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Canada Believes It Has A Tight Grip On Inflation
In a continuation of central bank confidence, the BoC maintained rates while announcing their inflation outlook in the medium term. The relevant paragraph:
Total CPI inflation declined to -0.3 per cent in June and should trough in the third quarter of this year before returning to the 2 per cent target in the second quarter of 2011 as aggregate supply and demand return to balance. Core inflation held up at 1.9 per cent in the second quarter of 2009. The Bank still expects core inflation to diminish in the second half of this year before gradually returning to 2 per cent in the second quarter of 2011.
We hope that the 2 percent number was arrived at after some careful thought rather than just SWAGging from the CAGR since 1990. However this is part of a pattern that is emerging across central bank reports. Forecasting lower demand, warning of a deflationary spiral and then predicting a return back to inflation normalcy by late 2010 or early 2011, depending on the central bank.
This last step is somewhat troubling. The focus has mostly been on the US in terms of the potential for hyperinflation (and rightly so) but it's important to keep in mind that other countries are also seeing an unprecedented level of currency creation in their system. To believe that every central bank will ease off the pedal and turn the machine into reverse at the right time, strikes us as wishful thinking. It could also be a coincidence that the major banks have roughly the same timeframe for the "inflation bounce"; if it isn't, there could be some serious imbalances over the next few years.
This is a longer term trend to keep an eye on, especially as borrowers start to begin borrowing again.
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It would appear that talking points were handed out @ the last international economic cricle jerk (G8).
it does
now back to Benny;
Question: is it possible that the Fed would have to raise interest rates even with the economy not growing?
Response:
"One concern is that a loss of credibility (due to an audit) could result in a loss of confidence thereby leading to higher interest rates before the recovery takes hold"
PS Canada's Central Bank guy is ex Goldman - all is well in the frozen north
The Goldman testic...er...tentacles know no bounds
So is Christian Katz
Christian Katz
CEO of Cash Markets division
Christian Katz has been Chief Executive Officer of SIX Group's Cash Markets division since May of 2009. The division encompasses SIX Swiss Exchange and SIX Exfeed, a leading supplier of raw financial data. Further down the hierarchical chain, SIX Swiss Exchange operates Scoach, the highly successful joint venture with Deutsche Börse AG, which is Europe's first exchange to specialize solely in structured financial products, as well as Swiss Fund Data and STOXX, the European leader in compiling financial market indices. From 2006 through early 2009, Christian Katz headed the representative office of Goldman Sachs International in Switzerland, where he focused on the firm's institutional equity and stock derivatives business. Before that, he spent eight years with JP Morgan Chase in London, where he was initially responsible for institutional equity sales to Swiss clients and later the Head of Research Marketing for Europe. He was also actively involved in international banking as a result of his previous positions at London Forfaiting Company and SBC Warburg. Christian Katz completed his studies in business and finance at the University of St. Gallen and went on to earn a doctorate in finance. Over the years, he has been active in both writing and lecturing on international finance matters.
http://www.six-group.com/organisation/management_en.html
I engaged the Ministry of Finance and my Member of Parliament in December with the following:
http://futronomics.blogspot.com/2008/12/canadas-opportunity-in-crisis.htm
I finally received a response last week. It amounted, essentially, to a form letter. "Our government has listened to these concerns and will do what it takes to keep our economy moving, and to protect Canadians in this extraordinary time."
Americans might be astonished that I got a response at all. But to me it is clear, that these people in the Ministry of Finance and BoC have no idea what caused these problems, and have proven that they are intent doing it again.
Mr. Bernanke: what causes inflation?
"Creating reserves that are sitting idly with the banks does not cause inflation - we have tools to make sure that money doesn't get lent out by for example increasing the rate we pay on reserves."
Uh...... He is right here.
Inflation is not created as mentioned above, but when you have wage inflation, which allows for price appreciation. The above might allow for price appreciate, but there is no pricing power. Pricing POWER, the ability to stick with price increases is what inflation is all about. You can charge as much as you want for goods......with out someone willing to pay, what does it really matter.
I see a 2 stage event. We have become a service economy, and ran away from manufacturing. Commodities and goods will continue with deflation.....Services on the other hand will see inflation. Not due to price appreciation, but through govenment intervention...TAXES is the new inflation!!!!!!
But.. I thought the purpose of TARP was to lent out the money ? Can you please explain the context ?
Canada's central bank and government is blowing an even bigger real estate bubble then the US if that's even frigging possible.
In the first 15 days of this month 4,437 houses sold in the greater Toronto area. That was a staggering jump of 27% over last July – when the world was bustling and we had no financial crisis.
In the same two-week period, buyers paid, on average, $394,750 for each of those houses, up 4% from the same month a year ago.
This is remarkable. Not only because real estate sales volume exploded by almost a third, not only because prices rose more than twice the rate of inflation, and not just because Toronto real estate has just achieved a new pinnacle of valuation. It’s incredible since we are in the worst recession since the 1930s, the industrial base of southern Ontario has been hollowed out, that 47,000 more people lost full-time jobs last month and governments are plunging the country into debt at the fastest pace in several generations.
What are buyers thinking? Or expecting?
A new report by the University of Toronto’s Rotman School of Management concludes the economy crashed by an annual rate of 6.6% in the last three months (10% is a depression). Ontario unemployment will top 10%, it says, and stay high for years. And the chief economist at High Frequency Economics says another 413,000 manufacturing jobs will be lost – which is 2.4% of all the workers in Canada. Already we have seen 221,500 factory positions eliminated in a single year.
http://www.greaterfool.ca/
When she blow's it ain't gonna be pretty.
