The Bank of Canada raised its benchmark interest rate to five per cent on Wednesday, its highest rate since 2001.
So… Is the plan to increase the housing supply by making people default on their mortgages?
I mean, I am joking, mostly… But there is a point that raising interest only goes so far. It helps reduce demand on luxury goods, for instance, you might not want to take out a loan to buy a new car right now. However, when goods are already in a supply crunch, or the goods are necessary for life and people can’t ‘opt out’ of buying them, raising interest too much starts to hurt peoples’ ability to meet basic subsistence.
Then again, what are the other options? Just let inflation run rampant?
other options involve the govt actually trying to get involved in sorting out the problems causing the current inflation, which aren’t money-supply, and aren’t wage related, and that’s why rates aren’t very effective,
Taxing excessive speculative gains made with leverage is a good example.
Another example would be the govt tying the best credit to housing that is actually built and suitable.
So, if you borrow just to speculate on existing housing, you’re taxes back to zero gain. But if you borrow to build new suitable housing, you’re allowed to profit.
We have about 50 years of history of govts pretending they can’t do anything.
