Canadian Personal Finance Blog

Holy cow, interest rates dropped by 0.50% as set by the Bank of Canada, which means it is even easier to borrow money in Canada.

The recent price-level adjustments for automobiles and the effect of past changes in indirect taxes will keep measured inflation below target through 2008. The emergence of excess supply in the economy should keep downward pressure on inflation through 2009. Both core and total inflation are projected to move up to 2 per cent in 2010, as the economy moves back into balance. There are both upside and downside risks to the Bank’s new projection for inflation; these risks appear to be balanced.

In line with this outlook, some further monetary stimulus will likely be required to achieve the inflation target over the medium term. Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada.

Is this really a good thing?

Good Things about Interest Rate Cuts

Some things that are good about this bank rate cut (assuming the banks follow suit with this rate cut):

1. Your monthly payments will get lower if you have a variable rate of interest credit vehicle (e.g. Line of Credit or Secure Line of Credit). Should you lower your monthly payments? NO! Keep them at the level they currently are, and you start paying down this debt quicker. This is when you get more bang for your bucks!
2. Easier for businesses to borrow money, and thus more chance for expansion and maybe more jobs? Let’s hope that is the case.
3. The stock market looks more attractive an investment vehicle, as interest bearing investment vehicles now pay even less. You should start thinking about consulting with a professional or learn yourself about how to invest intelligently in the stock market (no you won’t learn that here).

Are there downsides to this?

Downsides of Lower Interest Rates

Could there be a downside to this? You bet!

1. Interest bearing investment vehicles which pay next to nothing, now pay even closer to nothing. Bonds and such become even less attractive to invest in. Folks on fixed income that are relying on these type of investments, now may have less disposable income. Maybe take your Grandma out for lunch?
2. People may think it’s a great time to borrow MORE money. Um, NO! If you have been holding off on a big purchase like a house, yes, you may have hit the jackpot here, however, if you are simply refinancing your credit card debt for the Nth time, think again!
3. Your credit card’s monthly interest rate will not be dropping. Isn’t that surprising? The interest rates go up when interest rates go up, however, they don’t drop when interest rates drop. Your pay day loan isn’t going to drop it’s credit rate either.
4. The Canadian dollar will drop in value against the American Dollar, which will translate to higher prices, especially for Gasoline (the root of all price evils).

In Ottawa we have a very flamboyant Mayor who came in to power with the statement that he was not going to raise taxes. This statement (I won’t call it a promise) seems to have disappeared and the latest levy he is talking about is a $50.00 surcharge per tax payer and business due to the high amount of snow in Ottawa this year (the snow clearing budget is over budget at least $23 M so far).

Last year we didn’t have a lot of snow, and this same fund ran a surplus, but I never saw a nickel back in my taxes. In fact this fund has run surpluses for the past N years, yet whenever that happened, no money came back to me directly, but now that Mother Nature has stepped in, I must now find more money to pay for bad planning? If I make the bad plan, I am the one that has to live with it, and I must live with the consequences (yes I still complain), but now I must fork out more money, due to there being no emergency fund for excessive snow? Larry, drop by my house and see if you can convince me I should pay this tax, because I don’t think you’ll get me on side with this one.

Easter Charity

I was very impressed to see John Chow campaigning for donations to a soup kitchen in the Vancouver area. John actually matched all donations, and managed to raise over $7,000 for that charity, and I applaud him for that.

For local Ottawa readers, the Shepherds of Good Hope is a mission that I support when I can, given I used to work up the road from them, and I have seen first hand the good works that they do. Remember Easter is a time of renewal and a time of giving.

Scary Statement for the Day

After the U.S. Fed lowered yet another of their key rates by 3/4% one analyst was actually heard to say, “I wouldn’t be surprised to see a rate of 0%…”, I almost fell out of my chair when I heard that one. I think this constant dropping of interest rate may help in the short run, but it is not resolving the main issues which is massive DEBT problems in North America. People are living outside of their financial capabilities, and it is eventually going to cause something very bad to happen.

