Partynomics

Economist1

'Mark it on your calendar,
the recession ended in June' - CIBC economist

Some months ago I said nobody should be surprised if the economy starts to grow again and economists dance on the grave of the recession.

That actually happened today as GDP data showed the economy inched ahead a little in June. You can be sure of one thing: it’ll be trumpeted by advertising-starved media and distorted to mean something it does not.

(At this point, let’s doff our caps and squeeze a wet one out for CHEK and RDTV, long-standing television stations about to go black in Victoria and Red Deer.  CanWest Global is shutting them down, along with dumping its stations in Hamilton and Montreal for less money than my bike is worth – and still the company, which owns some of the country’s biggest dailies, teeters on the edge of insolvency. I hope it’s lost on nobody what this means about (a) service to the communities you serve and (b) why the news media’s no longer in the news business.)

While the economists grab wenches, drink from their slippers and stop traffic at King & Bay with their dancing and nakedness, let’s also remember this is no signal for people to think 2007 has returned. Bummer. When they all sober up, we’ll still be shedding jobs and watching small businesses close for the next few years.

And while I’m as happy as the next guy about life improving for people, there are profound reasons nobody should be misinterpreting what this means. After all, we almost sank into a neo-Depression last autumn as a result of risky behaviour, a debt binge, greed and authorities asleep at the switch. And what profound changes have resulted?

Yeah, we’re more in debt – the government and the rest of us, we’re snapping up houses at new pinnacles of pricing, our trade picture sucks, 1.5 million people can’t find a job and policy-makers have decided to save their political rumps by shafting your kids. In short, we fixed diddly.

At the same time, the BoC had to trash monetary policy and crash interest rates in order to stave off disaster. But that simply leaves the door open to unbridled inflation and a hurtful romp higher by our currency as oil prices pace global recovery. So the bank has to choose its poison (I mean, yours, actually): start doing its job again by raising rates and stemming an unwanted rise in the cost of living and further goosing the loonie, or stay the course and preside over a massive bubblification of the real estate market and a bloat in consumer debt.

After all, higher rates are inevitable. The consequences are obvous. The question is, when?

My guess: a whole lot sooner than Mark Carney is letting on.

And Monday will be one of the days he eventually points to, when he says the central bank must once again worry about the money supply instead of the governor’s future Senate appointment.

In the meantime, hey, grab a girl.

114 comments ↓

#1 Santa on 08.30.09 at 9:32 pm

The rates will start to go up again when there is no more or enough supply of the willing to sign their life next to the X. When the zero rate has lost its punch because of populace exhaustion, then the banks will need to increase the spread to make up for the lack of volume. Soon the BOC will raise it to save face.
It used to be that the bonds dictated the rate. Soaring stocks should have sucked the juice off the bond market and raised the yields. Why not any more? Anyone?

#2 Calgary_rip_off on 08.30.09 at 9:34 pm

“So the bank has to choose its poison (I mean, yours, actually): start doing its job again by raising rates and stemming an unwanted rise in the cost of living and further goosing the loonie, or stay the course and preside over a massive bubblification of the real estate market and a bloat in consumer debt.”

In an earlier post Garth you said that the Bank of Canada is separate from the prevailing party(Harper doesnt make the rates). Your above comments dont apply in a direct manner to Calgary. If interest rates go up to lower the cost of living many people’s cost of living will go up. So ironically sustaining the bubble(at least in Calgary) will for many prevent them losing their homes. I suspect there would be outrage if interest rates were to be raised, at least in this conservative province. So the Bank of Canada looks at the whole of Canada and decides the rates? It sounds like Ontario would benefit more than Alberta from raised interest rates? Or is postponing interest rates and sustaining a “bubble” delaying an even worse crash(this seems unlikely)? Which are the key factors the Bank of Canada uses to decide when and if to raise interest rates?

Why not just continue the bubble with low interest rates so those that bought at the top of the cycle(there are many) are not forced into foreclosure by skyrocketing rates?

I would rather have a moderate rate for a home mortgage, say 9-11% with a moderate house cost than a ridiculous overpriced house with extremely low interest. Wanting high interest rates and a moderately priced house doesnt make it so.

You’re right. It’s different in Calgary. — Garth

#3 Wealthy Renter on 08.30.09 at 9:39 pm

After all, higher rates are inevitable. The consequences are obvous. The question is, when? My guess a whole lot sooner than Mark Carney is letting on.

Avery Shenfeld has been making the radio rounds around the GTA lately. In a recent interview, he said that interest rates were not going rise at all until 2011 because the recovery was going to be “precarious.”
In fairness, he was not pumping the recovery.

He did say that seniors were being hurt by the low rates, and they are now forced to take on much more risky investments for income.

It is something that is not written about, but seniors are a large voting block and a conservative group at that. I wonder how peeved they are about getting 1/2 a percent on their GICs?

For seniors, is this a political issue with some teeth?

And not false teeth. LOL

#4 Keith in Calgary on 08.30.09 at 9:50 pm

Higher rates are inevitable and on the way…….there is absolutely no qeustion of that……..the question is when……..IMHO it’ll take the US to blink first…..they are already monetizing portions of their overwhelming debt and the Chinese ar starting to sweat.

Expect the rates to climb, but when. Within 18-24 months IMHO as the entire North American economy continues to slowly collapse and the effects grab hold……..we’re just seeing the start of it now.

#5 cashman on 08.30.09 at 9:54 pm

This is just the begining from our friends at the BOC and their international counterparts. Let there be no misunderstanding: Mark Carney is cow towing the party line of his international banking partners. These low rates are an attempt to get more people into debt. Through debt, your bank controls your future. More debt = more control the bank has over you the debtee. More control as in less friendly interest rates like 8-9%+, more agressive payoff period of say 20 years instead of the usual 25 years, increased payments and lastly the control to take the house in case of non-payment, plus taxes, maintenance and insurance. All this with fiat money, which has absolutely no value except in our minds. We also have to look forward to an ever widening tax base and fewer services to pay for it all. Gee with the americans running their printing presses 24/7 maybe we should do the same. That is what is making the loonie soar higher, its because of too many US$ in circulation. Look for increased gov’t deficits and new ways to tax us to pay for it all.

#6 EJ on 08.30.09 at 9:58 pm

Mish mentions the Canadian housing bubble again in a video interview with Max Keiser:

http://globaleconomicanalysis.blogspot.com/2009/08/mish-videos-on-edge-with-max-keiser.html

“There were housing bubbles in the United States, housing bubbles in Australia,
there’s still a mammoth housing bubble in Canada that I’m quite positive is going to implode.
A housing bubble in the UK, housing bubbles, debt bubbles everywhere.
Once the psychology changed (and it was easy to see that it had to), once the pool of greater fools ran out, and it did in housing starting in 2005, it was easy to see that we were going to have this debt implosion.”

#7 Charles on 08.30.09 at 10:06 pm

I found the following article on today’s “The Automatic Earth”. Looks like the bust in Alberta is going to get worse.

A burgeoning glut in U.S. natural gas supplies is moving into uncharted territory. By fall, the U.S. might find out just how much it can–and can’t–store, which could depress already low prices of $3 per 1,000 cubic feet. The brim is believed to be just under 4 trillion cubic feet in the Lower 48 states, but, “We don’t really know for sure because we have never been here before,” says Carl Kirst, an energy analyst at BMO Capital Markets

Natural Gas Threatens To Overflow Storage

#8 Bill on 08.30.09 at 10:10 pm

I would be very delighted to see interest rates rise. So are we looking at 2010, approx 1 full percent point increase?

#9 Michael on 08.30.09 at 10:15 pm

After all, we almost sank into a neo-Depression last autumn as a result of risky behaviour, a debt binge, greed and authorities asleep at the switch.

[...]

← Kind of a rep

Partynomics

August 30th, 2009 | Book Updates

Economist1

Some months ago I said nobody should be surprised if the economy starts to grow again and economists dance on the grave of the recession.

That may well happen Monday as GDP data shows the economy inched ahead a little in June. You can be sure of one thing: it will be trumpeted by advertising-starved media and distorted to mean something it does not.

(At this point, let’s doff our caps and squeeze a wet one out for CHEK and RDTV, long-standing television stations about to go black in Victoria and Red Deer. CanWest Global is shutting them down, along with dumping its stations in Hamilton and Montreal for less money than my bike is worth – and still the company, which owns some of the country’s biggest dailies, teeters on the edge of insolvency. I hope it’s lost on nobody what this means about (a) service to the communities you serve and (b) why the news media’s no longer in the news business.)

While the economists grab wenches, drink from their slippers and stop traffic at King & Bay with their dancing and nakedness, let’s also remember this is no signal for people to think 2007 has returned. Bummer. When they all sober up, we’ll still be shedding jobs and watching small businesses close for the next few years.

And while I’m as happy as the next guy about life improving for people, there are profound reasons nobody should be misinterpreting what this means. After all, we almost sank into a neo-Depression last autumn as a result of risky behaviour, a debt binge, greed and authorities asleep at the switch. And what profound changes have resulted?

Yeah, we’re more in debt – the government and the rest of us, we’re snapping up houses at new pinnacles of pricing, our trade picture sucks, 1.5 million people can’t find a job and policy-makers have decided to save their political rumps by shafting your kids. In short, we fixed diddly.

At the same time, the BoC had to trash monetary policy and crash interest rates in order to stave off disaster. But that simply leaves the door open to unbridled inflation and a hurtful romp higher by our currency as oil prices pace global recovery.

Actually I think you may be wrong here, they shaved off the depression last fall, but in doing so they have shot every last arrow at their disposal.

Your conclusion is that this will lead to inflation (which ultimately I agree with), but you seem to completely disregard the notion that we could be going into face two of the meltdown and see a further correction.

If this happens, then what is left for the central banks and governments of the world? There is really nothing left they could do, outside of trying to print their way out of it, but even that may not do (if you look at the debt that is still out there).

The reason why the Governments and bankers are hyping the end of the recession so much is because Western Economies by and large have switched to a consumer driven one, if the average consumer does not start spending (and fast) and if the Chinese stop giving us money to buy their stuff it is literally “Game Over”.

Yet, it seems by and large people do not even consider the possiblity of “Recession 2.0″ which would very well lead to Depression 2.0 which could dwarf the first one by a mile or two.

#10 Michael on 08.30.09 at 10:20 pm

OOops, something went wrong there with my quoting, let me try that again:

After all, we almost sank into a neo-Depression last autumn as a result of risky behaviour, a debt binge, greed and authorities asleep at the switch.

[...]

