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View Poll Results: Do you think interest rates will rise by 2014? (in Canada)
Up by a lot (more than 2%) 3 8.57%
Up by a little (less than 2% 22 62.86%
Stay the same 9 25.71%
Down 0 0%
Not sure 1 2.86%
Voters: 35. You may not vote on this poll

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Old 26-04-2012, 09:27 AM   #1
moahunter
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Default Do you think interest rates will rise by 2014?

I just read that the US Federal Reserve said they aren't expecting interest rate rises until 2014.

http://www.montrealgazette.com/busin...192/story.html

I keep hearing from people to "lock in" for 5 years now or similar, or that "rates have never been lower, and will only go up, so now is the time to buy".

But it seems to me, if Canada was to raise interest rates with the US rates stable, the Canadian dollar will go even higher, making manufacturing out East even harder to be competitive. Perhaps some other steps need to be looked at if their is a "housing bubble" (e.g. getting rid of 30 year mortgages)?

Its a big decision for people to make. I estimate a 1% rise in my mortgage interest, if I was to lock for 5 years instead of current floating, would cost me about $4,000 per year.

What do you think will happen to interest rates by 2014? Vote and list your thoughts, I think interest rates in Canada will stay the same.

Last edited by moahunter; 26-04-2012 at 09:33 AM..
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Old 26-04-2012, 09:40 AM   #2
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Prime - from 3% today to 5%

5 year Mortgage rate - approx 6-7%
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Old 26-04-2012, 09:42 AM   #3
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I don't think it'll move much at all. Why else do you think the banks have offered such crazy low (4, 5 and 10 year) fixed rates? Cause they are generous?
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Old 26-04-2012, 09:45 AM   #4
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^what I find interesting, is a lot people don't really think it through when they buy a house. They think "hey, its just 1% or so more, so why not have the security"? Sure there's a logic in that, it gives security for the householder and the bank. But you are paying thousands of dollars a year for that security. The rate at which the equity is building on my floating mortgage at the moment, is amazing.
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Old 26-04-2012, 11:13 AM   #5
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Quote:
Originally Posted by moahunter View Post
^what I find interesting, is a lot people don't really think it through when they buy a house. They think "hey, its just 1% or so more, so why not have the security"? Sure there's a logic in that, it gives security for the householder and the bank. But you are paying thousands of dollars a year for that security. The rate at which the equity is building on my floating mortgage at the moment, is amazing.
"at the moment" - how true. It's debtors paradise right now. "Debt is good".
Just keep a very close eye out for rate increases. Sooner or later the time will come to lock in. Or figure out, well in advance, a way to hedge your position - 1/2 floating 1/2 fixed.

As for interest rates - I can't predict the future so I have no idea about 2014. The US says it will maintain its rates until then. (Scary isn't it!)

Conservative people (savers, investors, etc.) though are getting ripped off while borrowers are being rewarded for their behaviour - by government interference. At some point you'd think that interest rates would have to rise toward some sort of historical, "free-market", trend line.
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Old 26-04-2012, 12:26 PM   #6
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alberta's ecomony is getting better that push up interest rate to perhaps 1.5 %. so wait and see in 2014
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Old 26-04-2012, 04:16 PM   #7
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I'm less concerned with the interest rate than I am with the sub-prime mortgage lenders popping up en masse in Canada. Where's the government on this?
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Old 28-04-2012, 04:20 PM   #8
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When I bought a house I locked in for 5 years. From what im reading here the better option is to go year to year?
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Old 28-04-2012, 05:44 PM   #9
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Lock it! Fixed is better when rates have nowhere to go but up!

Well, of course, you know your own contract better than anyone and what you can afford when rates return to the longer historical median rate of about 8%
There really are people who think a 1% higher interest rate only adds 1% onto their monthly payment!! Seriously.

Only my opinion - Banks have entered into cheap mortgage wars lately to gain market share of a dwindling market. After all, mortgage holders often buy their insurance and other bank products from same bank.

