Over the last 5 months the Bank of Canada has gone from worrying about flat wages and high household debt to planning a series of rate hikes into 2018. With the US Fed too afraid to hike, this has led to a rally in the loonie and a sell off in Canadian bonds relative to our biggest trading partner, year to date. (See: Rate Hike Imminent as Poloz takes Hawkish Turn.) The last thing an export-needy Canada wants right now is a stronger currency. And yet here we are, with the US/CAD Index back near a 2-year low.

Central banks have a really bad forecasting record, and the Bank of Canada in particular has a habit of hiking late in credit cycles only to quickly reverse as consumption weakens.This time is unlikely to be different, and especially since interest rates have never been lower nor Canadians more indebted, nor our economy more reliant on the continuation of outrageously high consumer and housing expenditures.

Since January 2014, consumption and residential investment have accounted for 90% of Canadian economic activity. This compares with a long term average of 59% since 1961.Over the last year, finally, spending in these sectors has weakened to about 62%.But after nearly 5 years far, far above mean, an extended period of below average spending is in order here.

Even when the Bank of Canada blinks in the next couple of months and backs away from a tightening mode (which we think is likely), indefinitely flat policy rates are not able to promote rising consumption for already maxed out households. Only rising wages and spending appetite can do that.

The truth is that subterranean loan rates can prop up zombie-companies and consumers for a while but in the end they’re innately self-defeating because they promote dumb waste and indolence while undermining productivity, innovation and rewarding investment opportunities. (For a great recent primer on all of this see Charles Gave’s ‘The Strangulation of Enterprise.‘)