In Iceland the future may have played out in miniature. That little country of 300,000 people has seen banks go bust, real estate values plunge, the currency trashed and the middle class crashed. Iâ€™m told by someone who should know that food stocks are running low because grocery stores have no cash for inventory. And as you may already be aware, the countryâ€™s three main banks were taken over by the government earlier this month, and that last Tuesday the stock market lost three-quarters of its value.
Why does this place matter?
Only because in a mini-country like Iceland, which is an affluent, modern society, might we see in weeks what we could reasonably expect in months.
You have to admit, there’s little to cheer about as we look out over the coming times. The Canadian dollar, once soaring far above the Yankee greenback, has collapsed to 82 cents. Oil has lost half its value, and if the slide continues the Albertan oil sands become uneconomical.
The Toronto stock market crashed another 400 points yesterday. The Chrysler plant in Windsor is now going half-speed. The Bank of Canada dropped interest rates again â€“ the second cut in as many weeks â€“ but not by enough. The Sterling truck plant in St. Thomas is kaput for sure now. And several mining operations in Northern Ontario are winding down, laying off people in communities where few other jobs exist.
In the States, the government’s not only buying up Wall Street and half the countryâ€™s mortgages, but is now gobbling money market funds. Banks are borrowing more than $400 billion a day from the Federal Reserve, and blue-chip companies like Caterpillar are having trouble borrowing enough money to survive. Yahoo is laying off a big chunk of its workforce, and itâ€™s expected many retailers will close their doors before Christmas, since they canâ€™t borrow the money to buy holiday inventory.
Because the US economy may be in the process of collapsing, commodity prices have slumped world-wide. As toxic US mortgage debt poisoned the global financial system, credit froze, banks teetered and suddenly money is hard to find, which has ironically made American greenbacks more valuable, further depressing commodities and the Canadian dollar.
Meanwhile, disastrous earnings reports of major American corporations are pulling down the stock market recovery that billions of government dollars were supposed to create. Some say the Dow may lose another 35-50% of its value.
Do I see a Black Swan?
And, yes, there is real estate. So far, the average house price has dropped by $30,000 in Toronto, $45,000 in Vancouver, $17,000 in Ottawa, $61,000 in Calgary and $64,000 in Edmonton. At the same time, 0/40 mortgages are gone, mortgages are harder to get and rates are higher for those who do qualify. There are more houses for sale than ever, and sellers are having to wait vastly longer times to find a buyer. If they can. And this has just started.
As I have said for a very long time now, the greatest threat to the wealth of middle class people everywhere, but especially in Canada, is a real estate melt. And now it’s happening. When I published my book warning of this, back in April, organizations like the Canadian Real Estate Association said an absolute price decline was not in the cards. Sadly for those recent buyers who heeded that advice, they are now under water.
All of the above brings us to a single conclusion: This is an economy in decline, and the bottom has yet to be glimpsed. Weâ€™re paying for a society which became dangerously addicted to debt and in which too many people wanted stuff they simply could not afford, yet bought anyway. Shame on them. More shame on those who gave them the money. And letâ€™s heave special shame on experts, critics, analysts, economists, industry leaders and politicians who said there was nothing to worry about.
Fourteen days ago the Canadian prime minister was one of them.
But I canâ€™t go there. Apparently Iâ€™m dead.
Coming soon: A survivor’s check list.