Steve Saretsky -

The Bank of Canada now owns over 30% of the Canadian bond market, and at its current pace will own over 50% of the bond market by this time next year. It’s no surprise that the central banks actions are now coming under increasing scrutiny, particularly from opposing lawmakers. There are growing concerns the central bank is financing government spending beyond COVID-19 emergency measures. Some are calling it the early stages of MMT (Modern Monetary Theory), a radical policy idea which ultimately suggests that there are no limits on fiscal spending when you have a central bank which can print money in your own currency.

An idea, which finance minister Chrystia Freeland was quick to dismiss despite saying fiscal anchors, which constrain spending, will only be re instituted once the pandemic has passed. “I am not among those who think Canada should have a fling with Modern Monetary Theory, which holds that deficits don’t matter for a government that issues debt in its own currency.”

Still, the lines are becoming increasingly blurry between the actions of the federal government and the central bank. It appears to have prompted the Bank of Canada to dial back its QE (money printing program) in order to avoid further backlash, announcing they will reduce government bond purchases from $5B down to $4B per week. Instead, the Bank is “recalibrating” the QE program to shift purchases towards longer-term bonds, which have more direct influence on the borrowing rates that are most important for households and businesses.

These programs will remain in play until the recovery is “well underway.” In addition, Governor Tiff Macklem, doubled down on his message that interest rates will remain pinned to the floor for the foreseeable future. The central bank now says they won’t hit their inflation targets until at least 2023, meaning there will be no interest rate hikes until then.

f you’re confused by all of this central bank lingo, let me simplify it for you here. The central bank is manipulating interest rates lower, interest rates will remain at zero for a long time, the currency is being devalued at an unprecedented pace.

If you’re still wondering why house prices are going higher during a recession, I can’t help you.

Three Things I’m Watching:

1. At its current pace, the Bank of Canada will own 50% of the bond market by this time next year.

2. Home sales across Canada have rebounded sharply.

3. The taller the building, the bigger the decline in Greater Toronto condo prices.

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The Canadian Economy

Steve Saretsky -

Happy Monday Morning! We got a string of new data this past week confirming inflation in consumer goods, and housing are proving to be more than transitory. Canada’s consumer price index continued to drift higher with prices hitting an 18 year high, up 4.7% from last October. The recent floods in BC...

Steve Saretsky -

The calls for impending interest rate hikes continues. CIBC’s chief economist, Benjamin Tal, was out recently suggesting the Bank of Canada could hike its benchmark interest rate at least six times beginning in early 2022. “I think there is a risk of getting into the market at today’s rates,” noted Tal....

Steve Saretsky -

The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession...

Steve Saretsky -

The Bank of Canada continues to slowly drain liquidity after flooding the system with a firehose of cash during the pandemic. Bank of Canada governor Tiff Macklem announced the end of Canada’s QE program (also known as money printing). Furthermore, in Macklems words, “We expect to begin increasing our policy...

Steve Saretsky -

Consumer price inflation ripped higher in September, surging 4.4% year-over-year, the fastest pace of price increases in 18 years. Let’s discuss this further. We have an inflation problem and the Bank of Canada remains of the view that inflation will be transitory. Although they really can’t say otherwise, for if...

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The Saretsky Report. December 2022