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Stephen Poloz’s Zen Moment
Stephen Poloz’s Zen Moment
To cut or not to cut, that is the question. And fortunately for Bank of Canada Governor Stephen Poloz, it was a pretty easy question. A lagging US recovery, China’s downturn, lower oil prices and “bad weather” all contributed to this interest rate cut. “I wouldn’t describe it as a close decision,” he told the press, “It’s a decision where we had a number of trade-offs on the table. It requires a lot of deliberation and a lot of inputs, not a mechanical decision. Not even close.” But whereas Poloz admitted to feeling comfortable at the end of 2014, now there was a bunch of crap heading for the ceiling fan and that interest rate cut was Canada’s only way of taking cover.
Poloz is known for his metaphors but the above is mine. Poloz used the parable of the big oak tree to compare “analysing vulnerability” in the economy. The big oak tree is only a risk if there’s a branch that could break off and fall into your neighbours house. In Poloz’s mind, cutting interest rates must have been like sawing off that branch. He may have successfully migrated some future risk, but in doing so he didn’t bother with any long-term consequences. He may have sawed off that branch so it wouldn’t fall into the neighbours house, but by cutting without thinking ahead, the branch fell right into the neighbours house.
I hope that’s clear, because a lot of what the Bank of Canada says isn’t. Poloz is a fan ofGreenspeak but sometimes we get moments of incoherent clarity such as: “When other things are equal, a lower currency will be a stimulus to the economy.” When asked if China’s slow-down could affect Vancouver’s housing market and potentially the broader economy, Poloz crept back to his Greenspeak with a definite “I don’t know” and “I won’t speculate” sprinkled on top.
…click on the above link to read the rest of the article…
Bank of Canada Decides More Bubble-Blowing is Needed
Bank of Canada Decides More Bubble-Blowing is Needed
You Can’t Keep the Printing Press Idle for too Long …
We have recently portrayed Canada’s new central bank governor Stephen Poloz, to whom we have alternately referred to as a comedian and a delusional bubble blower. This may perhaps strike some readers as uncharitable; then again, central economic planning bureaucrats should be fair game, especially as nearly all of them are slaves to hoary inflationism and are apodictically certain to do grave damage to the economy, based on economic theories that at best deserve to be called a form of voodoo. It’s really that bad.
Mr. Stephen Poloz, Canada’s new bubble-blower in chief, gazing into the distance – presumably in a futile attempt to divine the future.
Photo credit: Adrian Wyld / The Canadian Press
As readers may recall, Mr. Poloz has continued where his fellow bubble-blower and predecessor Mark Carney left off, by keeping the bubble blown with all his might. We imagine he may be a bit intimidated by the truly daunting size the combined real estate and consumer credit bubbles have attained in Canada. To call them monuments to monetary megalomania would be an understatement. Among developed nations, only the bubbles in a few Scandinavian countries and Australia can hold a candle to them.
Surely Poloz must be aware that there can simply be no painless way of getting out of this mess. Hence, he is trying to delay said end, possibly in the hope that the bust can be postponed beyond his watch (Carney showed judicious timing, we think, when jumping off the Canadian ship).
We were therefore decidedly unsurprised when it emerged yesterday that the Bank of Canada has cut rates again – apparently the Canadian economy has entered an official recession, which must however not be mentioned (!).Really.
According to the Financial Post:
…click on the above link to read the rest of the article…
Bank of Canada Sees Global Economy, Freaks Out, Cuts Rate, Warns of Financial Stability Risks, Loonie Plunges
Bank of Canada Sees Global Economy, Freaks Out, Cuts Rate, Warns of Financial Stability Risks, Loonie Plunges
The Bank of Canada took a good look at the Canadian economy, saw it was sinking into the mire, glanced at the collapsed prices of commodities, particularly oil, saw how they were wreaking havoc in Canada, and then looked at the global economy, particularly at China and the US, and it freaked out.
It cut its overnight rate 25 basis points to 0.5%, the second rate cut this year, and attached a gloomy view about the Canadian economy with as it said a “significant downgrade” from its last estimate issued only in April. Things are heading south fast.
