Haven't low interest rates in effect coiled inflation into a spring? Years of price increases, especially in housing, were offset by falling intetest rates as consumers are far more likely to take on debt than in the past. When rates rise, that stored up inflation will uncoil. Central Bank measures of inflation are flawed in this respect. They should measure inflation under some hypothetical neutral interest rate.
I also dispute the notion that government debt is falling relative to GDP. During most years, it falls slightly. During extraordinary years, such as 2008-2010 and 2020-2021, it explodes.
An excellent interview. If high oil prices are a major factor in the current bout of inflation, I would have thought that's good news for Alberta.
I'm a bit older than Matt and Trevor, so I remember mortgage rates spiking up to 20%. When I bought a house back in the early 1990s with a five-year fixed-rate mortgage, the rate was 11.25%.
One thing that puzzles me a bit: Matt comments that he knows someone who bought a house recently with a mortgage rate of 2%, and they'd be sunk if the rate rose to 5 or 6%. Didn't this person have to pass the mortgage stress test, showing that they'd be okay with a rate of 5.25%?
Any discussion of inflation that doesn't start off with central banks' expansion of the money supply and profligate government spending will mislead the reader. This piece will leave you _less_ knowledgeable than if you knew nothing before. It's this kind of muddled thinking that has led to repeated economic crises throughout the last century. Total miscue by The Line and Matt Gurney.
Those 10%+ inflation years, were also the years I got out of student-starvation and got work. I barely noticed the inflation, because my job was handing out 10% raises every quarter, because anybody with a technical degree in Alberta was gold. It was great times for most...in Alberta.
(Alberta is the inflation/economic "Upside-Down". High energy prices cause recessions, almost without exception. But in Alberta, they are Good Times. Alberta was hardly touched by 2008-2010 recession, because oil was at $100/bbl. But 1982 oil price collapses, which ended a bad recession making Reagan unpopular, brought about the good times he ran on in 1984, was a disaster for Alberta.)
Now, as a retired person, I'm most vulnerable to inflation, and couldn't care less. I retired with a very healthy nest-egg, courtesy of MASSIVE, MASSIVE inflation in housing prices, over three decades, that inflated the value of the house I purchased in 1985, when Alberta's Good Times were years-gone, by 600% over 28 years. This is long-existing inflation that everybody is painfully aware of, if they're young, and greatly enriched by, if they're old. The current ( and coming) inflation in some services and consumer goods, is nothing compared to housing-cost inflation of long standing.
(I loved how a headline this morning warned how we were "at risk" of a major housing price "correction". If you're 25, that's not a "risk", but your only hope to own a home.)
So we Boomers can please STFU about inflation biting into our fixed incomes, and for the young, inflation will be minor compared to their own wage increases that are causing it for the middle-aged.
Well, Roy, I DO remember inflation in the 1980s and it absolutely wasn't pretty. Pretty damned awful, in fact.
A story: we were at home one evening, kids just to bed, when the front doorbell rang. It was the couple who lived across the street and they looked just awful. Their mortgage had just come up for renewal and they had renewed that day - at 15%, which was the then going rate. One month later they had sold the house that they couldn't afford to keep and were gone. At that point our mortgage was at 10% and due for renewal one year hence; when we did renew the rate was down to 11% and I felt so, so lucky.
The point is, inflation is real and absolutely affects people badly. You note that you bought your house in 1985 when times were bad here in Alberta. That was good for you but, what about the people that sold that house - what happened to them? Were they like the young couple across the road from me who got wiped out?
So, please don't think that we retired folks should STFU about inflation because it is truly real and truly a bad thing. Price stability is absolutely to be wished for.
As for me? Well, I do believe that the inflation will be worse - longer and higher - than the experts are predicting simply because all that money that has been printed has not been stashed in the banks (except temporarily); it has been spent or will be spent, chasing goods and services. The massive money printing MIGHT not be inflationary when a comparable amount of money is actually destroyed (see 2008, etc.) but, in this case, I don't see that that happened so I do think inflation is here for a while.
If you think that somebody who was 24 when the Alberta economy collapsed had some nice ride through the 80s, I was out of work and living in basement suites for three years. My brother nearly lost his house in '85, with a new kid on the way; the family gathered 'round to help and they pulled through.
But by then, of course, inflation was down. Almost nobody was losing homes through the 1973-1982 period of high inflation, indeed Calgary couldn't grow fast enough (percentage growth in Calgary serviced lots was never higher than the high-inflation times). Yes, there was ONE year, 1982, of both high inflation and Calgarians-losing-jobs, but except for that overlap, the high-inflation years were good years for Calgarians.
Apologies, though, my sentence should have read "...we retired Boomers should STFU about inflation hurting our fixed incomes now..." Boomers have the same right to comment on inflation, in general, as anybody, but those complaining about their fixed income are statistically, if not individually, ignoring how kind inflation (of our home prices) been to our generation.
Ottawa spends billions of dollars it doesn’t have but won’t tax us directly to pay for it. The Bank of Canada funds the deficit with money created out of thin air.
Printing money does not mean we’re richer however. There aren’t more goods and services.
All it means is that there is more money in circulation chasing the same amount of goods, therefore bidding up their prices. The dollar is being debased and it takes more to buy everything.
So the government spends and we’re being taxed indirectly with inflation.
This is a great article for the "average" person who doesn't really understand how stuff works ... like me.
Also, I really appreciate the transparency you achieved by showing your thought process and what you'd previously set up with your interviewee.