Its 10X worse in Vancouver. I have no clue how Vancouver prices have stayed stable. Commodities are taking a beating and housing has stayed flat in the city. Do the laws of economics work differently in Vancouver?
Two words: drug money.
Drug money can't sustain the most expensive RE market in Canada. Suggest you stop smoking drugs.
Out here in Calgary insanity is the name of the game.
One of the AOSC boys just bot x-hocky players house for full ticket ($10.5M).
I know some people who have been buying.
Nearly all of them are in their early to mid-30s, just moved out from living with mum & dad (who provided a generous downpayment) and they haven't the foggiest idea what shape the economy is in and don't care. There's a bubble because the people buying into the bubble are living in a bubble.
What are they thinking? That now is when they're ready to settle down now and will buy whatever the monthly payments enable them to buy.
What are they expecting? That despite the fact that you can now buy a new house in Florida for 100K they remain convinced that real estate - especially houses - cannot possibly go down.
They also expect that they will not only keep their jobs but earn more in the future and that if interest rates rise at all, then the monthly payments will still be manageable.
They read the rosy headlines on CNBC and think that Canada has managed to dodge the recession entirely.
That's what happens when mommy and daddy provide you with the down payment. If you have to save it, you pay closer attention.
Same thing as when the government gives it to you "it is free". You don't pay attention.
Excellent post Cornelius and Anonymous.
Canada's a real head scatcher. Apparently the banks are still lending money like it's 2007 and scarying customers into buying homes they can't afford because rates are going up soon.
Canada now manufactures it's own bubbles but only for domestic use, not for export. Eh!
Nice cherry picking of facts, no-name. Here's the skinny from the Toronto Real Estate Board:
Year-to-date sales, at 45,213 are down four per cent compared to 2008. Average price, at $384,645 is down one per cent.
Sorry, I prefer to look at six months of data rather than a two-week blip. And that's residential. Let's consider commercial:
Prices were mixed in June. Industrial space in all size categories leased for $4.79 sfn, down 17% from the $5.78 recorded in June 2008. Commercial space traded for $13.47 sfn, down 20% from the $16.75 figure seen during the same month last year. Finally, office space traded for $14.69, up 24% from last June's $11.81 sfn figure, a possible indicator that higher quality office space is being listed on the MLS in the face of a challenging market.
As for Rotman's report - gee, in the last quarter, we had the temporary closings of both GM and Chrysler, with knock-on effects at Magna's many plants. D'ya think that might have some effect on GDP?
hmmmmm Canada,
unlike the Fed, the BoC is owned by the Gov., and their charter can be dissolved by parliament at anytime, which gives a small-mite of protection from the money-changers.
yet it does have a GS man a the helm, and with the help of a few patsies in the fin-press, they seem content to be a concubine for the greater needs of the US money-trust (sic).
to their credit the BoC resisted the pressure to join US/Britian in QEing, i was mildly impressed. (same for when they stayed out of Iraq).
as a net producer/exporter of all forms of energy, and many other resources that the +6 billion consumers need, Canada needs to "grow-a-pair" and formulate a "strong-loonie" policy.
until then they shall remain the US's sweety (girl next door).
How, exactly, would a "strong loonie" policy help Canada? Our major export market for manufacturing is the US. That is already shrinking due to jingoistic "Buy American" policies; a strong loonie would just kill what's left of our manufacturing base. Thanks for the informed advice. (And, since you clearly didn't notice, the loonie has gone from 85 to nearly 91 cents in the last four weeks - not because of what we're doing, but because of Pres. Bambam and the Beard.)
If we really wanted to "grow a pair", we'd stop being the US's largest supplier of oil, and start shipping it to China. Maybe then we'd get some respect from America.
Can't nafta locked up a pro rata supply in perpetuity.
Like NAFTA guaranteed us softwood access? Or equality in government procurement? No offense to you, Lizzy, but the US feels free to abrogate treaties whenever they feel like it. Bambam even mentioned in his campaign that he would renegotiate NAFTA.
Of course, the easiest solution would be to mix our dirty, filthy oil sands oil with all our other oil, and then say to the US "Too bad, so sad - we can't meet your greenie targets, so we can't sell our oil to you" (or else who ever buys it will also have to buy all the carbon offset thingies to keep Whoopi and Rosie happy - that'll be cheap!).
I don't want anyone to think I don't like Americans; I do. The people, as individuals, are friendly and decent. It's your politicians I can't stand.
yes a strong loonie would hurt most manufacturing, but not all, and manufactured exports are now a smaller % of exports than non-renewable resources.
and more importantly it would benefit the country through fairer compensation for the non-renewable resources and which could theoretically (political pork-barreling aside) enable a lowering of many taxes.
lower taxes would be a great stimulus to many sectors in the country.
***as a net producer/exporter of all forms of energy, and many other resources that the +6 billion consumers need, Canada needs to "grow-a-pair" and formulate a "strong-loonie" policy.***
Yeah because a strong loonie is exactly what Canada needs to be a prosperous exporter!
depends on what you export
Canada has a secret plan to fight inflation? =)
$4 billion in gold at December 31st, 2008 and $3 trillion in assets according to OSFI.
Inflation containment will be extremely difficult.
Adrian Burridge
CanadianInvestors.com
Are there any foreign central banks that do not have the ability to pay interest on excess reserves? I believe ECB and BoC have this ability, but any banks that do not will have higher inflation risks.
Canada has been running an inflation targeting CB since 1991. Someone brought up Vancouver's housing market. Prices have come down they have just stopped falling M/M but not Y/Y yet. Home Sales have also started to rise but some of that is from the bulk sales from developers. Of course prices have not dropped as much as they have in the states but then we have a much different banking system and rules that made if difficult for someone making 28k a year to buy a $800k house with no money down.