Thursday, March 22, 2007

Hot Economy + More Money = Trouble?

I was reading Larry MacDonald's blog post yesterday and I just had to comment on it. In summary Larry was talking about what happens when you inject $20 billion dollars into a economy that is already showing signs of overheating. You are almost guaranteed to force the Bank of Canada to raise interest rates to try to keep inflation in check. Which would result in higher mortgage payments, car payments and line of credit payments. So we only get tax breaks to pay more interest in the end.

Larry makes a very good point here, we don't need more economic stimulation at this point. The oil sands are sucking up labour like a vacuum, while the utility industry is starting to enter another construction phase and then our finance minister goes and gives the manufacturing sector a shot of adrenaline. This is not looking very good.

So what can the average person do to protect him/herself? I suggest paying down any non-locked in debt now such as a line of credit and then go buy some bank stock. After all they are the ones who will be collecting the higher interest rates. Just a few ideas, as per usual do your own research.


Anonymous said...

One problem, when interest rates rise, Banks don't do well. They prosper when interest rates are low.

And do I sense a bit of jealousy that Alberta is smashing the world with it's booming economy? It makes up for the 'bad' times we had. Let us have our boom. We deserve it.

Canadian Dream said...


Not jealousy here. I'm just stating facts. Alberta is using a lot of labour right now in Canada for a lot of projects. With many other different projects on the books across Canada there is going to be a tight labour market which might result in too high of labour costs which could shut down some oilsands expansions. It's just the effect of higher interest rates over a period of time.

Enjoy the boom, but remember it can't last forever.