April 23, 2021 | The Bank of Canada risks a taper tantrum
Hilliard MacBeth Author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash
The Bank of Canada announced this week that it will reduce buying of government bonds during this pandemic recession. The Bank had been buying most of the bonds issued by the government during the pandemic spending spree which created a $350 billion deficit.
The Bank of Canada now owns 40 percent of all government bonds outstanding.
In 2013 the US Federal Reserve tried to exit a similar quantitative easing program. The bond market threw a tantrum, which became known as the taper tantrum.
April 16, 2021 | Central Banks are Nervous as CPI Soars
Hilliard MacBeth Author of When the Bubble Bursts: Surviving the Canadian Real Estate Crash
Rapid inflation reared its ugly head this month, as the Consumer Price Index hit 2.6 percent gain for the last year.
The price increase for energy was closer to 15 percent, while food was almost 4 percent.
If the CPI keeps rising at this pace, as some predict, interest rates will rise.
What will central banks do if inflation goes well above 3 percent?
The Consumer Price Index for All Urban Consumers, headline CPI, jumped 2.6 percent year-over-year. Of course, last year in April the price of oil on the commodity futures market hit a record low of minus 37.63 dollars. OPEC, maybe a little terrified, agreed to cut 10 million barrels per day of production.
Canadian banks want the government to take measures to halt the latest surge in home prices.
Several bank CEOs and economists are urging the government of Canada to slow the runaway housing bubble where prices are advancing at a 15 percent annual rate after inflation.
Will the government make bold moves to halt housing mania?
The banks are urging the government to act, but they do not specify exactly what measures they would like to see. The banks are conflicted in several ways.
The housing mortgage business, and related activity, is crucial to the banks’ profits.
Within the banks, mortgages and HELOCs are the largest share of total loans and management does not want to see a slowing of the growth rate of mortgage loans, especially given the recent slump in credit cards and business loans.
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