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IMPACT OF HUGE BANK OF CANADA INTEREST RATE JOLTS ON CANADIAN ECONOMY: EXPLORING EFFECTS ON CONSUMERS AND BUSINESSES

bank of canada interest rate
bank of canada interest rate

Bank of Canada interest rate: Introduction

Step right in and welcome to Brandon’s Blog, where this week I shall delve deep into the intricate nuances of the Bank of Canada interest rate policy, uncovering its profound implications for the Canadian populace and enterprises. Witnessing the recent implementation of an interest rate hike by the Bank of Canada, it becomes paramount to comprehend the reasoning behind this pivotal decision and discern its multifaceted repercussions across diverse sectors of the Canadian economy.

Comprehending the influence of rates of interest on the Canadian economy is important for individuals and companies alike. The Bank of Canada plays a pivotal role in setting interest rates in Canada. In this way, the Bank of Canada interest rate policy has a straight effect on borrowing rates as well as, consequently, spending and also investment choices. For consumers, adjustments in the rate of interest can impact mortgages, credit card rates of interest, as well as the cost of all other loan products.

Businesses, on the other hand, factor in the rate of interest they pay in their decision-making, especially in financial investment strategies as well as accessing resources. Therefore, a comprehensive understanding of the Bank of Canada rate of interest policy as well as its consequences is essential for making enlightened financial decisions in Canada’s dynamic financial atmosphere.

Through a professional and all-encompassing perspective, albeit from someone who is not an economist, we shall embark upon a journey to explore the wide-ranging effects stemming from the continuing Bank of Canada aggressive interest rate hikes, shining a beacon of understanding upon the potential trials and prospects that await us. Will there be at least one more additional rate hike in 2023? The experts are mixed in their forecasting. After the 10th interest rate hike in April 2022, analysts felt the Bank of Canada would take a rest. They did this for exactly 1 month and then continued raising rates in June and July. Accompany me as we skillfully navigate this intricate landscape and the extensive ramifications it begets.

Overview of Bank of Canada

The central bank of Canada is none other than the Bank of Canada, entrusted with the job of supervising the economic as well as financial well-being of the country. Developed back in 1934, this institution has genuinely developed into an important player in shaping economic plans, handling the country’s currency as well as rising cost of living levels, and supervising the security of the Canadian financial system.

Operating under a Board of Directors, which includes the Governor and Deputy Governors, this management framework holds the obligation of making certain that the objectives of the organization are duly attained. With a solid commitment to transparency and responsibility, the Bank of Canada constantly publishes reports as well as financial statements to make sure that the general public is well-informed regarding its actions as well as the choices it makes.

Its function in the Canadian economy is indisputably vital, and it continues to satisfy a considerable duty in directing the security, development, as well as prosperity of the Canadian economic climate.

bank of canada interest rate
bank of canada interest rate

Some history and definitions of the Bank of Canada’s interest rates

There are some basic definitions that are important to understand when discussing the Bank of Canada interest rate policy. Here they are:

  1. Policy rate: The policy interest rate set by the Bank of Canada plays an important role in shaping the primary monetary factors within the Canadian economy. Meeting analysts expectations, following the recent 25-basis-point-rate hike in this month’s rate announcement, the current policy rate stands at 5%.
  2. Bank rate: Sometimes the policy rate is also referred to as the bank rate.
  3. Benchmark interest rate: Another name for bank rate or policy rate is the benchmark rate.
  4. Overnight rate: The overnight rate, which signifies the price at which financial institutions extend funding to each other, holds immense relevance in the general performance of the financial system. The overnight rate plays a vital role in identifying the loan costs for banks and eventually, for consumers and companies. By very closely monitoring variations in the overnight rate, banks have the capability to adjust their lending methods, ensuring the security and also the performance of the financial market.
  5. Prime lending rate: The prime interest rate, also referred to as the “prime rate,” is the rate of interest commercial banks charge their most credit-worthy clients. It is a baseline rate whereupon all floating rate loans are based (for example, prime + 3%). The prime rate is established by financial institutions in a competitive, or some more cynical may say lockstep, fashion. The prime rate in Canada is presently 7.20% after the last rate increase.
  6. Deposit rate: The deposit price is the rate of interest paid by banks on cash deposits of account owners.

Understanding the purpose of Bank of Canada interest rate policy

Explanation of what the Bank of Canada interest rate is

The Bank of Canada interest rate policy is one of the indispensable monetary policy tools employed by the Bank of Canada to govern the surging cost of living and bolster the economy. The interest rate determined by the Bank of Canada impacts the borrowing expenses for all debtors across the nation.

When the Bank of Canada heightens or diminishes its principal interest rate, it influences the rates at which Canadians can obtain funds, such as residential mortgages, auto loans, and lines of credit. It also affects the return that banks will provide when you invest with them, in addition to how the stock market will respond to its perception of the future trajectory of the Bank of Canada interest rate. Grasping this is crucial to comprehending its ramifications on the Canadian economy.

Factors influencing changes in the Bank of Canada interest rate

The Bank of Canada interest rate is a vital monetary policy tool used to regulate the nation’s economy. A number of elements affect changes in the rate of interest, such as the inflation rate, the expansion or contraction of the economy, employment rates, and international economic issues. The Bank of Canada carefully checks these indicators to analyze the state of the economy and choose what interest rate adjustments to make, if any.

Elements such as high inflation, a strong economy, and a reduced unemployment rate might suggest a need for higher interest rates to suppress the economy from overheating. Conversely, weak economic conditions might lead to lowering the central bank rate to boost borrowing as well as investment. These elements play a crucial function in establishing what the central bank pegs the Bank of Canada interest rate at which will affect consumers’ and businesses’ behaviour.

The process of setting and adjusting the Bank of Canada interest rate

The Bank of Canada holds a pivotal position in overseeing the nation’s economy by means of its policy on interest rates. The bank consistently examines and modifies interest rates contingent upon diverse economic factors, including inflation, employment, and GDP expansion. This undertaking encompasses comprehensive scrutiny and evaluation of existing economic circumstances, both within the country and across the globe.

Right now the Bank of Canada seems to be on an aggressive campaign to fight inflation, with the sole aim of wrestling it down to its inflation-control target of annual inflation of 2% per annum. The problem is that some of the biggest drivers currently fuelling inflation, such as government spending, energy and food prices will not react to the Bank of Canada’s actions. It has also been reported that the tightening of the Canadian economy is larger than the US Fed’s actions in the US when comparing the relative size of the two economies.

Higher prices and staff shortages are leading to wage pressures on all businesses. Ironically, Statistics Canada reported that one of the biggest factors driving inflation for the 12-month period ending April 2023 was the cost of mortgage interest! Anyone who did not change their variable rate mortgage into a fixed rate mortgage when rates were super low knows this only too well.

Once the decision is made, the bank communicates it to financial institutions, which in turn affects borrowing rates for consumers and businesses. The Bank of Canada’s interest rate policy is implemented with the aim of maintaining price stability, fostering economic growth, and ensuring financial stability in Canada.

bank of canada interest rate
bank of canada interest rate

Bank of Canada interest rate effect on consumers

Impact of interest rate changes on borrowing costs (mortgages, loans, credit cards)

The Bank of Canada interest rate planning has major implications for consumers across Canada. One cannot ignore the effect that revolves around the ramifications of all borrowing costs. When the central bank rate experiences an upswing, borrowing costs escalate at all financial institutions, potentially posing challenges for individuals seeking mortgages or requiring other personal loans.

Moreover, increased interest rates lead to higher monthly payments on variable-rate financial obligations. This is designed to instill an added sense of prudence among consumers regarding their spending habits, simultaneously fostering an inclination towards savings. Grasping the consequences of interest rate fluctuations on loan expenses assumes paramount importance in individuals’ financial strategizing and decision-making.

Influence on consumer spending and saving habits

The Bank of Canada interest rate policy has a significant impact on consumer spending and also saving behaviours. When interest rates climb, borrowing costs increase, affecting the cost of all mortgages and other personal loans. This often results in a decline in consumer spending as people try to conserve cash. Conversely, as we have seen over the last many years when interest rates are low, borrowing ends up being even more inexpensive, motivating consumers to spend and stimulate economic growth. So, any kind of adjustments to interest rates by the Bank of Canada directly influences consumers to act in a way the Bank of Canada feels is best for the Canadian economy.

Effects on the housing market and affordability

The Bank of Canada’s policy regarding interest rates holds significant sway over the housing market. When the interest rate rises, the expense of mortgage financing also escalates, rendering homeownership more costly. This circumstance has the potential to trigger a downturn in the housing market as the demand diminishes. Furthermore, when it comes to mortgage renewals, the augmented interest expense might pose financial challenges for certain individuals.

Conversely, when the interest rates are decreased, housing becomes more affordable, thereby stimulating the housing market. Consequently, fluctuations in the Bank of Canada’s interest rate assume a pivotal role in influencing the dynamics of the real estate market in Canada.

The overall effect on Canadians

The Bank of Canada’s policy on interest rates has significant implications for personal finances, including debt management, for Canadian consumers. As rates of interest change, as stated above, borrowing costs change along with the Canadian economy. The overall financial wellness of Canadians can also change.

bank of canada interest rate
bank of canada interest rate

Bank of Canada interest rate: Effect on businesses

Influence on borrowing costs for businesses

The Bank of Canada interest rate policy has a significant impact on the borrowing costs for businesses in Canada, inevitably affecting their financial investment choices which affects their growth. When the rates of interest are reduced, companies can take advantage of reduced borrowing expenses to make new business investments, aimed at expanding their operations.

On the other hand, when the interest rates are higher, borrowing ends up being more costly, which discourages companies from making those new investments thereby putting their activities on hold or even contracting business operations. Consequently, the Bank of Canada’s monetary policy moves plays a crucial function in how the economic landscape changes for companies, influencing their growth prospects, and general financial stability.

Effects on employment and wages

The Bank of Canada interest rate policy plays an essential role in shaping both employment rates and the wage landscape across Canada. A rise in the rate of interest raises borrowing costs for companies, resulting in decreased financial investments. This can have an influence on employment rates as businesses won’t hire more people as growth plans are put on hold.

In fact, companies may even downsize their workforce as other input costs increase. This downsizing can also affect worker productivity as businesses try to do the same or more with fewer people. For that reason, it is necessary for businesses to carefully keep an eye on the Bank of Canada’s interest rate choices as they navigate the intricacies of maintaining their workforce and offering fair wages in an ever-changing financial climate.

Implications for business growth and economic stability

The Bank of Canada’s central interest rate policy plays an essential function in the Canadian economy, with significant effects on businesses. When the interest rates are raised, borrowing costs for businesses climb, impacting their investment decisions and ultimately their growth. This, consequently, can affect profitability and also employment opportunities, as businesses may end up being more cautious in their investing and workforce-level choices.

Alternatively, a decline in the rate of interest might incentivize borrowing and urge companies to spend and invest. Eventually, the decisions taken by the Bank of Canada interest rate policy will shape the trajectory of business investments and spending, thereby shaping the Canadian economy.

Relationship between interest rates and economic growth

The Bank of Canada’s interest rate policy plays a crucial role in shaping the overall Canadian economy. The relationship between interest rates and economic growth cannot be overlooked. When the central bank adjusts interest rates, it directly impacts borrowing costs for consumers and businesses alike. By raising interest rates, the Bank aims to restrain inflationary pressures and promote sustainable economic growth. On the other hand, lowering interest rates can stimulate spending and investment, fueling economic expansion. Thus, understanding the connection between interest rates and economic growth helps policymakers and businesses make informed decisions to foster a stable and prosperous Canadian economy.

Influence on inflation and consumer prices

The Bank of Canada, being Canada’s central banker, exerts a substantial influence on the inflationary trends prevailing within the Canadian economy. When the rates of interest experience a decline, borrowing costs diminish, thereby encouraging increased consumer spending and business investments. This surge in demand can eventually trigger a corresponding rise in costs and contribute to inflationary pressures.

On the other hand, when the rates of interest undergo an upswing, borrowing costs escalate, which in turn curtails spending and investment activities. Such measures aid in regulating the mounting cost of living by constraining demand and mitigating general price hikes. Therefore, the choices made by the Bank of Canada interest rate policy play a critical role in upholding price stability and fostering a well-balanced Canadian economy.

Implications for monetary policy and government regulations

Changes in interest rates directly influence the borrowing costs of both companies and consumers by influencing their choices regarding spending and financial investments. Higher interest rates are currently being used as a financial policy device focused on curbing inflationary pressures in the Canadian economy.

