June 24th, 2024

Bank of Canada rate hikes pushing Canada into a recession

By Lethbridge Herald on November 4, 2022.


Both the UCP and NDP have been very critical of the Bank of Canada’s (B of C) rapid interest rate increases, citing the hardship it is causing Canadians, in fact NDP leader Jagmeet Singh was interviewed on CTV saying “there’s absolutely no merit” to the banks approach to fighting inflation.

Both parties are calling on the bank to change its path.

UCP stated the bank’s government bond-buying program during the pandemic was a key driver of inflation.

Regarding the federal deficit, which was $90.2 billion for the previous fiscal year, smaller than the government’s April projection: 

This marks a sharp decline from the $327.7 billion deficit recorded in the prior fiscal year of 2020-21 which covered the height of the pandemic.

What do they credit the decline to? Higher inflation and stronger personal and corporate tax revenue! 

The B of C’s commitment to reducing inflation through interest rates will unquestionably push Canada into a recession, which I believe has already started, it will increase unemployment meaning less tax revenues and higher government expenses through automatic programs such as employment insurance. 

Unless the B of C changes their path which they have spoken out very strongly they have no intention of doing, then many workers are going to lose their jobs while facing higher borrow costs.

I personally believe this is the wrong approach. The B of C is relying on traditional strategies in dealing with not only the pandemic, inflation and more. This is a new problem created out of the pandemic in the form of supply chain issues among others, therefore it needs a completely different approach, an “out of the box” approach. 

Canada is the most aggressive in its strategy to reduce inflation by increasing interest rates by 3.5 per cent since Dec. 31/21 followed by the U.S. at three per cent, Australia at 2.5 per cent and Britain at two per cent. The problem I see with this is all the major markets are doing the same thing. Which strangely enough is similar to the financial crisis we experienced in 2008 when mortgage-backed securities were being sold and bought like candy, and we know how that turned out. 

“Following the herd” mentality has always been a bad idea; sadly Canada is leading the herd. 

There needs to be a new plan put forth by the B of C or tough times for all of us are imminent.

What is expected to be a mild and short recession in Canada may be pre-empted by a larger, more global and more damaging financial crisis. 

What’s the silver lining (because there is always a silver lining for those that are prepared)? Cash is king, opportunities will be available for those paying attention. So, take a deep breath and keep your mind and eyes open for the opportunities that present themselves!

Miles Godlonton


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