Now what?

So, where from here?

This much, we know. The US economy is in recession and the times will get worse for months and months to come. The mess, as feared, has slopped over onto everyone. Canada, Europe, China – all will be impacted. Commodity prices will keep going down for a while, along with real estate. Billions more will be lost. This is the start, not the end.

Banks will fail, but not here. Ours will just stop lending money to lots of people and businesses. Condo developments will go bust. Marginal companies won’t make it. Car sales will fade with car loans. Inflation will become deflation. And you can stop worrying about high gas prices.

Debts will become unrepayable for many people, so I hope you have few. Interest rates will be going down as central bankers try everything to stop bad from becoming worse. Albertans, and the oil sands, will not be so envied soon. Prices for just about everything will fall, as will the value of your home.

Regardless of whether or not the $700 billion financial bailout passes the Senate tonight or Congress on Thursday, global confidence has been dealt a major blow. With less confidence, there is less credit. And without free flowing credit, economic expansion stalls. This is what terrorized stock markets on Monday, and will continue to do so.

I suppose it is possible the United States could slump into a quasi-depression, taking us with it. But that’s unlikely. A protracted recession – a year or two of negative growth – is quite possible. Investment portfolios could lose a third to a half of their value. Home equity will fade by, perhaps by as much in certain markets. The value of your mortgage will not fall, even though your wages might. This is deflation – when cash grows in value because every other asset is declining.

Although Stephen Harper did not know the events of today would take place, he knew the danger of imminent financial chaos. So did I. And if you’ve read this blog, so did you. I have spelled out the reasons for real estate deflation, falling family net worth, a protracted US downturn and the considerable impacts on Canada. I told you how the Harper government policies of 0/40 mortgages and of cutting the GST instead of income taxes would make us more vulnerable. And I have detailed why massive higher government spending and a blowing of our surplus would make such a time as this more difficult.

Harper knew the danger, as did the finance department, the head of the Bank of Canada, the PMO strategists, and you and I. That’s why he alone triggered the election, not chancing to wait for Parliament during the very dangerous month of September, when he’d have to answer to the people daily.

So, where from here?

Well, if we keep our current leaders, you should know. We go right down that road to a deflationary, job-killing, real estate-munching mess. By this time next year Canada will likely be running a growing budget deficit, taxes will be not a dime less, more people will be without work, the car business will be on its knees, young homeowners will be desperate and in debt, and the country will be poorer in all aspects.

Despite the obvious dangers and the repeated warnings here and elsewhere, our leaders will have failed us. Why should they be rewarded now with government? Why would they be worth the risk?

If there was ever a moment to stop for a few days and reflect on what a balanced, sane path forward would be, I think it’s now.

The country requires some bold and rational action. Cut income taxes to all citizens. Cut corporate and small businesses taxes to rescue jobs. Shift government revenues from families to energy consumption. Restore those income trust billions. Help create sustainable new jobs. Stem a real estate crisis with new securities and regulation.

43 comments ↓

#1 Dom-GTA on 10.01.08 at 7:29 am

While I agree with you comments Garth and have no intention of voting for mini-Bush (harper) I really don’t see how the Liberals have or can do a better Job.

Dion was the absolute worst choice for a leader, when you needed someone with charisma and charm you voted in the least charming and charismatic leader ever. Fine, he is brilliant and has advanced degrees but he just can’t connect with the average voter.

So that leaves Pit Bull Layton and the Green party, (what great choices!)

Harper will win a majority by default, because his timing was right and the opposition extremely weak.

We are definately living in dangerous times.

#2 George Popovic on 10.01.08 at 7:34 am

There is no question that there will be a lot of pain for those with large debt loads. This is shaping up to be one ugly winter that could last a while. As more people become aware of the situation, the deflationary spiral will accelreate.

Perhaps a new era is upon us, one of forced modesty.
Once the dust settles maybe we will return to the times where people bought houses to live in and raise their families and not for a quick return, where investors bought shares in companies that produced valuable products and not because they didn’t want to miss the next rally.

#3 Mortgage Help on 10.01.08 at 8:32 am

I already see banks stopping lending in the Commercial sector. I should know, I am trying to sell commercial real estate, and the one thing that keeps stopping the deals is the bank. Fundamentals that banks felt were solid 6 months ago, are no longer solid.