At the same time, the BoC had to trash monetary policy and crash interest rates in order to stave off disaster. But that simply leaves the door open to unbridled inflation and a hurtful romp higher by our currency as oil prices pace global recovery. So the bank has to choose its poison (I mean, yours, actually): start doing its job again by raising rates and stemming an unwanted rise in the cost of living and further goosing the loonie, or stay the course and preside over a massive bubblification of the real estate market and a bloat in consumer debt.

Actually I think you may be wrong here, they shaved off the depression last fall, but in doing so they have shot every last arrow at their disposal.

Your conclusion is that this will lead to inflation (which ultimately I agree with), but you seem to completely disregard the notion that we could be going into face two of the meltdown and see a further correction.

If this happens, then what is left for the central banks and governments of the world? There is really nothing left they could do, outside of trying to print their way out of it, but even that may not do (if you look at the debt that is still out there).

The reason why the Governments and bankers are hyping the end of the recession so much is because Western Economies by and large have switched to a consumer driven one, if the average consumer does not start spending (and fast) and if the Chinese stop giving us money to buy their stuff it is literally “Game Over”.

Yet, it seems by and large people do not even consider the possiblity of “Recession 2.0″ which would very well lead to Depression 2.0 which could dwarf the first one by a mile or two.

#11 $fromA$ia "Garths Nugget Boy" on 08.30.09 at 10:43 pm

…” when he says the central bank must once again worry about the money supply instead of the governor’s future Senate appointment.” -Garth

Ya Garth and higher up the food chain from MArc Carney is Flaherty and then you get the Prime Minister.

The artificial rates and loose lending is to prop up markets and stave off an election with a Coalition Gov’!

#12 JET on 08.30.09 at 10:44 pm

Wow, this New York Times article from 1879 sounds exactly like today:

http://query.nytimes.com/mem/archive-free/pdf?_r=1&res=9F0CE6DB1F3FE63BBC4850DFB1668382669FDE

#13 thecomingDepression on 08.30.09 at 11:33 pm

Of course rates will be going up. This is the reason why the government controlled media is claiming “recovery”. Trumpet this loud and clear so the dumb sheeple believe it, then you’ll feel good about paying double your mortgage payments…

#14 rp on 08.31.09 at 12:20 am

Rates are not going up without a currency crisis or double-digit inflation. Central banks around the world are in a race to devalue because inflation is the only way to service runaway debt.

The guy leveraged 10:1 needs his assets to appreciate. Inflation is his only safety net. And his contribution to the economy is proportionally bigger than others’, because his returns are higher due to leverage.

Every government and central bank is will try to save those people to keep the party going. Starving seniors don’t count because they don’t spend any money. And savers are fools for tolerating low rates. If you tolerate them now then you’ll tolerate them forever. Rates won’t go up automatically. Reasonable rates must be demanded, ultimately with the threat of capital flight. Central bankers aren’t going to hear anything else.

Personally, I am looking for a better country in which to keep my savings. It’s crazy to contemplate, but it’s something we may ultimately have to do. The Japanese shrugged off low rates and are still stuck with them two decades later. Savers can not assume that their native currency will reward them at all. Investment went global a long time ago. Conditions are ripe for savings to do the same. Sadly it will be a rather dangerous game – don’t you think ?

#15 timbo on 08.31.09 at 12:21 am

http://ftalphaville.ft.com/blog/2009/05/13/55810/samurai-ed-japan-would-avoid-dollar-bonds/

“Japan’s opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.”

http://www.npr.org/blogs/thetwo-way/2009/08/japan_opposition_wins_landslid.html

“Japan Opposition Wins Landslide Victory; Ousts Party That Ruled For 54 Yrs”

Now the US really has to practice the art of pucker if Japan stops buying US bonds. Who are they going to send over first to ass-kiss…? Could this be the first domino or just election promises that will not pan out.

#16 Coho on 08.31.09 at 12:32 am

To Popeye the Sailor Man from yesterday,

Depending on the model truck you bought, it sounds like you got a reasonable deal on it. I’m in the greater Van area and I found the link below to be of enormous help to me in determining a fair price for a vhicle I recently bought.

The area code I used for this Edmunds (american) website was in Bellingham which is just south of the border from Vancouver. The private sale prices listed for the used vehicles down there correspond almost exactly with the asking prices of Vancouver area private sellers for the same makes and models.

I think that used west coast driven vehicles typically fetch a higher price than others in Canada because of the temperate climate conditions.

Below are links to the numerous models’ true market value. If you click on the link of your model, it will show trade-in price, private seller price, and dealer price. Also, you can do a customized appraisal by checking off which options it has, the mileage, colour and general vehicle confition etc to get a more accurate appraisal.

Note the price variance between the many different models. It is good to note EXACTLY which model vehicle one is making an offer for because of the significant price variations between them.

F-150 regular class models:

http://www.edmunds.com/ford/f150/2004/index.html

F-150 heritage class models:

http://www.edmunds.com/ford/f150heritage/2004/index.html

Edmunds true market value home page:

http://www.edmunds.com/tmv/index.html

Asking 20K initially for that truck is absurd, however, a person having not done his or her homework would assume it is only marked up 2K-3K and thus pay 17K for a truck work only 10K…and think they got a good deal.

It is amazing how exploitative many dealerships are and in my travels, I heard that Ford dealerships in general mark up the most. Not sure if that is true, but it is hard to feel sorry for the “hardship” dealerships are presently going through while they attempt to sucker customers into overpaying five to ten thousand dollars for a vehicle.

#17 Nostradamus Le Mad Vlad on 08.31.09 at 1:06 am

“Partynomics . . . a whole lot sooner than Mark Carney is letting on. . . . Monday will be one of the days he eventually points to . . .”

Where is the party gonna be? Central and eastern Canada are bust, west is still best (except for fires and drought), and the north may still have some of the white stuff, so why don’t y’all park yer buns here, in Paradise Lost?

Keep in mind that Bernanke tells Geithner and Paulson what to say, what to do and when to do it. In turn, Paulson tells Carney to do.

Main thing is that no one knows what we’re supposed to be doing anymore, so COME ON OVER!

“. . . we’re snapping up houses at new pinnacles of pricing, . . .” — If this holds true for 15-30 more months, I may end up selling at a tidy profit, invest 50% of the net proceeds in dividend-paying stocks then rent a condo (long-term lease).

At least I won’t be on the hook for ever-growing property taxes, increasing maintenance costs and the like.
——
Most know the US is in Af’stan for Oil and NG, not to bring peace and stability there. Most also know that the CIA are masters (like the Mossad) of deception, which is why 6% of the elite own 96% of the m$m — so their wars are publicly proclaimed and artificially justified.

Unofficially, the US has now invaded and conquered Pakistan — http://ncane.com/dw6 — which just happens to be right next door to Iran, so it’s straightforward to see what will happen shortly.

Obama was given orders from Israel to tell Iran it has until the end of Sept. (when swine flu injections here should be going full tilt — see link at end) to stop doing nothing, or else.

However, an idea springs forth — eliminate the CIA! Off my rocker? Think again, as it’s been done before. — http://ncane.com/tva

Comment by wrh.com.: “Remember the predictions at this site, for some time, that Pakistan is absolutely the next target in the US’s “War on Terror”?

“And please note the other post about Pakistan at WRH today, indicating that the US is accusing the Pakistani government of modifying an older US weapons system to increase its range against India.”
——
This person has guts! — http://ncane.com/a7y
——
Physicists successfully predicted the recent crash in stocks — http://ncane.com/dk1
——
Interesting how things and people can unknowingly leave one country, and magically re-appear in another! — http://ncane.com/2ca
“. . . The men it carries do not exist on the books either, but Russia needs their labor, and they need the money. Russia’s enormous oil wealth and its plummeting population have turned it into the world’s biggest immigration destination after the United States, . . .”
——
Figures for ‘projected’ swine flu deaths keep changing. — http://ncane.com/z0im
“. . . PCAST wants Obama to rush through vaccine production so that 40 million people can be infect – er – injected by mid-September.”

#18 JoeCalgary on 08.31.09 at 1:07 am

“GM to form China venture, invest $293 million”

http://www.reuters.com/article/newsOne/idUSTRE57T0IV20090830

This one is for light trucks and vans. The article goes on to say GM already has other investments in China.

Is this where our bailout money goes?

#19 Future Expatriate on 08.31.09 at 1:17 am

Try what that sailor pulled in 1945 and you’re likely to get a knee in the crotch rearranging your gonads into a typically female medical location, scratch scars on your face for life, and be doubled over for at least the next couple of months. And you know what? Anyone who tries such a thing based on such flimsy news deserves exactly what they get.

Grab a girl? If you dare.

Hey, guess what? The war wasn’t over in when that pic was taken, either. Took nuking a couple of hundreds of thousands of innocent Japanese women and children many months later to end that war for real.

And the Depression.

#20 Munch on 08.31.09 at 1:23 am

Grab a girl?

Well, looking at the futures this mourning (sic), looks like the next downleg has started.

You will recall clearly, I know you will, that last week I strongly advised everyone here to “Sell! Sell! Sell!”

You didn’t listen to me so now it’s too late

Never mind, there’s always the next Great Crash.

Regards

Munch

#21 Gord In Vancouver on 08.31.09 at 1:57 am

Financially troubled Canwest Global/Global BC will pop champagne corks and choke their chickens much the same way Mark Carney did about a month ago. If you thought that recent RE hype was unbearable, be prepared to toss your cookies this week.

Until Canadian unemployment rates decline, a TRUE economic recovery cannot be announced. Unfortunately, tomorrow’s “great” news will cause the CDN$ dollar to spike and make it tougher for the unemployed to find jobs – a classic catch 22.

#22 Jimmy on 08.31.09 at 2:41 am

Heres a piece of disturbing news that makes the economic problems seem mild.

http://www.google.com/hostednews/ap/article/ALeqM5i95cdYgYkw4qtBvKXa_n70i_pkJgD9ADC1C01

Get ready for the poo to hit the fan. Of course the gov will reassure you everything is fine, as they always do.

#23 Dan-O on 08.31.09 at 2:52 am

I’m still befuddled by the current trajectory — one of the worse banking crisis of modern history and the economic ramifications appear (on the surface) to have barely hiccupped, at least here in the Great White North. Housing prices in greater Vancouver continue to surge while mall storefronts go dark?
Its not like I’m cheering on a catastrophic result, but the endless escalation of ‘good news’ just leaves me wondering if this is some kind of bizarro world.
Oh, and yes, sad farewell for Victoria’s CHEK. Had they not occupied a very prime piece of real estate that canwest covets in its fillings-melting search for cash, the co-op option for the employees would have been impossible to turn down.