In addition, interest rate adjustments can also shape government policies, as policymakers aim to cultivate a financial atmosphere that provides the world with the message that the Canadian economy is stable. The Bank of Canada applies its interest rate choices, thinking about the prospective repercussions for both monetary policy as well as federal government guidelines.

Strategies for Consumers and Businesses

Tips and advice for consumers managing finances in a changing interest rate environment

In a constantly shifting landscape of interest rates, it becomes crucial for individuals to skillfully navigate their finances. Here, I present some indispensable pointers and recommendations to assist you in maneuvering through these Bank of Canada interest rate fluctuations:

  1. Stay in the know: Keep yourself informed about the Bank of Canada interest rate decisions, along with the projections offered through the media regarding their probable direction. Comprehend how these developments might influence your financial circumstances.
  2. Strategize your budget wisely: In the face of interest rate hikes, it becomes imperative to reevaluate your budgetary plan. Concentrate on essential expenditures and contemplate trimming down on non-essential ones.
  3. Consider refinancing or renegotiating your loans: Seize the opportunity of a lower interest rate whenever it arises by refinancing or renegotiating your loans, potentially leading to reduced monthly payments.
  4. Save with purpose: Deposit surplus funds into high-yield interest-bearing accounts or investments that offer superior returns, as a countermeasure against possible increments in loan rates.
  5. Seek expert guidance: Consult financial advisors who can furnish customized advice tailored to your specific economic objectives and existing financial situation.

By implementing these strategies, consumers can effectively manage their finances within a dynamic interest rate environment, thereby mitigating any potential negative repercussions.

Fluctuating rates of interest can test the nerve of even the most experienced business owner. To alleviate the impact of changing rates, it is essential to take on particular strategies. Primarily, businesses ought to think about re-financing their present loans to lock into lower fixed-rate loans if it looks like rates are going to rise. Additionally, they should focus on efficiently managing their cash flow by focusing on payment strategies with their suppliers. Don’t be shy about asking for longer payment terms, if possible.

One more very effective method is to diversify their financing sources by exploring alternative financing choices such as equity capital or longer-term debt. Also, it would be most helpful to have more than one lender who deals with you and looks favourably at your business. That way if one lender starts to tighten up the credit line, you have an alternative lender already that you can go to.

In addition, businesses ought to regularly check the trends in interest rates and make informed decisions and choices. By carrying out these carefully crafted tactics, businesses can expertly navigate the consequences of ever-changing rates of interest on their business for financial stability.

Overview of available tools and resources to understand and plan for interest rate changes

Acquiring a general understanding and also properly getting ready for changes in interest rates are critical elements for both consumers as well as companies. To expertly navigate this intricate area, a variety of tools as well as resources are conveniently offered. Banks provide online calculators and interesting short articles, working as useful help for consumers to grasp the influence of rate activities on their home loans, general finances, as well as financial investments.

Additionally, federal government websites and various industry associations equip people with indispensable details relating to interest rates, predictions about interest rate movements and issues relating to the Canadian economy. When it comes to businesses, looking for assistance from experienced consultants and leveraging specialized software programs can assess and highlight critical data in looking at prospective dangers as well as opportunities from the ever-changing interest rates.

By harnessing the power of these tools and resources, individuals and businesses can make sensible choices and flexibly change their economic plans as required.

bank of canada interest rate
bank of canada interest rate

Bank of Canada interest rate policy: Summary

The Bank of Canada interest rate policy is a major tool in directing the Canadian economic climate. The recent rates of interest hikes have had significant ramifications for both consumers and also businesses. It is important for consumers and businesses to stay informed about the Bank of Canada’s interest rate decisions to make informed financial decisions and adapt accordingly.

The climb in interest rates has resulted in higher borrowing costs for everyone. Along with inflation, many Canadians are having to make hard choices and household debt is climbing. To a certain extent, it seems like the Bank of Canada’s aggressive action shows that it is disinterested in the plight of many Canadians finding it harder and harder to make ends meet.

I hope you enjoyed this Bank of Canada interest rate Brandon’s Blog. Problems with making ends meet are a growing concern in Canada, affecting individuals of all ages and income levels.

Creating a solid financial plan can be the key to unlocking a brighter and more prosperous future. By taking control of your finances, you can prioritize your expenses, set clear financial goals, and build a strong foundation for your dreams to come true. With the right mindset and approach, financial planning can empower you to regain control, eliminate this issue as a source of stress in your life and find peace of mind.

Individuals must take proactive measures to address financial difficulties and promptly seek assistance when necessary. It is crucial to recognize that financial stress is a prevalent concern and seeking help is a demonstration of fortitude, rather than vulnerability. Should you encounter challenges in managing your finances and find yourself burdened by stress, do not delay in pursuing aid.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own and it does not mean that you are a bad person. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

bank of canada interest rate
bank of canada interest rate

 

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Brandon Blog Post

CEBA LOAN REPAYMENT CAUSING YOU A GIGANTIC PROBLEM? HERE IS OUR COMPREHENSIVE SOLUTION GUIDE

CEBA
CEBA

CEBA Introduction

As businesses continue to grapple with the economic fallout of the COVID-19 pandemic, the Canadian federal government’s Canada Emergency Business Account (CEBA) loan program has proven to be a lifeline for those who qualified under the eligibility criteria. The CEBA program was available to businesses regardless of whether they were sole proprietorships, partnerships or corporations.

However, as the deadline for loan repayment approaches, many Canadian businesses are struggling to meet their obligations. Entrepreneurs fear that they may not be able to take advantage of the discount available for repaying the entire loan by the deadline of December 31, 2023.

In light of this, it’s crucial for business owners to enhance their cash flow management, refine their budgeting practices and diversify their revenue streams in order to develop an effective repayment plan. In this Brandon’s Blog, I’ll explore strategies for overcoming CEBA loan repayment challenges, highlighting expert guidance on navigating your loan obligations and achieving financial stability for your business. Hopefully, by using a professional approach, this Brandon’s Blog will inspire business owners and provide them with the knowledge and tools required to tackle these challenges head-on.

Importance of understanding the challenges associated with CEBA loan repayment by December 31, 2023

Comprehending the obstacles related to paying off the CEBA loan balance by the defined target date is critical for enterprises. It provides a considerable hurdle that businesses must repay the loan by the deadline to capitalize on the significant discount given for prompt reimbursement. While the financing stays interest-free up until then, interest charges begin thereafter. This suggests that Canadian businesses might face a financial burden, specifically if they are still recuperating from the prevalent impacts of the COVID-19 pandemic.

Furthermore, companies that fall short to satisfy the payment deadline might come across negative effects, like not being able to access further loans or other financial assistance.

CEBA
CEBA

Common challenges faced in CEBA loan repayment

Cash Flow Constraints and Their Impact on Loan Repayment

The effective handling of loan repayment can be substantially affected by the restrictions enforced by cash flow constraints. Restraints in the capital of the business have the possibility to generate missed payments, and penalties and apply stress on the economic security of your company. Comprehending the ramifications of these cash flow constraints is of utmost significance to formulate methods that successfully take on these difficulties.

1. Reduced capability for repayment

When capital restraints are experienced by your company, the ability to make timely and full loan payments are jeopardized. Minimal funds being readily available for loan repayment causes smaller-sized or delayed payments, leading to increased financial pressure on the business. Positive steps need to be taken to overcome these restraints.

2. Intense financial stress

Cash flow restrictions can generate financial stress on the entrepreneur as they navigate expenses and prioritize payments. The worry of managing day-to-day operations while confronting the reality of missing loan payment commitments can be overwhelming. This stress can adversely impact emphasis, decision-making, as well as overall organizational efficiency. It is of utmost value to formulate approaches that relieve economic stress and supply a clear roadmap for handling these cash-flow challenges.

3. Restricted growth opportunities

Insufficient capital development can hamper the growth and growth plans of your company. Many businesses have not yet seen an economic recovery of any substance. When a significant portion of your available cash needs to be allocated to loan repayment, limited funds are available for financial investment in the other areas of your business in order for it to grow and prosper. This constraint can stop your capacity to profit from business opportunities and compete successfully.

4. Tested relationships with suppliers and Financial institutions

Restricted cash flow can stress partnerships with suppliers and financial institutions. Late or missed payments can stain the credibility and reliability of your business, making it tough to negotiate good terms or additional credit when needed. Healthy connections with suppliers and also financial institutions are essential to maintain company operations and foster future development.

Lack of Financial Planning and Its Consequences

Falling short in financial planning can have major effects when it involves repaying loans. Businesses that don’t effectively prepare themselves or take proactive steps will find themselves struggling to meet financial commitments, which will cause unfavourable results. The effect of inadequate monetary planning leads to the negative consequences described above. In this area, I share sensible suggestions to assist businesses in effectively conquering these obstacles.

To alleviate the consequences of an absence of financial preparation as well as ensure successful loan repayment, take into consideration implementing and adhering to the following:

1. Produce a detailed financial strategy

Establish a comprehensive financial plan strategy that includes a proper budget, cash flow plan, and also a specific plan for loan repayment. Set reasonable economic goals and allocate funds accordingly.

2. Monitor and review funds regularly

Consistently examine your financial performance and also compare it with your strategy. This will certainly help you recognize any kind of deviations or possible issues in a prompt and allow you to make the necessary business adjustments.

3. Seek professional help

Consider dealing with a financial consultant or accounting professional who can supply guidance on financial planning, cash-flow monitoring, and loan repayment strategies. Their competence can aid you navigate the complexities of your corporate financial circumstances more effectively.

4. Automate loan payments

Establish automated payments on your loans to make sure prompt and also constant payments. This decreases the threat of missed payments and associated penalties.

5. Prioritize loan payment

Make loan repayment a top priority in your monetary strategy. Allot enough funds from your profits to cover the repayment responsibilities, even if it means making adjustments in other areas of your business.

By proactively addressing the lack of financial planning and implementing these methods, companies can avoid the consequences of missed payments, additional interest charges and all the other negative consequences.

Inefficient budgeting practices and their challenges

Suboptimal fiscal management techniques may present formidable impediments to successful loan repayment. In the absence of a meticulously crafted and adroitly executed budget plan, commercial entities may encounter hindrances such as:

  • Erroneous financial forecasting
  • Obscurity in expenditure tracking
  • Negligence toward prioritizing debt repayment
  • Inadequate monetary reserves or liquidity
  • Inefficacious expense management

To surmount the obstacles that arise from suboptimal budgeting practices, enterprises may wish to contemplate adopting the ensuing strategies:

  • Formulate a comprehensive budget
  • Enhance tracking of expenditures
  • Make repayment of loans a priority
  • Establish an emergency reserve
  • Engage the services of a professional

Through the implementation of these techniques and the adoption of proficient budgeting practices, businesses can triumph over the impediments presented by ineffectual budgeting and guarantee a more viable approach to loan repayment.

Limited profitability and Its implications for CEBA loan repayment

The ramifications of inadequate profitability can be profound when it comes to CEBA and other loan repayments. A business that is unable to generate ample profits may encounter difficulties in meeting its loan commitments. The consequences of limited profitability are:

  • Inadequate cash flow
  • Increased debt load
  • The peril of loan default
  • Curtailed business expansion
  • Tense relationships with suppliers and lenders

Despite the challenges posed by limited profitability, there are several aggressive steps companies can take to get rid of these barriers. Take into consideration the following methods:

  1. Conduct an extensive financial evaluation to pinpoint areas of improvement, consisting of the business’s cost framework, pricing methods, and revenue streams. Try to find chances to minimize expenses, boost performance, and expand revenue.
  2. Develop methods to increase earnings, such as reviewing pricing models, implementing cost controls, boosting operational effectiveness, and also exploring brand-new markets or product/service offerings.
  3. Take part in open interaction with lenders to discover possible financial debt restructuring or arrangement of settlement terms. Lenders may agree to change interest rates, extend payment periods, or give short-lived relief alternatives based on the business’s financial scenario.

To improve their ability to meet all financial commitments and make steady progress toward profitability, businesses can benefit from implementing these strategies.

Uncertain economic environment and Its effect on CEBA loan obligations

The ever-changing economic landscape can bring about a profound influence on the commitments tied to the CEBA loan. Companies grappling with market turbulence and unpredictability may face difficulties in fulfilling their loan repayment obligations. Within this segment, I will delve into the repercussions of an uncertain economic environment on CEBA loan responsibilities and propose effective approaches to overcome such circumstances.

