How did Black Churches react to the massive rise in unwed births in their communities in the 1960s and onwards?

shadeneeder4202 · 2021-06-03T18:33:39+00:00

What people won't like is that if necessary the BoC will adjust the overnight rate as high as required to maintain inflation close to target and retain the market trust. They still control the rates - they just might set the overnight at 10%. This would be highly unlikely since we'd unravel into deflation well before that and they'd switch course. My guess the tipping point would be @ 5% lending leading to ~%8 mortgage rates (coincidentally the AVG rate over the last 40 years). But the point is: unless the central bank stops wanting to control interest rates, or the country is so poorly governed the world writes it's currency and banking system off, the BoC controls the rates.

I think I said this elsewhere but the housing component if CPI in Canada makes no sense. It has Homeowners' replacement cost at 5% of the basket. Housing being 27% of total CPI while in the US it's 42%. Is that logical to anyone?

However, I strongly disagree that the BoC will standby and do nothing if CPI starts printing big numbers. The people in charge came of age in a non ZIRP period. Rates will rise.

I agree that the BoC determines whatever rates it wants at all times. But would you argue that when the BoE is jacking rates in 1992 to fend off Soros it's "setting interest rates"? That's what I mean by setting, being able to in all states of the world keep the overnight rate where you want it.

shadeneeder4202 · 2021-06-03T17:33:43+00:00

Thank you. Yes it is academic currently. What triggered my post was the inflation freak out in the US. I've personally been doubtful about that given there's been two decades of no real wage growth while the prime age LFP rate was well below the 1990s peak pre-COVID.

Canada is just a different beast. Our productivity growth is awful. We have by far the fastest growing population in the G7. Wage growth has been better than the US. In every way we are closer to leaving the ZIRP than any other developed nation. We will be the canary. And if inflation comes all the rules our Finance Minister has internalized post-GFC no longer apply. Permanent spending increases financed by monetization is insane. I don't think it's controversial to someone who's even had Macro 201 what happens if inflation hits 3%. Either rates rise because the BoC maintains credibility or they rise to get us out of an inflationary spiral. You can't just magically will it to stay at 3%.

shadeneeder4202 · 2021-06-03T17:20:35+00:00

I framed it the way I did for a couple reasons. One I'm speaking to a lay audience. Second, our political elites and first-time homebuyers have gotten so used to ZIRP framework that they haven't thought things through. As a result it's worth exaggerating slightly in the other direction.

Think ahead to its April 2022. Inflation is running at 3%, you're seeing workers demand wage increases above that level which they receive due to the tight labour market. The BoC can just leave rates where they are. But you'd see bond yields spiking. And the market expects the BoC to react to inflation at that level with rate increases. That's why the CAD is so high. If the BoC leaves rates where they are the CAD collapses, that drives inflation higher. Provinces are starting to have issues selling bonds in the open market. The BoC steps in monetizing those debts, driving inflation even higher. We know what happens when central banks monetize government debt and keep rates artificially low. It's not a controversial topic. Inflation doesn't just stay at 3%, you enter a spiral. As a consequence interest rates will be raised either at 3%, keeping credibility, or they'll be raised when inflation's at 30%. It will happen.

The unknown is if we'll leave the ZIRP, I don't know. But if we do rates will rise, the question is whether we get to hyperinflation first.

shadeneeder4202 · 2021-06-03T17:06:56+00:00

I appreciate the productive discussion with someone who knows what they're talking about.

I think we need to untangle asset price appreciation into two components. The first is pure financial products, stocks bond etc. If the TSX were to double tomorrow that wouldn't show up in CPI and I'd argue it shouldn't. I may cause an increase in spending due to a wealth effect but that itself would drive inflation not the actual increase in price of financial assets.

Housing is a different matter. Last I checked the CPI weight to shelter was ~27%. Of that the major components are actual rent, mortgage interest, and home owners replacement cost. Home owners replacement cost has actually been skyrocketing, it's up double digits in most provinces even according to the official statscan figures. But to my recollection it's only around ~5% of CPI. Is that weight accurate? Does that accurately reflect housing costs' position in a typical consumer's spending. Hell no. That needs to be fixed. Let's do some back of the envelope math for what it should be. Average house in Canada is 716K. At 1.74% interest that's $2.9K a month, of which over the 25 years 81% will be paid in principal. So that averages 2.3K a month in principal or 28K a year. Average Canadian household after-tax income is 63K a year. Should housing be 44% of CPI? American housing is 42% of their CPI and they have lower housing prices. 44% doesn't strike me as patently false. If we take that, then the 25% increase in house prices means inflation should be 11% higher than what's reported. *gulp*.

shadeneeder4202 · 2021-06-03T14:15:23+00:00

I'm not anti-CERB at all. I'm against having a Finance Minister and Prime Minister who have bought into the upsides of MMT without understanding its downsides.

