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For those who don't understand what the Liberals have done....Pierre does a good job of explaining what this means.
Ever study Venezuela ? ....this is exactly how their economy collapsed.
https://www.youtube.com/watch?v=dx3NArZrwC0Quote:
Inflation Tax clobbers consumers in May, as CPI rises 3.6%--almost double the Bank of Canada's target.
Homes, autos, furniture & fuel prices ballooned, as the central bank keeps flooding the economy with newly-created cash.
Food too.
I heard another 5 percent or an average of 750 per family a year.
Then the government will put in more taxes witch they are talking about.
A condo developer is spending a billion dollars on single family homes or 4000 rental properties. We are on the way for the people to own nothing and be happy [emoji12] .
They are doing it in the USA too heard a few are buying up complete subdivisions any house for sale in the entire area.
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National rate can be way different then your local rate too.
Watch what happens when the interest rates start going up, and what $1 million mortgage payments can do to disposable income.
The middle class is about to get demolished.
There will be significant repercussions for those that do not make the middle class cut, as well.
Just wait until that interest rate increase hits the interest on the deficit.... the $30B+ will go $40B + fast... and where will that money ultimately come from...
I mean they haven't helped the vets, retired, disabled or those that wanted clean water on reserves and what do you think the chances are of them actually doing that.
There are 5 main causes of inflation. We’ve been ticking four of five boxes, since the winter. CPI is far from perfect but it’s the best metric we have.
With respect to govt debt and interest rates. Debt servicing is spread out. So it’s not a direct relationship. At its simplest 10 year bonds, or Tbills ( which are discount notes, not interest bearing) issued “today”. Will pay “1%” for 10 years. So even if rates go up 1% or 100 basis points in 2021. That portion of the debt or notional amount is unaffected. When they mature, they’ll get rolled. At what ever the appropriate rate is in 2031. Then too, debt that’s maturing soon. Might have been issued 5-10-25 years ago. At 2, 4 8 percent. So even if rates are up in 2021/2022. Some of that debt might get rolled cheaper…just depends on the rates 10-25 years ago when it was issued. Convenient of Pierre/Cons not too talk about that when fear mongering about debt service cost :)
So with respect to debt servicing cost, I wouldn’t panic just yet….
inflation is another matter. And I don’t know, if there’s been a time in memory where 4 of 5 boxes are ticking……
https://www.canada.ca/en/department-...y-2020-21.html
The Government of Canada’s debt program will increase in 2020-21 in order to finance the forecasted financial requirement of $469 billion.
The aggregate principal amount to be borrowed in 2020-21 is $713 billion, which is $437 billion higher than the issuance for 2019-20.
A significant proportion of extraordinary borrowings to date in 2020-21 has consisted of short-term instruments, mainly treasury bills, given the ability to issue these instruments in volume quickly to raise needed funding.
The aggregate principal amount of money to be borrowed by the government in 2020-21 is projected to be $713 billion.
Treasury Bill Program
Due to higher borrowing requirements, issuance of 3-, 6- and 12-month maturities have been moved to a weekly frequency, with auction sizes projected to be largely in the $10 billion to $35 billion range. The government plans to continue to conduct treasury bill auctions on a weekly basis for the remainder of the fiscal year.
To mitigate debt rollover and respond to market demand for longer dated treasury bills, a higher proportion of treasury bill issuance in 2020-21 will be allocated to the 6- and 12-month maturities relative to 2019-20.
Looking at the charts, $150B of that is 2 year bonds (over 10%), 20+% is short term..... hence the annual cost of the debt "only" jumping to $40B with a small interest rate increase.... but withing a couple years if the train fire isn't stopped and put out it will burn farm, town, city and country into a charred hole the great grandkids will be cursing this generation! More than doubling of the interest rate won't immediately double the interest payout but there will be an impact!
https://www.youtube.com/watch?v=rHEX4LifR9A
Most recent numbers available.
https://www.canada.ca/en/department-...r/2021/03.html
Have to take stuff with salt Mosquito. Whether it’s from the Cons or Liberals :).