1. Unpredictable income streams and loan repayment

As a result of an uncertain economic environment, companies may find themselves in a situation where they experience inconsistent earnings. Market volatility, changing customer preferences, as well as economic downturns, can all contribute to this unpredictability. Consequently, businesses might have a hard time allocating adequate funds for CEBA loan repayment.

2. Financial stress and decreased earnings

In an unpredictable financial environment, companies might experience lowered profitability due to elements such as lowered consumer purchasing, supply chain interruptions, as well as boosted input costs. This financial pressure can make it tough to find the resources for not only CEBA loan repayment but for the sustainability of the entire company.

3. Restricted accessibility to credit and financing

Throughout uncertain financial times, lenders will tighten their credit standards and decrease the availability of funding options. This minimal access to credit can adversely influence companies requiring extra funding to sustain their operations.

4. Changing federal government support programs

The government’s response to an uncertain economic environment can involve modifications or adjustments to support programs, including those related to CEBA loans. Many business groups and Chambers of Commerce have already been lobbying the federal government to extend the repayment deadline by one year to December 31, 2024, as many companies are still struggling. Time will tell if the federal government will extend the interest-free loan term or not.

5. Strategic financial planning and adaptability

To best navigate an uncertain economy, businesses can utilize strategic financial initiatives. Take into consideration the following approaches:

Monitor and budget: Routinely check economic indications, market fads, and also customer behaviour to anticipate possible influence on your business. Adjust cash flow forecasts and financial strategies as necessary.

Risk administration: Examine and minimize threats that can affect your revenue streams, productivity, and profitability. Expand your customer base, explore brand-new markets, or think about alternative revenue streams to decrease reliance on particular industries or markets.

Communication with lenders: Keep open lines of communication with your lending institution to go over any type of obstacles or changes in your financial scenario. Proactively will address any possible problems and help your lenders work with you to find choices for funding alterations.

Cash flow monitoring: Implement robust cash flow techniques, consisting of monitoring expenditures, enhancing working capital, as well as negotiating favourable terms with suppliers. Effective cash flow management can liberate cash resources for supporting operations during unpredictable times.

Business continuity planning: Develop a comprehensive organization continuity strategy that takes into consideration numerous economic scenarios. Recognize strategies to mitigate the impact of financial volatility on your procedures and allocate resources for loan repayment as a priority.

By adopting these approaches and staying watchful in checking the economic landscape, businesses can better navigate the obstacles of an unpredictable economy. The assistance of financial professionals is key in navigating rough economic waters.

CEBA
CEBA

CEBA loan repayment problem does have a silver lining

The requirements for CEBA loan repayment carry the following provisions. There is no interest charged until the end of December 2023. Thereafter, the annual interest rate will be 5%. The frequency of interest payments will be determined by the applicant’s financial institution but most likely, it will be monthly.

There is a silver lining if your business is unable to repay the discounted loan amount in full by the end of this year. Given the Bank of Canada interest rate hikes, the current overnight rate is 4.75%. The prime rate charged by the chartered banks to their best customers is around 6.95%.

So under current economic conditions in Canada, the proposed interest rate to be charged on outstanding CEBA loans beginning January 1, 2024, of 5%, is well under current interest rates charged on unsecured business loans.

CEBA Conclusion

In summary, defaulting on your CEBA loan repayment can result in negative effects on your business Nonetheless, there are still 6 months to go before completion of the year. With the appropriate strategies in position, you can overcome the challenges of settling your CEBA loan.

Developing a comprehensive repayment strategy, improving your cash flow administration, improving your budgeting methods, and also diversifying your revenue streams are all essential steps to accomplishing financial improvement and security. Seeking skilled professional support can also assist you navigate the intricacies of your CEBA loan obligations and set up your business for lasting success. With these methods in hand, you can take control of your finances and remain ahead of your CEBA loan repayment.

I hope you enjoyed this CEBA Brandon’s Blog Managing your personal or business financial affairs in today’s ever-challenging and changing business landscape is no small feat, but with the right plan in place, it’s possible to stay or get back on track.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses that are in financial distress. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team uses innovative and cutting-edge methodologies, to adeptly navigate you through the intricacies of your financial challenges, ensuring a resolution to your debt-related predicaments without resorting to the rigours of the bankruptcy process. We can get you debt relief now!

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a Trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

CEBA
CEBA

 

Categories
Brandon Blog Post

MORTGAGE ISSUES BREWING: CANADIANS ARE SERIOUSLY FALLING BEHIND ON DEBT

mortgage

Mortgage issues: Introduction

As per the latest findings from the Royal Bank of Canada (RBC or RBC Economics), a significant proportion of Canadians are currently grappling with debt payments, thereby heightening the risk of mortgage default in the future. The report reveals that the average Canadian owes $1.77 in debt for every dollar of disposable income, a trend that has been steadily increasing over recent years. This development is particularly concerning given the rising interest rates, which are exacerbating the difficulty of maintaining timely payments.

This Brandon’s Blog will explore the RBC report, the truth about household debt, including mortgage debt, in Canada, whether or not we are already in trouble and its implications for Canadian households.

The impact of rising interest rates on mortgage and other debt payments

The RBC report clarifies the negative impact of boosting the rate of interest on debt payments for Canadians. With the way we have seen the rate of interest growing, numerous Canadians are finding it significantly testing to handle their debt payments, specifically those with a variable-rate mortgage or loan product taken out at interest rates at pre-pandemic levels or credit card debt.

Interest rates have risen significantly, with the Bank of Canada’s Target Overnight Rate going from 0.5% in March 2022 to holding at 4.5% since January of this year. Anyone faced with renewing their mortgage is going to be in for a bit of sticker shock. The report also highlights a concerning pattern where a substantial number of Canadians are unprepared to handle the prospective fallout of rising interest rates on their ability to meet their financial obligations.

This RBC report highlights the expanding degree of debt among Canadians, which could potentially cause mortgage issues down the line. As more Canadians battle to keep up with their debt payments, RBC’s experience states that it is most likely that they might start missing mortgage payments. This could lead to serious consequences, such as the loss of their home or even bankruptcy. What’s even more, the report reveals that numerous Canadians are blissfully unaware of the possible dangers related to lugging around high levels of debt.mortgage

Understanding Household Debt in Canada

In order to attain a comprehensive comprehension of the ramifications of Canadian household debt, it is imperative to precisely define it. Household debt encompasses the aggregate sum of all financial obligations owed by Canadian households, including home mortgages, credit cards, lines of credit, and vehicle loans. Data released by the Bank of Canada indicate that the customary household debt-to-income ratio has been consistently escalating over the past few years, indicating a trend that is no longer just a blip.

This trend signifies that Canadians are taking on increasingly greater financial obligations in relation to their income. Coupled with the effects of inflation, it is apparent that, on average, Canadian household income is insufficient to meet the customary familial expenditures, resulting in families incurring more debt to maintain their standard of living.

Substantial household debt poses several possible risks to the Canadian economic climate. First of all, it can cause economic instability for Canadian households as they endeavour to satisfy their financial obligations. Second of all, increased degrees of financial obligation may result in a reduction in consumer spending, therefore negatively impacting the overall economy. Finally, households with elevated debt levels will likely be extra prone to default as the rate of interest hikes happens, potentially causing a cascade of defaults throughout the Canadian economy.

Canadians expect signs of trouble in the Canadian economy

Recent data indicates prospective problems surrounding Canadian household debt. In a survey of Canadians carried out by the Bank of Canada between January 27 and February 16, 2023, with follow-up interviews in March 2023, numerous key findings were uncovered.

The key findings were:

  • Assumptions for the rising cost of living in the coming 1 to 2 years have declined but continue to be dramatically greater than in the pre-COVID-19 period.
  • While consumers have reduced their price increase expectations for certain goods, such as commodities, inflationary assumptions for services such as rent stay raised.
  • A majority of consumers believe that the Bank of Canada faces obstacles in successfully lowering inflation because of high government spending and also ongoing supply chain disruptions. However, many remain hopeful that supply chain issues will be fixed within the next two years, resulting in reduced product prices influenced by the disruptions.
  • Alternatively, those that watch high federal government spending as a relentless inflationary force expect continued interest rate stress in the long term.
  • The present economic environment is characterized by elevated inflation and also a higher pattern of interest rates, which has actually resulted in installing strain on Canadians, especially those that are making monthly mortgage payments. Consumers are spending less on non-essential services, including leisure travel, eating in restaurants, as well as various other recreational activities.
  • A considerable majority of Canadians view an economic downturn to be one of the most potential end results for the Canadian economy within the following year. Nonetheless, many people continue to be uncertain regarding the direction of the economy, the labour market and unemployment rates. Such uncertainty has actually caused a tendency amongst consumers to reduce spending and increase savings as a preventative measure.
  • In spite of economic obscurity, workers show a favourable outlook on the job market, with several certain they could find new employment opportunities, especially those who are discontent with their present jobs. Private sector wage increase expectations are near an all-time high among employees.
  • Nonetheless, wage growth is expected to fall short of the rising cost of living, with most workers predicting their wages or salary will not equal current inflationary trends in the coming year.mortgage

Principal reasons for mortgage issues in Canada

Amidst the prevailing economic conditions, numerous homeowners are facing considerable difficulty in maintaining the escalating expenses associated with owning a home. Consequently, there is an anticipated surge in the number of defaulted mortgage payments in the forthcoming months. This trend is a source of apprehension for both homeowners and lenders.

As per the RBC Economics report, the principal reasons for mortgage-related issues in Canada are:

  1. The rising cost of homeownership includes rising property taxes, insurance costs, and maintenance expenses.
  2. Job loss or reduced income.
  3. Reduced economic growth.
  4. High household debt.
  5. Increasing interest rates. This is especially true for homeowners with variable-rate mortgages, as their payments can fluctuate over time.
  6. Unanticipated expenditures and low or no savings or emergency funds. Some homeowners may have taken on too much debt or purchased a home that was too expensive for their budget. In these cases, failed mortgage payments are almost inevitable.

The RBC report sustains the findings of the Bank of Canada study. It mentions that this might be due to a mix of elements, including climbing living expenses, stationary wage growth, and the high cost of housing. The repercussions of this could be extreme, affecting not only specific homeowners and their personal finances but the entire Canadian economic situation.

RBC states that it is critical that lenders, regulators, as well as policymakers, interact to address this problem effectively. Financial education, government programs and support for those dealing with financial debt can help protect against mortgage issues and defaults.

Consequences of mortgage issues in Canada

Failed mortgage payments can have significant consequences for both homeowners and also for mortgagees. For homeowners, missed payments can result in the power of sale or foreclosure process. This results in the loss of their house.

Potential lending institutions scrutinize credit history and also credit score prior to approving loan or mortgage applications. Uniformity in making payments is essential as it contributes to keeping a healthy credit rating. So being delinquent on debt and home mortgage payments and especially the loss of your house has a considerable unfavourable effect on your credit score and your capacity to get loans in the future.

The financial and mental stress of these mortgage issues cannot be overemphasized. It is vital that Canadians take positive steps to deal with their debt properly. The RBC report stresses the significance of looking for guidance and assistance from trustworthy financial specialists to help you be able to deal proactively with your debt problems before it is too late. By following this guidance, Canadians can protect their financial well-being and also avoid possible home mortgage problems in the future.

Delinquent mortgage and loan repayments can result in economic losses for lenders. Due to their reliance on periodic payments to sustain their operations, any missed payments can cause significant disruptions to their cash flow. This is particularly true for smaller lenders with limited resources as compared to larger organizations. When a substantial portion of a lender’s portfolio consists of delinquent and non-performing loans and mortgages, it can lead to a cessation of operations.mortgage

Coping with household debt and mortgage Issues: What Can Homeowners Do?

The RBC Economics report underscores the significance of proactive debt management by Canadians. While elevated levels of household debt may trigger apprehension, there are measures that individuals can undertake to mitigate the risk of financial ruin. One crucial approach is to look carefully at your personal finances and devise a budgetary plan and adhere to it. This can assist households in identifying superfluous expenditures and making necessary adjustments.

Furthermore, households ought to prioritize the repayment of high-interest non-mortgage debts such as credit cards. CTV News reported that non-mortgage debt is up by 5.4% when comparing the fourth quarter of 2022 to the same time in 2021. Seeking the guidance of a financial expert in developing a debt management strategy can also prove advantageous.

In the event of mortgage payment difficulties, there are several prudent measures that homeowners may take to forestall losing their homes. Firstly, contacting the lender and providing details of the financial predicament may yield positive outcomes. Numerous lenders extend hardship programs that facilitate a reduction in monthly payments or an interim suspension of payments.