I think we can all agree that this is coming, but although Harpers platform has problems, so does the liberal one.

I for one would feel better if the liberals stopped trying to buy votes with that income trust talk. Its best to leave that door closed. I could deal with a hike in the GST if you cut my income tax. The green shift plan is good on paper, but I think it will be just a tax grab, and I don’t see why I should support a green shift when the rest of the world gets cheap energy compared to me. I filled my oil tank yesterday — $800, what are people who are short on money going to do for that.
How about you put a green surcharge on every energy resource we ship out.

#4 cj on 10.01.08 at 8:35 am

thanks for this website, its been very informative. You obviously believe in deflation but you also state that interest rates will come down…isnt that inflationary? Do you think that inflation will follow deflation within the next yr or so? With the massive debt in the US the only way out is to inflate, IMHO I believe we will see hyperinflation, but I guess my question is when?
tks

#5 prairiegopher on 10.01.08 at 9:40 am

I agree wholeheartedly with Garth! Everyone, including the PM thought we could continue to spend like drunken sailors and there would be no consequences. Well the time to pay the bill is now. In Saskatchewan, house prices are falling. Grain prices are falling. The price of oil as of today, down. The air is slowly being let out of the balloon. I feel sorry for the people who got caught up in the real estate bidding wars last year. They will live with that mistake for a long, long time, well at least 40 years!

#6 y3maxx on 10.01.08 at 10:02 am

Good work Garth.

…Stuff for your new book?

Cut income, corporate and small business taxes, (new securites and regulation for real estate??

More work at home versus travelling to the office,

Add these Garth…

4 day work week,

electric and/or natural gas cars,

build smaller homes, 7 bdrm,6 bath, 3 car garage ones are history.

change zoning near bus routes to allow multi family

hmmmmmmmmm, sounds like European style living.

Title for your new book….”European style living for North Americans”

#7 canuck99 on 10.01.08 at 10:47 am

Be careful, Garth.

Stephen Harper might listen to your advice about cutting personal income tax (I hope he does.) His GST cuts were a promise to get elected. It worked and he fulfilled them, which is one of the reasons he stand a serious chance now of achieving a majority.

However, I think future tax cuts must be done on personal income, not consumption. Harper knows this but also knows that cutting taxes can be dangerous while slugging out recessions. (He was an economist after all.)

I respect the principled stands you have taken very much, Garth, and think of your voice as the only opposition Harper has that’s worth listening to.

How is it going election-wise for you in Halton? If Harper is really out to get you he would be doing himself a serious disservice long-term. Does he really need another subservient backbencher?

Keep up the awesome work!

#8 Indicator on 10.01.08 at 11:34 am

Sounds about right Garth.

In some places Global Confidence will need 5-10 years to improve.

Keep your cash folks…because cash is ROYAL.

#9 smwhite on 10.01.08 at 11:41 am

I am somewhat in disagreance with this “deflation” theory, maybe its emotion versus facts, or my usual pessimistic and cynical self, being the opposite and hoping we’re not heading to a end of the world scenario of mass unemployment?

I believe our assets and therefore our net worth is declining(which has to happen in order to represent true asset value) in asset areas such as stocks and real estate but necessary consumer goods and services will not decline in price. I say this because many communities, town, cities and corporations are on fixed budgets, your water bill will not drop, nor will your electric bill, or your property taxes as Garth states above. Your still going to be paying the same for insurance and utilities and other essential services. It will also be hard for producers of consumer products such as automobiles, electronics and apparel to produce these items at any lower cost.

Will our dollar dropping in value will put slight upward pressure on the Canadian consumer for commodities sold on the world stage such as food, oil and metals?

Once again the crazy canuck dollar might just protect us from deflation on the way down as it did from inflation on the way up.

The rest of the world seems to be handling this crisis better then North America, the Asian and European markets(markets seems to be less jittery) have been more stable and haven’t been jumping around like ours and the USA’s. They are still in relatively strong positions as to compared to North America, they started hiking rates long before it was contemplated here and they aren’t attached to the hip as we are, although China has a lot at stake as a supplier of $ and products to the USA.