#24 Jay Currie on 08.31.09 at 3:38 am

The interest rate question is a good one and one which is not at all easy to answer. Why would interest rates go up if the Loonie is soaring and there is little “real demand” for money? To halt the bubble? But everyone except a few of us old buggers loves the bubble. Things are normal, housing prices are rising.

Weirdly, on the straight numbers an interest rate rise makes no sense in the short to middle term. Where is the galloping inflation? In house prices, in certain markets, yes. But not in food, not in energy, not in the stuff people buy everyday. In that world prices are static or falling. Why? Well because a lot of people have lost their jobs. But for the 85-90% of us who have been lucky deflation in the day to day is becoming entrenched.

Carney is working in a world where most of the other central bankers have much bigger problems than he faces. Unless he wants to go the “hard dollar” route, which would be sensible but politically untenable, there is no reason for him to break his promise.

“Money for nothing,
Girls for free,
I’m going to bank on the BOC.”

#25 Christopher on 08.31.09 at 5:52 am

we live in a lazy time and people want everything for nothing. Liar cheaters thieves that is how this came to be. There is no God in housing so give them as much as possible for the lowest monthly payment and this ride will never end.

#26 lili on 08.31.09 at 6:37 am

Can someone please explain why it is that Garth equates overnight lending rates 1:1 with mortgage rates?

The current spread between mortgage rates and overnight lending is dramatically higher than say in 2001, allowing the Big 5 to repair their balance sheets. Assuming that process is beginning (or has finished depending on what you get out of the latest earnings reports–your mileage may vary), then I ask: What is stopping spreads from decreasing and keeping actual mortgage rates the same for quite some time?

The “rates have never been lower” sales pitch was more or less a disingenuous snare for those that had no idea about “0.9-below-prime” variables when they were offered. The people on those below-prime-rate mortgages are presumably benefitting and doing quite a bit of balance sheet repair too, and at the banks’ expense to boot.

So why won’t the big 5 decrease prime or the spread as the economy improves in tandem with a rise in overnight lending rates?

I suppose I won’t get much of an answer on this, but I’m pretty tired of hearing repeated unqualified bellows about the inevitable rise in rates… Mark Carney is not John Crow, and Bernanke is not Volker.

Garth, I haven’t heard much in the news about “price stability” being an issue. Have you?

#27 Bill-Muskoka (NAM) on 08.31.09 at 7:46 am

Garth,

Great pic. If someone did that today they would be arrested and charged with sexual assault or public indecency. Sad how stupid society has become since WWII.

Oh well, the forecast is for beautiful weather this week. Get your crotch rocket out and go for a ride.

#28 NOBODY on 08.31.09 at 7:58 am

The subject of regional/local TV stations being sold or shut down have not much to do with this recession.
In the age of satellite TV and cable TV where viewers will watch national news- if any news at all, smaller urban centers fall victims. It’s evolution.
Really, why should a Winnipeg person care of what news happens in Corner Brook, Chicoutimi or Kingston?

I find you to be a disinformation spinster.

Why don’t you bring to light the fact that many local, rural businesses are going down because folks will shop at the nearest Walmart… and tie that in into this recession.
This global recession… It gotta be Harper’s fault, right?

Advertising and marketing budgets have long been considered a canary-in-the-coalmine coincident indicator of economic health, since companies trim them when sales prospects dim. Some research would show you that those specialty channels carried on sat or cable survive on subscription fees from the carriers, so there is no direct comparison. Try harder next time. — Garth

#29 Denis on 08.31.09 at 8:46 am

Remember kids … GDP = private consumption + gross investment + government spending + (exports − imports).
http://en.wikipedia.org/wiki/Gross_domestic_product

Which one of these components have ballooned?
Here’s Stats Canada’s Daily: http://bit.ly/h4kpW

MSM reports
- 680news: http://bit.ly/16FCoB
- CTVtoronto: Canada’s economy grows 0.1 per cent in June http://bit.ly/LfSGT

#30 Bill-Muskoka (NAM) on 08.31.09 at 9:05 am

Speaking of Partynomics (I like that term Garth) Japan has changed course precisely per that term.

Challenges ahead for Japan’s new ruling party

Japan is witnessing historic highs in unemployment and experiencing ramifications like homelessness for the first time.

In its election manifesto, the DPJ said it will pay about $3,000 per child to each family every year — to encourage women to have babies and reverse the country’s rapidly aging and shrinking population.

It will also pay about $1,000 a month to each unemployed Japanese as he looks for a job.

But the question is, where will the money come from. Japan’s budget deficit is enormous. Its national debt is almost two times its gross domestic product.

The DPJ says the money is there, tied up in the corruption and bureaucracy of decades-long LDP rule.

“The money which should go to the consumers and the farmers and small-scale business owners was stopped by the bureaucrats,” said DPJ lawmaker Yukihasa Fujita.

“The budget went to the hands of industry and the bureaucrats. Therefore, the money didn’t go to the consumers. Therefore, the economy has not been able to lift up.”

I do find it quite interesting that the political change was from the Liberal Democratic Party (LDP) to the Democratic Party of Japan? Hmmmmm? Apparently Liberal and Democratic have entirely different meanings there?

Perhaps the difference is not as strange as it first appears? Here we have the Liberal Party who plays to the tune of Big Business versus the NDP who plays more to the tune of the people’s needs, yet supports the unions strongly, which is certainly not taken as favourable to Big Business versus the CPC which plays to itself as though the rest of Canadians (the majority) do not exist, except and unless they can be bought with handouts!

Could we see the same change happen in the next election? Like Japan has decided…Couldn’t hurt more than what we already are experiencing, eh?

#31 pbrasseur on 08.31.09 at 9:18 am

Interest rate hikes from the BoC sooner than later?

I doubt that very much, especially with the BoC complaining that the $CAN is too high and that it hurts exports. Inflation is low (or non existent) and frankly if governement has not been impressed by the RE bubble so far I doubt it would be now, actually I think it’s quite the opposit, a RE bubble would be seen as an encouraging sign by almost everyone…

The other thing that could cause interest rates to rise is growing governement debt that is causing governements around the world to compete for financing. But even that cause to effect is far from proven, for example Japan has been able to run up a huge debt while keeping rates to the floor. Still there are limits I suppose and eventually as public debts grow rates will rise (and the nex big crisis might occur). Only not necessarily soon. When? No-one knows.

#32 Midtown on 08.31.09 at 9:22 am

I fail to see how most of the links posted by ‘Nostradamus Le Mad Vlad ‘ have to do with the future of real estate in Canada.

#33 OttawaMike on 08.31.09 at 9:22 am

Advertising and marketing budgets have long been considered a canary-in-the-coalmine coincident indicator of economic health, since companies trim them when sales prospects dim. Some research would show you that those specialty channels carried on sat or cable survive on subscription fees from the carriers, so there is no direct comparison. Try harder next time. — Garth

I believe there is a bigger change in the landscape of media and broadcasting occurring. People have gotten used to “free” content but that model is unsustainable. Just look at Youtube’s profits, oh yeah there aren’t any.

With online streaming, satellite sources, Mp3 downloads and endless other choices the TV companies are going to have to reinvent themselves and offer some quality content if they want to remain relevant. Commercial radio is in the same boat to a lesser extent.

#34 robert on 08.31.09 at 9:27 am

I am sorry but I just cannot fathom all the talk about imminently higher interest rates. With personal debt, income and unemployment levels where they are even a small nominal increase will kill what is left of this faux economy. Ask yourself how much of the spending you observe is fueled by easy credit. Substituting borrowed money (debt) for stagnant or falling income has become an unhealthy crutch in our society. What happens if you suddenly remove the crutch? What happens when the cost of servicing debt cuts into discretionary spending? Just look south for the answer.

Everyone seem to think the only way to curtail excessive borrowing is to raise rates. Few consider the effect of falling price. Who wants to borrow to buy a depreciating asset? How many people will be borrowing to buy more house/car than they need if they see prices are falling? If their own income is falling? How many will actually qualify if credit conditions and standards are tightened? If you were a banker would you want to be repaid in depreciated (inflated) dollars?

For my money falling price and a gradual return to lower growth best solves the problem until employment recovers. A period of convalescence if you will. While I would prefer to see my savings earn a better return those calling for sharply higher interest rates should be careful what they wish for (and be well positioned in the products and stock of Hormel and Sturm-Ruger).

#35 Modus Ponens on 08.31.09 at 9:36 am

I meant to post this in “Kind of a rep”. So it may seem a little off topic here.

I sold my home in late 2007, and made a year’s salary in profits. The problem is what to do with the money while waiting.

My solution was to
1. Maximize my RRSP
2. Place the rest in my Self-Directed Investment Account(SDIA)
3. Within the SDIA, I bought a GIC @ 4.5 %
4. As this money, even though invested in a GIC, still contributed to my margin, I still could buy stocks with a leveraged position and I did – mainly index and oil ETFs

I am now doing my 2008 taxes using tax software.
SURPRISE: I have a T5 for the interest on the GIC that when I punch in the amount I find that I am paying about 40% of it to Ottawa. I can’t afford this.

I have prior years capitol losses. But found out that I can not apply these to the interest income. And even though I haven’t taken this interest out of the SDIA, it doesn’t matter – I still have to report it.

ANY IDEAS HOW I CAN KEEP MY MONEY?

If you had borrowed the money outright without using the GIC as security, 100% of the interest would have been tax-deductible, canceling the tax bill on the interest earned. Next time, get some advice. DIY tax planning almost always fails. — Garth

#36 Rhino on 08.31.09 at 9:53 am

But Garth!

The recession is “OFFICIALLY” over!

I just heard that on CBC Newsworld!!!

Halleluiah!

Maybe now I can find better employment than HD??!!

yeah… right…

#37 Rhino on 08.31.09 at 9:56 am

Can anyone tell me what the “0.1%” in GDP equates to, and how that compares with the shrinkage in GDP over the past 10 months?

Just wondering when we will get back to 2007 levels. Seasonally adjusted, taking in to account the huge reduction of the unemployed… you know… the ones who ran out of EI and are now listed as “discouraged workers” or are now eating at the food banks, and on provincial or municipal social assistance.

#38 Rhino on 08.31.09 at 9:59 am

I am feeling rhetorical today…

A HD colleague is returning to university to study “Creative Writing”.

His career goal is now to become – in order:
1. a journalist

2. a part time sci-fi novelist

I see the similarity – don’t you?

#39 The 'VULTURE' on 08.31.09 at 10:00 am

“House Poor” – The Greatest of Fools

“To stay afloat, new homeowners are forgoing vacations, putting off having kids and surviving of tuna sandwiches. They tell themselves it’ll all be worth it – if the market doesn’t tank. – Portrait of a mortgage-enslaved generation. Source: Toronto Life – March 2008 (right before the September 2008 financial meltdown)

Just to think that prices are even higher today than iwas the case back in March of 2008.

