Tuesday, July 19, 2011

Slippery Carney

My picture could have many connections to the Bank of Canada announcement today.

Of course, as everyone knows, they stood 'pat' on rates. No increase, even though we know inflation is running at over 3%, we just cannot bring ourselves to even increase rates from 1 to 1.25%.

Would 0.25% make any difference? probably not. But it would at least send a very mild message that the B of C was not just all talk like that idiot Bernanke, but could actually inconvenience speculators a tiny little bit.

These low rates, are indeed like butter. Butter makes everything more tasty, even broccoli, but too much of it is bad for you.

These below-inflation rates are good for a pump, but long-term they completely distort the economy, as money flows away from prudent behaviour into risky speculative behaviour. Didn't they teach you that at Goldman Sachs Mr Carney?? That is the temple of speculation after all.

Think about it. He wants us to save. OK so we save $1000. So now you want to buy a GIC to at least keep up with inflation of 3% with a 30% tax rate.

No point even looking under 5 years! Because they are all under the amount needed to keep up!!

So what do you do? Buy a seven year bond? I wouldn't advise it, because well before then we will be dealing with rampant inflation of maybe 7-8% a year, and 3% will look mild . However (Chad this one is for you) I think we have a year or two before we even start seeing that start to happen.

So you can spend it, buy property, throw it at the stock-market or...but why save it. The Bank of Canada is telling you that as a saver YOU have to bail out all the excess speculation. Meanwhile it will ask all the speculators, pretty please, pull your horns in..or we will..damn it we might just...stand pat!


  1. Folks

    Victoria is en route to a 10 MOI with a good chunk of their sales going for less than assessed value.

    OK and Sunshine Coast is looking at 17-21 MOI.

    these are the MOI at which the US cities started falling apart. The only thing holding them up is 1% rates, Vancouver's fevered sales and hope.

    If you buy in these areas, for goodness sake- bargain!

  2. I'm still hoping that leaving lots of my cash in short term GICs will pay off if/when housing comes down. Then the 1-2% I was losing every year will seem like peanuts when I save a boatload of money on a place.

    Either that, or I will just park my cash in this:


    Its already 70% cheaper than it was in 2004; I think its value is due for a comeback. Maybe not the smartest investment, but its a hell of a lot more fun than leaving the cash in the bank.

  3. You're darn tootin' about Carney and monetary policy. If you save you are getting a negative real return and this policy is specifically designed to coerce you into moving capital to more productive means.

    Is it fair? No. Does Carney as BoC governor care about the plight of an individual saver? No.