In the event that you have an insurmountable challenge of making home mortgage payments and the looming threat of losing your home, it may be a good idea to very carefully consider the option of selling your residential property. By doing so, you can properly avoid the damaging end results of defaulting and losing your home and ultimately embark on a clean slate of living in a more affordable home.

All of these recommendations can be found in my May 1, 2023, Brandon’s Blog “MAXED OUT CREDIT? YOU NEED TO KNOW HOW TO INCREASE CREDIT SCORE: OUR 13 INTRIGUING TIPS TO IMPROVE YOUR CREDIT SCORE”.

However, if things have gotten out of control and your creditors are already pounding at the door, making harassing collection calls and possibly even suing you, you need to take immediate action. Contact me anytime by phone or email.

Mortgage issues: Conclusion

The RBC report has brought to the fore the intensifying concern of Canadians back-pedalling on their debt payments. The scenario is rather disconcerting, specifically given the surge in the rate of interest that pose a formidable challenge for Canadians to stay current with their financial obligations.

In addition, higher interest rates and the price of necessities of life have increased concerns about the surging debt levels amongst Canadians and the possible difficulties that could arise in the home mortgage market in the future. It is imperative that Canadians take aggressive measures to address their financial debt management strategies and appropriately plan for the ramifications of this new higher interest rate environment.

I hope you enjoyed this mortgage issues Brandon’s Blog.

Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind. Coming out of the pandemic, we are also now worried about the economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy proceedings. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.mortgage

 

 

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Brandon Blog Post

SILICON VALLEY BANK: COULD A CANADIAN BANK EXPERIENCE A GIGANTIC CATASTROPHIC FAILURE?

silicon valley bank
silicon valley bank

Silicon Valley Bank failure: The SVB collapse

A subsidiary of the SVB Group called Silicon Valley Bank was heavily servicing the technology industry. The California-based Silicon Valley Bank is located in Santa Clara, in the Golden State and has been around since 1983. Ever since, they have actually opened up offices in a lot of various other places like the UK, Israel, as well as China.

Silicon Valley Bank’s pride and joy was all about supplying a variety of financial solutions, such as commercial business loans, private banking, asset administration, and also financial investment banking. They focused on dealing with start-ups, investors, and technology firms at differing phases of growth, providing them with access to resources, and know-how, as well as vital sources of capital.

With an eager focus on advancement, Silicon Valley Bank’s aim was to promote close relationships with the tech industry. They have actually contributed to funding lots of top-level technology firms, including Amazon, Tesla, and also Twitter, among others.

In this Brandon’s Blog, we dive deep right into the murky waters of SVB’s bankruptcy. We explore the various elements that contributed to this significant downfall and also look at what could happen if a Canadian financial institution failed.

Silicon Valley Bank failure: A brief history of Silicon Valley Bank

Silicon Valley Bank has been a game-changer in the tech market by satisfying the financial requirements of budding start-ups and their VC investors. With a first emphasis exclusively on tech start-ups, SVB soon branched out to cover a varied range of markets, including health care, energy, and even the wine industry.

At the heart of SVB’s organization lies a unique technique – developing resilient relationships with businesses just coming into existence and beginning to display signs of future potential, offering tailor-made financial and advisory solutions to allow for their development and growth. As well as it’s not a surprise that for many years, this Silicon Valley financial institution has actually contributed to the success of countless technology giants that we know today.

silicon valley bank
silicon valley bank

The Impact of Silicon Valley Bank’s failure on the Tech Industry: Here’s the latest on the banking crisis

With SVB being a principal in the industry, its death has created a void that will certainly be hard to fill. The financial institution’s lending tended to focus on early-stage start-ups making it a vital source of financing for lots of young businesses. Its bankruptcy has actually left most of these start-ups battling to secure funding, with fewer alternatives offered out there.

Along with its impact on startups, the Silicon Valley Bank failure has additionally influenced venture capitalists and also other investors. Numerous VC firms had partnerships with the bank, which gave them crucial financial and also consulting services. With SVB’s closure, these companies are now left without this key partnership, making it difficult for them in an unstable marketplace.

Silicon Valley Bank failure: What led to the Silicon Valley Bank failure?

Last week, SVB shocked the financial world by filing for bankruptcy protection. The reasons cited by the institution varied, including defaults on bad loans and losses in their investment holdings. Unfortunately, that’s not all. SVB was also hampered by regulatory restrictions and fierce competition, making it difficult to secure profits.

Many in the industry are bewildered by SVB’s sudden downfall, wondering how such a once-thriving bank could plummet so rapidly. Reports have uncovered that the root of SVB’s troubles can be traced back to their daring lending tactics.

SVB was renowned for its bold lending practices, including funding startups at an early stage with little to no revenue. Although this approach had delivered remarkable returns in the past, it left the bank now in this sad state.

silicon valley bank
silicon valley bank

Silicon Valley Bank failure: Can Canadian banks fail?

Naturally, bank failures can be a source of worry for Canadians since we put their money into financial institutions. The issue of whether or not a bank failure is a concern in Canada has been widely debated.

The stability and security of the Canadian banking system are widely acknowledged as among the best in the world. This is attributed partly to the rigid guidelines and also oversight enforced by both the federal government and the Bank of Canada. The financial industry in Canada is dominated by five main large institutions; The Royal Bank of Canada, TD Bank, Scotiabank, Bank of Montreal, as well as the Canadian Imperial Bank of Commerce, with smaller financial institutions and also credit unions also adding to the industry.

The diversity of the Canadian banking system spurs competition and aids to mitigate the risk of systemic failure in the event of a financial crisis. To make sure that the financial institutions have the required funding to withstand declines in the Canadian economy, Canadian banks need to hold sufficient capital and also undergo regular stress tests.

Although anything is possible, Canadian economic history and the regulation of Canadian banks suggests that a Canadian bank failure is a remote possibility.

Silicon Valley Bank failure: The Bank of Canada keeps Canada’s financial system healthy

The Bank of Canada, being the supreme financial authority in the Canadian economy, is mandated with the crucial responsibility of ensuring the overall economic and financial well-being of the country. Its multifaceted role encompasses a range of fundamental functions, some of which are outlined hereunder:

  1. Monetary Policy: The Bank of Canada is entrusted with the pivotal responsibility of charting and operationalizing the monetary policy framework for the country. This involves meticulous regulation of the overnight rate, which serves as Canada’s key interest rate and consequentially influences the lending rates for commercial and consumer customers of Canadian financial institutions. The Bank of Canada’s primary objective is to maintain inflation at manageable, stable, and predictable levels.
  2. Financial System Stability: The Bank of Canada is a vigilant guardian of Canada’s monetary system stability. It ensures sustained liquidity to the economy during times of financial distress and supervises and regulates financial institutions operating in Canada to mitigate against potential risks and losses.
  3. The Bank of Canada is vested with the responsibility of currency issuance, encompassing the creation and dissemination of Canada’s legal tender. It is also accountable for the safeguarding of Canada’s monetary system, upholding its security and soundness.
  4. In pursuit of its mandate to promote economic welfare, the Bank of Canada undertakes rigorous research endeavours aimed at exploring various economic issues. These include but are not limited to inflation, macroeconomic growth, and monetary stability. Furthermore, the Bank publishes economic data and conducts analytical assessments to equip policy-makers with the requisite information necessary for decision-making.

All in all, the Bank of Canada assumes a pivotal role in the maintenance of a stable and thriving Canadian economy.

silicon valley bank
silicon valley bank

Silicon Valley Bank failure: Precedents for bank failures in Canada

The rich history of Canadian banking started in 1817 when the first financial institution was created. The first Canadian bank collapse was the Home Bank in 1923. That was an outcome of enormous fraud.

In September 1985, two Western Canada-based banks, Northland Bank and Canadian Commercial Bank failed. This triggered a period of mergers in Canada’s banking sector, with many smaller financial institutions merging with the largest banks.

But the good news is that since the 1985 bank failures, the Canadian financial market has been unfailing. The federal government has put stringent regulations as well as oversight in place. There have been failures of some regional trust and loan companies, but no federally chartered bank has failed since the two in 1985.

Some lessons that have been learned from these bank failures are:

  1. Diversification is crucial: Financial institutions that had a varied portfolio of loans and investments were much better able to weather financial recessions than those that were heavily overweighted in a specific industry or geographic location.
  2. An effective guideline is vital: The Canadian federal government’s regulatory structure played a substantial role in preventing any chartered bank from failing during the global economic conditions and the economic crisis of 2008. Efficient laws can help recognize as well as minimize dangers before they come to be significant problems.
  3. Company culture issues: In a few of the financial institution failings that took place in the past, there was a history of risk-taking as well as lax oversight. Financial institutions that prioritize strong controls for monitoring risk, as well as accountability, are much better positioned to prevent tragic failures.
  4. Collaboration is vital: Throughout times of financial tension, cooperation between financial institutions, regulators, as well as the federal government can help prevent systemic failures and also mitigate the influence of any economic downturn.
  5. Openness is important: Clear and precise reporting of financial details is necessary for investors and regulators, as well as the general public, to comprehend the threats and the health and wellness of financial institutions.
  6. Prudent lending methods are important: Financing practices that prioritize creditworthiness and also risk management are important for maintaining the security of the economic system.

In general, the lessons gained from past financial institution failures in Canada underscore the value of diversity, efficient laws, a strong business culture of controls over risk-taking, transparency and sensible financing practices for the stability and health of Canada’s financial system.

Silicon Valley Bank failure: What happens to deposits if a Canadian bank failed?

The Canada Deposit Insurance Corporation (CDIC) is a Crown corporation that protects the balances held by Canadian depositors in the event of a bank’s failure, to a specified maximum amount.

If a participant bank fails, the CDIC repays eligible depositors for their insured deposits up to b$100,000 per depositor, per insured deposit classification. This protection maintains the stability of the Canadian financial system as well as ensures that Canadians can continue to access their funds as needed.

To promote sound monetary practices and also effective economic frameworks, the CDIC likewise keeps an eye on and analyzes the dangers of dealing with Canada’s monetary system while teaming up with other organizations.

silicon valley bank
silicon valley bank

Silicon Valley Bank failure: 5 ways Canadians can prepare for bank failure

Financial institution failures are a significant matter, and it is necessary to take proper measures to safeguard your funds. Although such occurrences are unusual in Canada, it is a good idea to be planned for unforeseen situations. To this end, Canadians can adopt the complying with actions:

  1. Track your accounts: Regularly tracking your account balances and investments can assist you to identify any type of unauthorized activity or errors at an onset.
  2. Distribute your funds: Instead of retaining all your funds in a single savings account, you might consider distributing your financial savings across separate categories of accounts or type per institution up to the CDIC-insured amount. By making sure that all of your bank deposits are eligible deposits, you will eliminate the danger of losing your money in the event of the failure of a bank.
  3. Understand your coverage: The CDIC gives deposit insurance coverage of up to $100,000 per insured group per bank. Make certain you know the coverage limitations and which of your accounts are placed in insured categories.
  4. Diversification: It is recommended that you expand your investment portfolio by taking into consideration all investment types like stocks, bonds, or real estate if you have significant savings. Staying informed as well on news and advancements in the financial sector is crucial. You need to know any signs of difficulty at your bank to make sure that you can take timely action.
  5. Preparing a backup plan: In case of a bank fails, you must have sufficient cash money to cover your immediate needs as well as different resources of debt or funding. These steps can help you remain tranquil as well as focused in a dilemma.

Although the possibility of a financial institution failing in Canada is low, the government has steps in place to safeguard depositors. Taking these preventative measures can aid you to feel extra safe and prepared for any unforeseen event.

Silicon Valley Bank failure: Conclusion

To conclude, the Silicon Valley Bank failure has sent out shockwaves in the tech sector, the global banking system and the financial markets. There will no doubt be a detailed post-mortem analysis of what went wrong. No doubt the bank’s risk management practices which shaped its lending practices and exposure to the tech industry played a significant part in its downfall. With fewer alternatives offered for funding as well as advisory services, start-ups and investors will need to find new alternatives in the marketplace to be successful in the post-Silicon Valley Bank world.

The Canadian banking system and our domestic banks are considered to be one of the most stable, safe and secure on the planet. While there are possible dangers, such as high levels of household debt and a real estate market correction, the Canadian federal government and regulatory bodies have ongoing programs to prevent major bank failures and to safeguard depositors should a federally chartered bank fail. Furthermore, the CDIC supplies deposit insurance as described above, which shields depositors in the event of a financial institution failure. Generally, Canadians can feel confident in the strength and security of their financial system.

