Bank of Canada Raises Interest Rates Again

Good news for the Canadian economy!

The bank of Canada increased the overnight rate once again. It went from 0.75% to 1.00%. Many speculators wondered if the Bank of Canada would dare to raise the rate again with such weak data coming out of the Federal Reserve in the States.

The fact that they did raise rates is a good sign for our economy because it means that the powers that be figure we can afford the parallel increase in our country’s debt interest payments. It also has the added benefit of encouraging banks to keep their money with the BoC (Bank of Canada) for short periods of time rather then lending it out because they will get a better rate of return. This, in turn, will take some of that excess stimulus money out of circulation. And as we have learned, the less money that is floating around in circulation, the more valuable the remaining dollars become.

For those of you who have been following gold/silver prices you would have noticed that, once again, gold has hit historic highs. High gold prices are generally a bad sign for fiat currencies because it could mean people are afraid of soaring inflation. Inflation, as I have discussed previously, is the result of a currency which is devaluing.

All that stimulus we had released a flood of bank notes into the economy which could cause inflation if not matched by a proportionate increase in the amount of goods and services the country produces. The fact that we can raise rates is a sign that the governing bodies used that money well.

Unfortunately, however, things don’t look so good for our friends in the south. In fact, Ben Bernanke, the chairman of the Fed, has talked about lowering interest rates. They are already at 0.25%…putting them at “near zero” for an extended period of time does not seem like the best course of action. Of course, this all depends on what the US can do with all this excess cash. If they can significantly increase the value of their dollar by producing more goods and services, or shore up infrastructure that has the ability to do so (not just build roads to nowhere for political reasons) then they may be able to turn this around.

I don’t want to be a doomsayer, but at this point things aren’t looking good. If there is a turnaround coming it will take a lot of hard work on the part of the American people and some sound leadership on the part of the governing bodies.

Thanks for stopping by,

-Couchconomist

Have a Bank Account You Forgot About?

If more than 10 years have passed, the money in abandoned bank accounts is transferred over to the Bank of Canada for safe keeping.

You can use their handy search tool to figure out if you have any abandoned bank accounts.

I didn’t … =’(

http://ucbswww.bank-banque-canada.ca/scripts/search_english.cfm

Thanks for stopping by,

-Couchconomist

Put Your Money Through the Wash Again?

Did you know that the Bank of Canada offers a “mutilated-note redemption” service free of charge? I didn’t!

So the next time you rip, tear, burn, or melt your money by accident send it to the Bank of Canada for redemption!

This page tells you how to do it: http://www.bank-banque-canada.ca/en/banknotes/mutilated/index.html

Did You Know…

that banks are essentially human? Well according to Canadian law anyhow. This is from the Bank Act, PART II, Section 15 (1)

A bank has the capacity of a natural person and, subject to this Act, the rights, powers and privileges of a natural person.

Don’t believe me? Read it for yourself here: http://laws.justice.gc.ca/en/B-1.01/index.html

Bank of Canada’s “Asset” Restucturing

I found an interesting article by the national post. When reading this article keep in mind that in banking language “assets” are things that make the bank money, this means loans; whereas “liabilities” means money in the bank. This is the opposite of what most people would think.

The reason for this is, a bank is responsible for paying back the money people deposit into it, i.e. it is liable for it. When a bank loans money out, however, it makes money on the loan via interest. It is therefore considered an asset.

I will summarize the important parts of the article for you here, but I strongly suggest you read the entire thing.

Like a company, the bank has a balance sheet; assets on the one side and liabilities on the other. The majority of the bank’s liabilities are circulating notes held by the Canadian public. Pull $20 out of your wallet and you are holding not just a pretty piece of paper that buys stuff but a liability of our central bank.

[...] A liability is only as good as the asset that backs it up.

Happy New Year

Happy New Year everyone! I hope everyone had a happy holiday season (if indeed your holidays are around this time like ours here in Canada are). I have had a post in the rafters for a few weeks now just waiting for me to edit so now that the holidays are over I will try to get that up as soon as I can.
Thanks for stopping by,

-Couchconomist

How the Banks Trick You

I was browsing around the ScotiaBank website since I was considering opening a new account with them. Now that I know that inflation reduces the value of my money each year, the ScotiaBank’s “competitive interest rates” on their Money Master Savings Account caught my eye.

Sounds good, I thought, so I clicked on the link to the page which shows their interest rates on the various accounts they offer. With $5000 or more in your account they give you 0.250% interest.

At this point I’m already skeptical. 1/4% interest doesn’t sound that high to me…and if that’s competitive…*yikes*

“But wait!” they said. “Look how much money you would be making over five years!”

It’s true! $152.33 over 5 years just for having my money in the account. That’s pretty good right?? Wrong!

I decided to look at how much the dollar had depreciated in value over the last five years by heading over to the Bank of Canada website and using the inflation rate calculator they provide (link also in the sidebar for handy-dandy reference).

So lets assume that 5 years ago, in 2004, I had opened up a Money Master Savings Account with ScotiaBank. Let’s also assume I am not a starving student and had $5000 to spare which I could leave in there.

