I had a conversation with someone a few days ago, and he was really glad interest rates were not going up. I didn’t say anything at the time, because I wanted to check my facts before responding, and possibly putting my foot in my mouth.
Many of us have money invested with financial institutions, including of course, the banks. Short term investments, such as GIC’s, savings accounts, etc. are paying very low interest rates, and I often wished they would go up a little to show a bit of a good return.
I have just realized why interest rates are not going up, and the answer is simple. The government has borrowed more money than ever before, and, like the rest of us, has to pay it back. Again, like the rest of us, they have to pay interest, and you can imagine how much that works out to be.
The national debt (made up of all three levels of government), is at 2.5 trillion dollars, which by the way is $3,800 per person more than the US, and only $2,900 better than Greece.
The government has two banks it deals with: the Bank of Canada, which sets policy, and the other bank is us, the taxpayers. They can withdraw, and do, from the second source as often as they wish.
The interest payable by the government on its loans, is $24 billion annually, which works out to $685 per person. Staggering numbers, I know, and yes, we get a lot for that debt, but there is also an election looming, so creative financing becomes a part of the government’s daily agenda.
Therefore, the question is simple. If the government raises interest rates, it has to pay more interest on its own debt. Meanwhile, the rest of us are missing out on potential earnings in our savings and GIC accounts. How is that not a form of taxation?
By the way, these numbers are from reliable sources, found in financial documents