I hope you enjoyed this Silicon Valley Bank failure Brandon’s Blog. Revenue and cash flow shortages are critical issues facing people, entrepreneurs and their companies and businesses. Are you now worried about just how you or your business are going to survive? Are you worried about what your fiduciary obligations are and not sure if the decisions you are about to make are the correct ones to avoid personal liability? Those concerns are obviously on your mind. Coming out of the pandemic, we are also now worried about the economic effects of inflation and a potential recession.

The Ira Smith Team understands these concerns. More significantly, we know the requirements of the business owner or the individual that has way too much financial debt. You are trying to manage these difficult financial problems and you are understandably anxious.

It is not your fault you can’t fix this problem on your own. The pandemic has thrown everyone a curveball. We have not been trained to deal with this. You have only been taught the old ways. The old ways do not work anymore. The Ira Smith Team makes use of new contemporary ways to get you out of your debt problems while avoiding bankruptcy. We can get you debt relief now.

We have helped many entrepreneurs and their insolvent companies who thought that consulting with a trustee and receiver meant their company would go bankrupt. On the contrary. We helped turn their companies around through financial restructuring.

We look at your whole circumstance and design a strategy that is as distinct as you are. We take the load off of your shoulders as part of the debt settlement strategy we will draft just for you.

The Ira Smith Trustee & Receiver Inc. team understands that people facing money problems require a lifeline. That is why we can establish a restructuring procedure for you and end the discomfort you feel.

Call us now for a no-cost consultation. We will listen to the unique issues facing you and provide you with practical and actionable ideas you can implement right away to end the pain points in your life, Starting Over, Starting Now.

silicon valley bank
silicon valley bank

 

 

 

 

 

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ECONOMIC RECESSION IN CANADA: IS CANADA’S ECONOMY HEADED FOR AN INTENSE RECESSION?

economic recession in canada
economic recession in canada

economic recession in canada

Economic recession in Canada: In Canada, the economy is under pressure

The economy in Canada is under pressure as the country deals with the fallout of the coronavirus pandemic. The pandemic has hit Canada hard. On one hand, certain Canadian businesses have shut down and people losing their jobs. On the other, there are job openings for other Canadian businesses. In August 2022, the unemployment rate in Canada increased from its record low in June and July, to 5.4%. The Canadian government has been working on trying to mitigate the damage and create supportable economic growth, but the economy is still struggling. The economic news is not good.

Coming out of the COVID economy there are many forces around the world causing global inflation. Supply chain shortages and the war in Ukraine are but two such global forces. Canada is experiencing inflationary pressures like every other country. Chief economists have mixed views on whether there will be an economic recession in Canada.

In response to the new global inflationary pressures, the Bank of Canada, like many other central banks, is raising its key interest rate regularly and significantly. The Bank of Canada is using its old domestic inflation policy rate fighting tools to fight these new pressures. It has promised more aggressive interest rate hikes. The federal government supports these rate hikes. Prime Minister Trudeau and his deputy chief, our Finance Minister and Deputy Prime Minister, Chrystia Freeland have said so.

As a result, the pressure on the economy is evident in the housing market. Home sales have dropped sharply, and house prices are also starting to fall. Notwithstanding the Bank of Canada’s key interest policy rate was designed to calm down a frothy real estate market, it is also a worry for the Canadian economy, as the housing market has been one of the bright spots in recent years.

The Bank of Canada’s inflation-fighting key interest rate policy tool has the potential not only to reduce inflation but if not closely managed, could throw us into a Canadian recession. We see financial markets, especially the stock markets, reacting negatively to this possibility.

Craig Wright, Senior Vice President & Chief Economist of Royal Bank of Canada believes Canada is headed for a recession, but that it will be a moderate one. So the ultimate question Canadians are asking is there a potential recession on the horizon or, how likely is an economic recession in Canada?

Economic recession in Canada: Bank of Canada believes that higher rates are essential to controlling inflation expectations

Higher interest rates ultimately force a contraction of the Canadian economy and an overall economic decline. The Bank of Canada really only has this one tool if it is going to act. Inflation is strong and is affecting longer-run business and consumer expectations. If inflation expectations rise, they can become self-fulfilling.

If inflation rates stay high, it can have very troubling economic impacts. Businesses will start charging more for their products. For things we need, we would have to pay more and would probably start asking for higher salaries and wages. If Canadians think inflation will go way past the Bank of Canada’s target, it could cause big problems with greater interest-rate hikes.

Both the US Fed and the Bank of Canada are increasing interest rates in an effort to control inflation. And neither bank is finished yet. The U.S. Fed and the Bank of Canada are expected to raise rates through to the end of 2022. That’s high enough to significantly restrict growth.

economic recession in canada
economic recession in canada

Economic recession in Canada: Although rates will eventually go down, they will not do so until inflation has cooled off

Although oil prices have been settling down and therefore prices at the pumps are falling, food and other consumer goods continue to have steady price increases. Continued increases eventually get to the point where they are unsustainable. Inflation won’t slow down until demand falls. Central banks will not ease interest rates until demand falls off sufficiently to reverse the current inflationary trends. If global economies cool off, it will help temper inflation.

Although labour shortages are preventing some expansion, many markets are still growing. However, disruptions from the pandemic continue to make it difficult for China to expand. Slowing growth abroad may have some negative effects on the US and Canadian economies as well.

The Bank of Canada will have to work very hard to find the right balance of interest rate hikes to cool inflation without causing an economic crisis or a recession.

Are we heading towards an economic recession in Canada and what can you do to help yourself?

I don’t know if the Bank of Canada’s current inflation-fighting efforts will force an economic recession in Canada, but Canadians have good reason to be concerned.

If you’re concerned about a recession in the near future, it’s important to be more mindful of your finances and think carefully about whether you can afford major purchases. What would happen if you were to lose your job or have an unexpected expense arise? It’s best to be prepared by carefully evaluating your savings and emergency fund now.

Your employment situation, savings, as well as spending practices can all contribute to how well you weather an economic downturn. Consequently, it is prudent to be prepared for bumpy rides by having a savings cushion and being mindful of living within your means. Additionally, those who are dissatisfied with their current employment or earnings may currently want to check out other opportunities prior to the Canadian economic situation worsening.

Douglas Porter, the Bank of Montreal chief economist, explains that how much Canadians feel the slowdown in the Canadian economy will depend on their individual circumstances. This includes what sector they’re employed in and whether they’re a borrower or saver.

One of the risks of a recession is the possibility of inflation eroding purchasing power and cementing in lower real wages. This is why it’s important to think carefully about asking for a raise now before a recession hits. Anyone considering a large purchase, like buying a home, must look at affordability.

Not only can you get the necessary financing to make the purchase, but can you afford the monthly payments? If you believe a recession is inevitable, then you should hold off making that real estate purchase because home prices inevitably will fall further in a recession.

economic recession in canada
economic recession in canada

What are 8 things you can do to prepare for an economic recession in Canada?

There are certain things Canadians can do to protect against an oncoming recession. It is not easy. It takes planning, belt-tightening and behaviour modification. Some possible steps include:

  1. Begin creating a household budget as soon as possible. This will help you to keep track of your income and expenses and help you make responsible financial decisions to not spend more than your household earns. Do not forget to use your family net income after accounting for income tax as your top income line.
  2. Now that you have your budget prepared, make sure you’re mindful of your spending and cut back where you can. Your budget needs to not only be break-even but there also needs to be a line for monthly savings.
  3. Credit cards can be useful when used properly. However, if you are using credit cards as a means to provide you with income that you do not earn, and increasing your credit card debt each month, this must stop. Lock your credit cards away, reduce your spending and eliminate your credit card debt.
  4. If you want to save money, you’ll have to cut back on eating out. Try to be mindful of how often you’re doing it, and you may be surprised at how much money you can save.
  5. Cutting back on your entertainment expenses is another way to reduce your spending. That means fewer nights out at the movies or out to eat, and maybe even skipping or cutting back on your various cable and streaming subscription services. It’s not going to be easy, but if you’re serious about saving money, it’s a necessary step.
  6. Take a critical look at your cell phone plan. Maybe there is a good deal on a more economical cell phone plan available. It is tough in Canada to do so because of the concentration of power by having so few Canadian providers, but that does not mean that you should not try.
  7. Do not incur new debt.
  8. Keep saving.

What if the economy in Canada is expected to experience a recession in the near future and you cannot hang on anymore?

We’re getting increasingly more telephone calls from people who state they or their companies have been hit hard by the pandemic, and they don’t see an escape. They applied for and received CERB payments. They really believed they qualified, and now the Canada Revenue Agency is reassessing their eligibility and demanding the money back.

We are getting calls from entrepreneurs. Their companies received CEBA loans but were unable to survive — their businesses had to close their doors even before an economic recession in Canada hit.

People are worried about what to do. These calls are coming daily. They are looking for answers to how they can bail themselves out of COVID-induced financial troubles, especially if there will be an economic recession in Canada.

Are you or your company in need of financial restructuring? Are you or your company insolvent due to a contract you may have entered into? Can you or your business not able to afford to make all your necessary debt payments, including mortgage payments?

The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.

Call us now for a no-cost initial consultation.

economic recession in canada
economic recession in canada
Categories
Brandon Blog Post

CANADA RECESSION: 8 ESSENTIAL SMART STEPS TO KEEP YOUR BUSINESS GOING IN A DOWN ECONOMY

canada recession

Canada recession: Can you operate a business if there is a recession in Canada?

During slow economic growth and economic downturns in the Canadian economy, companies cut costs and especially labour costs. I wrote about Canadians’ fears of the Canada recession two weeks ago. Job losses go hand in hand with tough times. For many people, gaining new meaningful employment is very tough and sometimes impossible. For those people with dim economic prospects in the Canadian labour market, starting a small business in tough economic times is really their only option.

Despite the challenges a weak economy and the current recession fears may pose, starting a small business can be a rewarding experience with the proper amount of planning. In this Brandon’s Blog, I provide my 8 best tips for either changing parts of your business or starting a small business during tough economic times and maybe even a Canada recession.

How must business owners respond to a Canada recession?

Right now, no economist is prepared to forecast the Canada recession risk. Will it be a mild recession, a severe recession or will we even have one at all? The current and forecasted monetary policy of the Bank of Canada with its overnight rate hikes to its benchmark rate has financial markets, Canadian businesses and Canadian households all on edge. It is not just Canada as the heads of the central banks of all advanced economies reacted to the pandemic the same way and are now all acting in concert with rate hikes in an attempt to curb the now persistent inflation.

We are in somewhat of new territory as this period of time is very different than previous recessions and financial crises. We are experiencing economic shocks due to the COVID-19 pandemic and the shutdown and restarting of the Canadian economy. There is not a lot of either business confidence or consumer confidence in the marketplace right now. The consumer price index is increasing due to rising inflationary pressures and the inflation rate in Canada.

Small business owners need to have a well-crafted business plan, especially during an economic downturn. This is because it can be more difficult to get financing from lenders when money is tight. Therefore, starting a small business during a recession can be challenging. If you want to have success in your business, new or established, you need to put some serious effort into cash forecasting and knowing your bottom line. This means understanding how much money you need to bring in, what your operating costs are, and ideally how to make a profit.

canada recession
canada recession

How to financially prepare my business for a Canada recession

Here are some methods that can help ensure your business does well during challenging financial times. Whether you’re just starting or need to make some adjustments to your existing company, these pointers can help you survive as well as also grow.

You can even find success at some level during turbulent economic activity. The reasons are as follows:

  • You may find that there is less competition during this time. This is because most people tend to start businesses when the economy is doing well.
  • You may find certain things are cheaper, the overhead costs of things that you need for your business to run. Think about working from home or renting a location that has been vacant for a while. Think of used furniture and materials, which you can buy at a discount or maybe even from a bankruptcy sale.
  • If you service your customers you gain during this time well, your good relationship will be a good reason why they will be more likely to stay in touch with you when the economy improves. This is especially important if you can offer them a more affordable option than the competition.
  • More mature businesses tend to stifle or prevent innovation during downturns. You can use this time to come up with new ideas that might be missed and give you a better position when you open doors, real or virtual.

The success of your company is based on how well you study the actual domestic demand for your product or service in the marketplace. It is just as important to comprehend what target price you need to reach in order to make sales. Furthermore, you need to understand what sales level you need to hit to both break even and also to be profitable.

