Personal Finance

Bank of Canada Raises Interest Rate for First Time in Seven Years

  • Last Updated:
  • Jul 29th, 2017 3:02 pm
Deal Guru
Apr 11, 2006
12388 posts
6570 upvotes
Vaughan
burnt69 wrote: TSX = 15,200 in 2008. Today, 9 years later, its barely at that level. Not well above.
What was interest rates in 2008? What is it now?
Banned
Jul 18, 2016
2014 posts
786 upvotes
burnt69 wrote: Nope. And none of my comments were incorrect at all. The data is even worse today than it was a year ago. Consumer prices are in deflation indicating that there is enormous capacity slack. Hiring this year has been scant. Most datapoints indicate more strongly that rate cuts, not hikes were needed.



TSX = 15,200 in 2008. Today, 9 years later, its barely at that level. Not well above.

Housing prices falling is pretty common knowledge these days. And evidence points to deflationary trends in the Canadian economy accelerating, especially with how high the CAD$ has gone lately. There is no inflation around the corner since there is likely no growth.
You're right. There was a brief period where it peaked to 15,200 in 2008.

However, let's look at a few other numbers. In 2008, oil was close to $140. Bank prime was close to 6.5%. Since 2008, annual inflation has averaged 1.45% ( no deflation there!). Average annual dividend yield on the TSX is 2.39. Therefore, during that 9 year period, you've enjoyed a net, after inflation, annual return of 2.39 - 1.45 = 0.94%. So, you definitely haven't lost money.

We're at the beginning of new up cycle. Enjoy!
Deal Addict
Dec 9, 2007
2848 posts
327 upvotes
I think this Economy is ready to go down the shitter, along with the US economy. The Stock Market is inflated as hell, housing is absurdly overpriced, debt is increasing... I just don't feel safe investing in anything right now. Sure, the wave could continue, but I think what you are seeing is a bubble, and a credit card Economy, even from the federal level.

People can agree or disagree all they want, but I suspect another huge recession again soon... its just a matter of when is the bubble going to burst again. This whole lowering interest rates and what not is all about trying to save the Economy from itself and all I think its done is delay the inevitable, again...
Penalty Box
Dec 16, 2013
1458 posts
520 upvotes
Mississauga
xgbsSS wrote: You would think but Ive met so many people, including people I would say are reasonably intelligent, in their 20s and still put all their money in a big 5 savings account. One girl who is in her early 20s has a standard savings account at RBC and wont open an eSavings account because "it is electronic and might be hacked." Forget about all those other high interest savings accounts... they dont have branches and so might take off with your money.

True quote.

And so many people are just lazy. They will just keep it at a big 5 bank. No wonder they can get away with fee increases.
I agree, dont get me wrong. I'm 23 and most of my friends have no idea about how to actually manage their money. The big 5 banks really use the savings account as a tool for people to prevent them from spending all their money, instead of actually using it for the interest. Most of my peers perceive a savings account this way, instead of actually earning interest on their capital.
Deal Fanatic
User avatar
Nov 2, 2013
5697 posts
1522 upvotes
Edmonton, AB
Ferinthul wrote: I agree, dont get me wrong. I'm 23 and most of my friends have no idea about how to actually manage their money. The big 5 banks really use the savings account as a tool for people to prevent them from spending all their money, instead of actually using it for the interest. Most of my peers perceive a savings account this way, instead of actually earning interest on their capital.
They use the Savings accounts as cheap lending capital. A lot of these Big 5 Savings Accounts don't even keep up with inflation. If you've studied ECON 101 one of the first things you learn is most of the money in consumer accounts is not actually there. The banks just take it and re-write financial products with it (i.e. loan it back out to car loans, credit cards, mortgages, etc.).

There will always be customers for these low interest bearing products for very risk adverse types. They are the kind who would tell you to do nothing with your career life outside going to university and getting a government job, where you supposingly can never get fired and then one day collect a pension. Then put all spare pocket change in the Savings Account, carry 0 debt apart from a 2.x% mortgage, pay mortgage down ASAP. Or for more old school people, not even have a mortgage at all, especially for those who lived through the 1980s (my family never had a mortgage throughout their working years). The almost 0 risk, be safe types.

The bankers/salespeople will obviously suggest that path of life for you because they will gladly take your cash and re-write it as a higher interest loan to someone else. They also don't like people who will potentially make a lot of money (i.e. investors, businesspeople, piece-rate and commission employees) because aside from risk, they're not fresh meat for these kind of products, and debt products to tie them down for much of their working life. They want people who will make little yet consistent money like the govt. job example, to sufficiently service their debts and put cash into the Savings, but people who will never make enough to escape the debt and cash savings cycles.

Outside the main banks you have the other odd lenders who want to attract customers and have a steeper risk appetite. They'd pay higher Savings Account (or similar products) rates, and offer other debt products (e.g. mortgages through a broker) at lower rates and/or with less formalities and scrutiny than the Big 5. But a lot of older generation people are scared of the new age, don't trust these smaller lenders and have an emotional obsession with only the Big 5.
Accountant (Public Practice)
Deal Fanatic
User avatar
Nov 2, 2013
5697 posts
1522 upvotes
Edmonton, AB
vorthex wrote: I think this Economy is ready to go down the shitter, along with the US economy. The Stock Market is inflated as hell, housing is absurdly overpriced, debt is increasing... I just don't feel safe investing in anything right now. Sure, the wave could continue, but I think what you are seeing is a bubble, and a credit card Economy, even from the federal level.

