The pendulum

A frequent lament from the wrinklies posting here is that their bank accounts and GICs no longer pay 8%. Or even half that. So a whole generation of people who lived off interest, never took an investment risk, and are running out of income, are pissed.

Let’s talk about interest. What is it?

Interest is rent. You rent money in order to use it, or rent money out to someone else. Thus we pay or earn interest, as borrower or lender. Most Boomers grew up during go-go years of economic growth, inflation and high rates. The first mortgage Dorothy and I had in the mid-70s was 12%. We were thrilled, since home loans had just declined from 14%. In fact, mortgages went on to pass 21% in 1981. Banks even stopped loaning five-year money. Things got totally out of control.

Canada Savings Bonds (they no longer exist) paid 19% interest. In 1981 the Bank of Canada rate was spiking past 18%. Savings accounts returned 13%. Inflation was 12.5%. It was a joyous time to have money. An ugly time to rent it. But the astonishing cost of funds (interest) kept home prices low, since mortgage payments were crippling for everyone. In fact, the housing market collapsed and desperation was visited upon those with mortgages.

At the time I was a hairy, young, crusading tabloid newspaper editor and daily columnist. In a media conference I challenged then-Bank of Canada governor Gerald Bouey about the spiralling central bank rate. “How do you justify this?” I stood and asked. He turned red and called me a troublemaker. It was briefly scandalous. It was also motivating.

  In September of that year I used my column to motivate folks, urging them to take the message of destructive mortgage lending directly to Parliament Hill. I grandly named it ‘The Convoy of Anger.’ This is how the wire service, United Press International, reported it:

TORONTO — A convoy of buses, fueled with the energy of irate homeowners facing high mortgage renewal rates, left Toronto today for a planned confrontation with members of Parliament. Many homeowners had taken a day off work, losing pay to take their protest personally to the nation’s capital and Prime Minister Pierre Trudeau.

‘If I lose my home, one’s day pay isn’t going to make any difference,’ said Fernie Brunetti, a steelworker from Mississauga, Ont., as he prepared along with several hundred others to board a convoy of buses. ‘If rates keep going like they are, then I’m going to lose my home anyway. There’s no way I can keep up,’ said Brunetti, who was carrying a petition with 300 names on it from residents in his area who shared his anger over rising rates…

On hand to see the convoy off was Conservative MP David Crombie, a former mayor of Toronto, who told reporters he expected the protest would have impact on a meeting today of the Liberal caucus. “I have had discussions with some members of the caucus. I have the feeling they know what is going on. Even if the cabinet doesn’t know, many of the Liberal MPS do.’

After scheduled stops in the Ontario communities of Richmond Hill, Newmarket, Pickering, Oshawa, Midland, Peterborough, Niagara Falls, London and Woodstock, the buses were to stop in Carleton Place, 40 minutes from the capital, before converging on Parliament Hill.

Prime Minister Pierre Trudeau had a caucus meeting scheduled for today and it was not known whether he would meet with the protesters. Federal Housing Minister Paul Cosgrove was expected to meet the group, as was Conservative leader Joe Clark and Hamilton New Democratic Party MP Ian Deans.

More than 1,000 bus seats had been reserved for the trip to Ottawa by late Monday and Garth Turner, business editor of the Toronto Sun, said it was impossible to predict how many demonstrators would join the protest.

‘The buses leaving from Toronto are only half the convoy,’ he said. ‘There are three rally points and the protest will be growing into a convoy before we get to Ottawa.’ Turner said the cavalcade was to be joined on Parliament Hill by buses from New Brunswick and Quebec and by the mayor of Saint John, N.B., who had planned to fly to Ottawa. Turner said the response to the Sun-inspired protest had been ‘phenomenal.’ Plans for the convoy were announced Aug. 31, when about 1,000 angry homeowners attended a rally to voice their complaints about high mortgage rates.

Well, you can see I’ve been a pain in the ass for the past forty years. However on this day in 1981 I met with the federal housing minister (Paul Cosgrove) after rabble-rousing on the front steps of Parliament, and the federal government declared a foreclosure moratorium. The banks were told that nobody was to lose their home when facing a renewal at those insane rates. A year later they had started to topple.

This little jaunt into history is to remind the kiddos what interest means, and does. For the last 25 years inflation’s been subdued and the cost of money has steadily decreased. The 2008-9 credit crisis then the 2020 pandemic crushed rates to new levels as CBs struggled to keep the economy alive. Home loans at less than 2% were directly responsible for regular houses in the GTA and YVR flying to $2 million with seven-figure averages common in the burbs and hick hinterland cities. They’ve given us $1.8 trillion in collective mortgage borrowings, and debt-to-income ratios of 500% in the big cities. Now it takes 27 years of savings for a couple with a $200,000 income to cobble together a down payment. We don’t have a payment crisis now. Instead it’s a housing disaster.

Well, the pendulum is about to swing. Nah, mortgages won’t be twenty per cent again. But they’ll double from today’s level. Maybe triple. Real estate will respond. The wrinklies may see 5% GICs again in their lifetime, and a lot of people who borrowed from the future will be shocked when it arrives.

But you’ll survive.

About the picture: “Hi Garth,” writes Kerri,  “this is my buddy – a 6yr old Bouvier des Flanders, Lincoln. An absolute gentle giant. My shadow. 32” at the shoulders 145lbs. Long time reader. Thanks for everything you do.”