Canada recession financing

It’s always an excellent idea to have someone you trust assess your business plan and cash flow forecast before trying to obtain financing. This will help you catch any essential issues you might have missed or inaccurate assumptions you have actually made as it relates to your business and its capital requirements. Some resources you might wish to turn to for help before looking to financial institutions for a loan include:

  • friends who have their own business;
  • someone at the bank where you do business with who you have a good relationship; or
  • your accountant

The Canadian economy could be pushed into a recession by the federal government’s reaction to the COVID-19 pandemic. If you’re considering starting a new business during these challenging times, you need to be very cautious. Your ability to develop a financial backup plan for your business and personal finances if you don’t meet your initial revenue target is more important than your ability to borrow money. It is normal for any new business that you will not be able to draw a salary during the 1st year of your new business.

You should also have a personal cash reserve so you have enough to live on for ideally the first 12 months of a new business. Make sure you budget carefully so you can keep making your most critical payments: rent/mortgage, insurance, utilities, and food. Finally, check your gut and your bank balance to make sure you’re ready to embark on your new adventure.

canada recession
canada recession

Canada recession: Sell ​​shrewdly

Starting a new business at a time of sharp economic downturn and turbulent economic activity requires creativity and resourcefulness. Marketing is critical to staying ahead of the competition. Make sure your business plan really fleshes out the marketing process: What exactly are you trying to sell? Who is your target customer? How will you price your product or service? What is your business promotion plan?

Dividing your original customer base into smaller pieces or niches is another strategy to allow any business to market more strategically. For example, if you are offering professional services for women, are you able to narrow it down to women in a specific age group, occupation type, or geographic location? Or, can you tier your product offering so that there is a relatively low-cost entry point product to allow new customers to try out your business and to allow you to then move them up to higher-priced and more profitable product offerings?

Can you think of ways to expand your customer base? For example, if you have a business shipping recipes and ingredients on a subscription basis for people to cook their own dinners without having to go do the shopping, could you also offer packaged dinners to customers who just want the convenience of heating and eating?

Canada recession: Ongoing competitive analysis

Be informed of your competitors’ movements in terms of marketing and product design. Are they enhancing the product? Devaluing the price? Utilizing original promotional methods? Knowing your competitors’ standings will help you formulate a unique selling proposition and grow your market.

Think about which segments your competitors are not serving, or which leads they are missing, and then fill that gap.

canada recession
canada recession

Canada recession: Start small…with a plan to expand

As you start your business, be mindful of both your expectations and expenses. Try to be conservative in your estimates and plans, then adjust as your business grows. Review your business plan periodically and reconsider what is truly necessary to get started. For example, could you open in a smaller or cheaper location? Or, could you avoid the need for physical space by staying virtual?

When you have found the most cost-effective space for your business, think about your staffing needs. Before hiring permanent staff, you could use independent contractors as temporary or part-time workers.

If you are aware of a similar business that is failing, you may be able to find some great people who are willing to be paid less than in a more active market. Offer fewer employee benefits initially and then increase them as your profits grow. You don’t want to offer all sorts of great benefits at first and then find out you can’t afford them later. Taking away benefits is much worse than not having given them in the first place.

Immediate business growth in a challenging economy is unrealistic. An aggressive approach in a Canada recession or a down economy is unwise. You should be looking for sustained business growth over time.

Canada recession: Leverage technology to your advantage

The right tools are essential for business success. Utilizing modern technology can help you to stay organized, connected with customers and effectively market your company. CRM systems help you track your customers’ interests, so you can focus on products and services that best meet their needs.

The latest technology gives entrepreneurs more options for selling online and through multiple channels. You can save on advertising costs by doing email marketing, blogs, podcasts and of course optimizing your website for SEO instead of opting for more expensive electronic or print ads. And when you need inspiration, you can turn to social media and online publications and groups focused on helping entrepreneurs.

canada recession
canada recession

Canada recession: Your network

Building a strong network is essential for anyone looking to advance their career or grow their business. Getting involved in local business groups and networking events is a great way to meet other like-minded individuals and make valuable connections. Joining professional associations or local clubs and organizations related to your industry is also a great way to expand your network and get your name out there.

Canada recession cost reduction ideas

With inflation pressures causing rising prices, cost reduction needs to be a key element of running your business. A gloomy economy can actually mask some great ways to save money. Creative ideas to reduce your start-up costs include:

  • Be very careful when making capital investments due to their mid and long-term nature. Leverage the economic situation and negotiate everything. You may be able to get a sharp drop in prices if you can demonstrate that you can afford to pay the lower price in full and on time.
  • Buying supplies from businesses that are about to go out of business or need to reduce inventory, especially bulky items like electronics and office furniture.
  • Barter with other business owners to find business alliance possibilities and suggest trading in products or services to offset costs.
  • Initially, do your own legal, financial and business homework through free online resources.
  • Compare business credit cards for the best deals.
  • Find a bank account that meets your small business needs including access to brick-and-mortar and online services as well as attractive rates and incentives.

    canada recession
    canada recession

Canada recession key takeaways

Before seeking financing, consult with another business owner or friend to review your business plan. Develop a marketing strategy tailored to your business goals. Start small and expand when you see improvements. Secure your network and find ways to keep costs down by utilizing available technology.

You should begin with small steps and then increase your efforts when you start seeing improvements. Make sure your network is secure and look for ways to reduce costs. Make use of appropriate existing technology.

Although it may be challenging, there are benefits to starting or running a business during an economic downturn. By being thoughtful and strategic about cost-cutting measures while still providing value to customers, you can set your business up for success.

Canada recession conclusion

I hope you found this Canada recession Brandon’s Blog interesting. Among the many problems that can arise from having too much debt, you may also find yourself in a situation where bankruptcy seems like a realistic option.

If you are dealing with substantial debt challenges and are concerned that bankruptcy may be your only option, call me. I can provide you with debt help.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost consultation.

canada recession
canada recession
Categories
Brandon Blog Post

IS CANADA IN RECESSION? MOST CANADIANS SAY YES TO AN INTENSE RECESSION

Is Canada in recession?

Statistics Canada recently released data showing that inflation rose to 7.7% year-on-year in May, up from 6.8% in April. This was the highest reading since January 1983 and well above the 7.3% expected by economists. The inflation index rose 1.4% from the previous month, with gasoline prices, hotel prices and car prices being the main reasons for the rise in May.

Many economists believe core measures are a better indicator of underlying price pressures, as it excludes food and energy costs. The recent average of this measurement, according to Statistics Canada, increased to 4.73% which is the highest level in the last 32 years! The worst news, their inflation expectations are not stopping.

In this Brandon’s Blog, I discuss is Canada in recession and look at what effect it might have on Canadians.

Is Canada in recession? What is a recession?

In the most basic terms, a recession is not only when economic growth is curtailed but is a period of economic decline marked by a contraction in economic activity. Most governments define a recession as two straight quarters in which the economy contracts by at least 1.5 percent. Economists define it as negative gross domestic product (GDP) growth. This definition doesn’t take into account consumer sentiment, but that’s an important metric to pay attention to since it affects consumer spending.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. A new poll finds that nearly 8 in 10 Canadians believe the Canadian economy is in or near a recession. More than half of those Canadians are starting to cut back on spending to cope with the recession.

According to a recent survey of 1,517 Canadians by Yahoo and pollster Maru Public Opinion, a whopping 78 percent of respondents believe Canada is now in a recession or approaching a recession. Of those, 23% believe Canada will enter a recession within the next three months, while as many as 55% believe the Canadian economy is now in a recession.

is canada in recession
is canada in recession

Is Canada in recession right now? What the economists say

Canadian economists were surveyed by Finder on their inflation and economic recession expectations. Most said Canada has recession risk and is heading for a recession. They say we can expect it to happen anytime between 2023 and the first half of 2024. Most thought it would happen in the first six months of 2023, another quarter thought it would take a year to manifest. Economists have pointed to the pandemic, inflation and interest rate hikes as the reasons for the recession in Canada (isn’t the hot money only flowing into the housing market the reason for the recession?).

Finder explains how economists try to time recessions. Canada is headed for a normal summer as pandemic restrictions are lifted, but a new variant of the COVID-19 pandemic could emerge in the fall that could tip us into a Canadian recession by this time next year. What they cannot tell us is whether it will be a mild recession or a deep recession.

Why Is Canada likely to experience a recession?

In a single word – inflation. Inflation is rising and our federal government is doing nothing to quell the inflation expectations. This is causing the Bank of Canada to try to tame inflation by raising interest rates. This increases the risk of a recession. In fact, many economists told Finder they expect “aggressive” rate hikes in the coming year. Most of those polled believe there will be at least four more rate hikes this year.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. The Bank of Canada is one of the central banks trying to restore soaring inflation to its target range of 1% to 3%. On June 1, the Bank of Canada announced a rate hike of 0.5%.

The timing of the recession is not easy to grasp, and much depends on what happens with Russia’s invading Ukraine. Murshed Chowdhury, an associate professor at the University of New Brunswick, expects the recession to continue into the first half of 2024. How long the supply-side problems will last and the escalation of the Russian-Ukrainian war will play a big role in deciding how things turn out.

The rise in prices causing inflation can be attributed to a number of factors, including poor fiscal management by the federal government. Other factors include record highs in commodity prices such as oil and wheat. Unfortunately, wage growth for most Canadians has not kept pace with inflation. Wages have risen 2.7% over the past two years, compared with inflation of 3.4% over the same period.

is canada in recession
is canada in recession

Is Canada in recession? What will happen to the economy of Canada?

Consumer prices in Canada accelerated to their highest level in 40 years, Bloomberg reported, adding pressure on the Bank of Canada to continue aggressively raising interest rates in the coming weeks.

Markets are almost entirely confident that the Bank of Canada will raise interest rates by 75 basis points next month, which will lift its policy rate to 2.25%. The rate is expected to be as high as 3.50% by the end of the year. The preferential loan interest rate offered by commercial banks is usually more than 2 percentage points higher than the policy interest rate.

Prime Minister Justin Trudeau’s government has also come under pressure from opposition parties and economists to do more to contain inflationary pressures and help households offset the cost of living, though the Trudeau government has been wary of any new measures.

Like other countries, Canadian households have been hit by record gasoline prices and soaring food prices. After a slight pullback in April, gasoline prices surged again in May, rising 12% for the month and 48% from a year earlier. Food prices rose by a smaller 0.8% in May but were up 8.8% from a year earlier.

Given that gasoline prices rose further in June, the 7.7% annual figure may not even be representative of the peak annual price increase. There were more signs that imported inflation was affecting domestic prices, with the cost of services rising 5.2 percent from a year earlier, the fastest pace of growth since 1991.

The cost of living is rising twice as fast as the average Canadian wage, creating significant headwinds for the economy. Unfortunately, the Canadian government and the Bank of Canada are treating this as if inflation is all caused by domestic factors when it is really global. Raising interest rates aggressively, an old tool, cannot solve a globally induced imported inflation spike.

The inflation we are experiencing now is a result of all the shocks to the Canadian economy: COVID-19, monetary policy-induced recession factors when the Bank of Canada kept interest rates at their lowest ever levels during the COVID-19 pandemic, the supply side problems because every major world economy effectively shut down for the better part of 2 years, the war in Ukraine causing shortages and therefore price spikes. None of it is a Made In Canada problem, yet the Bank of Canada and the federal government are treating it as if it was homegrown.

Is Canada in recession? What happens if we experience a recession?

Canadians’ purchasing behaviour is already beginning to change. A poll conducted by Nanos Research for Bloomberg News indicates:

  • 52% of Canadians surveyed say they have adjusted their spending habits, set stricter priorities and started consciously spending less in the past month.
  • The majority of Canadians expressed concern about the state of the economy, with 62 percent of Canadians believing that the Canadian economy was on the wrong track.
  • Rising prices have led 32 percent of Canadians to believe they are in a worse financial position than they were the previous month. Only 8 percent of Canadians said their situation had improved.
  • Regionally, the poll showed that residents of Atlantic Canada and Western Canada are particularly concerned about the economy.
  • In the Atlantic region, 75% of respondents believe the Canadian economy is heading in the wrong direction; in Manitoba and Saskatchewan, 77%; in Alberta, 66% of people hold this view.
  • 41 percent of Canadians said they were in a worse financial position today than they were last year. This is the second-highest reading since 2008.

This consumer sentiment, runaway inflation and the Bank of Canada and the federal government using old tools to fix a new problem will have negative consequences for Canadian businesses. Consumer spending which previously fueled the Canadian economy, now reduced consumer spending, this will most likely place is Canada in recession.