I do agree with your assertion that US monetary policy affects Canadian policy. A lot. However, there are other global financials (i.e., the bond market) that affects Canadian bank's mortgage market.

Now that CMHC has almost hit their $600 billion ceiling and is (almost) under the scrutiny of the OSFI, and can no longer bundle (taxpayer funded CMHC insured) mortgages to sell; well, they will no longer be able to market cheap mortgages.
http://business.financialpost.com/20...upervise-cmhc/
Interest rates could rise by a percent just on that one move by the government to get out of insuring subprime lending.

You probably know all of the above - and, only you also know your own risk aversion.

Cheers!
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Old 30-04-2012, 12:51 PM   #10
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This is interesting, it matches what most people have voted, which is that rates will rise, although the probability of it happening has just reduced:

Quote:
Rate Projections
The probability of higher borrowing costs by the central bank’s September meeting fell to about 66 percent after the GDP report, representing a 22 basis points of tightening, or less than a full quarter-percentage point, according to Bloomberg calculations based on overnight index swaps. Odds were 75 percent at the end of last week, with 27 basis points priced in.
http://www.bloomberg.com/news/2012-0...rate-view.html
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Old 30-04-2012, 04:15 PM   #11
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Hussman is always an interesting read.

Here's his latest weekly commentary



Release the Kraken

http://www.hussmanfunds.com/wmc/wmc120430.htm

"As of last week, market conditions remained within the most negative 1% of historical return/risk profiles we've observed over time. "



.
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Old 28-05-2012, 12:41 PM   #12
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Default GDP seen short of central bank forecast

Feeling better and better about the $4,000 per annum I am saving with my variable mortgage:

Quote:
The Bank of Canada has estimated that the growth in economic capacity rises by 2% a year, so any economic growth below that rate means a wider output gap.

And a wider output gap - the difference between potential and actual output - would make the Bank of Canada (BoC) less likely to raise interest rates because it reduces the chances of a pickup in inflation.
http://www.canoe.ca/Canoe/Money/News.../19807441.html
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Old 17-07-2012, 11:12 AM   #13
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Default why interest rates should have dropped

Criticism today that the Bank of Canada didn't drop interest rates:

http://www.theglobeandmail.com/repor...rticle4422480/

Various pundets saying we won't see increases for some time, given economy weakness.
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Old 13-09-2012, 11:51 AM   #14
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Default Fed in Aggressive Move to Juice Economy

Included in here, is a statement that unless inflation returns, US interest rates will stay down for 3 years:

http://www.theglobeandmail.com/repor...rticle4542040/

Assuming that happens, there is no way Canadian interest rates can rise (given how high our dollar already is).
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Old 22-09-2014, 08:34 AM   #15
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Seems interest rates didn't go up before 2014, and I'm feeling smug about my floating rate mortgage as rates still don't seem to be going up. Anyone feel otherwise re 2015 or 2016?
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Old 22-09-2014, 09:03 AM   #16
Bill
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I'm anticipating a slight interest rate increase in late 2015, maybe around 0.25%.

Same in 2016.
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Old 22-09-2014, 09:04 AM   #17
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Eventually with all the stimulus money spent by government, inflation and therefore interest rates will rise.

Even more so in the United States where most of that stimulus money came off a printing press.

When? I'm guessing mid to late 2015.
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Old 22-09-2014, 11:41 AM   #18
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Quote:
Originally Posted by McBoo View Post
Eventually with all the stimulus money spent by government, inflation and therefore interest rates will rise.

Even more so in the United States where most of that stimulus money came off a printing press.

When? I'm guessing mid to late 2015.
The vast majority of money does not come off a "printing press".
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Old 22-09-2014, 01:04 PM   #19
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^You think not?