Carnivals This Week

This week my posting The Seduction of Spending was mentioned in The Carnival of Everything Financial #15 hosted by Everything Financial .

The title of a great song by the Boomtown Rats, but also maybe how I feel today (Saint Patrick’s Day aside).

That’s a Bargain?

Bear Stearns was sold for a pittance to JPMorgan/Chase for $2.00 per share, given Bear Stearns was worth over $150 a year ago, and they were the #5 investment bank in the states, this is going to mean some great nasty cogitations on the markets today. Remember your investing plan if you have one and stick to your guns, but also remember your thresholds on when you want to sell and what you value in stocks too.

Is this the end of all of this? No, I think there is more of this to come folks so batten down your hatches, because this is going to be a bumpy ride.

U.S. Fed Cuts Rates to 3.25%

The Fed in the U.S. in a weekend move surprise for Saint Patrick’s day cut their Emergency Lending rate to institutions to 3.25% from 3.5%, wonder if they got wind of this Bear Stearns thing and tried to preempt another melt down? Who knows, but the move will drive the American dollar further down but might cause some optimism in the stock market (where optimism is a relative term, that is for sure).

Taxes Done?

Better think about getting those taxes done soon folks, because each day you wait will add at least 5 days onto how much longer it will take to get your refund from the government (if you are getting one that is). Of course if you owe money it might be good to wait until the latest day you could too.

Roof Shoveling

Here is one of those “value for what you pay things”, there have been many tragic roof collapses in Quebec and in Ontario due to the high volume of snow on some folks roofs, and people have been taking it upon themselves to go onto their own roofs to clear the snow off. Let me point out the danger and stupidity of this, and that yes if you fall off you might land in some fluffy snow, that is covering up your kids play structure or possibly your deck!

If you are worried contact a roofing company to come out and check on your roof and pay them to send someone up on your roof to stomp around and remove the snow. It is well worth the money spent and you are not the one who might fall off too!

More snow in Ottawa, seems like a broken record, but I think I have got my per use costs on my snowblower down to around $6.00 per use, but I also may have to buy another 10 litres of gas because I am running out. My guess is there is going to be much more snow coming and I am astounded we have anywhere to put the darn stuff.

Financially for the city of Ottawa it means more likely an overrun in their snow clearance budget (that they have been able to use as a “slush fund” (sorry for the pun) the past few years). This will most likely mean higher taxation coming (along with ludicrously higher water rates too).

Bank Rate Drop

In yesterday’s post I touched on an important topic about the Bank Rate Drop of 1/2% from the Bank of Canada. The rates dropping should not be a trigger for folks to go farther into debt (I am writing this as much as a mental note to myself as a commentary to my readers), just because it is cheaper to borrow money, does not mean you should borrow money. Take advantage of these cheaper rates to pay down your debt faster (if your debt has a varying interest rate).

Remember what your mother used to say, “If everyone else went out and ran up $10,000.00 in Credit Card debt, would you too?”. OK, my mother never said quite that, although I believe she did make a comment similar to that.

Budget Passes

The Liberals decided they didn’t want to have an election called on the basis of them defeating a fairly boring budget (with one very nice twist the TFSA), so they didn’t show up for the budget passing vote. Stefan Dion did so that he can claim he voted against it in the next election.

The Aging Workforce

Stats Canada published Canada’s Changing Labor Force 2006 report yesterday and it is an interesting read.

Census data also showed that the aging of Canada’s labour force continued between
2001 and 2006. In 2006, workers aged 55 and older accounted for 15.3% of the total
labour force, up from 11.7% in 2001.

Why do I care? I am heading into that area very soon, and I keep wondering what is really going to happen when all of these folks “retire”? My suspicion is they really won’t retire, they will just change careers and become part time employees or something like that. There will be a shortage of trained folks in a lot of areas, but my opinion is it won’t be as bad initially, because a lot of those folks are just going to “scale back” work, and not actually stop working.

Anyone care to throw their opinion on this interesting topic?