Debt servicing cost currently going down, likely because they are rolling long term debt as it matures, into short term debt. So fairly significant rate savings as aged debt matures. In time, depending on factors and variables we can only guess at, they will likely start locking in longer term debt. Basically, at its simplest, no different than consumer mortgages. During low rate environments, short term. During rising environment environments lock in more long term. Who knows what the world might look like in 5-10 years or 25. But right now, stuff is maturing that was issued, months ago, 1 years ago, 5-10 years ago. At much higher rates relative to today.
T-Bills are discount notes. Bonds pay interest. Discount notes, you buy at a discount to par. And when it matures the holder gets the face value.
Thus a $100 T-Bill might be issued at $96 ( depending on rates, credit rating, time value). Then 1 or 3 years later its worth $100. So they get $96 when it’s issued, owe $100 when it matures.
One other thing to consider with devalued money (printing $$). Just as the rich and well off can buy RE as a hedge against inflation. So can they.
$1 today is worth 0.50 “tomorrow”
So that means, the debt obligations are devalued too.
$1 in interest paid 5 years from now, is paid with .50 cents per se. From a quarter to a penny.
But that’s also where interest rates ( takes more $ to pay off $1) and yield curves ( future value) come in.
I'm less worried about our federal debt (that doesn't mean I'm not worried) than what rising interest rates is going to do to the average family.
With GTA home prices at a record high (and really, we all know the prices are just stupid right now) ... people are taking on major debt. Debt to income ratios?? Total debt per household??
The ONLY reason it hasn't crashed yet is the interest rate is low, artificially low ... money is free right now.
What other tool does the fed have in its pocket to control inflation, other than to raise the interest rates?
I always said, I don't know what will be the trigger ... but sooner or later, these interest rates will come up, and when they do, mortgage delinquencies will go through the roof, along with repossessions ... and we can usher in a residential property collapse just like the US had in 2008 - 2011. Those with cash, will have opportunities of a life time.
Well at some point, taxes will likely go up as well. Also depends on what various bond rating agencies think. The two most respected are Moodies and Standard/Poors.
What might the BoC ( not not feds ) do? They set the prime rate, which is the overnight rate. The rate institutions pay to borrow hundreds of millions for a night to balance the books ( cash flow).
After that stuff rolls down hill depending on the borrowers risk profile and type of credit.
https://www.bankofcanada.ca/core-fun...interest-rate/
Given 2008 and a couple other incidents. I don’t know how high the BoC might go. They know as well that rates could touch off implosion that might be far worse. Household debt is higher that the USs in 2008. And unlike the US we only have a couple large cities…..so it won’t be spread out…
If that happens, what happens to govt revenue???? And their ability to pay their debt?
What might the feds do?
Jack taxes, not next year, not this year. Last year. Not only would that have helped pay the cost, reduced new debt. It too is a tool for controlling inflation. Take money out of the system….
Litterally just got/opened my renewal letter/form.
Below is a smattering of options.
5y fixed. 2.49%
3y fixed. 1.99%
7t fixed 2.95%
1y fixed 2.24%
6m convertible 2.69%
5y variable. 1.5%
So based on those rates.
1) what do the banks want
2) what would most consumer do given the times
?
Banks/govts are little different. And with respect to prime rates. Everyday we could be positive cash flow and lending hundreds of millions overnight. We could be short cash flow and borrowing
and wouldn’t it be nice if we could do 10 or 25 year :)
....a the foundations are still good, the "interest" on the T-bills and the interest on the bonds hasn't started to kick in yet...Quote:
Originally Posted by JBen
https://www.youtube.com/watch?v=4aLUmpl9t_I
https://www.fraserinstitute.org/stud...-for-canadians
Summary
- In recent years, deficit spending and growing government debt have become a trend for many Canadian governments. Like households, governments are required to pay interest on their debt.
- In aggregate, the provinces and federal government are expected to spend $49.6 billion on interest payments in 2020/21.
- Residents in Newfoundland & Labrador face by far the highest combined federal-provincial interest payments per person ($2,604). Quebec, Canada’s second most populous province, is the next highest at $1,417 per person.