Quantitative easing has been nicknamed "printing money" by some members of the media,central bankers,and financial analysts. However, central banks state that the use of the newly created money is different in QE. With QE, the newly created money is used to buy government bonds or other financial assets, whereas the term printing money usually implies that newly created money is used to directly finance government deficits or pay off government debt (also known as monetizing the government debt).

More:http://moneymorning.com/2010/11/09/u...-currency-war/

In fact, $1.7 trillion at last count. Still, the USD is the global reserve currency, it may not have a serious impact.
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Old 22-09-2014, 01:44 PM   #20
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Quote:
Originally Posted by McBoo View Post
^You think not?

Quantitative easing has been nicknamed "printing money" by some members of the media,central bankers,and financial analysts. However, central banks state that the use of the newly created money is different in QE. With QE, the newly created money is used to buy government bonds or other financial assets, whereas the term printing money usually implies that newly created money is used to directly finance government deficits or pay off government debt (also known as monetizing the government debt).

More:http://moneymorning.com/2010/11/09/u...-currency-war/

In fact, $1.7 trillion at last count. Still, the USD is the global reserve currency, it may not have a serious impact.
The term "printing money", although used by the media, perpetuates the common myth that money is a piece of paper or a metal coin, when in fact the vast majority of money is credit created by banks through loans to individuals and businesses.

What is even funnier is the fact that when the government creates money, the "inflation bogey" is used to scare everyone, yet banks create way more money than governments on a daily basis simply through loans, yet the "inflation bogey" is not used to decry this method of money creation.
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Old 22-09-2014, 03:09 PM   #21
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There is a link between government and bank creation of money: Fractional Reserve banking

So, governments through their central banks create "base money", and through creation of credit money supply grows within the economy. However, it is not possible for governments to create money without bound, inflation is bound to reduce the value of excess money, as in simple terms, too much money will chase too few assets.

QE is a complex concept and quite novel, so even the experts are not sure of actual and unintended consequences. The original QE, a.ka.a QE I, can correctly be described as money printing (expanding base money), subsequent QE versions tried to use "sterilization" to avoid inflationary consequences. Here is WSJ from 2012:

http://online.wsj.com/news/articles/...?mg=reno64-wsj

Quote:
Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead.

Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed's previous efforts to aid the recovery.
Suffice to say fortunes were made and lost on expecting the hyperinflation which did not materialized: From Financial Times, 2013:

http://www.ft.com/intl/cms/s/0/ee66a...#axzz3E4Yv2VCt

Quote:
The tumbling gold price has personally cost billionaire hedge fund manager John Paulson at least $1.5bn so far this year, as a decline in the price of the metal turned into a rout.
...
Gold remains a long-term position for Mr Paulson. In 2008 he hired Alan Greenspan, former chairman of the Federal Reserve and a fellow alumnus of New York University’s Stern business school, as an adviser.

According to people familiar with the fund, Mr Greenspan argued that the huge expansion of the Fed’s balance sheet would ultimately lead to rapid growth in credit creation by the banks, sparking higher inflation.
Some argue now that the inflation pressure has actually been channeled into financial asset prices such as the stock market, so we might have a correction (read a huge drop in prices) soon. I guess only time will tell...

Back to Moa's question:

Your best bet would be to see what the people who set the rates, i.e., the FED, think:

A few days ago, they released their latest forecast. Here is a summary from WSJ:

http://online.wsj.com/articles/fed-r...015-1410977029
Quote:
In new interest-rate projections released by the Fed, officials affirmed their widely held view that rate increases won't come until 2015. Fourteen of 17 officials expect to see rate hikes next year, while one said the Fed should start this year and two said it could wait until 2016. A number of officials have indicated in recent months that they think they can hold off on raising rates until the middle of next year.
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Old 22-09-2014, 03:24 PM   #22
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Quote:
=FamilyMan;628035]There is a link between government and bank creation of money: Fractional Reserve banking

So, governments through their central banks create "base money", and through creation of credit money supply grows within the economy. However, it is not possible for governments to create money without bound, inflation is bound to reduce the value of excess money, as in simple terms, too much money will chase too few assets.

