Canada’s Financial “Tug of War”
March 29, 2023
The Bank of Canada and Canadian Parliament have conflicting strategies to manage our economy, writes Peter Watson.
There is a financial tug-of-war that occurs when managing the Canadian economy.
Covid invaded North America and economic activity in many areas came to a screeching halt or at least slowed down. We were at a financial breaking point.
Our federal government was quick to react by pouring billions of dollars of aid into our economy to rescue financially strapped citizens and businesses. Better to put a business on life support than have it disappear and lose all the jobs that it provides.
My opinion was this was an excellent strategy that needed to be done.
Our next problem was inflation. Everything was costing more from housing to food and general living expenses.
Controlling inflation is the job of the Bank of Canada. The BOC significantly raised interest rates to slow down the economy to reduce annual inflation to the target rate of two per cent.
Another excellent strategy.
Then we experienced a financial “tug-of-war.” The Bank of Canada was continuing to put on the financial breaks with regular interest rate hikes and the federal government was attempting to provide greater relief from those suffering from higher interest rates.
That is how the Canadian system works. Two separate institutions both attempting to use their mandate to guide the Canadian economy.
That has tremendous significance to all Canadians. Our businesses, jobs and way of life all require a stable economic foundation.
Some Canadians might be inflicted with more financial pain because they are living so close to the edge of not being able to pay their bills. We have higher household debt and many other countries, and this magnifies the financial challenges of the day.
These are challenging times for the Bank of Canada, Canadian Parliament, and the Canadian people.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com