Must be the Viagra of the housing market – Quantitative Easing. Makes house prices go up and stay up even in an unhealthy economy. All offers must be “firm”…..

#40 PVC on 08.31.09 at 10:00 am

WAFJoke..

Can you believe this clown. While his presides over a real estate bubble that is gonna put the US to shame.

Central Banks Should Aim to Check Asset Bubbles, Flaherty Says
Share | Email | Print | A A A

By Greg Quinn

Aug. 31 (Bloomberg) — Canadian Finance Minister Jim Flaherty said central banks should consider widening the use of monetary policy from controlling inflation to checking financial-market bubbles.

Policy makers have assumed that keeping inflation low would ensure financial stability, something that needed a more “critical eye,” Flaherty said, according to the text of a speech he gave last night in Vancouver.

Here’s the link…

http://www.bloomberg.com/apps/news?pid=20601082&sid=aZl5s.9gHCjc

#41 Glenn on 08.31.09 at 10:12 am

There is a guy on the radio I listen to. He says his father worked in pest control while in college. He said that when a cockroach colony gets hit with enough poison to wipe out the entire population, they all start fornicating wildly. Then they all die. I guess were in the wild fornication phase?

#42 POL-CAN on 08.31.09 at 10:16 am

Wow…

A whole 0.1 % increase in GDP with all that gov spending

We are still in deflation and the door is still wide open for a full blown depression.

This is not over. To paraphrase Dennis Leary from one of his skits:

“Folks… This is your captain speaking. Light them up ’cause we are going down”

#43 Makeorbreak on 08.31.09 at 10:17 am

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6110621/Our-quarter-century-penance-is-just-starting.html

#44 X on 08.31.09 at 10:25 am

Flaherty:central banks must pop asset bubbles

http://www.financialpost.com/news-sectors/story.html?id=1946876

Now, assuming the gov’t feels we have a RE bubble….yet another example that interest rates are going to go up.

This way they can make it look like it is a controlled air release from the bubble, than a pop, like our american neighbours.

#45 Rasputin on 08.31.09 at 10:25 am

It really is amazing to watch all this from the sidelines. People trampling over each other to buy houses at a time when prices are so high, they can only fall and interest rates are so low, they can only rise. Me? I’m waiting for the opposite set of expectations. I will happily continue renting until then.

#46 miketheengineer on 08.31.09 at 10:35 am

Garth et al:

Improvement in the economy? I beg to differ. Here is a reponse to a very qualified, and well connected friend of mine.

We are both still looking for work.

hi Mike,

No nothing, the market is totally dead for technical people.
They claim its to get better in Sept. I am also still looking.
I have really seen a reduction in jobs in August.

I’ll keep an eye out for you, I hope to see better signs in Sept.

Andy

We are all hoping for better times.

#47 Downsized and Delighted on 08.31.09 at 10:42 am

Whenever I read in the paper that the recession is over I have to come here to see Garth “squirm”. The trouble with taking a position Garth is that you are blind to changes when they occur. And you have to admit that something is different now.

I rushed out to Oakville to look for one of those fire sale mansions you were speaking about (where the he** is millionaire’s row?) but I had a little difficulty finding any.
Are you just making this sh** up now? How about posting even ONE great bargain from the current Mls? I’d love to see it.

What’s different now in my neighborhood is the extreme LACK of listings. It kind of makes those $2 million plus listings stand out because there is nothing UNDER that amount. But they ARE selling also, UNLIKE
last year at this time when NOTHING was selling. That’s what is different now Garth.

Blind? I’d say you’re the one with blinkers. Good luck. — Garth

#48 jess on 08.31.09 at 10:45 am

huh?

“The Conference Board says fewer respondents now believe their financial situation will deteriorate over the next six months, although the majority still expect no better than that their personal situation will not change”

#49 Seilfworcehtsa on 08.31.09 at 11:04 am

I read somewhere that we should all strive to live within our means even if we have to borrow to do so.
The caption picture above was taken during a period of euphoria occassioned by the end of hostilities. Housing was scarce and expensive. Govt debt had gone through the roof and soon factories were closing by the thousand and the men of the military were returning to swell the ranks of the unemployed. It could have sparked a return to the great depression but it didn’t because of the mindset of the leaders of the day and the policies they initiated. READ ABOUT IT…the GI bill, housing for veternans, financing for farms, businesses and fishing boats, highway const., etc. and soon it was horray, horray for the USA. And Canada was no slouch either.

#50 WillsDad on 08.31.09 at 11:06 am

“It really is amazing to watch all this from the sidelines. People trampling over each other to buy houses at a time when prices are so high, they can only fall and interest rates are so low, they can only rise. Me? I’m waiting for the opposite set of expectations. I will happily continue renting until then.”-#43 Rasputin

Well said.

#51 Iggy_12 on 08.31.09 at 11:08 am

Why does it take 2 consecutive negative quarters for a recession to be decalred but after only 1 month of growth, they say it’s over??

#52 AM on 08.31.09 at 11:12 am

We all seem to be focused more on the state of the economy than real estate today. While driving this morning, I was listening to my local talk radio station and the topic was political. I could not believe how many callers thought Harper was doing a terrific job with the economy.

On the news break, the news read that the GDP growth was “off slightly” from the estimated 0.2% at 0.1%.

Now for my spin…Harper has done nothing other that throw money (ours) at a situation that only time and personal financial pain can heal…accoding to the numbers released today, GDP growth was only half of what was expected.

Ya, ya..I’m all doom and gloom I suppose, but after reading some of the posts today, I think I’m dealing more in reality that the faux recovery that the media and government keep going on about.

#53 Jonathan on 08.31.09 at 11:13 am

Some extracts from stats canada on their latest release on second quarter Canadian GDP:

National Savings rate fell to 4.4% – the lowest rate since 1994.

Labour income fell by 0.5% in the quarter. Business sector income fell by 1.1%. Government sector income rose by 1.3%.

Purchasing power fell by 0.5%, making things less affordable.

After Wholesale trade, real estate agents and brokers contributed the second most to June’s rising GDP.

Exports continue to fall, falling 5.2% in the quarter.

While inventory levels have fallen, the sales-to-stock ratio edged up to 72 days, the highest since 1994.

Investments in engineering projects fell by 5.2%.

Consumer spending increased by 0.4%. Car sales were up. And the service sector benefited from a steady increase in financial spending, mostly on stocks and mutual funds.

NO MENTION OF RAPIDLY RISING DEBT LOADS. One has to wonder why credit and debt is completely discounted by modern economists. No wonder they have it all wrong.

But if you connect the dots above, you can see that this is a house of cards. We’re spending more, speculating and earning less. How do we think this will end?

#54 The Gonz on 08.31.09 at 11:19 am

Hi Garth,

I think that a good way to track how fast things are going out of control is to compare CMHC’s paid claims vs. insurance-in-force.

I compared the ratio for 2004 vs. 2008 and I get 0.21 vs. 0.91. This means the volume of mortgages gone bad and being bailed out by taxpayer’s has grown 4 times.

Do you agree with my reading and would you care to comment?

Thanks Garth,
The Gonz

#55 The Gonz on 08.31.09 at 11:19 am

PS:

http://www.cmhc-schl.gc.ca/en/corp/about/anrecopl/upload/Annual-Report-2008.pdf

#56 eddy on 08.31.09 at 11:33 am

#14 wrote: “Rates are not going up without a currency crisis or double-digit inflation. ”

and blood in the streets

#57 Seilfworcehtsa on 08.31.09 at 11:38 am

#52 AM

Rub-a dub-dub,
Three men in a tub,
And who do you thin they be?
The Carney , the Blarney,
The cabinet-maker;
Turn ‘em out, knaves all three.

#58 jess on 08.31.09 at 11:44 am

Leaky situations and rinse lather repeat cycles.

Is affordable housing really just the condos/foreclosures that went bust in the last boom ?

http://news.therecord.com/Opinions/Editorials/article/590746

#59 kc on 08.31.09 at 12:06 pm

Someone needs to tell Bay street that the recession is over…. China had over a 6% pull back last night and at present TSX sits -1.6%…. Yep pop the champange corks… ENRON accounting can prove any thought you can dream up as truth.

Now that Japan’s population has tossed the old regime, things are going to be getting interesting in “world Economics” as someone said above, “who are they going to be sending to Japan to do some major ass kissing”

#60 Ronaldo on 08.31.09 at 12:16 pm

Well Garth, you were right, I turned on the TV at 5:00 this morning (BC Time) to hear the Stats Can Town Crier proclaim to the CBC News Lady that the recession was over as growth at end of June was up .1%. Wow. Upon hearing the news I thought the newscaster was going to fall off her chair with glee as she was having a hard time containing herself upon hearing this.

Well, the markets didn’t seem to take the news so well as the TSE down 129 points as at 8:30 BC Time and all sectors in the red. The only bright light seems to be with Silver, up .56 to 14.82 on its way up to 20.00 by end of the year. Thats where my cash has been directed since it went below 9.50 last November.

Both of our investment portfolios, we switched over to 65% Fixed income from 65% Equities in January of 2008 when interest rates were starting to drop and the market was down 2000 points from its high in 2007. The almost exact same scenario as what took place after the market topped out in 2000 and the markets started their downward spiral and interest rates started dropping once again from January 2001 onward. Unfortunately, at that time I trusted my FP to do the right thing for us and that turned out to be a drastic error. In January 2008 I took charge against the statement by my FP that what I was doing was against so called “Conventional Wisdom”. I replied that “Conventional Wisdom” in the past 7 years and the Buy and Hold stratedy that most of them attest to “Does Not Work”. In the long run, you are guaranteed to lose.

On September 25th just before the big vote by the Senate on the “BAIL OUT”, my wife and I bailed out of equities once again and held only 10% mostly in bank related funds. As with yourself as stated in your book which I read on my vacation in Maui in March, we came out of this mess with a slight 5% decrease in our portfolio values which have been more than made up by transferring into other more lucrative sectors.

