Standing for everything, and nothing, lying about it all.

[Wilber]

And it has reacted by keeping rates low. Even the Federal Reserve is backing off of talk of a rate hike. Low rates are here for a while.

So basically the Liberals are engaging in a crapshoot, gambling on rates staying low while they keep increasing the debt, without every having to pay it back at higher rates.

If thinking that is a risky strategy for governments or individuals makes me a conservative, then I guess I am and make no apologies for it.

[ToadBrother]

So basically the Liberals are engaging in a crapshoot, gambling on rates staying low while they keep increasing the debt, without every having to pay it back at higher rates.

If thinking that is a risky strategy for governments or individuals makes me a conservative, then I guess I am and make no apologies for it.

I'm thinking it's a reasonable safe strategy over the next four to five years. I'm not saying I approve of it, but I think it's a reasonably safe gamble. Beyond that, who knows? But I can't imagine anyone short of a country in total meltdown ramping up even four or five points.

[dialamah]

So basically the Liberals are engaging in a crapshoot, gambling on rates staying low while they keep increasing the debt, without every having to pay it back at higher rates.

If thinking that is a risky strategy for governments or individuals makes me a conservative, then I guess I am and make no apologies for it.

Five years ago, I entered into a mortgage at ridiculously low rates; the mortgage broker telling me that these rates wouldn't stay low forever, and best to lock in now. Over the last five years, there has been constant 'prediction' that the rates were going to rise soon .... I just renewed my mortgage for another five years lower than the "ridiculously" low rate I got last time.

[Wilber]

I'm thinking it's a reasonable safe strategy over the next four to five years. I'm not saying I approve of it, but I think it's a reasonably safe gamble. Beyond that, who knows? But I can't imagine anyone short of a country in total meltdown ramping up even four or five points.

"Reasonably safe strategy over the next four or five years", that makes me feel a lot better. Nice to know they are thinking so far ahead.

You call that a strategy?

[Wilber]

Five years ago, I entered into a mortgage at ridiculously low rates; the mortgage broker telling me that these rates wouldn't stay low forever, and best to lock in now. Over the last five years, there has been constant 'prediction' that the rates were going to rise soon .... I just renewed my mortgage for another five years lower than the "ridiculously" low rate I got last time.

So go borrow a whole bunch more.

[ToadBrother]

Five years ago, I entered into a mortgage at ridiculously low rates; the mortgage broker telling me that these rates wouldn't stay low forever, and best to lock in now. Over the last five years, there has been constant 'prediction' that the rates were going to rise soon .... I just renewed my mortgage for another five years lower than the "ridiculously" low rate I got last time.

Yup, I signed a mortgage ten years ago for the fantastically low rate of 5.5%. I renewed five years ago for the fantastically low rate of around 3.5%. I renewed this summer for the fantastically low rate of 2.66%.

Crikeys, I got a dealer car loan last year for 1.99%. I figure with the principal I was borrowing the interest was probably just enough to cover the costs of making the loan.

[ToadBrother]

"Reasonably safe strategy over the next four or five years", that makes me feel a lot better. Nice to know they are thinking so far ahead.

You call that a strategy?

Yes I do.

[Wilber]

Yes I do.

Borrowing money you don't need isn't a strategy, it's an indulgence. Particularly if you could lose your shirt if you get it wrong.

[msj]

So Harper made it easier to buy a home before then making it more difficult? Didnt know that, i did know that they changed the rules to make it more difficult, but not that they were responsible for making it easier in the first place.

Well, in 2007 the rules were changed from 25 year amortizations to up to 40 years.

Then in 2008 they were changed to 35 years and then to 30 years in 2011. See a summary here: https://en.wikipedia.org/wiki/Canada_Mortgage_and_Housing_Corporation

They also brought in the first time home buyers tax credit ($5,000 credit good for about $750 of tax savings) and there are a whole lot more done in the past many years (by both LPC and CPC) to encourage home buying.

Facts, don't be allergic.

