What do you think of Mr. Drummonds comments?
I have heard many stories when they Quote Don Drummond from TD and he is ALWAYS negative. However this story is worthy of a healthy discussion I think.
What do you think? Will we see a small recovery that will then be mired by runaway inflation and thus increased interest rates?
Does anyone have other economists suggesting this?
I am going to do more research because abviously it is relevant in terms of the advice we give.
On another hand what would be “incredible” interest hikes? If Prime right now is 2.50% and likely going to 2.25% soon what is prime tripled? That would not put us in a catastrophe when we look at the historical rate for variable rates.
However wat if people buying homes this year and into next year through the recovery and are making there decisions based on affordability at the rates they get now, then see their rates go up?
What is the moral of this? PLEASE buyers and mortgage advisors make sure people you are making buying decisions based on affordability for interest rates higher then today to prepare them for the “potential” of higher interest rates in Canada or make sure people are taking fixed rates if they are in any way “on the edge” of the approval affordability.
March 28th, 2009 at 1:15 pm
I am an economist and I think that if our Governments are injecting huge dollars into our economy in order to increase the money supply inflation must follow. I agree with you about rate increases because the only tool the govt has in its pocket to stave off inflation is rates…now, as a keynesian…this interference by the govt in the free market is the reason we are in this boat today. Markets never get to decide..if they did, GM would already be dead.
March 28th, 2009 at 1:33 pm
I have a new position on this after talking with some friends yesterday. There is a really good chance that inflation will not be effected with the increase of money supply by the US. The US through this crisis has proven that the greenback IS the global standard and as such there are too many other countries (insert China) that will have to big a motivation to ensure the US dollar does not tank.
I honestly think that is why Bernanke is printing so much, because he knows that he is safe. China and others will continue to prop up the dollar and thus inflation will hold in check. If US inflation hold and therefore their interest rates stay low (again with the debt they have they are clearly motivated to keep rates low) then the same will happen in Canada.
Will rates go up? yes, likely but not catastrophically and not until well through 2010.