In his opening statement, Governor Stephen Poloz blamed oil, China, and dropping exports, particularly to the US which is “still a puzzle that merits further study,” he said, as the swooning Canadian dollar should have pushed up exports. The three culprits:
First, Canadian oil producers have lowered their long-term outlook for global oil prices, and have cut their plans for investment spending significantly more than previously announced.
Second, China’s economy is undergoing a structural transition to slower, domestic-driven growth, which is reducing Canadian exports of a range of other commodities.
Third, Canada’s non-resource exports have also faltered in recent months. While this is partly due to the first-quarter setback in the U.S. economy, it’s still a puzzle that merits further study.
This splits the economy in two, with the “resource economy” falling off a cliff, and with the “non-resource economy” motoring forward. Alas, they’re “not independent – the cancellation of an investment in the oil patch will often lead to a hit in the manufacturing sector, for example.”
Ah yes, and the ballyhooed positive effects of lower oil prices? They “have been slow to emerge.”
…click on the above link to read the rest of the article…
USDCAD Surges To 6 Year Highs As Bank Of Canada Slashes GDP Forecasts, Unexpectedly Cuts Rates
USDCAD Surges To 6 Year Highs As Bank Of Canada Slashes GDP Forecasts, Unexpectedly Cuts Rates
In what seems to have surprised FX trader, Bank of Canada has taken an ax to growth forecasts and rates…
*BOC CUTS CANADA 2015 GDP FORECAST TO 1.1% FROM 1.9%
*BANK OF CANADA CUTS 2Q GDP ESTIMATE TO -0.5% FROM 1.8%
*BOC SEES INCREASED DOWNSIDE RISKS TO CANADIAN INFLATION
*BANK OF CANADA CUTS BENCHMARK INTEREST RATE TO 0.5%
*CANADA OIL AND GAS INVESTMENT TO SHRINK 40% IN 2015, BOC SAYS
*BOC PROJECTIONS ASSUME CANADA DOLLAR AT 80 U.S. CENTS
Furthermore, it warns that “consumer debt vulnerabilities are edging higher” and export weakness is “puzzling.”
USDCAD exploded to 6 year highs..
Full Statement (link):
The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent.
Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products. Core inflation has been close to 2 per cent, with disinflationary pressures from economic slack being offset by transitory effects of the past depreciation of the Canadian dollar and some sector-specific factors. Setting aside these transitory effects, the Bank judges that the underlying trend in inflation is about 1.5 to 1.7 per cent.
…click on the above link to read the rest of the article…
Bank of Canada interest rate decision: To cut or not to cut?
With interest rates at historic lows, could it possibly make sense to go even further?
It came as a shock to just about everyone when Bank of Canada governor Stephen Poloz announced the central bank would lower its benchmark lending rate in January to 0.75 per cent.
That’s because after more than four years with a historically low one per cent, Canadians had been hammered with repeated warnings to pay down debt because lending rates were bound to go up — at some point.
- ANALYSIS | Should Stephen Poloz be more worried?
- DON PITTIS | Wobbly markets are more worrisome than oil
Then a cratering oil price changed the narrative. When the bank cut rates in January, it was six months into an oil drop that saw crude go from $95 a barrel this time last year to under $50. That was devastating for the oil patch — but also for the rest of Canada’s economy.
“This decision is in response to the recent sharp drop in oil prices, which will be negative for growth and underlying inflation in Canada,” the bank said in explaining its bombshell rate cut.
Eagle eye on inflation
Although the bank keeps an eye on all sorts of economic data, the most important one from a monetary policy perspective is inflation — the upward creep of prices over time. The bank has a mandate of inflation targeting because according to many economists, if you can keep inflation in a narrow band between one and three per cent, everything else in the economy — from jobs, to GDP and the like — tends to take care of itself.
Lower lending rates make borrowing easier, which stimulates spending and investing, which nudges up inflation. Raising rates does the opposite. At least, so goes the theory.
When the bank cut rates in January, it raised the possibility of another one down the line. With Canada’s inflation rate currently at 0.9 per cent, there would seem to be ample wiggle room to cut again.