Lower company sales will lead to job losses and our record low unemployment rate will increase possibly to a new high when the current job market changes for the worst during a recession. Business investment will be reduced and what investment is made, will be more in systems and technology than people. There will be a resultant drop in GDP. Certain asset categories will drop dramatically in price as capital flees places like the Canadian stock market for investments seen to be safer.

is canada in recession
is canada in recession

Is Canada in recession? How to protect yourself from a recession

Our spending and investing habits directly impact the economy. This year so far, it’s been a rough ride. However, the majority of how a recession affects us is within each of our own control. The rest of it, the minority is because of forces beyond our control.

The economy will vary from year to year. Our spending, saving and investing habits directly impact the economy. It is important for all of us to make smart financial decisions now so we can weather the storm when the economy dips. Is Canada in recession? Based on the above, not right now, but, it could be soon. Here are my tips on how to protect yourself from a recession.

It’s important to have an emergency fund

When a recession hits, you can get fired and the value of your investments can plummet. One of the best ways to protect yourself from financial distress or additional debt is to increase your emergency savings.

That way, even if there are unexpected expenses, or your income is affected, you’ll have a cushion to protect yourself and your family. I always recommend having an emergency fund that allows you to survive for a 6-month period.

Boost your employment prospects

When a recession hits, job security can be at risk. To safeguard your income, you should consider finding a side hustle in addition to your regular job. This can serve two key purposes—helping you grow your emergency fund and providing you with extra income.

You should focus on developing job skills that will help improve your chances of not being laid off. Time management, communication, and attention to detail are all important skills to focus on.

Budgeting

Look at your family household expenses. Cut back on anything that is not necessary spending. If necessary, use cash to pay for purchases and not a credit card. We tend to spend less when we have to count it out in cash rather than tapping or swiping a card.

That way your money will go much further. Remember, during a recession, cash is king!

Pay down debt

Do everything you can to pay down your debt before a recession hits. The more debt you have, the more of your money goes to interest payments. If you have variable rate loan debt, as the Bank of Canada continues to crank up interest rates, the cost of that debt increases.

If you have fixed-rate debt and it comes up for renewal time, say like your house mortgage, you will be forced to renew at a higher interest rate. So, by paying down debt, you are insulating yourself as best as possible against the negative effects of the recession on your outstanding debt.

The economy may or may not slip into a recession but based on what the economists believe, more likely than not, eventually, it will. Recessions can last for a long time, or they can end quickly. However, the more prepared you are, the lower your chances of suffering a prolonged financial shock in the aftermath.

You may also want to read 2 other Brandon’s Blogs:

Is Canada in recession? What if your debt is too much for you?

I hope you found this is Canada in recession Brandon’s Blog interesting. Among the many problems that can arise from having too much debt, you may also find yourself in a situation where bankruptcy seems like a realistic option.

If you are dealing with substantial debt challenges and are concerned that bankruptcy may be your only option, call me. I can provide you with debt help.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost consultation.

is canada in recession
is canada in recession
Categories
Brandon Blog Post

DEBT AND UNPOPULAR INTEREST RATE HIKES, HOW IS THE ECONOMY FARING?

What is the definition of debt?

Debt is the money that a person or company owes to others. That is the simplistic definition. It is really one of life’s most stressful parts. Some people grow up in debt. For them, it’s just part of their lives, and they can make it work. Others live from paycheque to paycheque and save little to nothing. For them, it is crippling and can consume their lives, making their existence a daily struggle. For others, it is a parasite, feeding on their mind and their body. It can destroy their life, pulling them down and limiting their options and choices.

Consumer debt and household debt come from a number of places. Some source of debt is from emergency situations, and some of it is from buying expensive things but useful and worth the cost. That is how people have viewed real estate over the last decade, especially during the unprecedented pandemic. However, I also see some situations where high levels are just from bad decisions.

Business loans and corporate debt come in handy for a number of reasons. Perhaps you need some extra cash to get your business up and running. Or, maybe you’re looking to expand your operations by opening a new branch or purchasing new equipment. In any case, a business loan can provide the funds you need to reach your goals. Or, like in the last 2 years, perhaps the bottom has fallen out of the economy due to the COVID-19 pandemic and in order to survive, the business has had to take on government-support loans to increase the business debt load substantially.

All of these are now coming together in a perfect storm, as the Bank of Canada attempts to battle inflation and high Canadian real estate prices by beginning a pattern of interest rate hikes.

In this Brandon’s Blog, I look at how interest rate hikes, higher Canadian household debt and more Canadian business bankruptcies are the most recent signs of the Canadian consumer debt burden, as well as the major indicator of the current state of business in Canada.debt

Policy Interest Rate – Bank of Canada

The Bank of Canada’s primary business is to conduct monetary policy for the Canadian economy. This means that the Bank uses its tools of monetary policy to try to hit its target for inflation, which it does by adjusting the Bank of Canada’s policy interest rate. The Bank of Canada’s policy interest rate is the rate at which it lends money to financial institutions.

At the beginning of March, the Bank of Canada increased its target for the overnight rate to 1%, with the Bank Rate at 1¼% and the deposit rate at 1%. This Fed interest rate hike was the biggest increase in two decades. The reason? To fight inflation.

The world’s biggest central bankers have long argued that ultra-low interest rates encourage spending and investment, helping to boost growth and employment. So at the outset of the pandemic with the world economies in tatters, all major central bankers, including the Bank of Canada, set borrowing costs at record lows. Those actions, amongst other things, contributed to the current state of inflation in the economy.

Macklem won’t rule out an inflation-driven, super-sized rate hike

The central bank predicts that inflation will remain high, averaging almost six percent in the first half of this year and remaining elevated in the second half of 2022. It is expected to ease in the second half of next year before returning to the two-per-cent target in 2024.

What are the factors causing this inflation? The global financial situation has become more difficult and unpredictable. Prices for oil, natural gas, and other commodities have risen sharply, contributing to inflation in many parts of the world. Supply disruptions resulting from Russia’s invasion of Ukraine have caused the prices of energy and other commodities to increase even further.

Looking to the future, Bank of Canada Governor Tiff Macklem stated that the Bank will be taking another 50-basis-point step which has already been baked into the financial markets. He believes that the economy needs higher rates and can handle them. It is evident that Macklem is dedicated to using Canada’s policy interest rate to bring inflation back to target. As inflation continues to surge to new highs, an even bigger interest rate hike may be on the horizon. Bank of Canada Governor Tiff Macklem indicated that further and faster rate hikes could be necessary to keep inflation in check.

The problem is that Canadian inflation is as much from a global impact as it is local. Raising interest rates may slow down home buying and mortgage growth. While it is true that mortgage debt is Canadians’ single largest obligation, increasing interest rates won’t fix the sky-high pricing at the gas pumps and the supermarkets.debt

As interest rates increase, so is household debt!

The latest figures from Statistics Canada, the agency responsible for collecting and disseminating statistics related to the economy of Canada, indicated that the total amount of household debt in the country increased by 0.5% in March 2022, up $14.4 billion to $2.69 trillion.

The increase of $13.2 billion came largely from debt related to the real estate market, such as mortgage borrowing and home equity lines of credit (HELOCs). This amount totalled $2.16 trillion outstanding. However, Statistics Canada also reported that credit card debt has increased for the second consecutive month, growing at a faster rate than mortgage debt!

Now as the Bank of Canada embarks on a hiking cycle that could go faster and further than before, and sky-high inflation squeezes household budgets, economists and capital markets are once again raising the red flag.

In a recent poll, 31% of Canadians polled say they already don’t make enough to cover their bills and required payments. Economists look at the rise in credit card debt and attribute it to a rise in personal spending. This is true. However, with prices rising much faster than wages, the increase could be a troubling sign that Canadians are spending on basics by using credit to replace the money they do not have and will not have to repay the new rising liabilities.

The rising cost of debt payments is already putting a strain on Canadians

If you’re borrowing money, interest is what you pay to your lender for using their money. It is your debt cost. If interest rates go up, the amount you have to pay each month for a mortgage, line of credit, or other loans with variable interest rates will increase. The minimum payment required each month on variable rate loan products will increase as interest rate hikes continue. At some point, you’ll also need to renew a fixed interest rate mortgage or loan. When interest rates are rising, the renewal rate on the fixed debt cost will be higher.

Raising borrowing costs to quell rising consumer prices may pose some risks, especially since Canada has a high level of household debt. In terms of household debt to income, Canada ranks 4th highest in the world.debt

What are the most effective ways to reduce your debt?

Paying down debt as much as possible will help counter the effects of a rise in interest rates and provide you with much-needed debt relief. Here are some of the best ways to reduce your debt burden thereby improving your credit score and credit rating:

  • Cut up your credit cards and only use cash for an extended period of time until things are back in control.
  • Make a budget and stick to it.
  • You should have an emergency fund to pay for unexpected expenses arising from external events out of your control.
  • Create a payoff plan. Look at your various categories of debt and make a plan that is most realistic for each type of debt.
  • Save money on interest by paying down the outstanding amount with the highest interest rate first.
  • Debt consolidation. Consolidate your liabilities with the highest interest rates into a single loan with a lower interest rate. By keeping your payments the same, and paying more than the monthly minimum payment, you’ll be able to pay it off faster and save money in the long run.
  • Avoid getting the biggest mortgage or line of credit that you’re offered.
  • Get a part-time job or begin a side hustle to boost your income.
  • Think first about how borrowing more money could impede your ability to save for future objectives.
  • Speak to a financial advisor or one from a wide variety of other financial professionals to find out how to teach you how to create a plan to be debt-free.

What will happen now with external debt and business bankruptcies?

As businesses continue to experience insolvencies, it’s important to note that the Canadian business bankruptcy rate is on the rise, according to a recent report by Statistics Canada and the Office of the Superintendent of Bankruptcy Canada. This increase underscores the importance of taking measures to protect your business from financial hardship.

Business bankruptcies in Canada increased by almost 34 percent year-over-year in the first quarter of 2022, which some experts warn could be the start of a growing wave of failures. This is closer to pre-pandemic levels. The number of business bankruptcies and proposals increased in the first quarter of 2022, with 807 cases compared to 733 in the previous quarter and 603 in the first quarter of 2021.

Business bankruptcies in Canada are increasing as government support comes to an end and businesses face a difficult post-pandemic recovery with high costs, supply chain problems and a shortage of workers. The financial support provided by the government through the COVID-19 pandemic assisted in delaying the surge in bankruptcies. Funding sources are becoming more expensive also.

Small business owners are feeling increased pressure from inflation in comparison to the average Canadian. With each budget line costing more, filing for bankruptcy is often the only option left. The data doesn’t capture the number of insolvent businesses that are forced to close without any formal filing, but the trend is now becoming evident.

Do you think that debt levels and bankruptcy filings will surpass pre-pandemic levels?

The state of the economy and how inflation and supply chain issues are managed will determine if the number of bankruptcy filings will rise in the coming months or not. As you can see, inflation, supply chain issues, interest rate hikes, household debt problems, business owners searching for more solutions and business bankruptcy filings are all now coming together in a perfect storm.

I hope this Brandon’s Blog on the current state of Canadian interest rates, household debt and business bankruptcies was helpful to you in understanding more about the corporate bankruptcy system in Canada.

If you or your company has too heavy a debt load, we understand how you feel. You’re stressed out and anxious because you can’t fix your or your company’s financial situation on your own. But don’t worry. As a government-licensed insolvency professional firm, we can help you get your personal or corporate finances back on track.

If you’re struggling with money problems, call the Ira Smith Team today. We’ll work with you to develop a personalized plan to get you back on track and stress-free, all while avoiding the bankruptcy process if at all possible.

Call us today and get back on the path to a healthy stress-free life.debt

 

 

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WILL AN INTEREST RATE HIKE IN CANADA BE NECESSARY AND WOULD IT BE EXCRUCIATING FOR CANADIANS?

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fullynt operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Interest rate hike in Canada: Introduction

The Bank of Canada Governor, Tiff Macklem, announced on December 15, 2021, that the slack in the economy caused by the Coronavirus pandemic has substantially decreased. It is a clear indication that the central bank will begin an interest rate hike in Canada process in 2022. In addition, he said the central bank was concerned about the rate of inflation, which was at an 18-year high of 4.7% and well above its control range of 1-3%.

Here is a Brandon Blog about why at least one interest rate hike in Canada is likely in 2022 and what that means.

Interest rate hike in Canada: Canadian borrowers prepare as U.S. central bank warns of 3 rate increases in 2022

The U.S. central bank will now direct its attention to battling inflation. As it slows down its bond-buying, the Federal Reserve may raise rates as soon as April 2022. U.S. central bank forced to end stimulus due to job creation, expanding economy, and soaring inflation.

