Bank of Canada poised to raise interest rates

[CHIMO]

Mark Carney is likely to raise borrowing costs for the second straight time Tuesday, while continuing to sound a cautious tone as belt-tightening in Europe, efforts to restrain China’s growth, and plunging consumer confidence in the U.S. cast a pall over Canada’s prospects.

All 12 primary securities dealers and most economists say the central-bank governor will lift his main interest rate by another 25 basis points, to 0.75 per cent. The labour market has recouped most of the jobs lost during the recession and companies are seeing better demand, suggesting the private sector will be able to lead economic growth after federal and provincial stimulus largesse runs out later this year.

Investors are less confident about later decisions, and that may not change this week because Mr. Carney is likely to reiterate that his path to a more neutral, pre-crisis policy stance depends on the developing economic stories around the world.

An initial clue to his thinking will come Tuesday in the statement on his rate decision, which will include highlights from a comprehensive forecast that he’ll release Thursday. Those forecasts could point to a slower, more grinding recovery both here and abroad, economists say.
http://www.theglobeandmail.com/report-on-business/economy/bank-of-canada-poised-to-raise-interest-rates/article1644190/

[bemildred]

1. Whoa, a whopping .75 percent.

You can tell the financial news is rigged by the fact that no financial "reporters" are ridiculing this story.

[Statistical]

3. What advantage would there be to raising it faster.

I mean even if the goal is to get it to say 2% why not just raise it 0.25% a qtr?
As the economy improves starting raising it by 0.5% to 1.0% increments.

[bemildred]

4. I said nothing about the rate of increase, I was pointing out the still-paltry return on savings. nt

[FBaggins]

5. Savings isn't intended to "return" anything.

At best, the interest paid on savings should offset inflation.

In a potentially deflationary environment, what should you expect?

[bemildred]

6. Intended by whom?

I invest my savings in the hope of a return, I thought I had a lot of company in that, investing in the hope of making a little income.

What do you intend your savings to do? Or do you not have any so it doesn't come up? Or do you oppose saving money? Or what do you "intend" to say?

[FBaggins]

7. By the structure of the system.

I invest my savings in the hope of a return

There's your mistake right there. Savings and investments really aren't the same thing. Saving involves attempting to preserve assets from loss (including loss in purchasing power due to inflation). Investing involves accepting some risk of loss (to a greater or lesser degree) in exchange for the potential for higher returns.

You shouldn't invest in a savings account... any more than you should save in a mutual fund.

[bemildred]

8. So your theory is that an interest bearing account in not an investment?

But I gather you think lottery tickets are an "investment"?

[Art_from_Ark]

9. Anything you put your money in,

with the expectation of it being worth more down the road, qualifies as an investment in my book.

[bemildred]

10. I'm OK with that.

As long as it's clear that it is what YOU expect that makes it an investment, or not. You invest in things that you expect to be worth something to you later on. That could include lottery tickets.

[Art_from_Ark]

11. I guess that, in the strictest technical sense, lottery tickets

might qualify as an "investment", but they are one of the lousiest "investments" around. I guess if you wanted to take that to extremes, plunking a sawbuck down at the roulette wheel could also qualify as an "investment", but, once again, a very lousy one.

Maybe I should revise my definition to include "reasonable expectations for a return" and "relatively long-term outlook". With those qualifiers, lottery tickets and casino gambling would be regulated to the realm of "speculation".

[jtuck004]

21. Driving by the mini-storage, the latest funny saying on their sign...

Lottery Tickets. A Tax for People Who Are Bad At Math.

(I wonder how many people pass that on the way to play the Washington Lottery?)

But at least now the proceeds are going to the colleges - which are now turning away students because they are too full. Too much irony.

[FBaggins]

14. Then you need to get a new book.

n/t

[Art_from_Ark]

16. Pretty funny

I did qualify my state in a later post.
But really, there are savings, as in stuffing bills in a mattress, and there are savings as in expecting a return on investment. You are not investing if you stuff money into a mattress. You are investing if you put your money in a financial instrument with the expectation of making more money than you started with, over the long term.

[FBaggins]

17. Close

You intend to "invest" if you expect to make money over the long term (that is, greater than inflation over the same period), but your intentions don't impact reality.

That is... if you select a vehicle that is designed for savings, it doesn't matter that you intended to "invest" it... because you didn't.

If you intend to make money over the long haul, then you must accept some risk of loss-of-principal - and a savings account doesn't do that. Thus my initial reply to bemildred. They pay essentially nothing right now because deflation is as much a current risk as inflation. A zero-principal-risk account in this environment doesn't pay anything worth talking about.

[Art_from_Ark]

18. If you put money in a financial instrument, you are investing that money

The degree of risk doesn't matter. What matters is an expected return over the long term. Savings accounts are risk-free investments. But the return on such investments is almost always quite low.

[FBaggins]

19. Repeating a false statement doesn't make it any less false. Sorry.

If you put money in a financial instrument, you are investing that money

Cash is a financial instrument... and is in no way an "investment". In an inflationary environment, it doesn't even do a good job as savings.

The degree of risk doesn't matter.

Sorry. That's wrong. Once again, savings and invesments are not the same thing. Feel free to google "savings vs. investments" for scores of supporting definitions.

[Art_from_Ark]

20. I did not say "if you put your cash in cash"

Sure, technically, cash is a "financial instrument", but I am basing my definition of "financial instrument as follows:

What Does Financial Instrument Mean?
A real or virtual document representing a legal agreement involving some sort of monetary value. In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity, for example.

http://www.investopedia.com/terms/f/financialinstrument.asp

If you want to get really technical, you can probably say that "legal tender notes" are "real documents representing a legal agreement involving some sort of monetary value", but in the sense above, "financial instrument" is implied to involve some sort of investment.

As for savings and investment, they can be the same. Interest-bearing savings accounts are investments-- the least risky, if they are FDIC insured. Cash stuffed into a mattress is savings but not an investment.

[FBaggins]

22. No... you said "financial instrument"

I was just pointing out that this includes cash (which would disprove your statement regardless of the rest of the conversation).

If you want to get really technical, you can probably say that "legal tender notes" are "real documents representing a legal agreement involving some sort of monetary value

They are (and without getting "really technical"). Other definitions make this clear.

As for savings and investment, they can be the same.

Sorry. No. The words don't mean the same thing. A few quick hits:

http://www.qwoter.com/college/Investing-101/saving-versus-investing.html

http://www.bank.barclays.co.uk/Helpsupport/Aguidetosavingmoney/P1242557966419

"In the simplest sense, the difference between savings and investments is that when you save money, you hope to keep all of it for a particular purpose. When you invest money, you hope to use that money to make even more money than what you put in."

http://www.moneycrush.com/savings-vs-investments-do-you-know-the-difference/

http://uncommonwealthfinancialplanning.com/index.php?module=pagemaster&PAGE_user_op=view_page&PAGE_id=21

https://share.ehs.uen.org/node/1687

[FBaggins]

13. Nope

And it isn't a "theory" - it's what those words mean.

[Statistical]

2. Delete - wrong spot.

[Name removed]

12. Deleted message

Message removed by moderator. Click here to review the message board rules.

[FBaggins]

15. Dead wrong.

We do need banks... we just need them to do their job appropriately.

Banks serve a couple critical functions. Apart from money creation (allowing the government to balance the money supply with economic growth - at least in theory), banks exist to price for risk. They are supposed to be experts at analyzing the likelihood of a loan being repaid, and pricing the loan (the interest rate) to match. Obviously far too many of them fell down on that job, but things would be dramatically worse in the direct consumer-to-consumer lending scheme you imagine.