Euphoria
Active Member
The big secret that's kept the major economies afloat since 2008 is quantitative easing. Basically, the central bank prints money and buys debt. As long as the country's currency doesn't collapse in value (as long as the markets don't put a big 'sell' flag on the currency), the central bank can do this forever. The U.S. has only recently decelerated this practice. Britain has been doing this at full speed since Brexit. Incredibly, at a time when these countries should've had to raise interest rates to shore up falling currency values, they've been able to keep interest rates low, as inflation has been the least of our worries. Some countries have been dabbling in negative interest rates to spur spending. Basically you lose money by keeping it in the bank. Japan has faced this for years.
The reality is that interest rates can't get very high anywhere, as household debt levels are too high everywhere, so we will remain in a low interest rate environment for the foreseeable future, no matter how much Trump primes the pump or the Federal Reserve threatens to raise interest rates. The world economy is in a very fragile, fine balance right now. What I'd like to see is direct investment from the Bank of Canada in infrastructure. Basically, the City of Toronto issues debt bonds to pay for subways and other transportation infrastructure, and the Bank of Canada buys those bonds, all of them if need be. As long as our currency value holds up, do as much of this as possible. We should've done this when our dollar was worth $1.10 U.S. We should also have bought foreign reserves (currencies) in a big way. My understanding is that decades ago, before the Bank of Canada joined the G7, all profit earned from interest by the Bank of Canada was used to pay for infrastructure. I realize I'm getting off topic, but it does relate to the issue of how China has been able to expand its infrastructure and economy. Basically China can print money and buy as much debt as it wants, as long as markets don't overreact. China sets the value of the Yuan. The challenge for China going forward is the same one that Japan and all countries that have become 'developed' in the last century have confronted: the demand for higher wages, benefits, and labour standards from workers. How long can China remain a low-cost manufacturing jurisdiction? At some point it will have to join the club of the wealthier countries, trying to add value to products and enhancing productivity.
On a side note, Canada will have a harder time maintaining low interest rates as Trump primes the pump. We are also adding to the cost of living by having carbon taxes that will make us less globally competitive. Trudeau is extremely naïve in this. Trump and Putin will laugh all the way to the bank as the rest of us try to be good little boy scouts and get poorer in the process.
The reality is that interest rates can't get very high anywhere, as household debt levels are too high everywhere, so we will remain in a low interest rate environment for the foreseeable future, no matter how much Trump primes the pump or the Federal Reserve threatens to raise interest rates. The world economy is in a very fragile, fine balance right now. What I'd like to see is direct investment from the Bank of Canada in infrastructure. Basically, the City of Toronto issues debt bonds to pay for subways and other transportation infrastructure, and the Bank of Canada buys those bonds, all of them if need be. As long as our currency value holds up, do as much of this as possible. We should've done this when our dollar was worth $1.10 U.S. We should also have bought foreign reserves (currencies) in a big way. My understanding is that decades ago, before the Bank of Canada joined the G7, all profit earned from interest by the Bank of Canada was used to pay for infrastructure. I realize I'm getting off topic, but it does relate to the issue of how China has been able to expand its infrastructure and economy. Basically China can print money and buy as much debt as it wants, as long as markets don't overreact. China sets the value of the Yuan. The challenge for China going forward is the same one that Japan and all countries that have become 'developed' in the last century have confronted: the demand for higher wages, benefits, and labour standards from workers. How long can China remain a low-cost manufacturing jurisdiction? At some point it will have to join the club of the wealthier countries, trying to add value to products and enhancing productivity.
On a side note, Canada will have a harder time maintaining low interest rates as Trump primes the pump. We are also adding to the cost of living by having carbon taxes that will make us less globally competitive. Trudeau is extremely naïve in this. Trump and Putin will laugh all the way to the bank as the rest of us try to be good little boy scouts and get poorer in the process.