Fed says it will end its pandemic-era bond purchases in March, signalling it has met its inflation target. Federal Reserve rate increases are inevitable for Canadian borrowers. In the event that the Federal Reserve was to wind down stimulus faster and hike rates more rapidly, rising rates would have a greater impact on the Canadian economy. Governor Macklem will be free to act without fear of damaging Canadian exports if the Fed decides to increase interest rates.

Inflation is too hot right now. That’s the message from both the US and Canada central bankers.

interest rate hike in canada
interest rate hike in canada

Interest rate hike in Canada: Higher interest rates are coming. Omicron is unlikely to change that

At the beginning of the pandemic, the Bank of Canada reduced its benchmark interest rate to the current low level of 0.25 percent. Generally, a central bank will elevate its benchmark interest rate to cool down an overheated economy and control inflation. To stimulate a cold economy, it will decrease the rate of interest, which will encourage individuals as well as companies to borrow and spend.

To bring inflation under control, various economists predict that the Bank of Canada will need to raise interest rates in 2022. The argument is that monetary policy is the best way to deal with permanent, sustained inflation. According to them, a series of rate increases is needed to deal with it. As the federal government has suggested, recent inflation acceleration won’t be transitory.

In spite of the current outbreak of the Omicron variant, economic data from as recently as December shows the economy continues to outperform.

Interest rate hike in Canada: No need to hike benchmark interest rate just yet, Bank of Canada says

It is now difficult to find a senior economist that believes interest rates won’t rise to bring ongoing inflation under control by the end of 2022. Despite repeated attempts from the Canadian Government, the public isn’t convinced that Canadian inflation is minimal.

Canada’s central bank is the Bank of Canada, a crown corporation. Statistics Canada’s Consumer Price Index (CPI) is used to make Bank of Canada decisions. With the inflation-control target introduced in 1991, the ideal range for annual inflation is 1% – 3%, with the midpoint of 2% as the common target rate.

The Bank of Canada now says that the labour market slack has been absorbed significantly. It says the interest rate will remain at record lows until the economic slack is sustainably abated, which is currently forecast for the middle quarters of 2022.

Until Q2 or Q3 of 2022, the Bank of Canada expects its policy interest rate to remain at 0.25%. Until the second half of 2022, CPI inflation is also forecasted to remain above 2%. Currently, the Bank of Canada is keeping its policy interest rate unchanged. Eventually, economic levers currently being used, such as quantitative easing, will no longer be enough.

interest rate hike in canada
interest rate hike in canada

Interest rate hike in Canada: Rate hikes don’t fix bottlenecks and can hurt Canadians

Current inflationary pressures are due to supply chain disruptions, pandemic-related supply bottlenecks and energy prices. Hopefully, the economy will be more healed in the second half of 2022 before central bankers hike rates.

Considering the amount of outstanding debt, Governor Macklem should be careful not to raise borrowing costs too quickly or too much. If the Bank of Canada waits too long to begin an interest-rate increase, the rate hikes will have to be more dramatic, and Canadians aren’t ready for dramatic increases.

As the market rates are already preparing for a higher rate outcome, the average Canadian doesn’t need to prepare for the level of interest rates itself. Canadians will be affected by the pace of rate increases, in my opinion.

The current low-interest rates are designed to help borrowers weather the pandemic caused economic storm. In addition, since the outbreak of the pandemic, real estate prices have risen significantly, possibly creating a housing bubble in Canada. The Bank of Canada and the government are under pressure to lower stimulus because of asset bubbles in real estate and other assets.

Interest rate hike in Canada: How Will Higher Interest Rates Affect Me?

As a result of supply constraints resulting from Coronavirus-related events, low-interest rates will eventually end due to inflation. Meanwhile, there are concerns about another strain of this pandemic causing more economic damage. With no indication that the pandemic will ease any time soon, the Bank of Canada is inclined to gradually raise rates to avoid shockwaves reverberating throughout the entire economy.

Some Canadians may be affected by higher interest rates. In the long run, the Bank of Canada will have to make every effort to maintain a stable economy.

As Canadians struggle to get back to normal, they are concerned about the impact of a rate hike. A higher interest rate could lead to less consumer spending and job losses, according to some economists. Variable-rate mortgage debt holders will have higher interest costs. The same goes for those with fixed-rate debt, such as mortgage debt, whose term is set to expire. They are concerned about having to renew their mortgage debt at a higher interest rate. Business borrowings with a variable interest rate pegged to the financial institution’s prime rate will also cost more.

The one thing we know for sure is that many Canadians are concerned about the future and what changes in interest rates may mean for them. Nonetheless, the Bank of Canada will not raise interest rates overnight. It typically takes the central bank several months to set interest rates.

Whenever the Bank of Canada decides to raise rates, it will carefully consider how it will affect different groups of Canadians, such as those with mortgages and those without homes. In the case of mortgage holders, the Bank of Canada wants to ensure that they can afford their mortgages when interest rates rise.

In order to maintain the economic recovery, the Bank of Canada must manage the risks associated with rising interest rates.

interest rate hike in canada
interest rate hike in canada

Interest rate hike in Canada: Summary

I hope you found this interest rate hike in Canada Brandon Blog informative. Although nothing is guaranteed, managing your debt in a way that will allow you to be able to afford it, even if there is an interest rate hike in Canada, will lead to your financial success. It will also give you the best shot at having a financially stress-free life.

Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you? Do you need to search out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a Government of Canada-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

interest rate hike in canada
interest rate hike in canada
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CANADA’S DEBT BURDEN: CANADIAN WEALTH SOARS RELATIVE TO DEBT

canada's debt burden
canada’s debt burden

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would like to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

Canada’s debt burden growing for Canadians: 2021 Edition

Canada’s fiscal policy faces many challenges, according to the Fraser Institute. The federal and many provincial governments face serious financial challenges due to budget deficits and increasing accumulation of debt. As interest payments increase, there will be less money left for tax cuts, education, and social services. In the aftermath of COVID, the federal and provincial governments must develop long-term plans to address Canada’s growing debt problem.

Canada’s debt burden continues to be the talk of the town in this age of global statism. It’s always cited by statists that Canada’s federal debt is 100+ percent of GDP compared with 80 percent in the early 1980s. It’s even considered a threat to Canada’s sovereignty, a moral hazard, and a burden on future generations by some. However, individuals’ personal share of Canada’s debt burden may not be growing. I will explain some interesting Statistics Canada reporting in this Brandon Blog post.

Canada’s debt burden: The coronavirus is why provinces need financial assistance now

In 2020, the Premier of Newfoundland and Labrador wrote to Justin Trudeau, saying that his province faced an “immediate and urgent financial crisis” and was unable to raise short- and long-term funds.

During the critical period, the letter explained, the government has no alternative methods of funding provincial government operations, including its health care system. The Bank of Canada offered to buy 40 percent of all new provincial bonds four days after the letter was sent.

The province has been hit with a public health crisis of unprecedented proportions, and their provincial peers, who have similar debt-to-GDP ratios, are not far behind. It is likely that the government can do the same for provinces and municipalities that have to shoulder heavy coronavirus-related costs if it can provide zero percent loans to small businesses.

By law, it can.

canada's debt burden
canada’s debt burden

Is Canada’s debt burden a cause for concern?

Following a federal budget deficit of $354.2 billion last year, the Trudeau government budget documents show that the Feds anticipate a deficit of $154.7 billion in 2021/22, and deficits of at least $30 billion for another four years thereafter. There has been a significant increase in debt accumulation. During the next two years, the country’s net debt-to-GDP ratio is expected to rise to 55.3 percent. In spite of low-interest rates, government program spending in 2021/22 is expected to increase by more than 40 percent over 2019/20. Despite the prime minister’s vague promise that a balanced budget will be achieved at some point, there is no timeline for that.

Can Canadians expect a bout of inflation to continue rising? Can we expect an increase in interest rates? Do you expect a depreciation of the exchange rate? Is it possible that the government will default at some point? Are there any limits on the size of the debt?

Over the years, various economists have noted that federal government debt is not the same as “debt” in the way that the term is commonly understood. Even if it means working harder or cutting back on our spending, we expect to have to pay back debt at some point.

Unlike a government, a household has a finite lifespan. The government, however, can, in principle, refinance (rollover) its debt indefinitely while a household must eventually pay off its debt. Governments do not have to worry about involuntary defaults when they finance themselves with convertible debt.

As a burst of inflation has already begun, we should prepare for possible temporary spikes. Governments borrow money because they don’t spend all of their income right away. Some of it is saved until later. Therefore, future tax revenues can be increased without increasing current taxes. Thus, as real incomes increase, consumer spending increases, which in turn generates additional tax revenue. Therefore, the economy grows more rapidly than it would ordinarily.

How does the government handle overspending? Governments need to reduce spending sooner than later when they run up a level of borrowing that is unsustainable. If it does not, then raising taxes is the only option left. Those who are old enough to recall the 1970s know that high taxes tend to slow down economic growth.

Although prices haven’t risen too much so far for Canadians, their rise is inevitable and the end does not seem too close right now. Inflation concerns seem to be making daily headline news. Nonetheless, many people fear that living costs will continue to rise forever.

So that is the government. What has happened to individuals and their contribution to Canada’s debt burden over the last 18 months?

Canada’s debt burden: Canadian Debt To Assets Falls To Nearly Two-Decade Low

According to Statistics Canada, family financial debt is at its lowest level in the last two decades as a percentage of the overall household assets. Throughout the last twenty years, the debt-to-assets proportion has actually never ever been below its long-term average as it is now.

Therefore, Canadians are less likely to file for bankruptcy than in the past. This is supported by statistics on bankruptcies over the past 18 months. David Madani, senior director at Capital Economics, called it rather remarkable.

According to CNBC, Canadian consumer credit rose 0.5%, but non-financial corporate borrowing of business loans declined 1%. Lending to consumers is up. Consumer lending annual growth is primarily fueled by a substantial increase in mortgages and home equity loans, as I mentioned in previous Brandon Blogs. Debt on credit cards has steadily reduced during the pandemic. Three billion dollars more than expected was borrowed by non-financial companies.

canada's debt burden
canada’s debt burden

Canadian Household Wealth Soars, Canadian’s Debt Burden Drops Amid Pandemic: Statistics Canada

I will now turn my attention to the household wealth side of the ratio now that I have discussed the debt side. What’s behind the rise of wealth? The rise in wealth can be attributed to a number of factors:

  • prices for stocks and houses soaring;
  • a generous income support program from the government for jobless individuals;
  • during lockdowns, there are fewer things to spend money on.

Households have saved an estimated $90 billion as a result.

Amid the worst economic downturn in decades, Canadian households are seeing wealth hit a record high while debt burdens shrink relative to income. That is really the entire rise in household wealth story.

Compared to debt, Canadian wealth soared, but the bank executive warned that this might only be a mirage

Debt-to-assets fell to their lowest level since the early 2000s. In response to this, a Bank Exec at the National Bank of Canada believes it produces a “wealth effect” whereby consumers feel wealthy and then spend more. Why not get a new expensive truck for your driveway if you live in a million-dollar house?

Although Canadian banks are warning about the inevitability of rising interest rates and slowing economic growth, some economists say Canadians may be feeling wealthier than ever before. This could mean consumers will start spending again after years of saving for retirement or paying off debt. Capital Economics senior economist David Madani stated, “We’re seeing an increase in wealth.” Consumption is likely to pick up.” He says higher-priced items like cars and houses have also taken over.

Statistics Canada data shows household assets have soared this year. The housing boom created significant equity with little actual financial contribution from owners. When it comes to Canada’s debt burden or a family’s household debt, it’s important to look at the right statistics. It’s also important to remember the most important point about debt is not the debt itself. It’s the ability to pay it back.

canada's debt burden
canada’s debt burden

Canada’s debt burden: Where the heck does my money go?

This is a common question we always hear from people who come to us with financial problems.

I hope this Canada’s debt burden Brandon Blog was informative. With too much household debt and not enough wealth, you are insolvent. You can choose from several insolvency processes. It may not be necessary for you to file for bankruptcy.

If you or your business are dealing with substantial debt challenges, you need debt help, and you assume bankruptcy is the only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as an alternative to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

You are under a lot of pressure. Our team knows how you feel. You and your financial and emotional problems will be the focus of a new approach designed specifically for you. With our help, you will be able to blow away the dark cloud over your head. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people with credit cards maxed out and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

Because of this, we can develop a new method for paying down your debt that will be built specifically for you. It will be as unique as the economic problems and discomfort you are experiencing. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

canada’s debt burden

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