Both the Bank of Canada and the Liberal government have led Canadians down a disastrous path.
Things are getting rough out there.
And it’s going to get worse.
That’s the unavoidable reality Canada faces, as years of unhinged Liberal spending and Bank of Canada incompetence comes to their inevitable conclusion.
The Bank of Canada hiked interest rates by a full percentage point, from 1.5% to 2.5%.
The full 100 basis point hike was a surprise to some economists, who had largely expected a 75 basis point (.75%) hike.
It was the largest increase since 1998.
In his remarks on the 100 basis point increase, BoC governor Tiff Macklem pointed out something that many have been warning him about for quite some time: Canadians are starting to expect inflation to remain high indefinitely.
Here is a portion of his remarks discussing the reasons for the large interest rate hike:
“First, inflation is too high, and more people are getting more worried that high inflation is here to stay. We cannot let that happen. Restoring price stability—low, stable and predictable inflation—is paramount.
Second, the Canadian economy is overheated. There are shortages of workers and of many goods and services. Demand needs to slow so supply can catch up and price pressures ease.
And third, our goal is to get inflation back to its 2% target with a soft landing for the economy. To accomplish that, we are increasing our policy interest rate quickly to prevent high inflation from becoming entrenched. If it does, it will be more painful for the economy—and for Canadians—to get inflation back down.”
Unfortunately, much of the damage is already done.
Canadians expect inflation to remain high because the Bank of Canada demonstrated such rampant incompetence in the past.
— IceCap (@IceCapGlobal) July 13, 2022
We remember that they were dismissing the threat of inflation even as they rapidly expanded the money supply and enabled Trudeau’s reckless spending.
Also of note is that Macklem said “the path to this soft landing has narrowed”, demonstrating that the BoC fears the odds of a severe recession are growing.
Reality can be temporarily evaded, but not avoided forever
As I’ve long said, it’s possible for reality to be evaded for a while, but it cannot be avoided forever.
The Liberals imposed policies that reduce productivity, while increasing the size of government (thus taking more money from taxpayers and directing it towards government employees),
They imposed draconian restrictions, increased taxes, and then – with the help of the Bank of Canada – flooded the economy with printed money.
This has led to fewer goods and more money chasing those goods – thus higher prices.
The reckless spending of the Trudeau Liberals, combined with their carbon taxes and strangling of the energy sector could only lead to one outcome: Everything gets more expensive, Canadians become poorer, our nation is worse off.
Now, with the Bank of Canada belatedly realizing their horrendous errors, Canadians are going to be paying a huge price for the actions of the Liberal government.
Photo – YouTube