Great Q&A.
Haven't low interest rates in effect coiled inflation into a spring? Years of price increases, especially in housing, were offset by falling intetest rates as consumers are far more likely to take on debt than in the past. When rates rise, that stored up inflation will uncoil. Central Bank measures of inflation are flawed in this respect. They should measure inflation under some hypothetical neutral interest rate.
I also dispute the notion that government debt is falling relative to GDP. During most years, it falls slightly. During extraordinary years, such as 2008-2010 and 2020-2021, it explodes.
An excellent interview. If high oil prices are a major factor in the current bout of inflation, I would have thought that's good news for Alberta.
I'm a bit older than Matt and Trevor, so I remember mortgage rates spiking up to 20%. When I bought a house back in the early 1990s with a five-year fixed-rate mortgage, the rate was 11.25%.
One thing that puzzles me a bit: Matt comments that he knows someone who bought a house recently with a mortgage rate of 2%, and they'd be sunk if the rate rose to 5 or 6%. Didn't this person have to pass the mortgage stress test, showing that they'd be okay with a rate of 5.25%?
Any discussion of inflation that doesn't start off with central banks' expansion of the money supply and profligate government spending will mislead the reader. This piece will leave you _less_ knowledgeable than if you knew nothing before. It's this kind of muddled thinking that has led to repeated economic crises throughout the last century. Total miscue by The Line and Matt Gurney.
Those 10%+ inflation years, were also the years I got out of student-starvation and got work. I barely noticed the inflation, because my job was handing out 10% raises every quarter, because anybody with a technical degree in Alberta was gold. It was great times for most...in Alberta.
(Alberta is the inflation/economic "Upside-Down". High energy prices cause recessions, almost without exception. But in Alberta, they are Good Times. Alberta was hardly touched by 2008-2010 recession, because oil was at $100/bbl. But 1982 oil price collapses, which ended a bad recession making Reagan unpopular, brought about the good times he ran on in 1984, was a disaster for Alberta.)
Now, as a retired person, I'm most vulnerable to inflation, and couldn't care less. I retired with a very healthy nest-egg, courtesy of MASSIVE, MASSIVE inflation in housing prices, over three decades, that inflated the value of the house I purchased in 1985, when Alberta's Good Times were years-gone, by 600% over 28 years. This is long-existing inflation that everybody is painfully aware of, if they're young, and greatly enriched by, if they're old. The current ( and coming) inflation in some services and consumer goods, is nothing compared to housing-cost inflation of long standing.
(I loved how a headline this morning warned how we were "at risk" of a major housing price "correction". If you're 25, that's not a "risk", but your only hope to own a home.)
So we Boomers can please STFU about inflation biting into our fixed incomes, and for the young, inflation will be minor compared to their own wage increases that are causing it for the middle-aged.
Well, Roy, I DO remember inflation in the 1980s and it absolutely wasn't pretty. Pretty damned awful, in fact.
A story: we were at home one evening, kids just to bed, when the front doorbell rang. It was the couple who lived across the street and they looked just awful. Their mortgage had just come up for renewal and they had renewed that day - at 15%, which was the then going rate. One month later they had sold the house that they couldn't afford to keep and were gone. At that point our mortgage was at 10% and due for renewal one year hence; when we did renew the rate was down to 11% and I felt so, so lucky.
The point is, inflation is real and absolutely affects people badly. You note that you bought your house in 1985 when times were bad here in Alberta. That was good for you but, what about the people that sold that house - what happened to them? Were they like the young couple across the road from me who got wiped out?
So, please don't think that we retired folks should STFU about inflation because it is truly real and truly a bad thing. Price stability is absolutely to be wished for.
As for me? Well, I do believe that the inflation will be worse - longer and higher - than the experts are predicting simply because all that money that has been printed has not been stashed in the banks (except temporarily); it has been spent or will be spent, chasing goods and services. The massive money printing MIGHT not be inflationary when a comparable amount of money is actually destroyed (see 2008, etc.) but, in this case, I don't see that that happened so I do think inflation is here for a while.
If you think that somebody who was 24 when the Alberta economy collapsed had some nice ride through the 80s, I was out of work and living in basement suites for three years. My brother nearly lost his house in '85, with a new kid on the way; the family gathered 'round to help and they pulled through.
But by then, of course, inflation was down. Almost nobody was losing homes through the 1973-1982 period of high inflation, indeed Calgary couldn't grow fast enough (percentage growth in Calgary serviced lots was never higher than the high-inflation times). Yes, there was ONE year, 1982, of both high inflation and Calgarians-losing-jobs, but except for that overlap, the high-inflation years were good years for Calgarians.
Apologies, though, my sentence should have read "...we retired Boomers should STFU about inflation hurting our fixed incomes now..." Boomers have the same right to comment on inflation, in general, as anybody, but those complaining about their fixed income are statistically, if not individually, ignoring how kind inflation (of our home prices) been to our generation.
Inflation in a nutshell:
Ottawa spends billions of dollars it doesn’t have but won’t tax us directly to pay for it. The Bank of Canada funds the deficit with money created out of thin air.
Printing money does not mean we’re richer however. There aren’t more goods and services.
All it means is that there is more money in circulation chasing the same amount of goods, therefore bidding up their prices. The dollar is being debased and it takes more to buy everything.
So the government spends and we’re being taxed indirectly with inflation.
Really interesting discussion. Thank you 😊