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