In closing one thing I can’t speculate on is the psychology of the (loss) of the “wealth effect”. Maybe this is the key to the deflation debate, when the average person looks at his savings and the price of the house sold down the street and realizes that 2003 – 2007 never happened, will people go into a shell and cause the “self fulfilling” prophecy?

Maybe we need a good couple of slow years to clean out the system.

Thoughts?

Peter Schiff on deflation
http://www.financialsense.com/fsu/editorials/schiff/2007/1221.html

Mish’s retort
http://globaleconomicanalysis.blogspot.com/2007/12/not-your-fathers-deflation-rebuttal.html

#10 POL-CAN on 10.01.08 at 11:57 am

Garth…

Now we suffer for a few years… All will have to learn to sacrifice and hopefully all will learn to live within their means (all governments included).

At this point I honestly do not think that it matters which party wins the Canadian election. Nor do I think it is fair to place blame for this finantial crisis on the current gang in power. This crisis has been decades in the making.

What I hope is that we finally re-work the way we are taxed. Flat income tax anyone? I would like to see the income tax scrapped all together (it was supposed to be temporary remember?), but will support a lower flat rate in conjunction with say a 20 % tax on consuption?

Taxing consumption at a greater rate while rewarding frugality is the only way to combat what has been wrong with the North American way of life for a few decades now. We have been taught that it is ok to buy buy buy our way to happiness.

#11 POL-CAN on 10.01.08 at 12:04 pm

Not sure if anything like this was shown by the MSM. There is a lot of real anger at Wall Street out there. Please have a look at this post from the protests over the weekend in NY. A picture is worth a thousand words right?

http://www.alternet.org/blogs/peek/100370/bailout_protesters_send_a_strong_message_from_wall_street

#12 jelly on 10.01.08 at 1:01 pm

Well said Garth.

Why do you think it is unlikely for a US depression?
If ever a time was ripe, it seems this mess could certainly do it…
How else do you see the lending institutions tightening up standards besides 40/0?
Would you buy real estate in the US in a couple of years?

#13 Peter Schiff on 10.01.08 at 1:01 pm

Keep Government out of the peoples lives. All Government knows how to do is tax and spend and inflation is a tax on the peoples savings. The Bank of Canada controls the economy and like the US Federal reserves it enslaves the people. P.C, NDP, Liberal, Green Party can’t solve anything. Let the Free Market work.

#14 brazer on 10.01.08 at 1:34 pm

Ford’s U.S. sales down 35% in September
http://www.wheels.ca/article/388345

“Dealers from many manufacturers have said their customers are having an increasingly hard time qualifying for loans to buy autos, as banks have restricted lending because of widespread mortgage defaults that led to disruptions in the financial markets and the collapse of several banks. Plus, several automakers’ finance arms have limited or discontinued leasing.”

#15 brazer on 10.01.08 at 1:35 pm

U.S. meltdown a risk to Canada, economist says
http://www.thestar.com/Business/article/509551

Yale University’s Robert Shiller says the housing crisis in the U.S. stems from an investor culture looking to make a quick buck, motivated by people thinking that home prices would always go up.

While Canada hasn’t had the same type of real estate bubble, Shiller says he would be surprised if the country didn’t involve itself somehow in a similar bubble and bust cycle.

#16 brazer on 10.01.08 at 1:37 pm

Volvo plant closure takes toll on Goderich
http://www.wheels.ca/reviews/article/388344

Volvo Group is shutting down its Goderich road grader operations and eliminating about 500 jobs as consolidations and closures continue hammering Ontario’s manufacturing sector.

Statistics show the province has lost more than 200,000 manufacturing jobs in the past five years and economists say the carnage will continue because of a high dollar, increasing energy and material costs, and stiffer offshore competition.

#17 brazer on 10.01.08 at 1:40 pm

Canadian housing may bust: economist
http://www.reportonbusiness.com/servlet/story/RTGAM.20081001.wshiller1001/BNStory/Business/home

“We’ve become more an investor culture – make a quick buck,” he said. “People got themselves convinced that home prices could only go up.”

#18 Keith in Calgary on 10.01.08 at 1:59 pm

Now what ?

Hmmmm…….