With the Banks having recovered back from their lows on Feb 20th to near their highs I have a feeling that a major correction is due on their part in the very near future. There is no doubt in my mind that Da Big Boyz were the ones driving the market from their lows on March 10th as the herd sat nervously on the sidelines still licking their wounds from the 40 to 60% bashing they took on their mutual fund investments. Even the so-called FP’s of a couple of the major banks I deal with were so gun-shy at this time that the last thing they would consider you do is get into the market at this time when their own Bank stocks were down 50% or more. My wife had a great deal of trouble trying to convince them at the beginning of March when she wanted to set up her TFSA with a fund that was heavily invested in Financial stocks that she had to go to three banks before she could convince someone to sell her one of these funds. She was told that this was too risky and were suggesting GIC’s (I think 1.5%). They even wanted her to sign a statement to the effect that she was taking responsibility for the decision. Can you believe it? Anyway, she did finally get her request after some prodding and when the market hit 10600, she cashed it in and is now sitting in a MMF with a 32% return. I took a more aggressive stance and purchased 400 shares of Great Western Bank at $10 and threw in a high risk junior gold minor at 14 cents which has increased 142%. My TFSA is up a nice 92% and I think its time to cash in before the big correction next month. By the way, as of June 1st when the market hit 10600, I went 100% bonds which have returned an average of 10% over the past year. We will be looking at moving out of bonds before Mr. Carney starts raising interests rates again but in the meantime we have no problem sleeping at night. Who says DIY financial planning is not possible. It is. You just need to educate yourself and trust your instincts. This past year and a half has been a great learning experience and there are some very exciting times ahead.

Unfortunately, for fear of missing out, what’s likely happened is the herd has probably started moving back into equities again after the market hit 10,600 at beginning of June after they bailed out in October/November of 08. Now the Big Boyz will sit back and watch the rush of cash from the sidelines push the market back up to the 11500 range at which time they will pull the plug once again and cash in only to buy back in at around 8600 and start the cycle all over again. And those buying into the high priced housing being sucked in by the low interest rates, good luck. Definately interesting times ahead Garth. Love your book. Keep up the god work and hope you are successful in your run for the government post. We need people like yourself in there shaking things up. Keep an eye on Silver.

#61 Ronaldo on 08.31.09 at 12:24 pm

Oops, sorry Garth, I meant “keep up the good work” not “God Work”, lol

#62 Chaostrology on 08.31.09 at 12:30 pm

If you are sick of this crap there is a simple solution.

Lock and load BABY! Get all of your credit cards, LOC’s,
2nd mortgages and all the other money that you can beg borrow and steal into one big pile and go and buy everything you’ve ever wanted.

Go on a spending ORGY. Spend until you make yourself sick, really sick, until your cannot force yourself to buy one more thing because you feel like puking.

2 months later go and see a Trustee in Bankruptcy and blow the whole freakin thing off.

Hand the keys to the house back, tell the tax collectors to shove it and live in the used motor home that you just purchased!

Take your lifetime mulligan. Don’t worry, be happy, around the camp fire down at the local camp ground showing off your gold Rolex, Hermes silk tie and expensive hand made suits of Italian wool in both summer and winter weights.

Your Trustee will depreciate all of your personal belongings down to a yard sale price, so you will actually get to keep more of your stuff than you think!

But please remember, quality is better than quantity, as quality must see you through your next 7 creditless years.

It’s not the end of the world. You get to start over.

You are no longer a credit slave and downsizing your stress is magic!

Within those 7 years you will be able to alter your behavior and learn to live within your means, as you have no other choice. Simple things will achieve meaning again, as these are the only things that you can afford. (a great piece of fresh fruit pie becomes a highlight in your day)(maybe you even picked the berries)

Don’t wait to long to do this, because once the movement picks up steam you know that the laws will be changed to protect the banks and the status quo.

If you hate the Canada you live in now and you want things to change, the solution is simple.

Go crazy and then declare personal bankruptcy.

WARNING: As with all long falls it won’t hurt until you hit the pavement.

#63 lili on 08.31.09 at 12:40 pm

#52 AM: “Ya, ya..I’m all doom and gloom I suppose, but after reading some of the posts today, I think I’m dealing more in reality that the faux recovery that the media and government keep going on about.”

If you feel better about your bearish tendencies right after reading Garth’s blog, I suggest that you are experiencing internet-myopia.

Garth is bear, as is most everyone posting here. So you just entered a room of people that are united in a common cause: being bearish.

That might make you feel better, but you’re probably not getting wiser.

#64 Calgary Crash on 08.31.09 at 1:03 pm

#52 “Harper has done nothing other that throw money (ours) at a situation that only time and personal financial pain can heal”

And what was Ignatieff’s plan? Throw even more money…and faster.

#65 Mathew Gibson on 08.31.09 at 1:16 pm

#63 lili

Good to read some sense in regards to interest rates from your earlier comments.

I also don’t see interest rates going up dramatically any time soon. Eventually, yes, but likely gradually, 25 BPS or less every six months. Obviously, this still impacts people with high debt in marginal circumstances. However, I don’t expect the variable rate to be above 7% before 2011. We are in a deflationary cycle, and it has a lot further to play out.

Bearish? Not me. I am bullish on a return to economic sanity and stability; bearish on asset-inflation economics. :)

A bull would fully expect higher rates. — Garth

#66 The New Internet Economy on 08.31.09 at 1:37 pm

#5 –

I totally agree. Enslave the masses with debt, and you rule the world …

#67 The 'VULTURE' on 08.31.09 at 1:42 pm

“Your house is not an asset” – Robert Kiyosaki

—-


-
Investing is not risky.

Lack of financial literacy is risky.

Granite counter tops do not make you rich, neither do steel appliances.

Make your money work hard not yourself….

#68 rory on 08.31.09 at 1:49 pm

#64 Calgary Crash

“#52 Harper has done nothing other that throw money (ours) at a situation that only time and personal financial pain can heal

And what was Ignatieff’s plan? Throw even more money…and faster.”

Not to be outdone …Jack’s plan would be to throw even more money at an even faster rate …still the Party in power gets the glory and the heartbreaks … I am disappointed even though all the national parties would have done exactly the same thing…IMO.

#69 rory on 08.31.09 at 1:52 pm

Where is the creativity, guts, or out of the box thinking from our gov’ts vs. the same old, same old…talk about a lagging indicator.

#70 TJ on 08.31.09 at 2:33 pm

The Joseph Kennedy, bough Chicago’s famed Merchandise Mart in 1945 for $12.5 million.

Spanning two city blocks and rising 25 stories, the sprawling limestone and terra-cotta mart is so large it has its own zip code and only lost its title as the world’s largest building after the Pentagon was built in the 1940s.

The elder Kennedy helped transfor it into a national centre for the home furnishings and design industries.

The family retained ownership of the building until 1998 when it was sold — along with other properties including Chicago’s Apparel Center which covers about a million square feet — to Vornado Realty Trust of Saddle Brook, N.J. for $625 million, taking advantage of the then-booming real estate market.

The deal allowed Kennedy heirs to receive a stake in one of the nation’s largest real estate investment trusts.

“One of my cousins reminded me of a quote from my grandfather: ’Only a fool waits for top dollar,’” Christopher Kennedy, the son of the late Sen. Robert Kennedy told The Wall Street Journal at the time.

#71 Peter on 08.31.09 at 2:38 pm

Recession is over !!!! Good news.

Faster:
1. Finish to stimulus spending.
2. Big deficit and it will increases taxes,so less income and as a result harder to pay you mortgage.
3. Interest rate start back to normal and will cut freeway to cheap money and finish crazy bidding wars.
4.Real estate will start dropping in price and return to balance.

#72 Evangeline on 08.31.09 at 2:43 pm

I’m not an economist but …. it seems like the economy is between a rock and a hard place.

The Canadian housing situation is a micro bubble within a macro recession. Wouldn’t an interest rate increase to normalize the bubble excaberate (sp?) the overall recession? Would not businesses who run on credit be extremely hard pressed by higher interest rates and therefore any growth toward true recovery be slowed down?

Would you care to be the new BoC governor? — Garth

#73 Live Within Your Means on 08.31.09 at 2:50 pm

And Flim Flam says no need to increase interest rates or make cuts.

Since they won in October, Tories have issued 1,582 funding announcements, totalling $69 billion

http://davidakin.blogware.com/blog/_archives/2009/8/30/4305375.html

But guess whose ridings are getting the majority of this spending. So much for promises to change politics.

And then – Flaherty chooses himself as authority on banking oversight

http://www.theglobeandmail.com/news/politics/flaherty-chooses-himself-as-authority-on-banking-oversight/article1270154/

Lord help us. Didn’t he say that Ontario’s Finances were great when he left the Harris Govt. Oops.

#74 lili on 08.31.09 at 3:00 pm

A bull would fully expect higher rates. — Garth

What? That’s just off the wall Garth. It’s mostly bond purchasers that crave higher rates — and they are notorious bears. However, at least they come by it honestly.

A bull in this market would expect that deficit funding can continue to be obtained at reasonable rates from the bond market.

This assumes that international financiers are bulls that buy the argument of a robust, low-inflation recovery with–you guessed it–stable prices. This belief naturally keeps LIBOR in-check, creates confidence in commercial lending, and allows spreads to narrow…. even in mortgage rates.

This is what I have alluded to earlier: mortgage rates can reasonably stay low longer than overnight lending. The longer that continues, the more your ship is sunk I’m afraid.

If you think spreads are going to widen, then you surely expect another trench to open up in stocks, and I believe financials would be the main loser near-term in that scenario. While they may be smart enough this time to get short (improving trading revenue), your readers will be pretty disappointed with a nasty slip in rock solid bank preferred shares.

I’m sorry, but you can’t have your cake and eat it too. Rates will stay low… and real rates will stay even lower.

There is a difference between beef and ham. — Garth

#75 Men With Hats on 08.31.09 at 3:36 pm

o.o1% growth in GDP . Yup,we’re on our way .

#76 Makeorbreak on 08.31.09 at 3:59 pm

http://globaleconomicanalysis.blogspot.com/2009/08/spending-collapses-in-all-generation.html

#77 Men With Hats on 08.31.09 at 4:03 pm

A miniscule 0.01%,growth in GDP and these so called economists are ready to declare the recession over .
Clowns .
Who are these mental midgets ?

#78 Dandy on 08.31.09 at 4:22 pm

I understand why the British and the Americans have to raise interest rates (to keep foreign investors investing in a worthless currency) but can anyone tell me why the Canadians have to raise interest rates? The CAD is strong because of low debts (next to most developed nations) and plenty of commodities to sell. If interest rates were raised the CAD would get even stronger which wouldn’t help exports. So why raise Canadian interest rates? Even if the Americans started raising interest rates everyone knows its currency isn’t worth buying because of their impossible debt situation. I’d rather have my money in a low yielding currency that has assets (commodities) to back it up than a currency which has high interest rates but stealth inflation.

#79 Dan on 08.31.09 at 4:31 pm

Funny how it take TWO quarters of negative growth but all it takes is 0.1% growth for ONE MONTH and the recession is over? LOL the situation is worse then anyone can imagine as the propaganda of lies from the MSM is nothing but funny. No one believes these lies and no one has money to spend to fulfill the propaganda of lies.

