What questions should you ask regarding the economy as we enter the fall of 2023? What guidance should you be getting? What actions should you be taking?

Bill’s Blog | September 7, 2023

Have you ever made a significant decision in your life and realized after you had not asked enough questions? I have! Whether financial, relational, emotional, career, health, faith, questions are essential! When I do financial seminars, I always encourage questions. The more sound knowledge you gain, the better decisions you can make. But, since this is a financial Blog, we will focus on several key questions you should consider, especially with the growing economic uncertainty in Canada and worldwide. 

1. Is it possible that interest rates can go higher? The answer is yes! Central banks only control the shorter end of the yield curve for interest rates, meaning five years or less. The debt markets determine the longer-term rates (impacting mortgages), and if the debt markets see higher risks, then rates will go up. Less risk, then rates go down. The next question is, are market risks going up or down? We are currently seeing significant debt defaults with Canadian banks. CIBC reported a 300% increase in loan losses compared to a year ago, a staggering $773 Million loss! Several other big banks are reporting significant loan losses. Debt defaults are a global phenomenon, as we are witnessing China’s real estate market meltdown. Birmingham, the 2nd largest city in Britain, announced bankruptcy. Hundreds of US banks are in trouble, especially around commercial real estate. Expect more defaults and possibly higher interest rates in the coming months and years.
2. How is your life affected by record debt levels in Canada and higher interest rates? Many Canadians have taken on far too much debt, and the burden is taking its toll. If this is you, what are you doing about it? In most cases, you will need wise counsel, understanding of your options and a clear plan. 
3. Do you feel trapped in your home? Many Canadians do! The housing market in Canada has been in crisis for years due to consumer excesses and poor government policies, fees and over-regulation hindering development (Fed, Prov and Municipal). Homes are severely overpriced and unaffordable in many parts of Canada (mainly moderate-sized to big cities where most Canadians live). It is also shameful at all the homeless people we now have in Canada, and little to nothing has been done to address this growing crisis! Back to interest rates, they have increased by over 300% in the last year and a half, so for many homeowners, their mortgage costs will be unaffordable when they renew. Many Canadians with variable mortgages are already in trouble and have to sell. What are you doing to prepare for this if you are in this circumstance?
4. Can Central banker’s monetary policies prevent a recession? Many have argued we are already in one, at least in the early stages. Recessions can last two or more years. Unfortunately, the last sign is growing unemployment. Some sectors are already experiencing job losses, while others remain strong. Only time will tell how this story entirely plays out. If you lose your job, are you prepared for this? 
5. The last big question is, will inflation drop sufficiently to ease household budgets? I am unsure if you shop for groceries or fill up at the gas pump. But if you do as I do, you know inflation is still very high and impacting all Canadians significantly. Dozens of areas of daily costs are still very high and impacting household budgets. After World War Two, inflation was very high, and governments tried price fixing to solve the crisis. Sadly, this did not solve the problem but escalated it. In the 1970s, that decade experienced extreme inflation, too, but it required 20% plus interest rates to crush it. Plus, there were two waves of inflation in that decade, and the second wave was the worst. Back then, the world had 4.4 trillion in global debt, but today, it is over 335 trillion, not including unfunded government liabilities or derivatives. To raise rates to 20% would collapse the entire financial system. Once inflation is out of the genie bottle, it is incredibly challenging to contain or reverse it without severe pain. If history repeats, the central banks and governments will do the wrong things and worsen matters. You most likely feel this already! 

I’m not particularly eager to dwell on all the problems, but we must be fully aware of these serious issues as we end 2023 and enter 2024. We cannot move on to possible solutions without being honest with what we face. Truth does matter (though not very popular these days), and it is the gateway to overcoming challenges and moving forward. So, now that we have addressed some of the most important financial questions, do you need help? 

Getting wise counsel is critical in challenging times. They say you are only five people away from connecting with the right person to help you solve your problems. I encourage you not to try to go it alone. We all need help from time to time. In crisis, family/friends/community needs to come together. Just ensure you ask the right person with integrity, adequate knowledge and the ability to help. A wise and caring person will explain your options and encourage you to make the best decision. Inviting the wrong person into a crisis only worsens things! Family members or friends often mean well, but they do not have sufficient experience and can steer you in the wrong direction due to a lack of knowledge. Even as a financial professional, I often tell clients that this is not my area of expertise (law, accounting, mortgage solutions, etc.), so I guide clients to those I know are competent and trustworthy. 

Finally, the next step is taking action after being honest about your financial picture and challenges, seeking wise counsel and weighing your options. There is no benefit to your financial well-being if you do not change direction or make decisive, solid decisions. So, what steps will you take as we enter the fall season to get yourself and your family back on track with a solid financial plan? Debt reduction? Real estate decisions? Do you need to get your spending under control? Do you need to start saving and add low-risk investments? Do you need to adjust your wealth plan or create one? Do you need a career change? Do you have life insurance or critical illness? Do you need benefits? Sorry, so many questions. I have learned it is best to focus on one or two action steps at a time (no more) and evaluate your progress regularly to ensure you are on track. Remember, it is the journey that counts and face the fact that no one does it perfectly (I sure haven’t). So, throw “Perfect under the bus” and take action to get yourself moving in the right direction.

All the best in Fall 2023!

Bill Westmacott, Financial educator and solution provider.