…click on the above link to read the rest of the article…
Side-Effects Include: Household Debt
Side-Effects Include: Household Debt
Bank of Canada Governor Stephen Poloz fancies himself a surgeon. He compares cutting interest rates to life-saving surgery for the economy. I consider it more like bloodletting, a terrible practice that is now widely accepted as pseudoscience. According to Canada’s central banker, if the interest rate cut resulted in an increase of household debt, that should be viewed as a necessary side effect.
If the Bank of Canada has one job it’s to focus on the 2 per cent inflation target and that means cutting the benchmark rate by 25 basis points when global crude oil prices tumble. Or at least, that’s what Stephen Poloz said to the central bank of central banks, the Bank for International Settlements.
“If the doctor says you need surgery to avoid death, the side effects usually don’t deter you, you just go ahead and manage them somehow,” Poloz said. “Other issues must be subordinate and I think of them as side effects.”
Likewise, if a bloodletter tells me I need to balance my “humors”, the side effects of losing so much blood won’t deter me. I’ll just go ahead and manage them somehow.
Of course, what Poloz is really saying is that the Bank needed to intervene to prevent death, or rather, a contraction of credit and available money. The side effects of more household debt, the prospect of higher prices in the future, the misallocation of resources – those are all side effects where the alternative is deflation. And we can’t have that.
“When we cut rates to stabilize the economy we don’t picture some heavily indebted household going out and adding to their debt pile, rather we picture a household with no debt at all deciding finally to buy a house and taking out a mortgage,” Poloz said.
…click on the above link to read the rest of the article…
Canadian households are racking up more debt, poll suggests
Average Canadian household owes $92,699, BMO poll suggests
A new poll suggests Canadian households are piling on more debt and plan to borrow more in the short term, even though a slight rise in interest rates would “stress” most of them out.
In BMO’s Annual Debt Report, the average household debt of those surveyed is $92,699, more than $4,000 higher than the four-year average dating back to 2012. And servicing that debt, which includes mortgages, lines of credit and credit card debt, is costing $1,165 a month.
Nearly half (46 per cent) feel some stress about those figures, but they’re still not as stressed as those surveyed in the past two previous years, suggesting many don’t anticipate a rise in interest rates.
Two-thirds admit, though, they would feel stressed if interest rates rose by two percentage points.
“The sizeable number of indebted households that would feel very strained by a relatively moderate increase in interest rates is concerning,” said Sal Guatieri, senior economist of BMO Capital Markets. “This is a worrisome side effect of a prolonged period of low interest rates and needs to be closely monitored, especially if rates continue to fall.”
Canadians carrying debt will be watching the Bank of Canada’s next interest rate announcement July 15. Economists remain split over whether the Bank will hold or cut rates. A rate hike appears off the table — for now.
Statistics Canada says the debt-to-income ratio of Canadian households stands at 163.3 per cent. That means for every dollar Canadians earn, they owe $1.63 in debt, which is just barely lower than the record level measured last year.
BMO’s new poll finds many Canadians — 46 per cent in this case — are optimistic they can still have all of their debt paid off in less than five years.
The survey was conducted by Pollara and is based on interviews with an online sample of 1,001 Canadians conducted between June 19 and June 22.
Is Canada Next?
Is Canada Next?
“All of that negative news has kind of put a downer on consumer sentiment,” is how Jharonne Martis, director of consumer research at Thomson Reuters, explained the crummy consumer confidence reading on Friday.
The Thomson Reuters/Ipsos Canada Primary Consumer Sentiment Index haddropped to 51.6, the lowest so far this year and well below the 56.4 of last August before the oil-price crash soured the mood. By comparison, since 2010, the index has mostly been in the mid-50 range.
The “negative news” has extended beyond the price of oil. She pointed at some well-known retailer chains that have shut their stores in Canada recently, including Target, Future Shop, and photography retailer Black’s.
Already on March 30, Bank of Canada governor Stephen Poloz had warned that economic growth would be “atrocious” in the first quarter “because the oil shock is a big deal for us.” And he was right, with GDP dropping 0.6% annualized, the first quarterly decline since 2011.