#80 T.O. Guy on 08.31.09 at 4:34 pm

Hey Garth
Here’s a quote from your buddy TD economist, Don Drummond, says: “A similar pattern in [the US and Canada] is unmistakably suggesting we’ve not only bottomed in housing, but we’re on the way back up.”

I think you quoted him a month or so ago about the CDN ecomony and the housing market.

So much for a CDN housing correction.

#81 Men With Hats on 08.31.09 at 4:42 pm

Let’s party like its 1929 !

#82 daystar on 08.31.09 at 4:47 pm

I see rates doubling 24 months from now. I’ll explain fully later tonight when I have more time, (ok, maybe I’ll try now) but essentially, it has to do with U.S. currency strengthening due to an economic recovery spawned by higher housing valuations there as well as governmental spending and possible health care reforms… but the first two I mentioned, especially the rise in real estate valuations there will cause a pop in personal equity that leads the U.S. into full recovery and a strong dollar.

What does that strong U.S. dollar do to the looney? It forces the looney downward by comparison and to prop up the looney, either the government has to stop running deficits and stop issuing bonds to spend like drunken sailors, or the Boc has to raise interest rates to attract foreign investments to insure the sale of bonds and that, dear readers, is why interest rates will go higher. Its either raise rates, get a government with the smarts to generate surplus’s again, or watch the looney fall and that means a big drop in federal revenue if it does fall should it happen at a time when energy has a high commodity value… and it will.

We are in a catch 22, folks. We are in a real estate bubble that will surely deflate if interest rates go up and it will do some nasty things to our economy internally, as real estate devaluations shrink personal equity and thus, reduces consumer spending. And if we don’t raise interest rates, the dollar could fall so low, we will lose the ability to import as cheaply and loose our competitive edge regardless. As it is, we will have a serious hard time selling bonds to keep the feds in money to continue running the record federal deficits the way this poorly managed federal government has been…. blowing surplus’s and running red ink… and this doesn’t include the whopper of a bill CMHC faces if the real estate bubble pancakes to the extreme I think it will over the next few years.

Readers, pay attention. Interest rates have no choice but to go up with a true bonifide U.S. recovery. Think of what this will do to North American currencies and you will understand it as I do. And a U.S. recovery will happen if real estate recovers there, as surely as it spun into a recession with a real estate bubble burst. The possibility of a U.S. recovery is very real and very likely spawned by the recovery of an oversold real estate market so… ask yourselves what will happen to U.S. and Canadian currencies should this occur…

And ask yourselves what the forced response by the BoC would be concerning interest rates should the looney fall under serious pressure from a rising greenback and government hacks continue to run 50 to 60 billion dollar deficits…. ?????

And now ask yourselves the consequences of such a rise in interest rates would be to our current real estate market valuations and how high these rates could go? And yeah… equity’s should do well but will it be enough on its own with a good deal of manufacturing jobs gone for good and mills still hurting because in case we haven’t gotten it yet, there really are too many homes built in North America… We really did overdevelop. Can a pop in commodities, particularly mining and energy be enough for Canada to lead the feds into the black under current budget spending?

I can assure you all that it won’t be enough for the feds to run surplus’s should interest rates rise because we do have a housing correction of our own to deal with and when it happens, its not if but when, commodities won’t be enough to pull Canada out of the hole its digging itself into unless we actually have the smarts and kahuna’s to elect a fed government that is fiscally responsible.

Ask yourselve’s the timelines that would be realistic under a U.S. recovery scenario that see’s strong growth by 2011 and full recovery and full steam ahead by 2012… what kind of pressure the looney would be under with a U.S. economy bouncing back hard and strong?

And what would that do to Canada’s economy if it does? And how prepared are we for this should it occur… and what will happen to our looney and interest rates? And will the Bank of Canada be forced to do things it doesn’t want to do under such currency scenarios of a strong U.S. dollar and weak looney? And if the looney falls to .60 cents is it good for Canada? Would you want a .60 cent looney or less to live with interest rates we see now? Are you sure you would want that? Really? And ask yourselves how this would effect federal revenue…

No, Garth has been right all along. High deficits mean higher taxes and inevidably higher interest rates. Its not if… its when and if you have read this post to its fullest, you’ll all have a good idea of when that will be.

#83 timbo on 08.31.09 at 5:05 pm

#72,

Give that man a cigar.

Interest rate stay flat …. The world becomes Japan, leveraged to the hilt and praying…

Interest rates rise….. jingle mail and the run to bankruptcy trustees. Now there is a bubble you want to invest in.

#84 Peter on 08.31.09 at 5:36 pm

#80 T.O. Guy

“Then there’s the tricky balancing act faced by central bankers and governments, including Canada, of when to start winding down stimulus, and possibly even start raising taxes to pay off debt, and hiking interest rates to reign in inflation.”Now comes the interesting part,” cautioned Drummond. “My concern is that in the name of short-term stimulus, we’ve bought medium term pain.”

This is another words that clown economist Drummond.
Seems to me this guy don’t have his personal opinion.

#85 Evangeline on 08.31.09 at 5:56 pm

#6
EJ

((“There were housing bubbles in the United States, housing bubbles in Australia,
there’s still a mammoth housing bubble in Canada that I’m quite positive is going to implode.
A housing bubble in the UK, housing bubbles, debt bubbles everywhere.
Once the psychology changed (and it was easy to see that it had to), once the pool of greater fools ran out, and it did in housing starting in 2005, it was easy to see that we were going to have this debt implosion.”))

I watched the vids yesterday and when he mentioned the Canadian housing bubble and used the term ‘greater fool’ I wondered if he’s been reading this blog.

#86 Samantha on 08.31.09 at 6:26 pm

#79 Dan – My thoughts exactly – thank you for posting this.

#82 daystar – Excellent post and thank you.

The only point we differ on is the timing of recovery in the U.S.A. They are still facing a major hit of ARM mortgage toxic waste beginning Jan 2010 and building to a peak in 2012 with some residual in 2013/14.

This time frame combined with the rewrite fiasco from the first waves of toxic mortgage products in the U.S.A., plus the credit card debt bubble that is about to burst, lead me to believe that, as the saying goes, we ain’t seen nothing yet.

Too much in a state of flux on too many playing fields right now. X shaped recovery?

Interesting that many people seem preoccupied with the “when” of it all, When will the real estate market crash (or recover)? When will the economy recover? As if any of us can predict an exact date.

Better to watch and learn from what is unfolding around us in the here and now, with enough humility to learn from the probabilities and lessons gifted to us from the past.

With a nod to Garth’s Latin from the other day, here’s another one:

Veritas Temporis Filia.

#87 InvestX on 08.31.09 at 6:28 pm

Midtown: “I fail to see how most of the links posted by ‘Nostradamus Le Mad Vlad ‘ have to do with the future of real estate in Canada.”

I was thinking the same thing.

#88 Keith in Calgary on 08.31.09 at 6:29 pm

#78 Dandy…….

Because when trillions of dollars are floating around the globe looking for returns, they go where the returns are.

People move a few thousand dollars from one banks savings account to another over a .5% difference…………imagine what a few trillion dollars will do. Treasury spreads go to the 4th digit.

If the US raises rates 1-2-3% over anyone else they’ll be flooded with cash (and we won’t be unless we follow suit)because the chances of the US paying the interest are better, than the chances of them paying back the principal. And for the risk, people will take the chance.

#89 Evangeline on 08.31.09 at 6:29 pm

((Japan Opposition Wins Landslide Victory; Ousts Party That Ruled For 54 Yrs”

Now the US really has to practice the art of pucker if Japan stops buying US bonds. Who are they going to send over first to ass-kiss…? Could this be the first domino or just election promises that will not pan out.
))

The new Japanese government will learn the difference between high flown campaign rhetoric and real life pdq.

#90 Nostradamus Le Mad Vlad on 08.31.09 at 6:32 pm

David Crane, who writes The Business of Canada for TorStar has an excellent column today, called “Don’t expect a happy recovery”. Briefly,

“. . . The deficit is financed by borrowing from foreigners or attracting more investment from abroad, [ usually iin the form of takeovers of Cdn. companies ] “. See #4 Keith in Calgary’s post, and my response.

Allowing for major demographic changes taking place — boomers finishing their lifecycles but not being replaced by children (I understand the population growth here is now less than two per family), it is clearer to understand that humanity is changing far more quickly than any of us have ever envisioned.

Add in all the financial stuff happening across the globe, along with wars this leads to The Daily Reckoning — http://ncane.com/b2k — they figure that the credit cycle is contracting. Excerpt:

“What happens when a world economy of $50 trillion per year tries to correct and governments try to stop it? What gives when the world’s largest debtor borrows $9 trillion trying to prevent nature from taking her course?”
——
#4 Keith in Calgary at 9:50 pm — “. . . they are already monetizing portions of their overwhelming debt and the Chinese ar starting to sweat.”

In June, China either dumped or swapped US$25 bln.; suppose they swapped it for hard assets, such as commercial RE in the US, which is taking a bath right now?

Or simply used that money to buy out US and / or Cdn. commodity firms? China stopped buying commodities a short while ago, but no one said they had stopped buying the companies.

It would apply (moreso here) to small oil and gas companies, diamond / gold / silver firms, etc. who need the money for capital but can’t get it.

China can supply that money, so chances are they will use a load of US moolah to buy North American stuff up with little or no fanfare.
——
#53 Jonathan at 11:13 am — “NO MENTION OF RAPIDLY RISING DEBT LOADS. One has to wonder why credit and debt is completely discounted by modern economists. . . . But if you connect the dots above, you can see that this is a house of cards. We’re spending more, speculating and earning less. How do we think this will end?”

See above, but six per cent of individuals control 96% of the m$m, and their job is to keep sheeples’ attention spans focused on junk, such as exploding RE prices.

Reporting on sheeple putting themselves hopelessly in debt is not their job, so sheeple the world over stay controlled by others. That’s why independent blogs are so effective at helping to get messages across, about paying off and staying out of debt.

#60 Ronaldo at 12:16 pm — “Keep an eye on Silver.”

Agreed. Silver is easier to stash and cash than gold or platinum.
——
#36 Rhino at 9:53 am — “The recession is “OFFICIALLY” over!”

Yo! Party like it’s 1999! After The Party of 1999, dot-coms imploded, so we’re repeating the same cycle and doing what Flaherty said (same cycle, different names!).

#91 Justin on 08.31.09 at 6:51 pm

Insider Sir Alan Greenspan admits recovery has no legs.
http://english.people.com.cn/90001/90778/90858/90864/6732275.html

BBC News, Wednesday, 7 August, 2002
The UK is to award Alan Greenspan, chairman of the US Federal Reserve, an honorary knighthood. The honour, which was approved by the Queen, is to recognise Mr Greenspan’s “contribution to global economic stability”, the UK Treasury said.

