Canada Ends Money Printing, To Hike Rates 7X In 2022 To Fight Inflation

[Economy 52,857]

https://www.bnnbloomberg.ca/transitory-but-not-short-lived-macklem-maintains-boc-has-inflation-under-control-1.1678767

 

Not long after ending QE (a form of money printing for stimulus in financial markets) the Central Bank of Canada hinted it may bring up the time table for the first rate hikes in order to fight high inflation

 

The market is now pricing in as much as 7 rate hikes in 2022 which would raise the current 0.25% benchmark to 2% assuming each rate hike is the standard 25 basis point movement (0.25%) for a total increase of 1.75%... Thats a rather agressive rate of increase

 

Of all the major economies Canada is the only Country speaking in a hawkish tone and seems to have the central bank in the most hurry to tighten monetary policy to attempt to lower inflation

[Delulu Rogers 7,664]

So is this good or bad?

[LaLuna 12,732]

14 minutes ago, Delulu Rogers said:

So is this good or bad?

My question exactly. This is all gibberish to me, but I'd like to understand, because I live in Canada and the inflation is very worrying.

[Economy 52,857]

1 hour ago, Delulu Rogers said:

So is this good or bad?

 

50 minutes ago, LaLuna said:

My question exactly. This is all gibberish to me, but I'd like to understand, because I live in Canada and the inflation is very worrying.

Well bad in the sense that if u have debts like a mortgage interest rate hikes make it more expensive to borrow

 

But higher interest rates also fight inflation which most consumers would also thank

 

Its a balancing act. As a general rule when economy is weak inflation drops and economy needs stimulus as well so interest rates are lowered... when economy strengthens inflation increases and other imbalances as well can also occur in boom times that higher rates can help correct so rates usually are risen during recoveries and good times...

 

basically usually when economy heats up to the point where demand exceeds the economies maximum productive capacity (when unemployment is low enough that factories and companies cant hire anymore to expand further, or machines are running at full capacity etc) that extra demand no longer has any economic benefit because it wont lead to more hiring or expansion just higher prices from price gauging.

 

An over heating economy can also result in imbalances like consumers being too confident and spending money they dont have or companies over producing for demand that cant be sustained indefinitely. For example new car production may surge during giod times but that in time will cause an imbalance once too many people have a new car already, at some point that imbalance will come back to bite

 

Higher rates help fight inflation from the over heating demand in relation to capacity by putting a brake on credit by making it more expensive. It also holds back imbalances like the ones i mentioned thats why when the economy is strong its a good idea for rates to go up

 

Occasionally tho other major factors affect inflation besides just the business cycle. For example right now supply chain disruptions caused by pandemic are a major factor in inflation not because the economy is overheating in the traditional way which makes some question if its wise to raise rates to fight inflation or imbalances given the reasons for the inflation arent the usual stuff

 

Another example is in the past extreme energy spikes (like when Oil surged to nearly $150/barrel in 2008 which is almost double where it is now) caused inflationairy pressures even tho the economy was no longer booming and wages no longer surging and rates had already been hiked several times. The famous crash that caused the financial crisis shortly followed

[Debithius 6,056]

I am telling you, this is why cryptocurrency exist and will eventually become the new hedge.

[Emvee 8,830]

2 hours ago, Debithius said:

I am telling you, this is why cryptocurrency exist and will eventually become the new hedge.

Cryptocurrency will not replace the dollar unless we have a total societal collapse... in which case we wouldn’t be using crypto either lol 

[OMF 3,651]

5 hours ago, Delulu Rogers said:

So is this good or bad?

I can’t imagine it being good for all those people who took up massive loans to be able to even afford anything for their future. I see it happening here in Sydney, historical low interest rates but massive mortgages. Once interest rates go up many of those people will face losing their homes or forced to sell lower 

[Economy 52,857]

4 hours ago, Aussie said:

I can’t imagine it being good for all those people who took up massive loans to be able to even afford anything for their future. I see it happening here in Sydney, historical low interest rates but massive mortgages. Once interest rates go up many of those people will face losing their homes or forced to sell lower 

It was one of the downsides of leaving rates low for so many years. It allowed debt principal on things like mortgages to go to levels it never should of gone

[Economy 52,857]

9 hours ago, Debithius said:

I am telling you, this is why cryptocurrency exist and will eventually become the new hedge.

