It’s been a newsy 24 hours and maybe you’d like to understand it a bit better? We’re here to help.
Inflation and the economy
This morning saw the Bank of Canada – our central bank and the (in theory, at least) non-partisan institution that stewards our economic interests and monetary policy – cut interest rates by 50 basis points.
This is a rather big topic and one we’re anxious to get into in a bigger way. Soon. But for now, here’s what you need to know:
Interest rates are a blunt instrument the Bank of Canada uses to, amongst other things, deal with inflation. And, as you may have heard, inflation has been rather high for a while. Or, put another way, everything costs more than it once did.
The reason for our high inflation is complicated and controversial – there are different views on the cause. But everyone can agree that inflation (the cost of goods and services) must be lowered.
To do that, the Bank of Canada raised interest rates, which increases the amount of money people owe on loans. (For every dollar someone borrows, interest is charged. When interest rates are raised, the percentage owed on the principal increases.)
Why would the Bank of Canada cost Canadians more of their hard-earned money? Well, if people owe more, the theory goes, they’ll spend less. And, ultimately, getting people to buy fewer goods lessens the demand for goods, bringing costs down for the demand has dipped. That’s just economics 101.
And there were other incentives for the Bank of Canada to raise interest rates, too. If the demand for goods diminished, they would be able to ease supply chain pressures. (COVID, strikes, and floods/fires have all wreaked havoc for years on the transportation services that deliver our goods, often from overseas markets. This created a massive backlog that limited supply during a time of demand, further driving the inflationary cost of goods.)
The downside of the Bank of Canada’s actions, of course, was additional financial pressure on Canadians who were already struggling with inflation and the ramifications of COVID-caused shutdowns. After all, most Canadians owe money – for cars, houses, or unpaid credit card bills. (Pro tip: never owe credit card debt!)
All of that is the background for today’s announcement, which was a rather large cut to interest rates, and the fourth rate cut this year.
The rate cut means inflation is receding and, in the opinion of the Bank, that their measures worked. And with decreasing inflation, the Bank of Canada is able to ease the financial pressures on Canadians, which will also help spur spending…which, in turn, equates to economic growth and prosperity.
Was this bold move by the Bank of Canada the right move? Will it help Canadians who are struggling? Has the inflation beast been slain, or was this simply a response to political pressure? What does it mean for bigger issues, like an economy struggling with productivity? And what might all of this mean for other pressing issues facing Canada?
Good questions and here are a few articles we think are worth the read:
‘Canadians can breathe a sigh of relief’: Bank of Canada Governor on interest rate cut
‘They have some catching up to do’: Expert reaction to BoC’s jumbo rate cut
Floor crossing
The Bank’s rate cut was today’s big news, but yesterday’s news cycle ended with a rare floor crossing in Nova Scotia.
What’s a floor crossing? Well, it’s when a politician literally (or usually literally, some assemblies have odd configurations) crosses the floor of the House or a Provincial Legislature, from the opposition benches to the government benches (or visa versa). Or, in other words, it’s defection from one political team to another.
It’s rare and controversial because, in theory, it goes against the wishes of the electorate. Voters usually back a politician because they understand the values of their party affiliation – a party they’ve now spurned when they cross the floor. (There are exceptions, of course: voters who care more about the local politician than the party affiliation.)
Why do floor crossings happen? It’s usually because a party’s policies run afoul of local interests, or there is the promise of more power and influence across the aisle. Actually, the latter is most often the driver of floor crossings.
Was this floor crossing a case of self-interest? Or was in necessitated by changing realities in the riding? We’ll let you be the judge!
Liberal MLA Fred Tilley crosses floor to Tories
A new prime minister?
Whenever a document is circulating with a title like ‘Project Code Red’, you kind of know you’re in for an amateur hour coup attempt. And today’s federal Liberal Party caucus uprising was, basically, that.
A three hour meeting between elected Liberal MPs on Parliament Hill led to…nothing.
And, most likely, will continue to lead to nothing. But all of the dust has yet to settle, and there is talk about an October 28th ultimatum. That’s an interesting date, as it is suspiciously close to the Bloc Québécois’ October 29th ultimatum to the Trudeau government to back two bills in exchange for support in future confidence votes.
Might the dissenting MPs be willing to vote with the Bloc (Trudeau has said he won’t support the Bloc’s bills) and Conservatives, bringing down their own government?
Maybe… They say they might… But the odds suggest angry Liberal (backbench or non-cabinet) MPs won’t be ridding themselves of their leader, Justin Trudeau, anytime soon.
Why? Well, let’s be frank: the dissenters basically want Trudeau gone because he’s hurting their chances at re-election. And if they bring down the government, guess who will lead the Liberals into the next election? The guy they want to get rid of! After all, you can’t have a leadership review and (if Trudeau loses the review) a leadership race during a relatively short federal election campaign. So, the dissenters would be stuck running for re-election with Trudeau at the helm and the party terribly divided.
Now, the dissenting MPs could run as independents, but guess how likely they are to win? Not very likely! It’s hard to win as a lone wolf – in nature or politics – especially without party-backed financial resources, even with the power of incumbency. Just ask the recently defeated BC United candidates who ran as independents in the BC election! Spoiler: they all lost!
Look, the deck was stacked against the dissenters. Unlike the federal Conservative Party, the Liberals voted, as a party, against a measure that would have allowed them, via a secret ballot vote, to demand a leadership review (again, the first necessary step in changing a party leader).
For these reasons, now that a poorly named petition has been circulated and a few angry MPs vented to PMJT in a caucus meeting, what comes next will likely be: a (poor) bluff, a (desperate) hope Trudeau changes his mind, a failed coup, and a prime minister who just keeps marching on (albeit with a party full of division and resentment).
Not good for the Liberals, but it does mean, as of right now, Justin Trudeau is still our prime minister, and will be – at least until the government loses a confidence vote or the next mandated election is called in fall 2025. And while you can never doubt an angry group of Liberals defeating themselves, the more important actors in this little Parliament Hill drama remain the federal NDP: they of the Supply-and-Confidence-Agreement-is-no-more-because-we-hate-the-Liberals-but-we-lack-money-and-will-(likely)-keep-voting-with-the-government-until-our-(literal)-fortunes-change.
Some Liberal MPs issue a deadline to Trudeau: make up your mind to stay or go by Oct. 28
That’s the news. Hopefully we helped you understand it a bit better!