Decades of low interest loans = exponential inflation.
Open letter to the Bank of Canada:
how do you do. Now that I’ve spent ten years raving about him in these glorious pages, I think I’m convinced that we can never be more than our most unfriendly enemies. The issues of usury and loyalty cannot be reconciled here, as the former is an unforgivable sin and the latter is so different that one wonders whether we exist in the same dimension of time and space.
Yet, for a brief moment, we find ourselves on the same side as each other on the issue, but as always, you wealth managers are late to the game. I have argued for years that our nation’s central interest rate should never fall below 5%. In fact, it should be incorporated into our Constitution. It appears that my insight has finally cracked the sad vault that houses your hearts, and so interest rates have risen to levels that are certainly above the level of predatory interest.
Of course, the cries can be heard from all directions. I am also subject to this. But a quick glance at Canada’s unique housing cost vs. income graph since 2008 (let alone the 1990s) should silence anyone who claims they have the brains to do the job. It baffles me how the second largest country on earth, with its limitless resources and many skilled trades, could find itself in a housing crisis.
The answer is: decades of low interest loans = exponential inflation.
That’s banking and monetary policy 101, even in the hellish world of compound interest. If we have to dance with the devil’s paper money, all we can do is maintain a firm grip on the causes of inflation, which have been known since the days of gold and silver coins. In order to avoid getting caught up in the idea of getting rich quick by replacing value and productivity with empty speculation, the act of borrowing money must always end in a big crash, be painful, or It has to be something that hurts badly.
Again, the word Saradasil is welcome in defense of cheap rents these days. You are sure to smile at them while foreclosing on their home upon renewal. But I belong to a generation that came of age during the financial crisis and the Great Recession. Ten years later, just before COVID-19 hit, I thought for a moment that things might just get a little better for us have-nots. Then the pandemic drove up prices and tore its façade to shreds.
I remember when $400,000 homes belonged to people like doctors and lawyers. Prince George is now full of them, even though no one truly believes that assessment. This is completely your fault and a greedy and pathetic excuse for financial professionals. Cheap loans led to insane borrowing, which led to insane bidding and prices, creating an unimaginable bubble. In the last few days it has started to weaken and is causing a lot of crying and gnashing of teeth. It’s a shame, I say, very sad.
There is no easy way out of this mess, and rate cuts are likely to make the problem worse. Just like quitting a bad habit or severe addiction, turning cheap money off, then turning it back on, and then turning it off again a year later, you’ll end up killing more than you cure. As hard as it is for people to admit, it may be time for historic interest rates to prevail and anything below 5% to be treated as just a trap. We’ve survived rate hikes before, and we can do it again.
But there are also behavioral changes I would recommend to people who are exposed to the whims of a sterile banker’s boardroom. No one lacks heart and even has the soul to smoke a big cigar there.
Interest payers, live within your means and return to the old ways of strict but simple interest rates, rent-to-own, cash payments, and doing things yourself, especially when it comes to real estate development. Maybe the time has come. Let the underwriter finally die.
It may sound radical, but our ancestors managed to survive without access to cheap credit or the casino called the stock market. In some ways, the longer interest rates hold up, the more likely you are to return to a sensible price and budget.
I never thought I would thank the banker.
Nathan Zied is a Prince George writer