 

6 hours ago, Fan Favorite said:

Cryptocurrency will not replace the dollar unless we have a total societal collapse... in which case we wouldn’t be using crypto either lol 

Its already shown some degree of hedging patterns during uncertainty however i think it still remains to be seen if it will replace Gold as the long time hedge

 

Rn it still has hype but isnt truly backed by anything other than perception. Gold has always had value in terms of uses as well and rarity which is why its always been the timeless hedge for thousands of years. When fiat currencies failed gold was always the store of value

 

Im not saying that cant change, just that i wouldnt shrug it off as replaced by crypto just yet

 

I can definitely see crypto outperforming gold in uncertain times or high inflationairy times as long as the hype and perception is there to support it. But that can technically fail. Because gold has applicable uses in addition to limited supply it doesnt have a risk of falling apart to worthless levels like crypto... 

 

Crypto has risks like regulation, push backs from central banks, competing crypo currencies that can dominate another and make the one you have fall out of favour etc. Any 1 crypto has risks of becoming worthless for a number of different reasons which has never happed with gold. So im not fully convinced over the long term gold will loose its status of ultimate hedge to cryptos even if cryptos can behave and trade as a hedge as well

[Debithius 6,056]

15 hours ago, Economy said:

 

Its already shown some degree of hedging patterns during uncertainty however i think it still remains to be seen if it will replace Gold as the long time hedge

 

Rn it still has hype but isnt truly backed by anything other than perception. Gold has always had value in terms of uses as well and rarity which is why its always been the timeless hedge for thousands of years. When fiat currencies failed gold was always the store of value

 

Im not saying that cant change, just that i wouldnt shrug it off as replaced by crypto just yet

 

I can definitely see crypto outperforming gold in uncertain times or high inflationairy times as long as the hype and perception is there to support it. But that can technically fail. Because gold has applicable uses in addition to limited supply it doesnt have a risk of falling apart to worthless levels like crypto... 

 

Crypto has risks like regulation, push backs from central banks, competing crypo currencies that can dominate another and make the one you have fall out of favour etc. Any 1 crypto has risks of becoming worthless for a number of different reasons which has never happed with gold. So im not fully convinced over the long term gold will loose its status of ultimate hedge to cryptos even if cryptos can behave and trade as a hedge as well

But you also have to remember that crypto has only been around for about a decade too, gold has been around for thousands and thousands of years. We can't really compare gold to crypto (Bitcoin really). Gold has had its time to stabilize a long time ago, not to mention that fiat is starting to become useless (looking at the states who printed 40% of their total supply in ONE YEAR). Most of of our money is backed by nothing at this point.

If people could give gold value then we can give BTC the same value which can already do so much more than gold. Banks will be forced to use crypto or lose out as more and more people will eventually lose trust in fiat, you can already see the billionaires and big banks playing catch up. 

I do believe that at least BTC and ETH will be around long term. ETH being a deflationary asset, something our governments seem to not be able to solve, an open source for DeFi and BTC with it's fixed supply and scarcity. While I agree that it's all speculation right now I do truly believe that this is our future. Just look at the internet in the 90s.

[Economy 52,857]

10 hours ago, Debithius said:

But you also have to remember that crypto has only been around for about a decade too, gold has been around for thousands and thousands of years. We can't really compare gold to crypto (Bitcoin really). Gold has had its time to stabilize a long time ago, not to mention that fiat is starting to become useless (looking at the states who printed 40% of their total supply in ONE YEAR). Most of of our money is backed by nothing at this point.

If people could give gold value then we can give BTC the same value which can already do so much more than gold. Banks will be forced to use crypto or lose out as more and more people will eventually lose trust in fiat, you can already see the billionaires and big banks playing catch up. 

I do believe that at least BTC and ETH will be around long term. ETH being a deflationary asset, something our governments seem to not be able to solve, an open source for DeFi and BTC with it's fixed supply and scarcity. While I agree that it's all speculation right now I do truly believe that this is our future. Just look at the internet in the 90s.