Yes gentle reader the stuff is going to hit the fan again in the New Year….perhaps sooner.

#92 Evangeline on 08.31.09 at 6:56 pm

((Why don’t you bring to light the fact that many local, rural businesses are going down because folks will shop at the nearest Walmart))

In July 2005 Macleans did an excellent cover story about Wal*Mart … “What’s not to love? A grassroots defence of the much hated retailer.” Their research found that whereever a Wal*Mart goes up, it helps uplift the local economy and enrich surrounding businesses.

#93 JO on 08.31.09 at 7:15 pm

Carney will have no control over long rates / he never has. Central banks only have some control over the short term rates. The inevitable bond market collapse, no matter the outcome of deflation or inflation, will drive rates higher. The bond bull market (ie. low rate environment) has lasted about 25 yrs. Next major trend is upward even if it only happens in 2012 onward. Imagin those stuck in huge mortgages with home bought at peak prices..talk about renewal shock.

People need to separate real rates and nominal or stated rates. Real rates in many areas of the world are high. So even though you might be earning only 1 % on your savings, the contraction of credit in the economy and resulting collapse in asset values effectively provides a solid return on cash. Focus on real rates, not nominal rates.

The monetary/financial system is similar to a massive ponzi scheme. The technical term for it is: a highly leveraged fractional reserve, credit based, fiat money system. There is very little real money underneath this huge mountain of debt. As the mountain of debt has grown to manic proportions (Debt/GDP ratios are multiples of what they were in 1929), the value of your money has dropped a lot. This is the main factor in why the sheep think their houses are going up so much and are “worth” 400K or whatever. This same impact affects everything else – wages, pensions etc.

Those who got in before the mountain of debt exploded much higher (ended with a blow off top in debt from 2001-2007) were lucky. They bought homes at 30-50-100-150K. They retired on full pensions (including CPP). Like all ponzi schemes and fractional reserve/fiat money systems, the inevitable depression and collapse in debt ensues. The economy is being crushed under the weight of the debt. Ironically and tragically, a notable part of GDP “growth” or demand in the economy and hence our incomes was directly inflated (30-40 % above true demand?) while the massive mountain of debt kept growing.

We are now in the early stages of seeing the inevitable reduction/shrinkage of the mountain of debt. People need to watch Money Supply and Credit as one. As the mountain of debt collapses due to bankruptcy / risk averse consumers paying off debt instead of taking on new, our asset prices will collapse very quickly.

This won’t last forever. Once enough debt is wiped out, and enough people borrow and spend in large enough quantities, high inflation will come. When, nobody knows.

The joke has been played so far on the savers and those who have been prudent to avoid a massive housing mania. Carney and company will likely engage in the Swedish negative interest rate policy during the next panic.

Canada is headed for credit contraction (ie., deflation) for a while too…housing is easily capable of losing 30-40 % within 3-4 yrs.
JO

#94 shane on 08.31.09 at 7:16 pm

lets party like its 1929 thats a good one LOL!!!

#95 Angela on 08.31.09 at 7:29 pm

Mr. Turner, I am not presuming to be in the financial league of many, however, I love what you dish out! I was a poor single mother, worked a government job and bartended on-the-side (aka emotional prostitution). Purchased a house in 2004. Small town Ontario. Sold house in spring of 2008. Just had a gut feeling. Made excellent profit as would be expected. Now live in 2 bedroom apartment in an old building. It has it’s challenges – missing the quiet, the gardens, the independence, the lack of others body droppings spun gleefully in the washing machine before I spend my $1.25 in to do my laundry. Not missing the worry, the responsibility, the taxes, the maintenance or the interest on my mortgage (albeit it was low). Almost jumped back into the market a few months after my sale. Kept watching the local market that I am familiar with…started researching…found you…am content to surf this wave of economics sans a board. Maybe I will buy in again, maybe I won’t. For the time being I will work one job, watch my pension grow, save money each month and secretly shake my head at the fools who are around me that are believing half of what they hear and all of what they see. You rock!

#96 Paul on 08.31.09 at 7:37 pm

65% discounts on condos in seattle….

http://www.seattlepi.com/local/409663_auction28.html?ref=patrick.net

could this happen here in Vancouver, Garth… even though it looks as if the ression my be over?

#97 cowgirl kiss on 08.31.09 at 7:52 pm

Hey # 19,

I’m still single and I thought that kiss looked pretty hot.

xoxo

#98 Dandy on 08.31.09 at 8:29 pm

Impressive post daystar thank you. If interest rates don’t move over the next 5 years (they didn’t in Japan) then perhaps the housing market will deflate slowly thus saving the banks and no great trauma will occur for the over indebted Canadians. I’m believe the Americans have no great desire or leeway to start raising their rates anytime soon which would probably shove their housing market down again. The biggest theme from the global financial crisis is a shift of power from west to east meaning the Asian nations getting progressively wealthier as the west gets poorer. Manufacturing jobs have gone all over the western world and have gone to Asia with their cheaper workforce etc. My belief that Canadians along with the Australians are the beneficiary’s of copious amounts of commodities which will help them stay afloat as most other western countries UK and USA particularly sink. The idea behind spending ridiculous amounts on stimulus and creating huge deficits for the Canadian government was the Keynesian idea of spend your way out of a recession/depression. The Canadians have been able to use this theory in the manner that it was first presented which was, a country must save in the good years and spend in the bad. Most other governments around the world spent in the good times but spent even more in the bad.

#99 Samantha on 08.31.09 at 8:45 pm

#90 Nostradamus Le Mad Vlad -

“Or simply used that money to buy out US and / or Cdn. commodity firms? China stopped buying commodities a short while ago, but no one said they had stopped buying the companies.”

Here’s a start:

http://www.theglobeandmail.com/report-on-business/ottawa-guidelines-for-state-owned-investors-get-first-test/article1271106/

As always, thank you for your posts. Enjoy your links (the aclu pizza order was hysterical).

And to those who state Nostradamus Le Mad Vlad’s comments are outside the realm of discussion, it is unfortunate that you cannot appreciate the connection between this blog’s discussion and the scope of issues raised by this poster. Stay teachable and learn to look beyond the end of your nose.

#100 G on 08.31.09 at 9:27 pm

What is the actual number? Is it +0.05%? If it is then that is pathetic.

#101 Tony on 08.31.09 at 9:41 pm

The baltic dry index is dead, oil is pulling back in price. Deflation is upon the world. The world stock markets will crash and burn the next three months as they were manipulated upward with no fundamentals to support any rise. The recession in America should end around 2012 and about a year later in Canada 2013. There won’t be any positive quarters of growth in either country until then.

#102 taxpayer like you on 08.31.09 at 9:48 pm

Dandy/Keith/Star

All good comments regarding interest rates. But I think we forget the sometimes irrational behaviour of the bond
markets. Didnt we have a low dollar (0.70-75US) and still have higher rates by a couple of percent at one time? It is the perception of the strength and desirablility of
the currency as much as the rate that attracts buyers.

#103 Gord In Vancouver on 08.31.09 at 9:50 pm

#95 Paul

“…….Two Bedroom/two bath condos would start at $325,000. Previously the price was more than $900,000.”
___________________________________

That’s scary as Seattle’s market wasn’t hyped/as bubbly as other North American regions.

Can this happen in Vancouver? Vancouver’s prices will correct but not to the extent that they just did in Seattle.

#104 Tony on 08.31.09 at 10:05 pm

daystar on 08.31.09 at 4:47 pm

I see rates doubling 24 months from now. I’ll explain fully later tonight when I have more time, (ok, maybe I’ll try now) but essentially, it has to do with U.S. currency strengthening due to an economic recovery spawned by higher housing valuations there as well as governmental spending and possible health care reforms… but the first two I mentioned, especially the rise in real estate valuations there will cause a pop in personal equity that leads the U.S. into full recovery and a strong dollar.

I’ll bet you heavy all the opposite things happen. I can guarantee interest rates will still be the same as they are now in two years’ time.

#105 Barb .. a reader in Calgary on 08.31.09 at 10:14 pm

Stay teachable – learn to look beyond the end of your nose
– @98

Samantha, such wise words.

#106 Peter Wiener on 08.31.09 at 10:23 pm

# 82 daystar

I will put this as politely as I can;

I don’t know what drugs you are on, but I’d like $200.00 worth!

There is no economy in the US unless there is credit growth and that has been dependant on ultra lax lending standards predicated on phantom equity from inflated housing and asset prices which were dependant on said easy credit. Credit will remain restricted for a loooooooong time as unemployed people no longer qualify.

Ain’t coming back, nowhow, nowhere soon.

#107 Jonathan on 08.31.09 at 10:32 pm

daystar,

Before you can call an economic recovery in the US, the US has to write off their debt loads. It debt to GDP will reach 400% this year, by far the bubbliest in mankinds history. It is over double what was present prior to the Great Depression.

It’s deflation all the way bud.

Interest rates may rise seeing as how screwed the developed world is. Who is going to lend funds? And when they don’t lend, we print.

Still we’d need to force consumers to increase spending significantly to see any inflation. It’s extraordinarily unlikely. Consumers are going to pay off their debt, especially as this much talked about recovery doesn’t happen.

Printing money does not cause inflation. Only when money is spent can it do that. If every hoards the money, pays off debt and banks fatten their reserves, deflation will remain king.

Interest rates will most likely rise due to foreign exchange rate risks. That is where the US is likely to see inflation – in a falling dollar. It will take a generation to see a total collapse in the dollar. Reserve currencies rarely just fall flat on their face. They can remain dominant due to a combination of bureaucracy and a lack of alternatives.

#108 Men With Hats on 09.01.09 at 12:57 am

” Obviously crime pays, or there’d be no crime.”

#109 Daystar on 09.01.09 at 3:43 am

#97 Dandy

Thanks, Dandy.

“If interest rates don’t move over the next 5 years (they didn’t in Japan) then perhaps the housing market will deflate slowly thus saving the banks and no great trauma will occur for the over indebted Canadians.”

The key word is “if”. Lets not forget that while Canada and Japan share the U.S. as our largest trading partner, Japan is a manufacturing powerhouse that has had large trade surplus’s with the U.S. even in bad years. Hence, their currency was never a problem for them in terms of having to prop it up against the U.S. dollar. Canada on the other hand, has problems. Our trade exports have dramatically slowed with the U.S. . We are now for the first time in 32 years, running trade deficits. Thats a big problem for us and makes our comparing Canada to Japan real “iffy” at best.

“I’m believe the Americans have no great desire or leeway to start raising their rates anytime soon which would probably shove their housing market down again.”