[msj]

So basically the Liberals are engaging in a crapshoot, gambling on rates staying low while they keep increasing the debt, without every having to pay it back at higher rates.

If thinking that is a risky strategy for governments or individuals makes me a conservative, then I guess I am and make no apologies for it.

What's this with the gamble?

They can lock up interest rates as needed.

Given that interest rates are so low, and that Canada is not at full employment, one can argue that it is irresponsible to not take advantage of low rates and perhaps lower contract rates to begin to address our infrastructure deficit.

[ToadBrother]

Borrowing money you don't need isn't a strategy, it's an indulgence. Particularly if you could lose your shirt if you get it wrong.

Borrowing money that doesn't overly strain overall financial performance, indulgence or otherwise, is at least sustainable. The level of deficits the Liberals are talking about are barely a blip.

Over-leveraging is a problem, and for those borrowing at those levels, a rate hike will be a disaster. Overall, however, I don't think the economy is at that great a risk from private borrowing or from Federal borrowing. I think it will remain that way into the medium term. Beyond that, I won't dare to predict.

But any way you look at it, $10-$15 billion in borrowing per year for three years by the Federal government is a drop in the bucket. Considering the uncertainty of the Tories' commitment to balanced budgets, I'd say the difference between the three mainstream parties amounts to a rounding error.

[Wilber]

What's this with the gamble?

They can lock up interest rates as needed.

Given that interest rates are so low, and that Canada is not at full employment, one can argue that it is irresponsible to not take advantage of low rates and perhaps lower contract rates to begin to address our infrastructure deficit.

Like hell they can, they have to service the whole national debt not just the debt they are adding. It's the same as renewing a mortgage if rates go up. As bonds come due, they either have to pay off that debt in full or refinance it. If they don't pay the going rate for the new bonds. no one will buy them. All the debt the country now carries will either have to be paid off when it comes due, or refinanced at the going rate. They are gambling on rates not going up.

Edited October 14, 2015 by Wilber

[ToadBrother]

Like hell they can, they have to service the whole national debt not just the debt they are adding. It's the same as renewing a mortgage if rates go up. As bonds come due, they either have to pay off that debt in full or refinance it. If they don't pay the going rate for the new bonds. no one will buy them. All the debt the country now carries will either have to be paid off when it comes due, or refinanced at the going rate. They are gambling on rates not going up.

And it's a safe bet at the moment. There is no risk of a credit downgrade for Canada, even if $15 billion a year is added to the debt over three years.

[msj]

Like hell they can, they have to service the whole national debt not just the debt they are adding. It's the same as renewing a mortgage if rates go up. As bonds come due, they either have to pay off that debt in full or refinance it. If they don't pay the going rate for the new bonds. no one will buy them. All the debt the country now carries will either have to be paid off when it comes due, or refinanced at the going rate. They are gambling on rates not going up.

They have to service the whole debt regardless of adding to it.

That whole debt can be serviced by breaking it up into various bonds at various intervals (everywhere from 30 days to 30 years and even 50 years).

That's how bond markets work.

Canada's debt to GDP is so absurdly low and the proposed deficits are so absurdly low that your panic is unwarranted.

The time to borrow money to address an infrastructure deficit is not when the economy is booming so the government can pay full subcontract rates and higher interest rates.

The time is when rates are low (historically low as they have been for the past many years).

Once again, take a look at historical interest rates - the troubles from the late 70's to the early 90's was a historic aberration.

While today's rates are also a historic aberration as being too low, they are still closer to the historical average of 3 to 4% than the 12% to 21% rates that people from that era remember.

The problem with economics is people are so busy looking behind them and fearful of what happened that they are unable to take advantage of the opportunities that are staring them in the face.

There is nothing wrong with a little bit of debt - and for those people who want to own a near risk free Canadian bond or GIC - well, they appreciate the fact that the government is willing to carry some debt for such an opportunity.

It's what makes the world go round.

[msj]

And it's a safe bet at the moment. There is no risk of a credit downgrade for Canada, even if $15 billion a year is added to the debt over three years.

