(image by nick7ps)
Let's see if we can make any sense of the world with a some fun financial charts.
Can financial charts be fun??
Let's do our best to try and have some fun with them anyway.
(Very Serious Warning: Although the actual information on the charts below can be very serious we're in a very light-hearted mood today and that will come across in our observations. If you'd like to get a very serious review of financial charts please Google the words "serious financial charts" or "put me to sleep financial charts", thank you.)
On September 5th, 2012 the Bank of Canada kept it's "overnight rate" at 1 percent.
You can read all the glorious details here.
They hinted that raising rates "may become appropriate" when pigs fly or when we put a Canadian on Mars ... whichever comes first.
Let's face it ... the Bank of Canada ain't raising rates in any considerable way, shape or form anytime soon.
I mean ... a 1/4 point here or a 1/2 point there may be enough to create psychotic and scary headlines in the papers but those types of interest rate moves are rather meaningless.
We're talking about no 1% or 2% or 3% moves anytime soon.
And why can we fell so confident about this?
Well, there's this nice chart of U.S. rate courtesy of the St. Louis Federal Reserve...
U.S. rates always dictate our rate policy in Canada so it's interesting stuff but let's look at Canadian fun charts.
We'd show you rates before 1950 but for some reason that chart has been discontinued on the St. Louis Fed's website (you can see that here).
But we're in luck!
Because who cares about the U.S. anyway right? 🙂 (only half joking)
Let's look at Canadian charts.
We're not sure why but the Bank of Canada doesn't seem to post these charts any longer (they're probably there - we just can't find 'em today - Crossfit exhaustion is kicking in at the moment).
But luckily we kept copies of them around.
So here's Canada's rate chart from the 1975 to present:
And this next one is 1935 to 1975:
The last time we had a economic problem rates stayed low for what look like 20 years.
We're on about year #4 of low rates.
Could we have another 16 years of low rates ahead?
Is that how long it will take to put a Canadian on Mars (that was an attempt at a funny joke).
Check out this chart...
That's the Canadian Federal Debt from 1867-2008.
Looks like we've been drinking from the easy money punch bowl for the last 20 years or so.
And it doesn't look like we're going to stop drinking from the easy-money-punch-bowl anytime soon...
...because although he looks serious ... last Friday our Finance Minister, Jim Flaherty, mentioned he'll spend more money we don't have "if needed". (Source)
That was partially in response to the U.S. announcing last week it will print about $40B per month, every month, perhaps forever!
That's 10 Billion dollars a week.
Or about 1.3 Billion dollars a day.
Or about $54 Million an hour.
Canada doesn't want to be left behind ... so we'll have to print-print-print too!
It's such a vicious circle.
Here's a chart of the U.S. Federal Debt...
Looks like that line is about to go right off the page.
Now that would be a fun chart!
And not to be out done, yesterday, the Bank of Japan said it would print another 10 Trillion Yen for it's bond buying program of easy money. (Source)
10 Trillion Yen!
What's the bottom line?
With all this easy money and fat debts ... and with no government will to control spending (in any country) ... this is only the beginning.
And as a result ... if you're smart about it ... you could be taking advantage of low rates for some time to come ... or at least until pigs fly.
(On Saturday October 13th we'll be having our Rock Star Inner Circle Member Event where we do a deep dive into the current state of the Economy - if you're a member of ours and haven't reached out to Kayla in the office yet do so today!)
Until next time ... Your Life! Your Terms!
I believe that should have been 10 billions a week instead of 1 billion a week as said in the article.
Thanks Anwar! All fixed up!
I have definitely noticed a great sense of humour creeping into your writings lately. Of course it's very evident in this article. Serious topics with great info as always - but I can tell you are having a lot of fun. Great stuff, keep it up!
Hi Tom, not to mention the Fed is spending an additional $40B every month in Operation Twist which is to buy securities from the Tresury. Thats $80B every month that the Fed will be spending. . . .please explain where the fiscal and monetary prudence is in all this?
LOL, agreed. Unfortunately they can't come out and say they want to "weaken the dollar" because it's not in their stated mandate ... but that's what they want to do. Fun times!
It's really funny to look at flying pig... but as for the rest it's all quite predictable. Low interest rate of the BOC for the 4-th year in a raw? In terms of slow economy in Canada (though Ministry of Finance officially declared end of recession) it would be crazy to expect something different. That's also right for the States.
How long it may continue? To be obvious it's not the entire Canadian issue. Since Canada has export oriented economy with extensive world ties, situation with rates will mainly depend on global economy which is currently not in a good shape. Everybody knows about financial troubles in USA, EU, and Japan. I don't even mention Greece, Ireland, Spain, and Italy... Who is next?
While many nations all over the world have to tie belts and cut budgets to be alive, Canada in terms of high prices of raw materials, foods, machineries etc. (the main export positions) is quite comfortable to spend funds, even if the Government's debt is rapidly rising. Yes, they "print, print, print"... But look at the inflation rate. It's always within inflation target limits defined by the Bank of Canada and is currently only about 1.5%. What's a problem here? It is also too far to the critical proportion Debt/GDP to be worry about dollars printing. It is fine.
As for "week" US dollar it's regular practice going this way to support national economy during hard time. Who will buy the US products if USD is strong? Strong currency would be resulted in miserable national export and massive importation both deadly impacting on national manufacturers.
Yes, rates will be comparatively low for the years coming. Not sure about 16 years but it won't be soon to see any significant increase though the Bank of Canada keeps promising to raise them. There are simply no reasons to make urgent actions. Especially as it has been managed to restrain the overheated Real Estate market due to the Federal Government instituted numerous changes.
Market slows down and sales have already dropped... Meaning that Real Estate prices correction is coming soon (it's a matter of some months) it is supposedly not good idea "to take advantage of low rates" right now, no matter buying property for yourself or an investment one. Based on a property appreciation Rent-to Own idea in this situation won't work since the forecasted decline in average price during the next 2-3 years may reach up to 30-40%. What is an appreciation?
Low rate is a good thing but ... I think nobody should be in a hurry to take such advantage. Supposedly, it's not right time since the Real Estate bubble is bursting. Pigs won't fly soon, so it's nothing to be worried about these rates.