QE is a complex concept and quite novel, so even the experts are not sure of actual and unintended consequences. The original QE, a.ka.a QE I, can correctly be described as money printing (expanding base money), subsequent QE versions tried to use "sterilization" to avoid inflationary consequences. Here is WSJ from 2012:

http://online.wsj.com/news/articles/...?mg=reno64-wsj
The money multiplier theory taught in introductory economics courses has been totally discredited.

"• Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits."

http://www.bankofengland.co.uk/publi...eycreation.pdf
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Old 22-09-2014, 04:08 PM   #23
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^ before trying to show how clever you are, please make an effort to read a post and the links therein. Where in my comments I used the term "intermediary"? Where did I talked about deposits? I talked about "money supply", from base money up. If you bother to click on the Wikipedia link I posted on fractional reserve banking you can read, for instance, a section on your "discredited" Money multiplier:

Quote:
The most common mechanism used to measure this increase in the money supply is typically called the "money multiplier". It calculates the maximum amount of money that an initial deposit can be expanded to with a given reserve ratio. However, rather than directly limiting the money supply, central banks typically pursue an interest rate target to control bank issuance of credit.[3] The central bank simply supplies whatever amount of base money is demanded by the economy at the prevailing level of interest rates.[17]
So as you see that interest rates is just a tool for the central banker to achieve its money supply target. No contradiction to what I said. Back to the question by Moa.
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Old 22-09-2014, 04:41 PM   #24
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Quote:
Originally Posted by FamilyMan View Post
http://online.wsj.com/articles/fed-r...015-1410977029
Quote:
In new interest-rate projections released by the Fed, officials affirmed their widely held view that rate increases won't come until 2015. Fourteen of 17 officials expect to see rate hikes next year, while one said the Fed should start this year and two said it could wait until 2016. A number of officials have indicated in recent months that they think they can hold off on raising rates until the middle of next year.
Thanks, that's a good quote. There have also been comments recently by the Bank of Canada, that just because the US raises interest rates, it doesn't necessarily follow that Canada will. It seems Canada is quite comfortable with a lower dollar, rather than a higher one (interest rate parity working in the short time, purchasing power parity in the long term). The middle of next year makes to me though, but it will all turn on the economy, "stupid".
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Old 22-09-2014, 04:53 PM   #25
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Quote:
Originally Posted by FamilyMan View Post
^ before trying to show how clever you are, please make an effort to read a post and the links therein. Where in my comments I used the term "intermediary"? Where did I talked about deposits? I talked about "money supply", from base money up. If you bother to click on the Wikipedia link I posted on fractional reserve banking you can read, for instance, a section on your "discredited" Money multiplier:

Quote:
The most common mechanism used to measure this increase in the money supply is typically called the "money multiplier". It calculates the maximum amount of money that an initial deposit can be expanded to with a given reserve ratio. However, rather than directly limiting the money supply, central banks typically pursue an interest rate target to control bank issuance of credit.[3] The central bank simply supplies whatever amount of base money is demanded by the economy at the prevailing level of interest rates.[17]
So as you see that interest rates is just a tool for the central banker to achieve its money supply target. No contradiction to what I said. Back to the question by Moa.
This post is so ironic I'm not exactly sure how to respond.

The vast majority of money, as defined by M1, is bank deposits, which are created every time a bank makes a loan.

You keep referring to the erroneous money multiplier theory which I just gave you a link from the Bank of England discrediting this theory.

If you were to actually read the one sentence that I posted, or even just the section of that sentence that I underlined, you would read:

"• Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits."


This sentence was published by the Bank of England, not a Wikipedia article, or an introductory economics text. What the quote demonstrates is that the popular myth, that banks "multiply up" central bank money, or the money multiplier theory, is erroneous.
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