- The federal government alone will spend $20.2 billion on debt servicing charges in 2020/21, which is roughly equivalent to what the government expects to spend on Equalization ($20.6 billion) and collect in Employment Insurance Premiums ($21.5 billion).
- Ontarians are projected to spend $20.3 billion on combined federal and provincial interest costs in 2020/21, which is more than the province will spend on infrastructure this year.
- Meanwhile, total expenditures on interest costs for Albertans ($4.8 billion) is close to the expected spending on advanced education in the province. Combined federal-provincial interest costs for British Columbians ($5.5 billion) are more than what the province expects to spend on its Medical Services Plan this year.
and just wait until they have to start paying the interest on the $1,300,000,000,000 debt.... burning up opportunities, burning up the future essentially and spreading to all parts of the economy and society!
<br>https://www.youtube.com/watch?v=mC1XQBmfoOs
I/we get that. I don’t know that many here disagree there is a cost to being in debt. Many, both hard ( actual $ cost) and soft ( non monetary).
But the topic was/is inflation.
Which. If I’m ti be honest, like most or many financial devil details, whether that’s the difference between interest and yield, or how to calculate the PV and FV of money, or far more advanced stuff. What derivatives are, how and why they are used, etc and so on like beta and delta hedging. And on and on.
It’s not very well understood, How many people even know the causes of inflation ? Without googling it…
.
I am an expert? No, but I have spent my life in an advanced field that few people understand, just what they see in Hollywood movies like the big short, or wolf of Wall Street. Or in the press when there’s a big blow up like 2008, and the financial crises and ABCP…
Even to this day, when I try to tell anyone what I did for 20 years, eyes go glassy.
And what I can do, is provide more information, shed more light on stuff, few people ever hear about or know. On this or that, or how financing ( whether by people, companies, governments, works)
Inflation
https://www.cnbc.com/2021/06/03/why-...ur-wallet.html
I have recommended a certain book a handful of times. If you want just a surface look at somewhat related thing because we on the topic of government debt, T-Bills ( Treasury Bonds), some things the public is not aware of, how the “world or financing actually works” etc, and so on.
Read: “when genius failed”.
Just another near miss, that few ever heard or know about. And while I wasn’t with Long Term Capital back in the 90s, I was in the field and it happened, is “true”. As far as that goes
https://en.m.wikipedia.org/wiki/Long-Term_Capital_Management
If not interested in reading the book (it’s actually a good read), skim the link and read “trading strategies”, and because the topic is inflation, “interest” rates, Govt debt, who determines Prime ( the BoC or FED) what that is ( the overnight rate major fininancial institutions use to lend and borrow stupid amounts of money between themselves) every day….
take note of some things mentioned and also Google (I don’t mean offense by that, I Google all kinds of things myself), CDOR and LIBOR.
Heres a teaser.
"In fixed income the company was involved in US Treasuries, Japanese Government Bonds, UK Gilts, Italian BTPs, and Latin American debt, although their activities were not confined to these markets"
Am I hinting at some things? Yes. But that ( what exactly) is up to “you” to determine. To each their own.
I am talking inflation ... and with all the printing of money and creation of huge government debt Justlied Trudope et al are started down a path that has in the past often led to hyperinflation in the Wiemar gov't, Argentina, Zimbabwe etc. were savings/investments were worthless and you could sell you house one week and use the whole amount to buy just a meal not long after. Inflation affect peoples spending and attitudes, employment, quality of life and if not competently controlled (and we know the Libs aren't competent in anything) the country is fubar.
At some point even if they manage to avoid creating an inflation disaster the debt payments will be the largest component of the budget and infrastructure, pensions etc. can become unable even be maintained also affecting those we already see ignored by this government (vets, disabled, seniors, reserves...) and again fubar.
Mosquito,
The previous post, the one which I was “responding to. Said nothing about inflation. Didn’t even refer to it, including the stuff copied from the Fraser institute. It’s all about debt levels and cost. Aka, current positions, not future projections.. And while we all understand that as rates rise, all else equal so to will the debt servicing cost. But all else is not equal, and while we know it won’t happen, it is possible the Cons could hammer us with taxes, take $ out of the system, pay down debt. So in ten years…But even then, there’s more. A lot more….
