Steve,
I am still not convinced that raising interest rates is the right approach. Aside from the negative impact these hikes are having on the markets, they are also seriously hurting the middle class, regardless of whether they invest or not.
Just like BWAC pointed out, home owners suddenly saw their expenses increase considerably due to higher mortgage payments. A homeowner with a $150,000 mortgage will likely see an increase of $350 a month in mortgage payments. Take my situation as an example, I own three rental properties. Unfortunately, my province has strict rental board regulations which won't allow me to raise rent because of higher mortgage payments. That means I will have $1100 dollars less in my pocket every month.
Selling one of the properties isn't really an alternative because housing sales drop drastically as rates go up. Unless, of course, I take a capital loss on the property.
The extra financial burden for some home owners might literally mean losing their home. For some others it means cutting back on non-essential expenses. Such expenses means not buying a new computer, not dining out, maybe getting a haircut every two months rather than every month. The point being that this drop in spending can snowball into an avalanche with people losing jobs. And as people lose jobs, those still employed fear losing theirs so they stop spending and become hoarders which amplifies the problem exponentially.....thereby resulting in a recession.
Just remember the early 90's. I certainly don't want to experience that period again.
Cheers,
Vince |
