Kevin Beatty On Interest Rates
Historically in Canada the Prime Lending Rate was set at 1.75% higher than The Bank of Canada’s Overnight Rate. That changed in 2008 as then Bank of Canada Governor Mark Carney was front loading the economic impacts of a global monetary crisis by lowering the overnight rate leaps and bounds. Carney and his staff at The BOC knew what was coming and began lowering rates in December 2007 at which time the overnight rate sat at 4.50% (Prime was 6.25%) by lowering rates by .25%.
So it began an interest rate decline that in this country is seen among most if not all economist as The Saving of an Economy. True to a point along with Mark Carney’s ability as Governor: however what also saved our banking system was the decision from a former Liberal Government and specifically Paul Martin, who told The Americans that Deregulating Banks was not in the best interest of Canadians. A story for another time………..
After the Rate announcement in December 2007, The Overnight Rate was set to 4.25 % and Prime was 6.00%. Big moves were on the way and Chartered Banks followed suit until December 2008 when Carney lowered the Overnight Rate from 2.25% to 1.50%. However The Big Banks only lowered Prime by .50% from 4:00% to 3:50%. The Bank of Canada continued to lower rates through 2009 until they reached the bottom in April when the Overnight Rate hit the bottom at .25% (Prime 2.25%).
The Overnight Rate and Prime sat there for 14 months and in June 2010 Governor Carney moved the rate up by .25 and did the same over the next 2 subsequent announcements, July and September.
Since September 2010 the Overnight Rate has sat at 1% and Prime at 3. Until earlier this week when now Bank of Canada Governor Stephen Poloz lowered The Overnight rate by .25, which surprised many, myself included. I believed that the lowering would have occurred last year sometime after the 2 quarter, but as we begin a new year and quarter Poloz surprises everyone with this move.
But what does it mean; history shows that The Chartered Banks do not have to follow The BOC by lowering Prime. Will they? I believe that that Big Banks are interest in Shareholders and Shareholders Value. So maybe not, (TD was quick to say no way on Wednesday) we may have word one way or another on other Banks by the end of the week. With Oil’s slide along with the Loonie our Eastern manufacturing partners are happy once again, but it won’t be for long. Oil will come back as will the Loonie. As for interest rates enjoy the cheap money it’s going to be here for some time to come.
Kevin Beatty BComm
Mortgage Broker
Dominion Lending BCLender.ca
Comments
Didn’t work for the Japanese , it isnt going to work here . Steve doesn’t have a clue what to do . He’s a fossil fool . The USA is steaming ahead at 5% and we are bleeding jobs .” Doing the same thing ,over and over . Then expecting a different out come is the definition of insanity ” Albert Einstein .
Harper bases his whole economic policy since becoming Prime Minister on fueling the bankster ponzi with ever lower interest rates. Its a foolish trickle down ideology where banksters get the bailout and pensioners essentially get taxed on their savings unless they switch to much riskier stocks in a time of huge debt driving stock market bubbles.
Last week Switzerland ended their peg to the dollar and Euro causing their currency to go up in value over 50% in a matter of hours. This hurt Swiss exports, but it was better than the currency tax of staying pegged to the Euro at a time when the EU was about to announce massive ‘quantitative easing’. When you print fiat money from thin air it devalues the currency, which is good for those carrying big debts, but is devastating for pensioners… its directing inflation to the most vulnerable and being able to avoid even calling it inflation because inflation of the monetary supply is called quantitative easing rather than a devaluation of the currency.
So today the EU announced they will be printing $80 Billion dollars a month in funny money fiat currency backed by nothing… the EU will be using this $80 Billion per month to buy ‘assets’ meaning the debt contracts of European banks so as to float them and have the tax payers buy all the bad debts from the banks in the idea that if the tax payer prints money to buy bad debts from banks, then the banks will be more solvent to enter more profitable business activities and some economic activity will trickle down to main street.
Its social credit welfare for banksters, and austerity for the working middle class who have to pay for supporting the 1% gambling habits.
The Bank of Canada with its interest rate cut was aiming to devalue the Canadian dollar at a time when the EU was ramping up the printing press thereby devaluing their own currency. Clearly the goal here is to see who can devalue their currency more to capture export markets. Its not good economic policy at all, but its all Harper knows since becoming Prime Minister.
At a time when Canadians should be putting money into savings that can be used for productive investments, and a time when we have a wave of retirees looking to get a living wage return on their secure bonds… we have a government that is waging a currency war with record low interest rates to prop up banksters that gambled and created a debt ponzi market they can only avoid from popping by devaluing the currency with printing presses that give them access to ever cheaper credit.
This kind of self serving economic policy should be criminal IMO.
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