Now, to be fair, if the real estate market were to melt down like it did in Florida (a state that has recourse loan rules) then Canada could be in trouble.

But then, we shouldn't be worrying about the $20 billion added to the deficit as proposed here.

No, we should worry about the hundreds of billions of mortgage debt that is insured by taxpayer Canuck via CMHC.

Well, at least our banks will survive.

[Wilber]

A 20, 30 or 50 year bond you issued at 2% will have to be reissued at the going rate when it comes due. A five year "strategy" is not a strategy at all.

Periods of low interest rates are the time to pay down debt, not add to it because if rates go up, you will be lucky to even service it, let alone pay it off.

Edited October 14, 2015 by Wilber

[ToadBrother]

Now, to be fair, if the real estate market were to melt down like it did in Florida (a state that has recourse loan rules) then Canada could be in trouble.

But then, we shouldn't be worrying about the $20 billion added to the deficit as proposed here.

No, we should worry about the hundreds of billions of mortgage debt that is insured by taxpayer Canuck via CMHC.

Well, at least our banks will survive.

Exactly, which is why I'm not sure why we're confusing the overnight prime rate with the lending rates that governments get. While they are certainly intermingled, they are not the same thing, any more than the prime rate and conventional mortgage rates are the same (conventional mortgages are usually determined by bond yields, and a central bank's prime rate only affects that indirectly).

This to me looks like a prime example of where someone has created an analogy between household financing and government financing. Such an analogy is useful to a point, but when it gets into the nitty gritty of how ordinary people borrow versus how governments borrow, it falls apart.

[msj]

A 20, 30 or 50 year bond you issued at 2% will have to be reissued at the going rate when it comes due. A five year "strategy" is not a strategy at all.

Periods of low interest rates are the time to pay down debt, not add to it because if rates go up, you will be lucky to even service it, let alone pay it off.

Sure, and who knows what the interest rates will be when those bonds come due.

But the risk gets spread out - that's the whole point of breaking debt up into various tranches.

However, it also provides a benefit in that risk is minimized in the here and now while we enjoy interest rates.

This is also why it is better to have debt related to infrastructure rather than related to operations.

Infrastructure benefits us and the economy for many many decades so why not get the benefits today by borrowing the money when it is cheap?

The problem with conservatives is they are so panicked by the liability side and the expense side that they fail to see the asset side and income side.

It is the blindness of fear and the ignoring of opportunity that I do not like with this movement.

[msj]

This to me looks like a prime example of where someone has created an analogy between household financing and government financing. Such an analogy is useful to a point, but when it gets into the nitty gritty of how ordinary people borrow versus how governments borrow, it falls apart.

I agree with this completely.

The analogy is weak and no longer useful (if it ever was).

[Smallc]

even if $15 billion a year is added to the debt over three years.

And we're not even talking that - we're talking a total of $25B over 3 years based on projections less optimistic than the government's.

[ToadBrother]

I agree with this completely.

The analogy is weak and no longer useful (if it ever was).

It might be useful if you're explaining government finance to an eight year old.

Heck, trying to compare governments to businesses is just as flawed, but that's one that even adults seem to buy into.

And you're spot on about infrastructure investing. Heck, most capital investment is done like that; whether it's a government building a hospital or a company building a factory.

[Argus]

A lot of how central banks now function is related to the inflation and interest rates of that period.

So you're saying in 2030, there will be no inflation, and interest rates will be very low?

[ToadBrother]

So you're saying in 2030, there will be no inflation, and interest rates will be very low?

I can't quite gather how you would get that from anything I wrote. I never said low interest rates were permanent, I said they would last into the medium term (as in 3-5 years).

[Argus]

If we don't increase immigration, we will hit a brick wall on economic growth in the next 10 to 15 years.

Hysterical drivel supported by no data.

[Argus]

I can't quite gather how you would get that from anything I wrote. I never said low interest rates were permanent, I said they would last into the medium term (as in 3-5 years).

We'll be paying down this debt for many decades - assuming we ever start. Your short term interest rates are essentially meaningless unless you plan to be dead in five years.