Pick Your Hard

Years ago when I used to work non stop, a lot of people would tell me all the nice folksy sayings like ” Money ain’t everything” , ” You can’t take it with you”, and the like. I always used to reply with ” Being wealthy is hard, being poor is hard – pick your hard”. That saying kind of stuck with me over the years – and I think because it is so true. Being successful or wealthy isn’t exactly easy. We look at all the rich people and we want their life, but very seldom are we prepared to do the things they did to get where they are. By contrast, being poor isn’t a walk on easy street. I remember when I was raising a child, new in business and my NOA’s showed a negative income for a few years in a row. That wasn’t exactly life on easy street. Life is what you make of it, and I decided that the ” hard ” of being successful was better than the ” hard ” of being poor.

Now, I don’t think a lot of people could give 2 shits about my personal life, but it is a great segway into where we stand in the Canadian economy right now – especially in regards to housing. Everyone that is even remotely connected to real estate – whether it be a realtor, a mortgage broker, a banker – you name it, they all seem to want interest rates to come down. We are constantly told the stories of people who cannot afford their payments, people who can’t afford to live, many people who simply have too much month at the end of the money. It is a hard life.

However, lower interest rates – at least at this point are not the answer. Let’s say that by some miracle Tiff and Co do a 180, and decide to start dropping interest rates. Ok, well unfortunately for Canada the economic engine that is the US economy is moving along at full throttle, and shows no signs of slowing down. If Tiff did his 180, and started cutting rates, the Canadian dollar would get taken out behind the wood shed and beat. Now, since Canada imports a lot of items off of world markets – and a lot of those prices are calculated in USD, whatever you save on your interest payments will now go to everyday items that cost more. You might have more money in your interest rate pocket, but your spending pocket will be emptier because prices have gone up. It is the very definition of a zero sum game. Now, I am not here to say that it will be to the penny, and instant, but within 90 to 150 days you will see the price of your daily goods ( gasoline included ) going up, up, up. The slight difference is that higher interest rates are a negative ( mostly ) for homeowners, whereas higher prices are a problem for anyone that etas, sleeps or breathes. Also keep in mind that as prices rise, so does the inflation reading every month, and before long, Uncle Tiff will have to do another 180, and start raising rates again, starting the cycle all over again.

Now, many people will argue this point that it wouldn’t be that bad – but I can assure you that if the BOC gets offside of the Federal Reserve by too much, then you will have a real problem. Now, as I have said multiple times, the BOC does not have a Canadian dollar mandate, nor an employment mandate, nor a keeping up with the US Fed mandate, however, everything works in one big harmonious orbit. If you change one variable ( no pun intended ) it has to re work through the entire orbit. It is basically the butterfly effect of finance. Now, if the US Federal Reserve – which I will call Jerome and Co., decided the lower rates, then the Canadian dollar would soar against the USD, which is great for lowering prices, but makes Canada uncompetitive on the global labour and production market – and will lead to potential job losses. For every move there is a counter move, and for every point there is a counterpoint. We could literally change a thousands variables, and the effect could be completely different on different economies.

Yes, I get it – our jobs would be a lot easier if rates would come down. Our clients would be happier if rates would come down – or so they think. At this stage it is a matter of people just don’t know what they don’t know. They are pissed off, they are broke, and they cannot live the life they did 3 years ago. They want someone or something to blame. Today it is high interest rates. Tomorrow could be a politician, and one day it could be anything. High interest rates have worked the way into the narrative, and if we blame high interest rates – then we don’t have to blame our own life choices for where we are. Can’t afford your house? Simple – high interest rates. So long as we can blame high interest rates, then we don’t have to wrestle with the fact that perhaps we used out house like an ATM, or perhaps we bought a fancy sports car we could not afford, and perhaps that ulta nice vacation was a bit more than we should have spent. High interest rates have been made to play the villain in the movie of Canada, but no one has yet seen the plot twist that high interest rates are just covering for some other character.

I was always taught not to judge a book by it’s cover, and higher interest rates have been judged just off one side of the equation – debtors. For people who were responsible and SAVED money, higher interest rates are great. If we start to lower interest rates, all those people who have money saved will start to see less income from their GIC’s, savings accounts, and the like. Savers should be rewarded for saving money and being responsible. For the last 10 years it wasn’t exactly a savers paradise, where savings returns were actually negative when you factored in inflation. Don’t you think it is about time that savers got a reward after getting pummelled for 10 to 15 years on their savings? Of course, no one will feel sorry for someone who has 100K sitting in their savings account – and I don’t want you to. However, for every action, there is a reaction. If said saver sees rates go down, they lose some income every month, and have less to spend in the economy, and therefore less goods and services are consumed, lowering GDP. In the time period of 2009 to around 2020 we saw GDP that could hardly grow without trillions of dollars around the world injected into the system. Have you noticed that since interest rates went up GDP globally is starting to grow? Maybe, just maybe, since the savers are actually being paid a return on the savings, they have disposable income to spend and support the economy? Maybe since they can get a reliable income stream, they have monthly income to go out and use? Not everything is what it is made out to be in life, and high interest rates are sure taking a whooping in the public opinion polls. After all, it is easier to blame them for your problems, then look back subjectively and see the good.

High interest rates certainly make life hard, but the alternative won’t make life less hard – choose your hard!