Canadian Personal Finance Blog

Not sure if I have posted this NFB short or not, but I like it and it is very topical.

How do they make money, watch the short and you will see, this is actually how coins are made, which is still very cool, since coins have a “shelf life” of about 100x that of paper money (coins life is over 10 years, whereas the dollar bill before it was taken out of circulation had a life of about 8 months). The Bank of Canada saved a fortune on reordering money when the Loony and Toony came into circulation.

Making money, and “making money” aren’t the same thing, but the business of making money does “make money” too.

As an added bonus, a short on how they recycle steel, very cool.

If I was having financial problems and went to credit counselling, and told the person helping me that I was overspending how much I made by $10,000 a year, they’d be very upset and tell me I had to change my ways. If I then came back 3 months later and said I miscalculated and that in fact I was going to overspend this year by $50,000 (but that is only an estimate), they’d ask for my credit cards and tell me to seriously think about bankruptcy and/or psychological help on impulse spending.

Record Breaking Deficit!

For the Federal Government take that scenario and multiply it by 1,000,000 and you’ll see where Canada stands now. The Feds announced a slight miscalculation in their deficit and in fact it is $50 Billion not their previous estimates, and they are not sure they are correct now, they’ll tell us in December.

Yes, we are in a Recession and maybe even a Depression, but this will be the largest deficit EVER (even more than the Trudeau and Mulroney Governments did in the 70’s and 80’s), which is astounding. 

Lowering incomes are part of the problems (i.e. deadbeats like me who don’t have income, aren’t paying tax like I did last year), spending MASSIVE money on the auto industry is not helping either, but this is painful. Is it really going to be $50 Billion, my guess is they are sand bagging and will bring it in about $40 Billion and talk about what a great job they did in tough circumstances.

Coughing Up More EI Benefits Too

Stats Canada published their monthly report on Employment Insurance Claims (nope I am not in that stat yet), and those numbers are scarey too. The number of folks collecting EI is up 10.6% from the previous month (not year long, one 30 day period). The number quoted is over 65,000 more claimants in March. 

EI Claims

Remember the government has previously used the EI fund as a buffer for spending using up extra funds, I think they can’t do that any more.

Interesting times in downtown Ottawa.

At least that is what the Bank of Canada Governor Mark Carney said on Wednesday:

In total, since December 2007, we have cut interest rates by 425 basis points to their historic lows and lowest possible levels. It is the Bank’s judgment that this cumulative easing, together with the conditional commitment to keep rates low for a considerable period, is the appropriate policy stance to move the economy back to full production capacity and to achieve the 2 per cent inflation target.

Given I suspect there wasn’t much else that could be done in terms of interest rates and such, this really is the default statement Mr. Carney can make.  So no more stimulation or interest cuts are likely from the Bank of Canada, not a big surprise, but nice to see they are going to try to keep these rates low for a while too.

What about our recovery from the Great Financial Apocalypse?

As a result of the current global economic and financial situation, the Bank now projects that the Canadian recession will be deeper than we projected in the January MPR Update. Our return to growth will be delayed by one quarter, to the end of 2009, and our recovery will be somewhat more gradual.

Whoops, so that recovery that was due mid-year is now kind of end of year-ish with a chance that it may only happen a little later than that. Again, not a real big surprise, given the entire Automobile industry has to get it’s “poop” together first and the associated economic upheaval caused by this (which we are in the middle of currently). 

Wow Mr. Carney, do you have anything positive for us?

• While there remains a high degree of uncertainty – particularly with the Canadian economy dependent on forces beyond our borders – we remain confident in the prospects of eventual economic recovery in Canada.
• This recovery should be supported by the following factors:

- the gradual rebound in external demand; 
- the end of the stock adjustments in Canadian and U.S. residential housing; 
- the strength of Canadian household, business, and bank balance sheets; 
- our relatively well-functioning financial system and the gradual improvement in financial conditions in Canada; 
- the past depreciation of the Canadian dollar; 
- stimulative fiscal policy measures;
- the timeliness and scale of the Bank’s monetary policy response.

OK! Well don’t give yourself whiplash patting yourself on the back just yet either. We need a weaker dollar, households to start spending, a stock market rally and an increase in demand? I am seeing signs of some of these things, but certainly not all of it yet!

Still useful to hear an expert’s point of view on our economic world, I guess.

The bank of Canada took the last step before making money absolutely free yesterday by lowering it’s key overnight interest rate to 0.25%. For someone who remembers 15% interest rates, this is an astounding turn of events, that I have no idea how long will last or whether it is a good or a bad thing.

 Deteriorating credit conditions have spread quickly through trade, financial, and confidence channels. While more aggressive monetary and fiscal policy actions are underway across the G20, measures to stabilize the global financial system have taken longer than expected to enact. As a result, the recession in Canada will be deeper than anticipated, with the economy projected to contract by 3.0 per cent in 2009.

Yup, they are now saying that Canada’s anticipated early recovery is now only planned to happen in Q4 of this year, if not later, so keep that one in mind when making your big financial plans.

What About Inflation?

Well the bank’s view on that one is interesting as well.

The Bank expects core inflation to diminish through 2009, gradually returning to the 2 per cent target in the third quarter of 2011 as aggregate supply and demand return to balance. Total CPI inflation is expected to trough at -0.8 per cent in the third quarter of 2009 and return to target in the third quarter of 2011.

So effectively DEflation for a quarter, but lower inflation for the next two years.

How can this be, all governments in the world have hurled massive cash inflows and food prices are at a highly inflationary rate, yet there is no real inflation seen on the event horizon. I am skeptical of this statement by Canada’s Central bankers.

How Did We Get Here?

The bank was kind enough to publish this table showing how we have gone from 3.00% a year ago to 0.25 % today.

Better get out my Dire Straits album, because if Money is For Nothing, I am going to be looking for the second part of that line.

Not sure if I want my MTV, but Money For Nothing sounds interesting to me.

Will Banks Follow?

That is a darn good question, will banks lower their rates to consumers to reflect this change, or will it be business as usual? This drop may well be a temporary thing, so there may be no reaction by BMO, TD, Scotiabank or the other major Canadian banks.