People can agree or disagree all they want, but I suspect another huge recession again soon... its just a matter of when is the bubble going to burst again. This whole lowering interest rates and what not is all about trying to save the Economy from itself and all I think its done is delay the inevitable, again...
I'm not alone in this view, and partly disagreed with the recent rate hike. BOC believes in robust job growth, along with the general population blindly believing anything on mainstream media, but have some of those people actually spent time in say, BC- where they are quoting many of the employment increases? Relative to living costs, most jobs pay piss poor- even lower than Ontario for similar types- and some sectors have still high number of unemployed. In GVA 4-5+ year university graduates are happy to make $12-15/hour, and some institutions proudly even post their employment statistics.

A lot of previously unemployed people just drop out of the statistics altogether when they leave the workforce in their industry; with a lower denominator obviously the employment rate will be higher. This is extremely common in Alberta where a lot of former O&G employees just never returned altogether. These same people will go elsewhere in the country and stiffen competition there. There are also those in previous already saturated white collar roles you never stop hearing about who got frustrated with their job markets and left elsewhere. Then you have those people who just don't look for work anymore.

Many industries are also actively looking for excuses to replace employees with cheaper ones- commonly migrant labour, fresh graduates, desperate "just grateful to have a job" people, etc. They usually just want someone experienced enough to perform a certain role and hence produce a certain amount of minimum output; maximum production per dollar. If you're too experienced, then you're overqualified and likely to be expensive or just leave, increasing turnover cost. So previously an employer may have employed 10 employees for $70,000 salary each; now they can get 12 for $55,000 each if they can find other suckers willing to take $55,000. The other suckers may not perform as well, but as long as they're increasing production per dollar, employer is happy. Employment numbers are up, but wages down.

Some employers also get a tax break for employing more employees in certain sectors. See it a lot here where one employee would formally make $100,000 over a year. But then employer will eventually get rid of that one and then employ two desperate jobless for $45,000 each to do an overall similar amount of work (e.g. $100K employee works 70 hours/week; new $45K ones work 35 hours/week). Government sees employer giving more people jobs, so it gives a tax break. Tax break aside, even just hire a bunch of part timers instead of full timers.

If debt has really been a concern, just like last October when the new stress testing mortgage rules came into effect, regulators could have just stiffened lending rules further... IMO should be done, not just to mortgages. But suppose regulators somehow saw the positive spinoffs offsetting indebtedness, hence why they didn't.
Accountant (Public Practice)
Penalty Box
Dec 16, 2013
1458 posts
520 upvotes
Mississauga
FirstGear wrote: They use the Savings accounts as cheap lending capital. A lot of these Big 5 Savings Accounts don't even keep up with inflation. If you've studied ECON 101 one of the first things you learn is most of the money in consumer accounts is not actually there. The banks just take it and re-write financial products with it (i.e. loan it back out to car loans, credit cards, mortgages, etc.).

There will always be customers for these low interest bearing products for very risk adverse types. They are the kind who would tell you to do nothing with your career life outside going to university and getting a government job, where you supposingly can never get fired and then one day collect a pension. Then put all spare pocket change in the Savings Account, carry 0 debt apart from a 2.x% mortgage, pay mortgage down ASAP. Or for more old school people, not even have a mortgage at all, especially for those who lived through the 1980s (my family never had a mortgage throughout their working years). The almost 0 risk, be safe types.

The bankers/salespeople will obviously suggest that path of life for you because they will gladly take your cash and re-write it as a higher interest loan to someone else. They also don't like people who will potentially make a lot of money (i.e. investors, businesspeople, piece-rate and commission employees) because aside from risk, they're not fresh meat for these kind of products, and debt products to tie them down for much of their working life. They want people who will make little yet consistent money like the govt. job example, to sufficiently service their debts and put cash into the Savings, but people who will never make enough to escape the debt and cash savings cycles.

Outside the main banks you have the other odd lenders who want to attract customers and have a steeper risk appetite. They'd pay higher Savings Account (or similar products) rates, and offer other debt products (e.g. mortgages through a broker) at lower rates and/or with less formalities and scrutiny than the Big 5. But a lot of older generation people are scared of the new age, don't trust these smaller lenders and have an emotional obsession with only the Big 5.
Of course,,i agree with your first part, It's how they make money. However, I dont agree with your last part, where you imply that you need to be a riskier person to invest in anything less than the big 5 banks.
Banned
Jul 18, 2016
2014 posts
786 upvotes
Messerschmitt wrote: Must... buy... XIU...
Actually, no. The XIU and XFN have been dropping for several weeks now. Several weeks ago I bought into XIU, XFN and MG.TO. I've been punished by a few percent. The nice GDP numbers drove them all lower yesterday.
Banned
User avatar
Jul 17, 2008
11042 posts
3878 upvotes
bewiseman wrote: Actually, no. The XIU and XFN have been dropping for several weeks now. Several weeks ago I bought into XIU, XFN and MG.TO. I've been punished by a few percent. The nice GDP numbers drove them all lower yesterday.
Shouldnt they go up with a good economy
Deal Addict
Feb 16, 2013
1569 posts
1329 upvotes
Toronto
FirstGear wrote:
On the bright side with the better dollar now I can pay less for car parts. :)
You wouldn't need car parts if you had a beige Toyota.
....
Banned
Jul 18, 2016
2014 posts
786 upvotes
Messerschmitt wrote: Shouldnt they go up with a good economy
I am totally confused. Economy is good. Oil is higher. XIU and XFN lower. ( Scratching head vigorously in confusion!)

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)