Tough decisions ahead to avoid fiscal trouble:

Father doesn't know best.…what was right for your parents … might not be right for you now..

  • ·         (Reuters) markets were mixed after China announced it was increasing the amount of reserves it was requiring banks to hold, leading to worries that its attempt to curb  inflation would slow down the main driver of the global economy
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  • ·         Gold- $.70 
  • ·         (based on theMERIX 5 yr rate published rate) is inching to the bottom of the comfort zone at

The rate of return on your bond, can be read through a yield curve, If the increase in bond yield  continues to go up, the spread will continue to shrink and this could bea trigger for interest rates to rise.Currently lenders are looking for a spread between1.35 and 1.55

Tough decisions ahead to avoid fiscal trouble: Flaherty
Paul Vieira, Financial Post·  OTTAWA - The country's top financial policymakers warned Canadians on Sunday to brace for tough decisions and "very big challenges" ahead as Canada tries to secure its recovery in an ever-changing global economic landscape.

Finance Minister Jim Flaherty - set to deliver a key speech on federal economic policy in Oakville, Ont., on Monday - said the Conservative government is determined to cap program spending so Canada can return to a balanced budget position and avoid the turmoil Europe is undergoing.

He acknowledges this won't be a popular decision, with certain segments of the population and his political opponents.

"We have to make sure we protect the country going forward," he said in a TV interview. "Look at what's happening elsewhere … like the issues they are dealing with over the weekend in Ireland. We don't want to get into any fiscal trouble in Canada.

"We still have to watch what's happening in the world, and be careful that we preserve this modest recovery," the Finance Minister added. "And that means we cannot act in any sort of extreme or dramatic way."

The government has forecast returning to a balanced budget by 2016, through reducing spending growth in key areas and allowing the two-year, $48-billlion stimulus plan to expire as planned at the end of this fiscal year.

His speech in Oakville is expected to draw clear boundaries for his political opponents about what the minority government will and won't undertake in the next federal budget, to be tabled early next year.

Meanwhile, Bank of Canada governor Mark Carney warned there are "some very big challenges" ahead for the global economy set to play out over the next several years.

"There are stresses in the global system without question, and they are going to take years to play out and policy decisions are going to continue to matter," Mr. Carney said in a radio interview. "There are ways to get this right, and ways to get this wrong."

The global economy has reached a rather precarious spot, as the recovery slows, Europe's debt woes re-emerge, and inflation threatens the growth-engine in the increasingly vital emerging economies. In addition, there are heightened tensions among struggling advanced economies and faster-growing emerging markets over foreign-exchange policy, prompting countries to intervene in order to cap the appreciation in their currencies.

Group of 20 members met this month in Seoul but failed to come to an agreement on dealing with the currencies issue. "We didn't make as much progress quite frankly as we had hoped," Mr. Flaherty said.

Mr. Carney also stressed the need for global policymakers to instill additional market discipline on banks by removing so-called "moral hazard" from the system, in which the private sector relies on governments to save lenders that get in trouble due to excess risk taking.

"We have to get rid of that," the central bank governor said.

He also debunked reports that Royal Bank of Canada was on a list of banks deemed by global banking authorities to be too big to fail. Mr. Carney said Canada's biggest bank was "not on that list," as compiled by the Financial Stability Board.
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Father doesn't know best
Suzanne Wintrob, National Post· Friday, Nov. 19, 2010

Looking for your first home? Then do your homework before hitting the open houses.

"A first-time homebuyer can save a lot of time by knowing in advance how much they would qualify for and what they can afford," says Marcia Moffat, RBC's VP, Home Equity Financing, Canadian Banking.

RBC recently surveyed 1,050 Canadians, half who bought their first home in the past two years and half who intend to do so within the next two years. While two-thirds of future buyers said they hoped to purchase a single detached home, those who had already bought ended up in a townhouse or a condominium. The difference, suggests Ms. Moffat, comes down to dollars and sense.

"Affordability isn't just the house price -- it's thinking about maintenance of the home, taxes, legal feels on top of it and, if it's a young family, factoring in childcare costs," she says. "Sometimes when someone is in the market of intending to buy, they haven't thought through all those elements. Then, when they actually come down to buying, it's part of the whole approval process. Yet if they get pre-approval, it strengthens their credibility with the realtor and means they're not spending all of their time looking at homes that they can't reasonably afford."

Apparently, getting advice is all in the family. While one-third of current homeowners turned to the bank as their primary source of mortgage advice, those planning to buy turn to Mom, Dad and other family members to better understand mortgages. That's not always smart, says Ms. Moffat, since what was right for your parents when you were a kid might not be right for you now.

"I've heard parents say, 'You should go into a 10-year fixed,' but those were parents who lived through the late '80s at a time of very high interest rates and uncertainty," she says.

Of course, managing cash flow becomes a much more pressing concern once the sale is final. According to the survey, those planning to buy fret most about three things: being approved for a mortgage, affording the downpayment, and rising housing prices. Once in the market, though, they get cash-flow anxiety, worrying considerably about rising mortgage rates, being able to make their regular monthly mortgage payments, and declining housing prices. With all that stress, it's not surprising that 85% of first-time buyers said they intend to stay in their new home for the long-term.

As for mortgages, the study reveals that first-time homeowners are more likely to opt for fixed or variable rate mortgages -- though older first-timers are more comfortable with variable rates than their younger counterparts. Future buyers go for a combination of the two, which RBC concludes may reflect their uncertainty.

Ms. Moffat says there are many simple ways for first-time homebuyers and those planning to buy to make the experience more soothing. For those unsure if they're ready to buy, mortgage specialists can offer budgeting advice while online mortgage calculators can compare monthly rental payments to mortgage payments.

Ms. Moffat also suggests setting mortgage payments for the highest amount possible.

"If you are concerned about rising rates, a good rule of thumb is to plan for the worst case scenario for the next five years and build your financial plan around that number," she says. "If things turn out better, you'll be ahead of the game because you've already paid down a good chunk of your principal and you've tested your budget for higher payments."

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