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Free Money Will Cost Canadians

There’s one reason and one reason only that rates have skyrocketed by 4.25% in less than 10 months: inflation. The Bank of Canada has made it their mandate to bring inflation down to 2% – a far cry from the peak at 5.9%. Their plan is to jack up rates so that people will have less disposable income. The idea is that less disposable income will lead to less personal spending. Less personal spending will lead to lower demand for goods. Lower demand for goods will eventually lead to lower prices on those goods. 

Essentially, for this plan to work, Canadians need to spend less money. It’s as simple as that. So why in the world does the Prime Minister keep giving Canadians more money to spend?

Trudeau vs. Bank of Canada

Justin Trudeau says he wants to cool inflation, but his actions seem to suggest otherwise. He’s doubling the GST tax credit. Expanding the Canada Dental Benefit. And now he wants to introduce a grocery rebate for low-income Canadians. All of these moves put free money in the hands of Canadians at a time when Canadians need to be spending less.

Of course it’s great to help people get back on their feet. All within reason though. History has repeatedly shown that adding social programs can have negative economic consequences long term. If the Federal Government continues down this path, we’re going to struggle with higher levels of poverty because people are disincentivized from working. We’re also going to see personal and corporate taxes rise. But perhaps most frighteningly, inflation will rise AGAIN leading to rate hikes AGAIN.

A Little Bit of Silver Lining

We’re no doubt in a precarious economic situation. The recent US bank failures certainly don’t paint a very optimistic picture – but at the very least, they’ve actually been good for mortgage rates. The three-year and five-year Government of Canada bond yields had increased by around .8%, but then dropped by that same amount since the US banking failures started happening a few weeks ago.

That means good news for anyone looking for a fixed rate mortgage. Fixed rates were over 6%, and now I’m seeing some as low as under 5%. These rates may not last, but it’s good to know that some good can come from these moments in time.

The Bottom Line

The conflicting interests of the Federal Government and the Bank of Canada could make for a volatile rate environment. The bank failures in the US certainly aren’t helping. But as long as you play your cards right, you’ll end up on top. The housing market is heating up again and I’m hearing about a lot of bidding wars and houses going for above asking.

If you’re buying or renewing, just make sure you’re staying away from 5-year fixed rates. I recommend a 2 or 3-year fixed rate mortgage right now so you can take advantage of low variable rates when they inevitably come back down in the next couple of years. If you’re ever unsure, just talk to a professional.

Your best interest is my only interest. I reply to all questions and I welcome your comments. Like this article? Share with a friend.

Steve Garganis: 416-224-0114;

3 thoughts on “Free Money Will Cost Canadians Leave a comment

  1. I am not worry about that Pennines ( free money) that Trudeau giving low income. Comparing to the high interest rate. Most Canadian living pay check to pay check and the rich getting richer and the poor getting poorer. Canadian debt is sky rocket.
    I don’t think your analysing the situation logically.
    That’s my opinion

    • Unfortunately, there is no free lunch. Someone has to pay. It usually the middle class and lower income earners. I have been amazed to see my own personal heating bills include a carbon tax of $55/mth. This is ridiculous. Higher costs get passed on to the consumer.. including the lower income earners..

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