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Rising Interest rates

8.2K views 39 replies 18 participants last post by  kenmb  
#1 ·
Will one see softening in land and equipment prices due to recent 3/4 point increase in B of C rate hike. I remember the not so good days of 8% plus rates and barely being able to make my payments due to dry years, poor prices and high inputs. It appears those days are on their way back.
 
#4 ·
If they keep raising rates the economy crashes. If they don't inflation keeps on rolling upward. Rising inflation devalues government debt at the expense of peoples savings. Knowing the mentality of governments these days I think they will ultimately choose inflation over the economy crashing. The problem is they they might just manage to achieve both.
 
#11 ·
I’m not that old! If those Credit Card rates hit everyone we would be fubared. Having little or no debt would be a nice position to be in. With 15-20 bu yields the last few years one can’t get ahead. Treading water at best here,
 
#10 ·
It's all for show. The most important thing to those in power is deleveraging the government balance sheets. The easiest way to do that is maintain rates well below inflation rates i.e. keep real rates very negative. They are raising rates to make it look like they're doing something but if real rates were positive, the government blows up overnight.
To them it doesn't matter if a few of us peasants lose our savings, or a few go bust because they levered up on depreciating consumer goods or assets and can't keep up with payments.
At the end of the day, a desperate population is in the best position to either accept a dictatorship or be taken to war, or both, and there's plenty of western leaders that would quite like both of those outcomes.
 
#15 ·
I am taking the other side of that bet. We are in the "up" of the "crack up boom" that gives us a deflationary slowing of the monetary system components. VM is in the toilet now and has been languishing there for some time now. Our present inflationary issues have one major and a small number of secondary drivers. There is no broader drive that is backed by all of the metrics required for continuation. Inflation is sitting on a one legged stool now and as a result will topple. We have done this many times before, just not in any of our lifetimes and just because someone hasn't seen it doesn't mean it is impossible.
 
#19 ·
Yes you borrow everything you can get your hands on and use free money because real inflation is outpacing interest rates 2:1, holding land and (good) iron is safer than holding cash, and when the economy eventually crashes and the northern peso goes 20:1 to the dollar you sell your grain to the Americans and pay off FCC* with like 3 loads of wheat. Dunno what happens after that but hey atleast your land base is paid off.

Literally can't go **** up.

(*Does not work if you were stupid enough to go variable rate)
 
#25 ·
The 80's. Oh yes!! Trudeau senior is finally ousted after creating enormous debt. Grant Devine is in power in Sask and the ag sector is in a world of hurt. Equipment manufacturers are struggling to stay afloat. Some go bankrupt. Interest rates are 18+%. Crops yield back then were like 35-40 wheat was considered a bumper crop for wheat. 30 bushel canola. 70 barley. You could buy a brand new 860 MF combine for $55,000 which was a lot back then. Even towns like ours had a dealership (MF). The Canadian Wheat Board was doing it's part to destroy cash flow to farmers in western Canada with low initial payments and our gov't giving our grain away to Bangladesh who was in starvation mode at the time. Yes western Canada! Why not eastern Canada you young guys might say? Although it was called the Canadian Wheat Board it was only imposed on western Canada and not the east. They had their own system. The CWB held a large portion of your money from wheat and even barley sales for 18 months so you never knew how bad you were going to get hosed. Can you imagine that system in this day and age? Land payments with 18% interest were brutal with commodities you had control over almost worthless. I sold 95 cent/bu barley and $5.80/ bushel canola back in the late 80'searly 90's. It did get lower than that by a fair bit but can't remember how bad. I just knew it was a time when you didn't just farm. You had to have another job just to pay bills. My crystal ball see's some similarities to where this could head us lol.
 
#26 ·
Just read an interesting opinion piece about the rising interest rates and inflation. Made some excellent points that I hadn't thought about before. Inflation can be caused by several different things including too much money (the old printing money argument) but also supply problems. They argued that currently inflation is not being caused by too much free money (and indeed inflation was at record lows for nearly 10 years despite quantitative easing) but nearly exclusively caused by a combination of drastic supply issues and straight-up profiteering. They point to the numerous supply issues that we've all complained about, such as the Liberty shortage this year, which was caused by BASF's inability to get some key ingredients which also happen to be necessary in shampoos and soaps. At the same time it's indisputable that despite the supply chain issues, corporate profits are rising at record levels. They are charging absolutely the maximum the market can bear and inflation is the result, to say nothing of all the money the feds printed earlier that is simply sitting in their bank accounts. The problem with raising interest rates is it does nothing to solve the supply issues or restrict profiteering, while at the same time making money more expensive for consumers (I won't comment on the consumer debt issue). And while prices due to limited supply continue to climb, while governments embark on austerity.

If governments are serious about tackling inflation they need to try to fix the supply issues at nearly any cost. Easier said than done, obviously.

While I feel that zero interest rates were always unsustainable, and robbed the retiring generation of their life savings, unless inflation can be tamed by rising interest rates, things are going to be very difficult. Speaking of profiteering, this week's quote on UAN is pretty depressing.
 
