Interest Rates In Canada Case Study

1. Describe the path of interest rates in Canada since WWII and specifically the past 2 decades.

Over the past several decades the path of the interest rates were able to be recorded and charted. Strictly after World War II, interest rates seemed to drop for a bit, speculated that after the hype of the Second World War, there was not enough jobs for the returning soldiers, causing a recession. When the 50s arrived, the Government began to invest more into national security. This spending concerned the population and they spent little, causing the consistency of interest rates for a few years. Since then, interest rates have begun to increase over the decades, having drops in interest rates due to foreign exchanges as well as increases in oil
Banks essentially created too much money, and this excess cash resulted in housing prices to increase drastically. Increased housing prices meant that more home buyers would need a loan to buy a house, which the banks gave out without hesitation. During this time, banks issued many high priced loans believing that all clients were good to pay the money back. However, since the loans were high to afford a house in the expensive market, lenders were unable to make their interest payments on their loans. As a result, the lenders could not pay the principal back to the bank either. Essentially, the banks were running out of money because they lent more out than could be returned to them. Had banks been under constraints, this crisis could have been averted. However, since the market crash such restraints have been placed on financial institutions to prevent such an event from occurring again. These included limiting the lending capacity of businesses and houses. This reduction meant that banks had limited money to give out, and would need to lend it to the right people who they could be sure would make their payments. This led to doing thorough credit history checks and a more lengthy process to receive