Saw and read this morning. Decent read. Make of it ( interpret) how you (not you specifically). But it also touches on, what many here argue is the answer. Create jobs..isn’t that what everyone yells? Well great, that’s another cause of inflation. Be careful what you wish for…
Anywho
buried within are 3 words, that are easy to miss/overlook not really understand.
.
Saw and read this morning. Decent read. Make of it ( interpret) how you (not you specifically
Swap market data
https://www.reuters.com/article/cana...BNdA5jq4s3VQmQ
And what will happen if this hyperinflation that’s really being caused by governments Canada and US giving out free freshly printed money to people a lot ran out buying toys Wants not needs. And we go the other way with deflation.
Inflation up and suggestions that interest rates will rise up past previous highs since Canadians are holding onto alot of money lol.
https://financialpost.com/news/econo...nments-splurge
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Same article I linked from Rueters at 5am Fishfood ;)
3 words...
As for inflation, there are 5 main causes. They can work in concert, or not. I'm not sure if theres been a period where we are ticking 4 of 5 in concert. About the only we aren't (yet) ticking is solid growth in GDP
https://www.economicshelp.org/macroe...ses-inflation/
That growth with come hopefully by year end or next year it will be a perfect time to raise everything.Quote:
Originally Posted by JBen
Sorry didn't click on the article you posted I was just reading it and thought it would be a good place for it . Some seen it coming already many will whine Bea ch and complaint lol.
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How much?
How fast?
It was (remained) one of problems post McGuinty. Hoping, or inviting solid growth/jobs (which results in tax revenue) to offset debt/expenses and deficits. Or debt/gdp.
Triggers inflationary pressures. Be careful what you wish for.
and we are already, ticking 4 of 5. Meaning, it’s just more upward pressure……
and don’t sweat it. :)
That article is a good read. Talks about both and how with expected stimulus spending……
buried below the wall of cash ( which will further pressure) are 3 words…
Decided to add this. In part because throughout 2020 shadowy groups operating behind the scenes are all the rage.
Three words. And like short selling is vastly misunderstood (thanks MSM, and exaggerating, sensationalism….
How large, how and why, by whom. This just scratches the surface
https://www.investopedia.com/article...wap-market.asp After 20+ years, I still don’t know how to “explain” to average lay person…
Nor how/why they are both good, nor how/why they can be very bad. But can say/ask what happens when an artery gets clogged and blood ( cash or collateral) can’t flow from A to B, from B to C, from C to D, from D, back to B, and over to F…and then to M, and then back to C, .
well, like during the 90s, when LTC threatened to collapse the entire system, and 14 dominoes…
https://www.investopedia.com/article...wap-market.asp
an excerpt1) Plain Vanilla Swaps
[COLOR=#111111]Plain vanilla interest rate swaps are the most common swap instrument. They are widely used by governments, corporations, institutional investors, hedge funds, and numerous other financial entities
———————-
it is possible to “hedge” any and all interest rate exposure. Meaning, it’s possible A could be 100% insulated from rates exploding. They could quadruple over the next 5 years..and it wouldn’t cost A a penny per se. but it could also be a house cards…
another excerpt
Plain Vanilla Interest rate swaps, but there are many more types.
[COLOR=#111111]According to the Bank for International Settlements, the notional amount outstanding in over-the-counter interest rate swaps was more than $341 trillion in 2019.[COLOR=#0000EE]1
Another article out today.
One cause of inflation? Expectation of inflation.
“the Bank of Canada will be forced to raise interest rates extremely carefully because low borrowing costs are the only reason housing is affordable, St-Arnaud said.”
https://ottawacitizen.com/news/econo...box=1624285484
Worded differently, too many people defaulting, as with 2008, could set off a chain reaction. And given “things” a bunch of things…”who knows how big/bad the nuke will or could be.
If C wobbles, and can’t meet its obligations to B, who then can’t meet obligations to D and F, who have swaps with M, A S and T and back to wobbling C,
But rest assured, they know all that. Many already have swaps, farming out short or long term exposures, fixed for floating, or vice versa and more.