ScotiaBank is trying to tell me I would have made $152.33 on that $5000. The inflation calculator, however, tells me that all the stuff I could have bought with that $5000 dollars in 2004 would now cost me $5,446.77! That means I actually lost $446.77 over the 5 years. But wait, those competitive interest rates will save me right? Lets do the math…

152.33 – 446.77  = -294.44

Even with the competitive interest rates I will still have lost almost $300 worth of purchasing power over the 5 years. This isn’t even taking into account all the fees and service charges I would incur if I decide I need to use the money in the account.

Conclusion: If you are fortunate enough to have $5000 you don’t need to use, don’t save it in a savings account unless the interest they give you is greater than the average rate of inflation. Invest that money in something that will give you a better ROI (return on investment). If you know of a bank that does give real interest on your money I would love to hear about it, although I doubt they exist.

Thanks for stopping by,

-Couchconomist

Canadians Can Buy Gold Online

“Money is becoming more worthless every day, so you want to get into something that’s a hard asset.” (Toronto Star)

It’s true, with the USD in free fall and inflation running rampant the value of the money in your bank account is rapidly declining. Although the number stays the same, the amount of stuff it can actually buy goes down. The people who are aware of this have started buying up precious metals. This increased demand has contributed to the recent skyrocketing price of gold. As Canada’s bullion supplier ScotiaBank has stepped up to meet the increased demand with the opening of an online store.

Read the Toronto Star article online here: http://www.thestar.com/business/article/702997

Thanks for stopping by,

-Couchconomist

Documentary: The Dollar Bubble

Although I have not had the chance to verify all the information in this video, there were a few key pieces of information that were immediately and easily verifiable:

1) The Federal Reserve is giving money to banks at a rate of 0-0.25% (Federal Reserve)

2) The price of gold has risen dramatically (just check the Business section of your daily paper). You will notice that the price of gold has fallen from its recent peak which was attributed by one source to job loss rates not being as horrible as was expected last month. This fact allowed some investors to regain confidence in the USD which resulted in the drop in price.

These two facts alone, coupled with what I learned about how the value of money is created during the research I did for my essay posted below, was sufficient to make me start worrying about the long-term strength of the USD when coupled with the information presented in the video below.

Thanks for stopping by,

-Couchconomist

The Salaryman as an Unwitting Slave

The Japanese Salaryman: Slavery Through Ignorance

Slavery Through Ignorance: Part VI

I can hear that question you have been asking since reading the last sentence of part one growing from subtle nagging into a discontented rumble and I wish to address it before it turns into a furious roar and you decide to defenestrate your computer and sue me for the loss: how does that hard-working individual from your generalizations become a slave?

Let me just take a moment before I fully address that statement to clarify your definition of “hardworking Japanese”. Chances are when you said this you were probably thinking of a neatly groomed, middle-aged, male office worker (Louie & Low, 2003). Whether or not this is the image you had, I can only counter by saying that, just like in Canada, the Japanese workforce has individuals of all aptitudes and energy levels.

In order to understand how one becomes a slave, we must, once again, return to the basics: why does one work in the first place? The answer to this question will invariably be: a) because the worker loves what they do so much they would do it for free, b) because working gives them the funds to buy the objects they desire, or c) some combination of the two. If the worker is not working because of one of these reasons, then they must truly be a slave in the more conventional sense of the definition.

I think it would be safe to say that category “a” is extremely rare and that the majority of workers fall under category “b”, while the rest will wind up in “c”. The closer a worker is to falling purely into category “b”, the higher their potential to become slaves. To understand how this is possible, let us take a hard-working, male, Japanese office worker as an example. This worker falls purely under category “b”. He hates his job and the only reason he works it is because he needs to make enough money to support a wife who no longer loves him and children he never gets to see. In this man’s case his object of desire is the love of his family; however, he believes he needs money in order to obtain this object and agrees to work the ridiculously long hours his company asks of him. This starts a vicious cycle, which, in this instance, makes the love of his family unattainable due to the long hours required of him.

In the end, what has he obtained for his efforts? The answer is nothing. What better definition of a slave is there than a person who is forced to work a job they hate for nothing of intrinsic value? The fact that the slave believes they will obtain something they desire for the product of their labour is irrelevant if they never get it.

Another common argument is that the worker cannot be a slave because they possess the free will to change jobs whenever they choose. However, if the worker is blind to the reasons behind why their object of desire keeps slipping away, or simply does not possess the introspective ability to even know what the object of their desire is, they are blind to their chains and can therefore never break them.

I am not saying that a slave cannot free themselves; however, before that can happen, they must first be aware they are in bondage and be honest when they consider the true reason for their labour. Only through an understanding of the system within which we work, along with real introspection, can we profit from our labour.

In this way it is evident how race is irrelevant in determining work ethic. If a group of people from a certain country seem to be working harder than others, it is most likely because their system is better at convincing them of the value of their labour than yours. However, this is not to say that money is the only thing of value an employer has to offer. There are many cultures in which money is not the most valuable object. Yet, even though it is so in our culture, only in rare cases is money the true object of desire of a worker. As most of us know – but seem to have forgotten – it is only a tool to get the things we really want. If, at the end of the day, week, or month, you have labored and still not received your object of desire, or you realize your work will never enable you to obtain it, you will know that you are a slave; but, take solace in the fact that you have found the path to freedom. If you never come to this realization and are blind to, or unwilling to accept the truth of your bondage, it will own you and you will die in it. If you know the path to freedom: share it.

Thanks for stopping by,

-Couchconomist