I disagree... crypto is run by private entities which are competing with eachother trying to dominate. Some cryptos may get wiped out

 

There is also risk of regulation hurting it (some countries dont like crypto and have started talking ways of suppressing it)

 

The fact that they are private also makes them unofficial which is another issue. The last time private money became big in North America in time the Government obliterated it in favour of 1 official currency to prevent issues it created, theres no reason it cant happen again. Yes fiat currencies values is only based on the value trades done with them but at least they are official, cryptos are not

 

So i still wouldnt put cryptos above gold in terms of safe heaven. They can fail. Gold never fails entirely which provides a floor that creates confidence that cant be shattered

 

If investors pulled out of gold temporarily its value would fall but not entirely as again it has applicable uses and is rare enough to never be cheap. Crypto on the other hand doesnt have any applicable usee like that

 

Even if crypto as a whole never dies, it doesnt mean the ones u hold cant

[Debithius 6,056]

4 hours ago, Economy said:

I disagree... crypto is run by private entities which are competing with eachother trying to dominate. Some cryptos may get wiped out

 

There is also risk of regulation hurting it (some countries dont like crypto and have started talking ways of suppressing it)

 

The fact that they are private also makes them unofficial which is another issue. The last time private money became big in North America in time the Government obliterated it in favour of 1 official currency to prevent issues it created, theres no reason it cant happen again. Yes fiat currencies values is only based on the value trades done with them but at least they are official, cryptos are not

 

So i still wouldnt put cryptos above gold in terms of safe heaven. They can fail. Gold never fails entirely which provides a floor that creates confidence that cant be shattered

 

If investors pulled out of gold temporarily its value would fall but not entirely as again it has applicable uses and is rare enough to never be cheap. Crypto on the other hand doesnt have any applicable usee like that

 

Even if crypto as a whole never dies, it doesnt mean the ones u hold cant

I am mainly talking about BTC here because that's what we are calling digital gold, not the market as a whole. BTC isn't run by a private company because nobody owns it, just like nobody owns the email technology and just like nobody "owns" gold. Anyone is free to dig it up and same goes for BTC.

[Economy 52,857]

1 hour ago, Debithius said:

I am mainly talking about BTC here because that's what we are calling digital gold, not the market as a whole. BTC isn't run by a private company because nobody owns it, just like nobody owns the email technology and just like nobody "owns" gold. Anyone is free to dig it up and same goes for BTC.

BTC is not as efficient as some of the other blockchains. Thats exactly the kind of thing im talking about, it can loose its dominance and replaced by someone else

 

And by private i mean it is not Government owned or a system maintained by Government. That makes it unofficial which always means there regulatory risk or a higher risk of it falling out of favour for 1 reason or another

 

I dunno. I just have a hard time saying with confidence that something a decade old, that isnt central to Government, that has no physical use should it fall out of favour with investors or users and that has the risk of being replaced by another of its kind could be a more ultimate safe heaven than a rare metal with applicable uses that for thousands of years has consistently always had value

 

Im not saying crypto cant outperform gold. Of course it can and it has! But something being seen as the ultimate safe heaven doesnt mean it performs the best. Many shady investments (not saying crypto is necessairily shady) outperform safe stuff all the time its in fact usually how it goes

[Monster647 444]

BoC will not increase interest rates 7 times in a single year unless something drastic happens that changes the conjuncture as we know it. Impossible, end of story. Quote me if they do. They won't even do 7 times in the next 2-3 years. 

7 times 0.25 interest rate increases would bring BoC rate to a level unseen in the last decade. It would kill any and all domestic business growth that relies on borrowing and bankrupt those who have borrowed. 

[Economy 52,857]

15 minutes ago, Monster647 said:

BoC will not increase interest rates 7 times in a single year unless something drastic happens that changes the conjuncture as we know it. Impossible, end of story. Quote me if they do. They won't even do 7 times in the next 2-3 years. 

7 times 0.25 interest rate increases would bring BoC rate to a level unseen in the last decade. It would kill any and all domestic business growth that relies on borrowing and bankrupt those who have borrowed. 

Im not saying i agree with this projection or with what the market is pricing

 

That being said rates havent been this high in 13 years but inflation hasnt been this high in 19 years so theres that, so never say never

 

But yeah, im not inclined to believe rates will go that high by 2022-Q4 either. The amount of leverage in economy means each quarter point increase will have a lot more braking power in economy than past cycles