It’s hard to say, but it’s the truth. BOC Governor Macklem’s refusal to raise rates until the Spring of 2022 is simply an admission that the BOC is trapped. If it raises rates, our economy will face more strain and middle class quality of life will be squeezed from higher debt servicing costs. If the BOC crosses its fingers and hopes inflation will go away (which it won’t), middle class quality of life will be squeezed from higher prices. When you keep interest rates at record lows for such a long period, ultra-low becomes the new normal – and it’s hard to take the punch bowl away.

Our economy is incredibly dependent on debt. We’re all depending on our credit cards, mortgages, and lines of credit to keep enjoying the quality of life we’ve been used to. We’ve gotten used to having cheap debt literally thrown at us for years now because of its overabundance. Never in human history has it been so easy and convenient to borrow. For years pundits, academics, and politicians have sent the signal that credit is better than saving, that debt and capital are the same thing, and that borrowing to spend always leads to prosperity. The old mantra was that capital was the accumulated savings of deferred consumption. That you saved and invested. That you invested and produced. That the banks paid you a healthy interest rate to put your money in a savings account. The old mentality was that prosperity was hard won by hard work and sweat – ultra-low interest rates changed all of that.

Unlike the U.S., Canada does not control the world reserve currency. International markets do not need to buy our debt and accumulate our currency reserves to trade. This privilege has allowed America to spend and borrow massively, to live beyond its means, and to export its inflation to the 2nd and 3rd world. The more the BOC puts off rate increases, the more rapidly and suddenly it will have to raise them if inflation continues to go up, or gets out of control – and then we’re in trouble. Either way, Macklem is trapped, and he knows it.