Your belief is quite sound, Dandy. In reality, its Obama’s hail Mary. If rock bottom interest rates can’t coax an oversold real estate market back to health and thus, personal equity and economy back on track, nothing will. It won’t come from manufacturing, corps have sourced it all out abroad. It won’t come from trade although the U.S. is running smaller trade deficits as of late. Its not like Obama can legislate corporate america to manufacture on home soil again. CEO’s and shareholders wouldn’t let him live long enough for this to happen. Same goes with an end to private healthcare in any form. Same goes with a new tax or GST to service debt. He’s limited. He’s lucky if he can end a war or two without his end coming first.

And as I was wanting to say to Samantha, ARM’s doesn’t give him much time. ARM is born out of California and is mainly concentrated in the western states, especially California but these mortgages are toxic and it will hurt California to some degree potentially a very large degree, we just don’t know yet how much and for right now. All the feds can do is keep interest rates low and pray that an oversold real estate market recovers enough nationally to lift prices out west and give ARM’s mortgage holders a better chance of being renegotiated so that a new wave of foreclosures doesn’t eclipse the old.

The feds might have to step in and borrow to bail these mortgages out as well or come up with another costly program, but they are hoping for some kind of real estate recovery before hand and I believe some kind of recovery is on the way. How much of a recovery is premature to say right now, but I’m thinking it will be measurable and lessen ARM’s impact on the economy overall.

“The biggest theme from the global financial crisis is a shift of power from west to east meaning the Asian nations getting progressively wealthier as the west gets poorer.”

Yeah, the big shift has been in manufacturing and the west is a clear loser.

“Manufacturing jobs have gone all over the western world and have gone to Asia with their cheaper workforce etc. My belief that Canadians along with the Australians are the beneficiary’s of copious amounts of commodities which will help them stay afloat as most other western countries UK and USA particularly sink.”

There too, China in particular is gaining market share through Canada’s corps in commodities. They are cherry picking corporate ownership of world class deposits through Canadian corps particularly over the last couple years and especially so this year. In steel alone, Adrianna and Cardero stick out with world class iron deposits, any future copper deposits that are in the billions of pounds and open pit, China wants to buy in. Rare earth, uranium, China has been on a tear with Aquisitions and share buys over the last 2 years and picking up speed. Their latest buy in is the tarsands. They are starting to beat us at our own game and the best Harper can do is stand and watch in support of globalization like he did with Nortel, watching Nortel disappear with a 20 million dollar higher bid than Research in Motion, knowing that taxpayers invested hundreds of millions in federal grants and tax breaks in Nortel… further knowing that with Nortel gone from Canada, over 55,000 jobs would be lost permanently along with tech that simply cannot be replaced overnight, never mind in decades….

“The idea behind spending ridiculous amounts on stimulus and creating huge deficits for the Canadian government was the Keynesian idea of spend your way out of a recession/depression. The Canadians have been able to use this theory in the manner that it was first presented which was, a country must save in the good years and spend in the bad. Most other governments around the world spent in the good times but spent even more in the bad.”

I kind of look at it another way. Other governments besides this one knew what they were doing and ran surplus’s, doubled GDP growth in the 12 years prior to this one, lowered taxes annually the last 10 of these same 12 years, and ran policies both in mortgage regs and taxation that avoided real estate bubbles and over heated economies. That all ended in 2006 with Harper’s government. Surplus’s turned into record deficits, trade surplus’s turned into deficits, consumption taxes that kept the economy from overheating got sliced, military and war spending got goosed and mortgage regs got axed paving the way for 40 year nothing down Canadian versions of subprimes and a Canadian version of a real estate bubble with low interest rate icing on top.

What has happened now as a result of such ignorant federal policies is Canada is now on pace to run 60 billion dollar deficits, has a serious real estate bubble in the middle of a recession and sure to be rising interest rates to burst the bubble in the near future when the U.S. recovers economically and when that happens, a great deal of Canadians will know what fiancial pain truly is, thanks to Harper. Folks, its beginning is less than 2 years away.

Right now, we have to hear an idiot bleat everywhere he walks in loudmouthed bully fashion, “when the world recovers from this financial crisis, Canada will be first out of the gate! We will lead the world!” And Harper is either the biggest liar, or the biggest fool to say such a thing when this nation is in a real estate bubble, while 80% of the average Canadian’s equity is in their own homes, while the only thing keeping this bubble inflated is rock bottom interest rates, while his government is on pace to run 60 billion dollar deficits, and while we now have a trade deficit for the first time since ’76. Considering in comparison, the U.S., with their real estate market oversold and having nowhere to go but up and a government that truly does know what they are doing and how currencies and interest rates will play out from there, the first nation out of the gate will be the U.S. and trust me, it will leave Canada in the dust thanks to the government we have now.

And am I disappointed? Yeah… actually, I am. I thought my fellow Canadians would see through all this as I have but then, when I look at the media and what kind of job its doing and how distracted people are right now, how their focus isn’t on this nation really or its economics or its politics, it doesn’t surprise me either. But I am happy to find a place such as this from time to time to vent my frustrations and observations and read kinder words from people such as yourself ;-)

#110 Bill-Muskoka (NAM) on 09.01.09 at 8:39 am

#108 Daystar

That was one of the most comprehensive and intelligent analyses I have read. Thank you.

#111 Slice on 09.01.09 at 9:01 am

“Canadian retail sales increased by 1 per cent in June.

The increase was fuelled primarily by higher gasoline prices. Still, economists took this as a sign that consumers are feeling more confident.”

Higher gasoline prices means we are “feeling more confident”

WTF ? I’m not confident, I am pissed off!

Can you believe what the newspapers print these days?

#112 Daystar on 09.01.09 at 1:20 pm

http://en.wikipedia.org/wiki/United_States_public_debt

#106

Take a look at this link, Jonathan. Its organized enough for me to not have to explain the state the U.S. economy is in and its certainly not at 400% intergovernmental debt to GDP or they’d be bankrupt 5 years ago. As for the rest, expect interest rates to rise as I explained before ’cause we like deficits and real estate bubbles now.

And for Peter Weiner who wrote:

“I will put this as politely as I can;

I don’t know what drugs you are on, but I’d like $200.00 worth!”

There are times Peter, when I wish I’d have $200 bucks worth of the drugs I’ve done in the past cause there have been some good ones, but those times are fleeting at best… the last post you alluded to of mine wasn’t one of those occasions. These days, its DHA, Ginko and Phosphatidyl Serine (I have to be careful as I don’t eat red meats) and I purposely digress, you’ll have to look this stuff up yourself.

And speaking of what this latest stuff does for me…

“There is no economy in the US unless there is credit growth and that has been dependant on ultra lax lending standards predicated on phantom equity from inflated housing and asset prices which were dependant on said easy credit. Credit will remain restricted for a loooooooong time as unemployed people no longer qualify.”

For how long? I said 2 years, Peter. What, are you thinking 2 decades? Do you really believe it will take an eternity for housing valuations to increase, for GDP to turn positive, for market forces to correct and rebound? And while real estate rebounds from an oversold market, you can’t see it for what it is… credit growth?

“Ain’t coming back, nowhow, nowhere soon.”

I said 24 months. (If you want to go precise, I’d say 24 to 29 months and both east and west is covered in that timeframe) I didn’t say tomarrow. And just for the record to all who question my logic. It won’t be manufacturing that drives the U.S. back to an economy of health. Infact, if their economy rebounds, it won’t be normal fundamentals that drive it. Oh, I do believe automakers will have rebound, that I can see and most readers could agree with this as well. Chevy will bounce back and Ford will still be there. Electric cars will begin to fill the highways and the future does hold some innovative change. Financials will strengthen precisely because they will and have tightened their own lending practices.

But one thing that you seem to have totally missed Peter, (as a self confessed drug user would probably do) is that housing valuations are oversold nationally and have nowhere to go but up. And since, Peter, its just as true in the U.S. that close to 80% of the average persons equity is in their own homes… a major pop in real estate valuations creates a major pop in personal equity and that undeniably creates a wealth effect.

This wealth effect is enough on its own to drive any nation out of a rut regardless of a hollowed out manufacturing sector and a large chunk of ruined financials because in case you haven’t picked up on it, a major pop in real estate valuations creates jobs and rescues financials that should otherwise be allowed to fall broken to the rocks below. Look what it did for George Bush. Since 2001, real estate valuaitons rose to the point that 1.4 million new homes were being built every year. Add condo’s to the equation and they were building accomodations to match a 35 year turnover, the profits were that good. Their polices created a commodity/construction/real estate boom/financials boom/bubble and no one was complaining while everything was appreciating in value, but where are they now?

And while virtually all real estate bubbles end badly, the Obama administration doesn’t have to create one the way Bush did to create this “wealth effect” simply due to the glaring fact that they inherited a real estate bottom.

By the way, where have you been? Weren’t you there in the recession and market bottom of 03′, where Bush stoked an already overheated RE market to pop their nation out of a stagnant 01′, 02′ economy? Interest rates dropped in 01′ before that to create the same “wealth effect” and the big difference in 03′ is that his administration had to generate even higher valuations than before so the Bush administration got rid of any other hurdles in their way of creating an all out Real estate bubble and was it madness? Yup. Anything to win another term including war and 911 I guess. It was madness because it didn’t address the root of their ugliest of problems and even someone with a similar past such as yourself should know what that is.

The U.S. simply stopped making stuff.

And until their nation legislates their corporations back home to manufacture instead of outsource it all oveseas and gets protectionist to internalize their economy again and they do fix healthcare and take some of the for profit components out of it, they won’t be the powerhouse they once were. The U.S. has clear ugly systemic problems and until they address them, they will continue to be an empire in decline but folks (and you can include yourself in this, Peter), what is the timeline of a decline of an empire?

6 weeks? 6 months? 6 years? A decade? Two decades? More? How long did it take Rome…. How long does it take to go from world superpower to 3rd or 5th or 10th place… Most of us are guilty of expecting things to happen right away from systemic failures and poorly managed governments. Much of the feedback governments do are years and in some cases decades away in terms of implimenting causal effectual policies…. but real estate valuations… folks, that is something that can be manipulated as quickly as the Bank of Canada dropping rates to zero creating a real estate bubble here.

How long did that take?

And what kind of wealth effect has it created in the face of ugly economic fundamentals in our own back yard?

And what kind of hangover will we face from it in the end… cause all we have to do is look south to see our own future.

Are readers understanding this yet?

#113 Daystar on 09.01.09 at 1:33 pm

THanks, Bill

#114 Bill-Muskoka (NAM) on 09.01.09 at 8:33 pm

#112 Daystar

You are most welcome! :-)