121–130 of 214 posts
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> keep an entry in a digital record A record where, though? Bank "clearing" means that ultimately a bank is keeping its money either with other banks or with the central bank. They're records, but not necessarily interest-bearing, and keeping it with other banks is not risk-free.
How about keeping it with the central bank?
https://www.ecb.europa.eu/explainers/tell-me/html/what-is-th...
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Dropping interest rates, backstopping systematically important institutions during the immediate crisis, and even the first QE were arguably necessary. The subsequent QE's and eight years of 0 interest rates were not.
While it's easy to blame CB's for the past 8 years of stagnation in developed economies, I don't think it's their fault. It's also very hard to say what exactly is the right amount of repurchasing through QE (1.3T in QE1 vs. 4.5T total). CB's just kept repurchasing until unemployment bottomed out, and now that we've hit the bottom, they will start to shrink their balance sheets. That's their mandate - maximize employ…
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I believe the official stance of the bank of Canada is inflation is below target hence the low rates being acceptable for so long. What I don't understand (and I hope someone can shine some light on!) is the basket of goods they use to measure inflation doesn't seem to be very impacted by low interest rates - therefore how will the low rates increase inflation? i.e. banks will only lend to me at below 5% if I'm buyin…
In past times, business expansion lowered the unemployment rate, which raised wages, which raised prices. The first part happened. The last two don't seem to be happening, which is puzzling. Central banks are having to consider that the old model may not hold anymore. No one's really sure what to do. Consumer tendencies weren't really supposed to enter into it, as far as I know.
Also of note is that more economic activity is concentrated in fewer and fewer regions, so while a select few (urban) regions experience growth and whatnot, most other areas do not.
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Yeah, but locking in a rate for 5 years is so different from locking it in for 30 that it seems kind of misleading to say "both places have fixed-rate mortgages." I'm actually a little unclear on the specifics here; is it that you have a balloon payment and the typical thing is to get another, smaller loan to pay that off?
Technically, yes, you are on the hook for a balloon payment. In practice, however, you would get a new mortgage for the remainder owing. You can, of course, be screwed in the event of rising interest rates or collapsing property values. Unlike the US, there are hefty fees for early payoff of the mortgage, so if you were in the position to pay it off, you would probably want to wait until the end of the current mortga…
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What you're describing is a fixed rate mortgage with a 5 year term. We may not allow 40 year terms, but that doesn't mean we don't allow fixed rate mortgages. After the term is up you can renegotiate a new fixed rate term if you want, or move your mortgage. That said, fixed rate mortgages almost always cost you more in the long run, though a 5 year term is probably going to screw you less than a 25+ year term.
Oh my. We are arguing over semantics. In the US, a fixed rate mortgage typically has a term equal to its amortization schedule. I.E. your interest is fixed for 30 years. In Canada, there are things called "fixed rate mortgages" where the interest is fixed for the term of the mortgage, but I have never seen a term longer than 5 years (most are shorter). The mortgage is typically amortized over a period of no longer th…
A lot of people in the Bay Area got their 30y mortgages locked in at a fantastic (low) 3.x% in the last ~5y, and would be hesitant to give that up, even if they wanted to upgrade. Combined with with property taxes that are locked to inflation, means that a homeowner has an incentive not to sell, and buyers compete for limited inventory.
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While it's easy to blame CB's for the past 8 years of stagnation in developed economies, I don't think it's their fault. It's also very hard to say what exactly is the right amount of repurchasing through QE (1.3T in QE1 vs. 4.5T total). CB's just kept repurchasing until unemployment bottomed out, and now that we've hit the bottom, they will start to shrink their balance sheets. That's their mandate - maximize employ…
Unemployment would have bottomed out regardless. QE did not speed it up or slow it down, and all of it went into boosting asset prices and malinvestment instead, that much is plain to see. In pegging rates to zero and compressing credit spreads, the central bank had essentially been telling everyone that there was no return in investing in the real economy and that there was not much difference between a good and a b…
I just don't have enough economic knowledge to say with confidence that unemployment would have bottomed out without QE2 and QE3, and that monetary policy post QE1 has been bad/unnecessary. I have to defer to CBs judgement on this matter.
If you have studies/data to the contrary I would definitely want to read them.
The commonwealth countries are all facing a property bubble (Canada, New Zealand, Australia, etc). The household debt levels and property prices didn't taper off nearly as much following the 2008 US housing crisis and has pretty much continued unabated: http://www.huffingtonpost.ca/stephen-punwasi/real-estate-bub... Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and…
> Which is fascinating to consider that the Bank of Canada, et al, have let this happen for so long and are only reacting now... In Canada this is because the real estate bubbles were confined to Vancouver and Toronto. Raising interest rates to cool down real estate in those two cities would have been bad for the rest of the country.
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Well, you hit on it directly. Cost of housing ought to be included in inflation measures.
Does CPI not include a shelter component, even a problematic one? http://www.slate.com/blogs/moneybox/2014/02/24/housing_infla...
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Another thing I don't understand about the basket of goods approach to measuring consumer prices is how we're getting inflation figures which are so low. Since goods we buy priced in USD have gone up massively in 2-3 years due to a falling Canadian dollar (electronics, smartphones, computers, SaaS, etc.), the only way the basket stays at 2% YoY growth is if that's offset by other things falling in price. But, anecdot…
Wages haven't gone up, so while you may have shifted allocation of purchases within the CPI basket, your total spending is probably around the same as it was last year, and the year before that. EG you buy more electronics and gas (cheaper), and less clothing and food (more expensive), but your overall spending remains ~50% of your income, which hasn't changed. Wages are usually the primary driver of higher CPI measu…
Those are assets rather than goods. They are neither produced nor consumed. That being said, yeah, it's no mystery that low rates have caused asset price inflation, not consumer price inflation.