It didn’t help that the Bank of Canada, in its Financial System Review released on Friday, pointed out that household indebtedness and the housing bubble were the top two vulnerabilities that threatened Canada’s financial stability. The top vulnerability:
“Elevated” – actually dizzying – “level of household indebtedness”:
The vulnerability associated with household indebtedness remains important and is edging higher, owing to an increase in the level of household debt and the ongoing negative impact on incomes from the sharp decline in oil prices. In addition, the quality of household debt may be decreasing at the margin….
Household leverage has been pushing relentlessly higher. In the first quarter,according to Statistics Canada, the household-debt-to-disposable-income ratio edged down a smidgen for the first time in four quarters, from its all-time high, to 163.3%. Debt increased once again, but this time slightly less than income.
…click on the above link to read the rest of the article…
Should Stephen Poloz be more worried about the Canadian economy?
Blandly reassuring, is Bank of Canada governor really ready if something bad happens?
I hope Bank of Canada governor Stephen Poloz was putting on a brave face.
Despite a warning that risks had increased, mostly due to the property market, the avuncular Poloz was blandly reassuring when he met with the media yesterday to discuss the bank’s latest Financial System Review.
His senior deputy Carolyn Wilkins was even more hypnotically nerveless.
- Economy better able to withstand oil shock, Bank of Canada says
- Canadian dollar on the rise as greenback weakens
Not that we wanted our two most senior central bankers to be wailing and renting their garments in despair. Of course it is nice to feel that Canada’s financial system is in cool hands.
But is the governor lulling us to sleep when we need to be very wide awake?
Why worry?
We must just hope that behind the scenes, in the Bank of Canada war room, the soothing Poloz and ice-cool Wilkins expose themselves to a few more terrifying scenarios. Because a survey of credible sources says the world, and the Canadian economy, remain fraught.
While it may be nice for a firefighter to reassure you that modern houses seldom burn down, the fire chief you want racing to your flaming home is one who fears the worst and knows what to do when it happens. Chief central bankers should think like firefighters.
Even while upping the housing risk, Poloz played it down.
“Overvaluation remains a concern,” he said in his prepared remarks. “But the probability that a sharp correction in house prices will occur remains low.”
Even if that should happen, said Poloz and Wilkins, the systemic risk — that is, the risk for the wider Canadian economy — is reduced by the fact that the bad effects of overvaluation will only hit some households in some regions. Vancouver and Toronto, are “showing some strengths,” said Wilkins, but outside those two centres prices are “easing quite nicely.”
…click on the above link to read the rest of the article…
Bank of America forecasts another rate cut in Canada
Gloomy outlook for Canadian economy sees loonie pushed to 73 cents
Bank of America, one of the U.S.’s biggest banks, says the Bank of Canada may have to cut its key lending rate again later this year.
Bank of America says Canada’s economy will underperform the U.S. this year, hampered by low oil prices and worries over manufacturing competitiveness.
- Oil shock will hurt but will be short lived, Poloz says
- Time to stop waiting for America’s economic recovery: DonPittis
Already Canada is seeing investors move away from its bond and equity markets as they seek out a surer return in the U.S., the bank says.
Author Emanuella Enenajor says Canadian central bank governor Stephen Poloz is “handcuffed by the Fed,” which is expected to raise rates later this year.
U.S., Canadian economies on different paths
Bank of America says Bank of Canada governor Stephen Poloz will be ‘handcuffed by the Fed’ into raising rates. (Canadian Press)
“Even as the Fed begins a gradual rate hike cycle this year, we think the Bank of Canada will remain accommodative, and will likely ease by another 25 basis points to 0.5 per cent if growth disappoints, as we expect,” she wrote in a report released today.
She points to a decoupling of the Canadian and U.S. economies, so that growth in the U.S., which is expected to be robust, will not have the stimulating effect on the Canadian economy it did in the early 2000s.