#27 ·
Governments are not really that big on fixing inflation. It is an increase in income for them without them visibly raising taxes. Cost for .gov services increase but they can state that as a reason for decreasing .gov services while enjoying the extra income. This leaves more feed in the trough for their donors and therefore themselves.
 
#28 ·
If you have been watching the indicators and metrics over the last 15 years the .gov's have been fighting deflation and trying to stir some life into the VM through their policies. Part of the reason I am on the other side of the fence on this debate (and have been for over a decade) is that the .govs are generally incapable of doing anything right and I believe this is no exception.
 
#29 ·
Governments definitely benefit from some inflation. I learned that back in my Econ 100 class. It allows them to buy more with cheaper money before the rest of the economy sees the reduction in the money's value from the increase in the money supply.

But I have to agree with the argument that our current inflationary issues are not caused by the money supply. If it was, the volume of goods produced would easily keep pace with the demand since there's plenty of cash circulating, even as prices may rise. But we're not seeing this. Take farm inputs. The market is bearing fantastically high prices for now, but supply is not rising to take advantage. In fact shortages continue for another year it looks like. That's the worst of all worlds.

Like I said it will be interesting to see how this plays out. Although having to play in the mess doesn't make it very fun.
 
#30 ·
Governments definitely benefit from some inflation. I learned that back in my Econ 100 class. It allows them to buy more with cheaper money before the rest of the economy sees the reduction in the money's value from the increase in the money supply.

But I have to agree with the argument that our current inflationary issues are not caused by the money supply. Like I said it will be interesting to see how this plays out. Although having to play in the mess doesn't make it very fun.
I absolutely agree that this is not a full monetary supply side issue. If it was then this would have been happening for a long time before the pandemic began. If it were a complete monetary supply side issue all the metrics would be leaning one direction and they aren't. I believe that it does play a role but as a supporting actor rather than the leading character in the play.
 
#32 ·
What has happened to the $$ value of land and housing over the last 14 years. That will tell you what inflation is and what the cause is. Everything else is just BS to make the peasants think it was all unforeseeable and no one could have done anything different.

Supply chain issues is all BS also. In 2012 ish there was no shortage of shipping containers. Every big box store had crap piled up in the aisles 10 feet high. Everyone was buying everything and it was being shipped in with no issues at all. Remember when electrical wire was expensive because everyone everywhere was building $hit around the clock. No supply chain issues. But now, now we have "inflation" and "supply chain issues". Even though all major projects have been completed years ago and the only housing boom these days is those swapping houses, not much new construction.

But, we now have shipping container shortages. And have forgotten how to unload ships. Sure, there is supply chain issues but it has nothing to do with a demand you are being told must miraculously far exceed what was the norm in 2010 through 2015. The supply chain issues right now are all fabricated.

There was no supply side issues when every major industrial site as well as many public Works projects were simultaneously under way 10 years ago. Now suddenly there is. Must be all that pent up demand for campers and bbqs that was tipping point. Apparently big industry spending $Billions in just one province alone doesnt burden the system, but some people getting out after lockdowns is going to blow everything up.

People do have short memories. And are easily distracted from reality.
 
#33 ·
You are correct there were no supply issues before. And back then inflation was not running away either, although everyone thought it should be.

There are very real supply issues now, for lots of reasons, all of which are man-made and with the benefit of hind-sight we can see should have been avoided. Plenty of blame to spread around. I won't argue with you on that. But it clearly is the supply issues today that has led to massive inflation and profiteering. Choking off the money supply will not fix that. It will make it worse.
 
#36 ·
You are correct there were no supply issues before. And back then inflation was not running away either, although everyone thought it should be.

There are very real supply issues now, for lots of reasons, all of which are man-made and with the benefit of hind-sight we can see should have been avoided. Plenty of blame to spread around. I won't argue with you on that. But it clearly is the supply issues today that has led to massive inflation and profiteering. Choking off the money supply will not fix that. It will make it worse.
Yes we have a supply shortage , but more and more I think it is orchestrated.
look at canola order now or we don’t have that variety .
manufactures are building on demand ,not full steam this attitude is serving them really well .
If I have million to spend , I would keep it on the shelf and see what happens, yes it will inflate but a crash can cost 30% equity or more
 
#35 ·
I know PMJT is a pawn and cannot think for himself unless he’s reading off a teleprompter but the latest announcement from the Federal Government will blow your mind.

Ottawa announces $250 million in home heating help for the Atlantic Provinces….Hmmm why is the cost of heating too high?

Relief $ will just push up the cost of living even more. Why no relief for the west? They will continue to buy votes with our tax $. The Maritimes vote Liberal and most work for some form of government. Sounds like a recipe for a healthy economy.

Can we get some adults into politics sooner than later?
 
#39 ·
I know PMJT is a pawn and cannot think for himself unless he’s reading off a teleprompter but the latest announcement from the Federal Government will blow your mind.

Ottawa announces $250 million in home heating help for the Atlantic Provinces….Hmmm why is the cost of heating too high?

Relief $ will just push up the cost of living even more. Why no relief for the west? They will continue to buy votes with our tax $. The Maritimes vote Liberal and most work for some form of government. Sounds like a recipe for a healthy economy.

