Bank of Canada increases overnight rate target to 1 per cent • Hacker News Board

Re: Bank of Canada increases overnight rate target to 1 per cent

#181

Post by jvm » Thu, Sep 07, 2017, 1:48 AM UTC

SimbaOnSteroids wrote: post #14

latch wrote: post #9

For those not following Canada's economy. Two weeks ago no one was sure if they'd hike the rate again, and no one thought they'd do it so quickly (though it seemed likely they'd do it ~oct/nov). But, Canada posted exceptionally strong growth numbers (4.5%) at the end of August, which kind of made this very likely. Also, the government just sold bonds that mature in 2064 (at 2.2%) and has indicated that it might issue…

Why would any entity buy bonds that when matured will not have kept up remotely with inflation? Obviously I'm missing some key idea here, I just have no idea what it is.

Looking at RBS spreads here: http://www.bankofcanada.ca/rates/interest-rates/lookup-bond-...

…looks like the market expects 1.57% inflation over the next 10 years, so these bonds are expected to beat inflation handily.

Re: Bank of Canada increases overnight rate target to 1 per cent

#182

Post by guelo » Thu, Sep 07, 2017, 1:56 AM UTC

maerF0x0 wrote: post #71

jpdaigle wrote: post #55

Earlier quoted context omitted.

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…

The cynic in me suggests that the basket might intentionally be chosen to hide the fact that the cost of living is going up. Lots of people with money have incentives for inflation numbers to be low. ex: COLA raises are common and benefit if the CPI hides the true costs Ex2: many government benefits are tied to "inflation" . If your personal basket inflates faster than their example basket then they can get away with…

I do not appreciate random unfounded conspiracy theories like this comment.

Re: Bank of Canada increases overnight rate target to 1 per cent

#183

Post by mempko » Thu, Sep 07, 2017, 2:04 AM UTC

sbenitoj wrote: post #145

dmix wrote: post #43

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…

You're right -- the commonwealth countries are in for a rude awakening! Especially considering government debts worldwide have increased A LOT since the 2008 financial crisis [0], they don't have the same ability to inflate their way out of the next crisis that they had after the 2008 crisis. Even though I agree with the spirit of your statement, I don't think that central banks "let this happen" -- on the contrary,…

Government debt is never the problem considering government has monopoly to create new money. The problem is private debt. In fact if you look at why private debt increases it's usually correlated to a DECREASE of government debt. For example, the Clinton surplus forced private sector into massive debt. If you haven't noticed, the common wealth countries have been going through a huge austerity program. This austerity is the likely reason private debt increased heavily. Also since corporate tax rates were also lowered, corporations kept more of their profits. They used these to invest in assets like stocks, bonds, and real-estate. In other words, austerity plus lower tax rates equals high private debt.

Re: Bank of Canada increases overnight rate target to 1 per cent

#184

Post by FooHentai » Thu, Sep 07, 2017, 2:05 AM UTC

nickik wrote: post #85

dmix wrote: post #43

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…

I'm sorry but you seem to have no idea about the what and why of montary policy. A central bank has to conduct montary policy for the economy as a hole. Attempts by central banks to 'clamp down' on bubbles have generally been catastrophic. Also the low interest rates are simply not just 'artefically low' because of central banks. The montary effect of the interest a central bank sets is determained by the difference…

>Additionally the idea that all these things are bubbles is quite suspect in a lot of places there is real demand for property.

What do you define as 'real demand'? There are three main areas of demand for housing property:

1. People requiring shelter (i.e. people who will purchase a property to live in themselves) or

2. People purchasing property to extract rents (landlords) or

3. People purchasing property to later on-sell for a greater amount (property investors)

It's the third class of buyer that many believe is driving demand, and there's certainly a strong argument that the property investor class is bigger today because of depressed interest rates. Because of this increased demand, prices increase. But that price increase is driven only by the perceived future sale value of the property. This is why it's a bubble - The returns are predicated only on continued buy-in to the market. It's little more than a ponzi scheme.

This assertion falls apart if you don't accept the premise that current activity is being driven by investors, of course.