A 1 per cent increase in US domestic demand lifts Canadian GDP by about 0.25 per cent under current conditions. Ten years ago, the impact of that same one per cent rise would have been twice as much of an impact on Canada’s economy, the report said.
Poloz has acknowledged weakness in Canada’s economy in the first quarter, but expects a rebound later in the year as exports grow because of U.S. demand.
…click on the above link to read the rest of the article…
Canadians pay cash less than half the time, Bank of Canada calculates
Credit cards get big boost as Canadians shun the ATM
Cash is no longer king for Canadians when it comes to paying for retail transactions.
A study released today by the Bank of Canada shows that less than half of our purchases are made in cash.
The number of cash transactions dipped from 53.5 per cent in 2009 to 43.9 per cent in 2013, the central bank found.
However the value of transactions made in cash remained almost unchanged – at 23 per cent of all the goods and services sold.
And even the small transactions once exclusively cash such as paying for parking, entertainment and food are increasingly done by credit cards.
The Bank of Canada says the rise of contactless credit and payment cards – cards with an embedded chip where consumers simply tap a reader to make a payment – is probably the reason why cash transactions are in decline.
The bank reviews methods of payment regularly to ensure it has enough polymer bills on hand for Canadians’ cash needs.
We’re shunning the ATM
Consumers over age 55 were more likely to use cash, but even they do less than half their spending with cash transactions.
As a result, the number of ATM transactions has fallen over that five-year period, the bank found. In 2009, Canadians went back to the ATM about 4.4 times a month, by 2013 it was 2.7 times.
Credit card use is on the rise, accounting for 31 per cent of transactions, an increase of 11 percentage points from five years ago.
Mobile payment systems are expected to make inroads over the next few years, but currently are quite a small share of retail payments, just 7 per cent. The big users are the 18–34 year olds, who pay by cellphone for 16 per cent of transactions.
The bank also asked Canadians how much cash they have in their wallet. The average? $84.
Stephen Poloz may let inflation creep higher: Don Pittis
Bank of Canada governor may prefer an inflation bump to the damaging impact of higher interest rates
Which would you prefer, higher interest rates or higher inflation?
If you are someone who actually watches what the Bank of Canada does month to month, its two per cent inflation target may seem sacrosanct.
In which case, you might be surprised to hear that the concept of raising or lowering interest rates to freeze inflation at exactly two per cent is a relatively recent innovation. It was put in place in reaction to the soaring prices and wages of the 1970s and 1980s.
And the Bank of Canada has been seriously considering changing that target. Any change would still require a new agreement between the federal government and the bank. The current agreement is scheduled to end next year.
A fresh report from the business news service Bloomberg implies that the bank could surprise us with just such an announcement any time soon.
A higher inflation target means prices, from clothing to gasoline, could increase at a faster rate without fear of higher interest rates that might slow the industrial economy. (The Canadian Press)
“After shocking markets with an interest rate cut in January,” wrote Bloomberg’s Greg Quinn, “Bank of Canada Governor Stephen Poloz is considering whether to deliver another surprise: changing the central bank’s two per cent inflation target.”
‘No surprise’
Quinn does not offer the source for his latest story, but he follows the bank’s activities assiduously. The Bank of Canada, on the other hand, was quick to play down the story.
“It is absolutely wrong to characterize research done by the bank on the implications of a higher inflation target as a surprise,” said an official bank spokesperson in response to my inquiry as to whether the Bloomberg story was true.
Rocco Galati challenges role of Bank of Canada in latest case
Maverick lawyer argues central bank should provide interest-free money for infrastructure
The lawyer best known for stopping the Supreme Court appointment of Judge Marc Nadon has turned his sights on the Bank of Canada.
Rocco Galati has taken on a case for a group called the Committee for Monetary and Economic Reform, or COMER, which wants the central bank to return to the practice of lending federal and provincial governments interest-free money for infrastructure.
- TIMELINE: Marc Nadon’s failed journey to the Supreme Court
- Rocco Galati denied all but $5K in costs for Nadon court challenge
“They felt it was important in the face of the financial sector meltdown in 2008, the banking meltdown, and the drastic reduction and elimination of human capital infrastructure such as health care, universities and basically the stuff that the Bank of Canada from 1938 to 1974 funded,” Galati said in an interview with CBC’s The Exchange with Amanda Lange.
