws its consent to the system.