Known Unknowns (and a Bit of Comedy)

Interest rates are an interesting area of, hem, interest, for two classes of people: those who have some wealth squirreled away and those that wish they did (I am firmly seated in this latter category, though hopefully not forever). At least, they ought to be, as the prevailing levels of interest determine both how much we earn on our lendings and how much we pay on our borrowings. Interest rates can affect -- in theory (and to be taken, as with all economic gospel, with a grain of salt) -- the rate of inflation, and the interrelation between interest rates, inflation, and taxation determines whether a lender of a sum sees its actual buying power increase or decrease over the life of the loan.

The Federal Reserve System in the United States (founded by the Federal Reserve Act, 1913) and the Bank of Canada in Canada (established by the Bank of Canada Act, 1934) control the prevailing interest climate in their respective countries by tinkering with a number the Americans call the Federal Funds Rate and we Canadians refer to as the Overnight Rate. These rates directly influence mortgage rates, bond rates, and what I'm chiefly concerned about right now: interest rates banks pay on deposit money.

Inflation in the United States seems to be very high (we can posit that some of this derives from the consistent devaluation of the United States Dollar since the inauguration of the first Bush 43 administration) and on Thursday June 29, the Federal Reserve again raised the Funds Rate by 25 basis points, to 5.25%. This seems to be little more than a percent ahead of the total advance of the Consumer Price Index experienced in the US in May 2006 versus May 2005.

However, it's the Canadian rate that's more interesting because the next policy announcement is fixed for Tuesday the 11th and nobody knows what they're going to do! The current overnight rate is 4.00% and the last announcement, on May 24, was for a hike of 25 basis points -- as was the prior annoucement on April 25. The highest available interest rate on a bank account in Canada is presently 3.75%, so here we require a little arithmetic. We're given the latest official estimates of inflation, courtesy of the nice bureaucrats at the Bank of Canada and we find that the latest result, for May 2006 over May 2005, to be 2.8%. Consider $1000 in a bank account earning 3.75% annually (compounded annually for simplicity) and losing purchasing power as inflation advances at a rate of 2.8% annually:

• $1000 worth of goods at the beginning of the year x now costs $1028 at the beginning of year x + 1, so that the purchasing power of the $1000 at the beginning of year x + 1 in terms of year x dollars is ($1000 * 1000) / 1028 = $972.76.
• However, during the same year, the sum in the account grows due to interest from $1000 to $1037.50. However, to get its purchasing power, in year x dollars, we must multiply by (1000 / 1028) and we get the result $1009.24.

In other words, the effective interest rate before taxes (which depend on your tax bracket) is a whopping 0.924% in a bank account paying the highest available interest rate. Wow. So a bank's not a great place to put your money. However, for many people it's the best alternative and that is why we should be hoping that on Tuesday, David Dodge and his co-conspirators follow the American lead and up the rate by another 25 basis points. I'm crossing my fingers... Are you!?

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OK, so change of topic. I want to drop a few comments on the makeup of my favourite NHL team, the Ottawa Senators. Since their ignominous defeat by Buffalo in the Conference semis, I temporarily transferred my allegiance to the unlikely heroes of Edmonton who, in their turn, went (not too Gently) Into that Good Golf Course as the Carolina Hurricanes, formerly the Hartford Whalers and née the New England Whalers, went on to abduct Lord Stanley's Cup and flee with it to the States once more.

Since then, Ottawa has signed former Hurricanes starter Martin Gerber to a multi-year contract. Gerber went 38-14 in 52 games started for Carolina last year but was replaced by the new favourite son, Cam Ward, for the 'Canes' playoff run. By the numbers, he's a solid middle-of-the-road goaltender with at 17th-ranked .906 save percentage and an 18th ranked 2.78 goals against average. In both categories, the 31-year-old is ahead of 23-year-old Ray Emery by a hair's breadth. No one knows that the final goaltending situation will look like or who will be the starter, but it's an interesting situation. One thing is nearly certain: while signing Dominik Hasek would be (more) insane (than signing him last year), neither Emery nor Gerber is likely to turn in the same kind of performance that Hasek gave the Sens in 43 games last season. More's the pity.

With Spezza and Redden re-signed, another interesting question is what is to become of the defense. Ottawa has many solid blue-liners and, though Zdeno Chara is now dearly departed, his replacement by LA Kings veteran Joseph Corvo may turn out to be a great success. Corvo is old enough to have some experience without being washed up (at 29) and has great numbers: +15 with 40 points in 81 games and Kings leader in ice time (this last attribute may help fill Chara's shoes as well, since he generally led the Sens in ice). Chara may be a huge hulking beast with great reach and superhuman strength, but he's prone to inconsistency and gaffes. How Corvo, Volchenkov, and Meszaros play this coming season are all question marks, but the Sens D looks pretty strong. There are more developments to come as we count down, slowly, to exhibition time.

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I went to see a Second City performance of sketch comedy in Toronto on Sunday with a wonderful person. I recommend it: there's a little crudeness and, especially, those cheap anti-America jokes that Canadians are supposed to laugh at merely because we're morally superior beings or some such (and they're not funny... They're just like trigger buttons for a laugh track) and one wishes the comics would just cleave to a less political, less self-conciously "virtuous" path sometimes BUT taken as a whole, the show was hilarious and I laughed a lot. I like that good comics can achieve a sort of purity of form so that -- even though they pander to the prejudices of the audience, and their own -- someone with a wholly different viewpoint can still laugh a lot. That makes me happy!