Inflation Rate Increasing..go figure. :)

[MikePal]

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.

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.

[fishfood]

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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[glen]

National rate can be way different then your local rate too.

[MarkB]

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.

[mosquito]

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.

[JBen]

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……

[mosquito]

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!




Most recent numbers available.
https://www.canada.ca/en/department-...r/2021/03.html

[JBen]

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.

[MarkB]

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.

[JBen]

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….