Too Soon to Raise Interest Rates?

(Aired on June 1, 2010)

The move was not unexpected, but the Bank of Canada is treading on very dangerous ground in moving the interest rate up substantially this morning. The rate jumped from 0.25% to 0.5%, likely the first of several moves to get the rates up from the rock bottom levels set last year. The drop in rates in 2009 was designed to help stimulate the economy. There are signs the economy is starting to bounce back, but in raising the rates, the Bank of Canada is counting on the fact that the economy will continue to rise.

The question is - did they make the move too soon? Are we really far enough into a comeback to be able to raise the rates? The world economy is still on very shaky ground. The stock markets have not rebounded to previous levels. Europe's unfolding debt crisis has shaken expectations of a global rebound. And since we are tied so much to world markets, are we assuming too much in raising our rates?

And let's not forget the impact on the local economy. Those interested in going to the banks to raise money to get back on track will have more trouble with higher borrowing rates. Young people trying to get into the housing market will certainly be affected. While the rates are still pretty low, and there may be some truth to the fact that there is still room for lots of stimulus, the move is still risky given all the criteria.

I don't think you'll find many takers on the streets of any city in our viewing area who feel the economy has bounced back to the point where such a risk is worth taking. Let's hope Bank of Canada Governor Mark Carney doesn't regret his actions a few months down the road.

Keep Interest Rates Down

(Aired on February 25, 2010)

The federal government is walking a fine line between success and disaster as we try to recover from our faltering slide in late 2008 and most of 2009. There are indications that interest rates will start to rise this summer, and although I am not some kind of financial guru, I can tell you right now that if that happens, we will head right back down the slippery slope we so recently started to climb up.

With personal debt at virtually record levels, and many people overextended in their personal lives, raising interest rates will make personal bankruptcies soar. They're already up some 27% this year, as people try to make it through tough times. To raise interest rates further will be disastrous. U.S. financial boss Ben Bernanke made the same comments yesterday. He's worried that if interest rates rise, the U.S. economic recovery will fail, and we all know what that means.

I am in favor of what the government is doing regarding putting new rules in place that will force people not to overextend themselves. Rules for purchasing homes that will restrict the amount of money that can be tied up in mortgages are badly needed. Many have been tempted to stretch themselves far too much to get into a home with low interest rates, and they've put themselves in trouble. To raise interest rates to stop that is not the answer. Education, and new rules to prevent that problem make much more sense.

There is concern that if inflation rises, higher interest rates will be needed. But from what I've been able to determine from the experts, rising interest rates will bring on way more problems than they will fix. Let's hope the government sees the light, and keeps interest rates low until we get out of the quagmire.