Bank of Canada points to lingering high rates in Canada

But attempts to soft pedal the weakness of the Canadian economy won't persuade anyone

The Bank of Canada says the so-called “neutral rate” - the rate that is neither stimulative nor restrictive - is edging up in Canada and points to 2.75% as its best guess of that rate today. That statement is a vain attempt to mollify Canadians justifiable fears that rates will remain high or even rise, ignoring the extreme damage the Trudeau’s government’s reckless spending, massive fiscal deficits, and absurd attempts to persuade Canadians that harmless CO2 threatens catastrophic climate change (a physical impossibility) justifies an all out attack on Canada’s vital energy industry which carries the freight for government revenues at all levels. Trudeau’s policies are a formula for outright destruction of Canada, likely intended by the Liberals who have become far left socialists over the past decade or so.

On April 16, 2024 Finance Minister Crystia Freeland will present the federal budget and there is little doubt in my mind it will come with more “climate change” nonsense and a deficit of at least $45 to $50 billion. It will do nothing to stop the erosion of Canada’s per capital GDP which, in the face of stupid policiy decisions and uncontrolled immigration, points to higher levels of poverty and worsening household budgets. Forced to dip into savings to make ends meet, Canadians will not be able to fund the capital outlays needed to increase productivity which has been in a secular decline since Trudeau took office, the result of which contributes to a stagflationary environment.

The rapid rise in Bank of Canada policy rates over the past two years has done little to ease the upward pressure on housing prices driven more by a shortage of homes than affordability, with Canadians who own a home with modest mortgages unlikely to sell, builders strangled by regulation unlikely to accelerate new housing starts, and sustained immigration increasing demand.

The collision between high home costs, rising rents and lower per capita GDP will manifest itself in higher homelessness and persistent increases in the rate of inflation despite attempts by both the Bank of Canada and the Liberal government to persuade Canadians that inflation is abating, typically by using metrics that exclude food, energy and transportation - the main things households need to buy to live. In parallel, despite claims by all levels of government that they are doing everything possible to accelerate growth in housing supply, actual housing starts are falling - starts fell about 7% in 2023 according to Canada Housing and Mortgage Corporation (CMHC) and stubbornly remain about 250,000 annually, less than half of the need to accommodate immigration and ease the existing shortage.

This obvious calamity will persist until the Canadian economy verges on collapse when a deep recession, a rise in personal insolvencies and business failures, and a likely plunge in the Canadian dollar versus its U.S. counterpart create a new equilibrium where home prices fall, unemployment rises, and a repeat of the early 1980’s becomes the new normal. Buckle up kiddies, if you re-elect a Liberal government your kids won’t thank you.

There is hope, of course. Election of a Conservative government led by Pierre Poilievre in 2025 should see a sizeable reduction in needless regulation, rapid expansion of Canada’s resource industry (particularly oil & gas), lower deficits and a smaller civil service leading to a resumption of economic growth and a rise in royalties and taxes from resource extraction large enough to eliminate fiscal deficits, cut Canada’s debt levels, and restore sanity to Ottawa. At this point in history, getting rid of the Liberals seems odds on -

Source: 338 Canada