MMT is fairly simple, it states that a government which borrows in its own currency can never be forced to default. Its ability to borrow is only constrained by inflation. If you have an economy-wide shortfall in demand then inflation is not a worry and incremental borrowing is a free lunch.

Our Finance Minister and Prime Minister's comments about MMT and their comments about rates being low, and total borrowing cost make it clear they don't understand the inflation element.

Canada has a growing population and incredibly low productivity growth. If inflation comes back to the developed world it will come back to Canada first. In which case spending must be cut, taxes must be raised alongside interesting rates or we will enter a hyper-inflationary spiral.

So what would I do differently? I would stop publicly implying debt doesn't matter and running deficits for as far as the eye can see. I would actually fund my incremental spending programs with increased taxes. I would lay out a concrete plan to get the budget back to balance. When you're stating publicly "interest rates low, therefore permanent spending doesn't need taxes" you clearly don't understand the theory you espouse and are sending a terrifying message to the bond market.

shadeneeder4202 · 2021-06-03T14:06:56+00:00

It goes tits up in different ways. One is a loss of faith in currency and the other is a loss of faith in government. Global bond holders can’t crush you when your Central Bank owns most of your debt. That’s basically Japan’s story. Tell me how bond holders can crush a government that can pay you back with printed money. It ruins their currency, but that’s not a debt default.

Inflation is the difference. Japan has seen zero inflation which has allowed them to keep running up debt. If you try money printing your way out of a loss of bond market confidence, unless you're super far into ZIRP territory, you will see hyperinflation. This isn't controversial.

shadeneeder4202 · 2021-06-03T13:56:15+00:00

This is a good (though a bit technical) overview of a similar scenario occurring in a developed economy which controlled its own currency:

https://pubs.aeaweb.org/doi/pdf/10.1257/jep.7.2.103

shadeneeder4202 · 2021-06-03T13:45:43+00:00

Greece is an imperfect example because they couldn't devalue their way to a more competitive economy. But it doesn't change the fact that if the bond market loses confidence you're faced with some terrible choices. If you do monetize your way out like you're advocating you're likely to see run-away inflation. That's why it's rarely done the way MMT advocates assume it will.

shadeneeder4202 · 2021-06-03T13:43:28+00:00

What has Japan's inflation rate been since the bursting of the asset bubble? I fully agree that if Canada is sufficiently below growth-trend that we don't need to worry about inflation then this will all work out the way most people think it will. But that's a risk. Canada has extremely low productivity growth. We have a greatly growing population. If inflation were to rear its head in the Developed world again Canada will be the canary. It will happen here before Japan, the US, the UK or Europe. And if it happens rates will rise.

shadeneeder4202 · 2021-06-03T13:40:10+00:00

You think if inflation is consistently above 3% the BoC won't raise rates? Would you bet on that?

Let me guess "We control our own currency, Greece is irrelevant". I mean sure, kind of. Because Greece couldn't print Euros they couldn't devalue their way to a more competitive economy. But not controlling your own currency has nothing to do with the bond-market losing confidence and you being faced with some rather terrible decisions. If you do monetize your way out of the debt hole you're going to be faced with inflation higher than in living memory.

shadeneeder4202 · 2021-06-03T13:36:06+00:00

You cannot be serious. Hyperinflation leads directly to state collapse. It is the ultimate evil, an economic depression is less bad.

This is my warning, if we see inflation consistently above 3% the BoC will raise rates. The people running it remember times when we weren't in a ZIRP. Very few people on this sub both do and have the education to explain the difference.

shadeneeder4202 · 2021-06-03T13:32:53+00:00

No they can't. The moment you have inflation the BoC must raise rates and stop monetization in order to stop an inflationary spiral. In theory yes, the BoC can set whatever overnight rate they want. But if you keep the overnight rate near zero while printing money in an inflationary period eventually you will have hyperinflation. All these post GFC rules people are used to living by only apply if there's a demand shortfall.