Can we get some adults into politics sooner than later?
Speaking of vote buying. The Feds approve that offshore oil project. Bay of what ever. Only reason they did was to not lose all the Liberal seats in the Maratimes
In the same breath they denied Suncor expansion for there Base camp mine
Only in Canada
 
#38 ·
I won't say there are not supply issues, I will simply point out that one should start listing all the major projects undertaken in one's own area from 2010 to 2020 and compare to the last 3 years and ask if any of those projects were delayed in any shape or form due to a "supply chain" problem. Now compare to the amount of projects going on now and someone should put it in real terms why, all of a sudden, John and Jane Doe are blowing up the world because they are eating and using energy - just like always, and at the same rate as ever before.

Yes, there is a supply chain issue. Now understand why there is one. Any wasn't one for a decade earlier.

And I would agree that, given it is a rigged system, we have no guarantees that raising interest rates will stop it. Because to say that with certainty means one knows what the riggers are doing.

I need to spend 95% of my post just unpacking the BS fed to the peasants daily by their tv. Inflation is devaluation of your currency by injecting more currency into the system. That is what it is. No matter what the tv says, intentional supply chain restrictions is not the fundamental cause of inflation. If the currency units in the system remained steady for the last 15 years and the supply chain got choked off then that would be deflationary because there is only so much currency in circulation and if some things get more costly then other things don't get purchased.

Anything else passed off as the cause of "inflation" in BS.

But the people are too dumbed down to even think about it. Even today people talk about how bad inflation is. Yet apparently paying an extra $200,000 for the exact same house as listed in 2007 is not an issue for them. Paying $0.70/l more for gas than 10 years ago is suddenly the talk everywhere and is inflation at work. How is it people are so ignorant of the workings of their world?
 
#40 ·
Here is a different angle on interest rates. Let's note that the people running the biggest corporations in the world are also the stupidest people on the planet. That's a given. Or else we understand no one is that stupid therefore they know what they are doing. Every major corporation moved key business components to China, because to secure the livelihood of your company the smartest thing to do is put your business future directly in the hands of communist government and its decisions. Remember that whole war on communism where all these western ideology driven people decided a few hundred million commies had to be killed? Yes, the natural evolution of that was to put your capitalist enterprise directly in the hands of commies.

I digress somewhat but there is a point here, because I am talking of the apparent stupidity of the world's best business managers, (and the same applies to the world wide central banking cartel). These same people, after setting up total dependence on commies, then have gone on to saddle themselves with massive debt. Because debt is cheap, so keep adding more. What could go wrong. Let's even buy back shares - with debt. Because nothing can go wrong. Debt is expanding because it is cheap to borrow.

While the peasants are believing that "inflation" is caused by not being able to get their new boat in 4 months of ordering, they are also likely to beleive these massive corporations are also totally unprepared for not being able to kick the can of debt servicing down the road like for the last 15 years. Who could ever expect that cheap debt and share buy backs could never go one indefinitely?

But just suppose that all the big corporations are suddenly blind sided by the flying pig event of interest rates going up. What happens to all that corporate debt? Let me guess, it too will be totally unexpected and the peasants will beleive what ever the tv says. Probably something to do with lack of revenue because of supply chain issues, probably originating with putting everything in China.

I will copy a couple other posters comments just because I am getting too lazy to further point out how the world really works.

In my simple way of thinking, one impression I've had in recent years is that the stock market is so manipulated that it won't crash unless those in control want it to crash. Naturally this is based on my not understanding the inner workings of the market.

If 2 1/2 years of covid have taught us anything it is that rule of law no longer exists in the West. Those in authority ignore basic rules and make up whatever rules they like. Is it possible for them to suspend "supply and demand" permanently by simply rigging everything? I'm pretty sure reality has the final say.

Are rising rates all that it will take to inject reality, as in a 50% value drop?

Could the Fed, by cutting rates at the first sign of crisis, manipulate the market so there isn't a big crash?


And there is this one, because when corporations "suddenly" realize that cheap interest rates may come to an end and debt now becomes a liability, what happens? I actually don't know, because as said before, it's a rigged system. I know what would happen if we had a free market capitalist system.

Let me see if I can get this right. Corporations do not pay off debt because they want to use financial leverage to increase earnings. So, debt is not retired.

In a falling-interest-rate environment that means say XXX amount of debt is appropriate. But, in a rising-interest-rate environment that means say X amount of debt is appropriate. So, the company needs to retire XX to get to where it needs to be when the environments switch.

If the company is retiring XX, then it is not spending on something else. That something else is probably taken from a long list of cost-cutting measures such as capital expenditures, maintenance (lol), salary freezes (ouch),...

Honestly, I would not be surprised at a 50% drop from here to the bottom.


The basic question in all this is:
Are the central bankers, corporations and governments all that collectively stupid for all at once to get into a situation where the outcome is pretty easy to see if we actually do live in a free market, capitalist, democratic system. Or is it more accurate to say it is the peasants who are the stupid ones to beleive all this can occur simultaneously in a world that operates as they are told and so they need not question anything.