Re: Bank of Canada increases overnight rate target to 1 per cent

#185

Post by mempko » Thu, Sep 07, 2017, 2:07 AM UTC

cthrow wrote: post #52

dmix wrote: post #43

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…

Alternative in 2008 was to let the banking system collapse, then rebuild from scratch. Personally I believe many older/sick people would have died if central banks hadn't dropped interest rates and embarked on QE asset purchasing schemes to keep the system afloat. Credit/lending would have all but disappeared for a while, many would have lost access to financial instruments necessary to secure housing, healthcare, in…

QE didn't increase money supply. The reason we had recovery at all was Obama running huge budget deficits.

Re: Bank of Canada increases overnight rate target to 1 per cent

#186

Post by z2600 » Thu, Sep 07, 2017, 2:14 AM UTC

lotsofpulp wrote: post #123

graeme wrote: post #112

Earlier quoted context omitted.

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.

I don't think it is puzzling. Technological advances have made each person capable of doing much more, and capital does more and more of the work that people used to (or someone in another country does it). I bet underemployment rate is not low, and with more and more people competing for low skill jobs where they're easily replaceable, again, thanks to technology, there is no reason for wages to go up. Also of note…

There seems to be a trend among large employers to avoid full-time employment, either by keeping weekly hours below x or hiring contract workers.

We've seen since the last recession that top 2% have grown incomes while most others are stagnant, perhaps this is part of it.

Re: Bank of Canada increases overnight rate target to 1 per cent

#187

Post by shrewduser » Thu, Sep 07, 2017, 2:22 AM UTC

mempko wrote: post #185

cthrow wrote: post #52

Earlier quoted context omitted.

Alternative in 2008 was to let the banking system collapse, then rebuild from scratch. Personally I believe many older/sick people would have died if central banks hadn't dropped interest rates and embarked on QE asset purchasing schemes to keep the system afloat. Credit/lending would have all but disappeared for a while, many would have lost access to financial instruments necessary to secure housing, healthcare, in…

QE didn't increase money supply. The reason we had recovery at all was Obama running huge budget deficits.

QE does increase money supply by definition

Re: Bank of Canada increases overnight rate target to 1 per cent

#188

Post by _5ysi » Thu, Sep 07, 2017, 2:24 AM UTC

graeme wrote: post #112

kitcar wrote: post #51

Earlier quoted context omitted.

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.

I think the majority of technologic trends since at least 2000 have been fundamentally deflationary in nature, for all material goods. We simply are conserving more; using less materials and energy for the same set of consumer uses. Unlike the last industrial revolution where new energy hungry appliances were being invented and new ways of life expanding, most new inventions today are long lasting, low energy consuming, or are just innovations making existing products cheaper.

That central banks and treasuries insist on inflation above zero when we should probably be deflating and letting technology make everyone wealthier...no wonder there are property bubbles. (Note this inflation argument encompasses the effect of trade deficits in creating asset bubbles, because inflation/treasury debt breaks the trade/currency feedback loop)

Re: Bank of Canada increases overnight rate target to 1 per cent

#189

Post by _5ysi » Thu, Sep 07, 2017, 2:34 AM UTC

dmix wrote: post #43

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…

> By artificially keeping rates near 0%...

I agree with your sentiment and artificially is a powerful word for conveying that. But strictly speaking the rate the central bank sets for lending new money is artificial, or fiat, no matter what we decide it should be (So long as it is > 0).

Re: Bank of Canada increases overnight rate target to 1 per cent

#190

Post by _5ysi » Thu, Sep 07, 2017, 2:44 AM UTC

kitcar wrote: post #51

dmix wrote: post #43

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…

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…

Low interests rates don't directly cause inflation. For one thing it may not even expand the monetary base, if there are few expansive areas of the economy in need of capital or if there are other even cheaper sources of capital (like trade deficit money returning from overseas).

For another thing, if the monetary base is expanding, it could be that all the new cash gets sucked into fixed asset wealth like land and stock value, but the number of transactions fall so that these price increases don't leak out into broader consumer prices or wages.

Finally it could be that technological change is causing deflation on the same order of magnitude as the banker's monetary inflation.