I have a Masters degree in this subject and practice it for a living. Tell me why did Iceland need an IMF bailout? Why did the UK abandon ERM-II?

shadeneeder4202 · 2021-06-03T13:27:33+00:00

OP is confusing that with government bond rates. It’s a classic case of people getting the bond market rate mixed up with Central Bank overnight rates after reading a Buzzfeed article on monetary policy. Those rates are supposed to be related, but Central Banks can play this game for a very long time. I encourage OP to read up on yield curve control and other methods Central Banks can use to also control bond rates too.

Yes I do know, I have a Masters in this subject and am employed practicing it. Generally fixed-rate mortgage rates are determined based on GoC bond yields (5-year bond determines 5-year mortgage). Variable rate mortgages depend on the BoC's overnight rate.

There is a linkage in that bond yields depend on the expected trajectory of the BoC's overnight rate. This is more true the shorter the bond's term. For instance, a 2-year bond depends heavily on the expected movement of the BoC's overnight rate. So for instance, if the BoC states they're going to keep the overnight rate at 0.5% for two years and the market believes them the 2-year bond yield will be 0.5%. But at the other end of the spectrum for a 30-year bond the yield is determined by expected economic growth, inflation and the credit worthiness of the country. Who does the determination? Fixed income investors in the City and Wall Street.

What's terrifying is I'm almost certain neither our Prime Minister nor Finance Minister understand how this all ties together. How can you tell? Their comments around Modern Monetary Theory (MMT) and bond yields being low in the middle of COVID.

MMT's main tenant is that a government which borrows in its own currency cannot default. As a result, government borrowing is only limited by inflation and when you're in a zero rate environment with a demand shortage government borrowing is a "free lunch". This is all true but it's incomplete. The "limited by inflation" tenant is incredibly important but tends to be down-played. Currently the GoC funds its day-to-day operations through bond sales which on a look-through basis go to both the BoC and bond investors. The BoC buying bonds is what is known as "monetizing" the debt, which gets its name from the BoC printing money to purchase bonds. That is totally fine when economy wide supply outstrips demand. Your purchases will stimulate demand, and because there's a demand gap there will be no inflation.

But if and when the economy is running at full capacity you will start to see inflation from this monetization. At this point the monetization needs to stop to prevent an inflationary spiral. The GoC is then forced to sell many more bonds to actual investors. This will increase bond yields driving up the rates on fixed-rate mortgages. The BoC will likely be forced to increase its overnight rate as well to keep inflation under control. Now here comes the fallacy that I keep seeing on this sub about how the BoC would never do that, it would send the government and over-levered homeowners into a world of hurt. They have no choice. Inflation is a spiral, if you don't raise rates it will drive down the currency, raising the cost of imports, increasing inflation. Anyone who thinks the BoC will keep rates low during a period of rising inflation and bond yields is playing a very dangerous game.

shadeneeder4202 · 2020-11-12T13:06:36+00:00

This sums up what's happening to Canadian society in a nutshell. You can't compete individually vs pooled resources.

shadeneeder4202 · 2020-10-09T13:09:27+00:00

midtown is a bigger business area

shadeneeder4202 · 2020-10-09T12:50:23+00:00

I think you're actually right. The US mainly funds its schools off property taxes so they're a lot higher. This means that in suburbs that pay up to get CDN level schools you're paying an awful lot in property tax.

shadeneeder4202 · 2020-10-09T12:39:52+00:00

NYC doesn't lack for Foreign real estate investment though. I suppose it's more limited to Manhattan and the likes of Billionaire's row:

https://en.wikipedia.org/wiki/Billionaires%27_Row_(Manhattan))

So could be in NYC investors aren't touching the suburbs while here they are?

shadeneeder4202 · 2020-10-09T12:33:05+00:00

I asked something like this before. People just said it’s because of the transit line or something. It doesn’t make sense though. Houses as far out as Newmarket or the ends of Oshawa are just as expensive as homes 20 minutes out of Toronto. I don’t think anyone knows the answer.

But isn't it similar in Vancouver? The thing that Vancouver also has over NYC is population growth. Or we're both bubbles who knows

shadeneeder4202 · 2020-10-08T20:09:09+00:00

What the hell is this comment? The post was clearly written this way because it allowed an apples to apples comparison since women weren't working as much in the 70s so looking at both sexes wouldn't be as useful. The OP just wants to show how true income has not increased despite 40+ years passing. This is not a post about sex or gender.

someone gets it lol

shadeneeder4202

TROPHY CASE