Bank Of Canada Feeding Inflation and Debt?

(The CFP- CDN Federalist Party is a Virtual Centrist Political Party with a 100 Year Vision for Canada envisaged by Jim Reid.)

Canadians from coat to coast to coast are "Mad as hell and will not take it anymore".

The Bank of Canada increased lending rates to the Big-Banks' oligopoly, which immediately and unilaterally passed each rate increase onto the mortgages of over 2 million Canadians. The average mortgage on detached home properties is $300,000.  These increases until December 7, 2022, added $7,500 extra interest to these Canadian  homeowners' mortgages.

To be approved, Mortgaged homeowners had to accept the Bank's right to increase their mortgage rate without dispute. If Canadians refused to pay the higher interest rates, the Bank could force their customers to sell their properties to pay the mortgage off. In my opinion, such threats are very similar to how criminals extort money from families.

The BOC claims these rate increases, which extract another $2.4 billion in interest from homeowners, will stop or reduce inflation and they will help slow down Canada's economic growth rates. How does it do this? Is this logical?

By increasing family interest on debt costs, families have less to spend on other things we need. It also decreases the growth in home equity Canadians need to survive our retirement years of negative cash flow. In fact, Canadians have the highest home equity on the planet, plus the Banks, when we pay down our principal, have even greater security for their very-low-risk mortgage loans. Higher interest rates increase debt and increase inflation... not reduce them.

The BOC is reducing any equity build up and putting seniors into decreasing equity mode. This will be very costly as our population grows and seniors become bankrupt and government hand-outs dependant. These hand-outs will escalate over the next 25 years, with costly budget increases and tax increases to Canadian economic development.

Why must Canada be satisfied with a low (2%) growth rate? We are close to the highest educated population in the world. Shouldn't our goal be to increase our growth and productivity by over 10% every year? The BOC interest increases shrink our economy- not expand it.

While interest rates were held below 2%, Canadians accumulated larger debt burdens. But their actual equity in real estate and other debts has risen dramatically. Thus all these debts were of little risk to lenders. Yet the BOC and banks agreed to unilaterally raise debt costs, plus make it more expensive to renew debts. In fact, these financial bullies are raking in $billions from defenseless consumers, especially in the middle and lower income class sectors.

Of course, family consumption of goods and services will be slashed, so the BOC and Banks are forcing an economic recession (lower growth rates) or even an economic depression (total economic contraction), with all the unemployment and other hardships loaded onto consumers.

As a professional economist, I find these policies arbitrary, punitive and completely foolish.

INFLATION has been out-of-control since the huge industrial competition buy-outs, mergers and takeovers of the past 50 years. Major domestic and foreign corporations assumed control over markets and supply chains around the world and steadily raised prices. This OLIGOPOLIZATION (market control by few enterprises) has led to Canadians paying more for goods and services than in most other countries. 

With market and supply chain control, these companies have pressured suppliers to cut their prices below profitable levels, plus they doubled and tripled historical mark-up schedules, while also advertising huge discounts that still deliver gross profit margins well over 50\% above their costs.

These marketing tactics became viable only once industry after industry was consolidated, as remaining company owners met to manage their markets together. Obviously, these recent interest rate increases are being passed along to consumer prices. Thus, the BOC and Banks are actually the major contributors to inflation.

The Liberals recently announced a public consultation to revise our Competition Act to battle market control by companies. Unfortunately, their submission form is full of academic and government-speak terminology, so the public is unlikely to be able to express their rage against price increases. It appears to me, the Liberals hope this public consultation will disappear like a "sbd" in parliamentary chambers.

What should Canadians demand to turn-around our country's debt load, housing values and inflation?

Increasing interest rates increase our debt. Obviously, Canada needs a return to money accessibility below 2% for mortgages by the public to help reduce our family debt loads. (Under fiat-capital monetary funding since 1973, Canada can do this instantly.)

House prices are directly impacted by supply and demand in local markets. Real Estate is by far Canada's largest and most competitive industry. Government is foolish to interfere in this self-managing sector. Public housing can be a safety net for the needy, but it is not a solution to housing prices and housing values for the majority of Canadians.

Inflation is measured as higher prices for goods and services, including essentials and necessities for clothing, housing, feeding, energy, communications and technologies. These markets have no real competition as a small number of company directors and senior managers collude with each other to set market share parameters.

The long-term solution involves new enterprises creating new products and services to replace the old ones and restore market competition. This will require re-jigging the Canada Revenue Agency to shift taxation off incomes and into consumption and corporate profit re-distribution to Canadians. Canada has tried to create a bell-curve of new wealth distribution over the last 65 years and failed. Our annual wealth distribution is almost identical now to the 1960's. Shifting our tax bases will solve this dilemma.

As long as the CRA taxes middle class incomes, families will remain unable to accumulate greater home equity and our capital savings we need to create new businesses. Similarly, as long as government unions insist upon their workers being securely compensated 40 -50% more than the private sector workers, costs of infrastructure development and all other government services will drown our economy and innovation, never mind eliminate our global competitiveness. 

Canada must allow its middle classes to prosper financially to achieve a major increase in the productivity of our country. Inflated prices and wages in protected financial/ economic sectors has created our present chaos and inequities.

Of course, to be able to compete on the global markets stage, Canada needs to hold onto our large companies. However, these large organizations must be subjected to substantial controls and transparencies must be allowed to serve our markets and the public. Everything but pricing seems to be controllable, but this "hands-off-prices" was to encourage free-enterprise in competitive markets. These no longer exist.

Fortunately, new technologies enable us to better control our mature companies and industries, so all we need to do is to regulate standardized accounting templates across industries, plus apply price, wage and profit margin parameters on organizations. These are the modifications we need to our Competition Act in Canada to control inflation, while supporting our efficient industries.

Of course, there are huge opportunities for Canadians to move forward, instead of focusing on yesterday's mistakes and prejudices. Canadians are more disappointed and feeling powerless than I've ever experienced during my 79 years.

We may not get an election for 2 years, but hopefully we can regain our pride and hope in our future by immediately shifting our economic, monetary and fiscal policies out of reverse gear into 1st gear!

Warm regards,

Jim Reid

Founder: CFP