His clients have been dismissed as conspiracy theorists, but Galati argues the law is there to support their case.
The Bank of Canada was set up in 1935 in the wake of the Great Depression to provide a means for settling international accounts and to provide interest-free loans to government to finance infrastructure investments.
History of infrastructure funding
Projects like the St. Lawrence Seaway and the Trans-Canada highway were funded in this way, and the central bank also underwrote Canada’s Second World War effort as well as the building of hospitals and universities.
But in 1974, the central bank stopped providing interest-free loans to government so it could join the Bank for International Settlements, a kind of central bank of central banks.
Galati argues that from then on private banks became government’s lender, contravening the act that established the central bank.
…click on the above link to read the rest of the article…
High End Real Estate in Canada in Frenzied Bubble Blow-Off
High End Real Estate in Canada in Frenzied Bubble Blow-Off
Throwing Caution to the Wind
We have discussed the dangerous housing and consumer credit bubble in Canada in these pages on several previous occasions in some detail (see “Carney’s Legacy” and “A Tale of Two Bubbles” as examples). Since we first wrote about Canadian real estate, the bubble has continued to grow with nary a pause. Why are we calling it a bubble? The gap between incomes and house prices is widening ever more, and has been far above what is considered normal for several years already.
This decline in affordability is the result of monetary pumping and ultra-low administered interest rates imposed by Canada’s central bank. Moreover, the boom is subsidized by a giant state-owned mortgage insurer, an institution that has the potential to severely impair the government’s finances once the bubble bursts.
Vancouver skyline at night – no doubt a nice place, but a bit pricey.
Photo credit: Mohsen Kamalzadeh, imaginion.wordpress.com
The housing bubble is most pronounced in big cities like Toronto and especially Vancouver. Trophy properties are selling like hotcakes to people who evidently don’t care much about money. In fact, the frenzy proves that the demand for money has long been overwhelmed by the huge growth in its supply among the richer strata of society
A friend has pointed us to a short video at CTV News about a recent high end property sale in Vancouver that is quite remarkable, to say the least.
…click on the above link to read the rest of the article…
Jobless Folks, Working Moms, and More Left Out of Canada’s Budget
Jobless Folks, Working Moms, and More Left Out of Canada’s Budget
Facing economic trouble ahead, Conservatives offer bouquet of tax breaks for the wealthy
Wasn’t it always the student who kept asking for extensions on homework who always wound up turning in the poorest quality work? Finance Minister Joe Oliver tabled the 2015 federal budget on Tuesday, using some “creative” accounting to scratch out a small surplus. But despite taking a two-month extension, everyone from mainstream economists to First Nations to the YWCA to unions and ordinary Canadians are giving Mr. Oliver a failing grade on his first federal budget.
Packed with tax breaks for wealthy Canadians, and back-loaded with promises that won’t pay out until four or five years from now, Tuesday’s budget is entirely an election document and little more. Nothing new or unexpected, and perhaps this is why Mr. Oliver’s first budget, in returning to balance, is so disappointing.
It’s a missed opportunity.
Mr. Oliver’s balance comes after six consecutive slash-and-burn deficit budgets, $14 billion every year in cuts from the services Canadians rely on from their government. These are cuts to the CBC, to policing, to veterans, to oil spill response, to healthcare, to food and rail safety, and the list goes on.
Meanwhile, Canada’s economic outlook is anything but rosy. The price of oil is forecast to remain low, while the Conservatives continue to bet the farm on raw oil exports. Unemployment is on the rise, job quality is the lowest in a generation, and pay inequality is increasing. The governor of the Bank of Canada recently referred to the effect of the oil price slump on our economy as “atrocious.” Almost three-quarters of children under five have no access to affordable, quality childcare. Eleven million Canadian workers have no access to a workplace pension, and we’ve lost 400,000 manufacturing jobs since Mr. Harper was elected.
…click on the above link to read the rest of the article…