The Case-Shiller index for July showed home prices across 20 U.S. cities fell 16.3% from a year earlier, a record annual decline. Home prices have now fallen almost 20% from their peak in July 2006, according to the index.

Well….here in Calgary the SFH average price market high was in July 2007 at a price of $505,920……today, at the end on September, it is $444,048…..a drop of 12%…….as we are always 18-24 months behind the US economically, I’d say we are right on track to the greatest housing BUST Canada has ever seen……..

That’s what ??

#19 David_#3 on 10.01.08 at 2:22 pm

Garth, I don’t understand why you expect deflation. With the $700 Billions bailout plan (or is it the $2-3T bailout plan?), the US gov is going to start printing money like crazy. And ours will then try “to keep the dollar close to par”, creating inflation here in Canada (trying to “protect” jobs.)

There’s no doubt that home prices will drop, but that doesn’t mean that everything else (energy, food and other basic necessities…) won’t go up in price.

Also there’s no way to cut income taxes to all citizens since not all citizens actually pay taxes. On the other hand, cutting the GST does have an impact on ALL citizens. Had they cut income taxes instead of GST, community organizations would have criticized them for favorizing only the “rich” (ie anyone making over $20k…)

#20 Anton on 10.01.08 at 2:25 pm

First!

#21 IggyB on 10.01.08 at 2:29 pm

Your political affiliation is showing.

Trust me, it has nothing to do with politics. This is bad policy. — Garth

#22 y3maxx on 10.01.08 at 2:39 pm

U.S. should utilize the Warren Buffett Investment Method…

“”A better alternative to the current plan is a simpler and far easier to implement plan that directly addresses the ability of U.S. banks to increase their capital accounts and their willingness to lend to bank and non-bank borrowers.

The proposal is simple. Any “FDIC insured” financial institution in need of capital can raise 10% preferred stock plus warrants (struck at 90% of the prevailing market price/value of their common equity) from the U.S. Government’s bailout fund. Generally the same structure and yield offered to Goldman Sachs by Berkshire Hathaway in its recent $5 billion preferred stock issuance. The fund would need only $350 billion to achieve its goal of restarting lending as all FDIC insured institutions had a total of $1.4 trillion of equity capital and only $300 billion of “toxic” mortgage securities on their books as of June 30. This available funding would represent a 25% increase in U.S. bank capital if it was all taken, which is unlikely as many banks have a lower cost of capital even in today’s turbulent market. In addition, FDIC insurance rates should be increased to cover any losses that Treasury experiences from institutions that participate and fail in the ordinary course. Additionally congress should consider raising the $100,000 cap on insured deposits to further bolster confidence in U.S. banks, but such an increase is not required to make the program work. This program will be used to stabilize all worthy U.S. banks and will benefit depositors, but not shareholders.

The solution proposed by Treasury is to create a $700 billion buyer of these “complicated” securities that will cause the market to value these “toxic securities” at a price closer to their “yield to maturity value” rather than the “fire sale” prices that are currently being offered. Becoming the buyer of the last resort for the $14.8 trillion U.S. residential and commercial mortgage market seems to be an extremely indirect way of bolstering the capital accounts of U.S. banks.””

http://www.huffingtonpost.com/tony-ressl

#23 Greely on 10.01.08 at 2:40 pm

#1 Flyers Rule…Leafs Suck!

#24 Andrew toronto on 10.01.08 at 2:48 pm

It’s coming .. to Canada

http://www.financialpost.com/news/story.html?id=853094

Canada may face housing bust: Shiller
Jacqueline Thorpe, Financial Post
Published: Wednesday, October 01, 2008

More On This Story
Merrill warns of property slump

U.S. home prices fall at fastest pace on record

U. S. housing roller coaster

Don’t count out housing crash in Canada: Merrill
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Chip Somodevilla/AFP/Getty ImagesRobert J. Shiller, Stanley B. Resor Professor of Economics at Yale University, testifies before the Joint Economic Committee on Capitol Hill on Sept. 19, 2007 in Washington, D.C. The committee held a …
The Canadian housing market could face a similar housing bust to the United States, particularly in more bubbly markets as Vancouver and Calgary, said Robert Shiller, the Yale University professor who predicted both the 1990s stock market boom and bust and the US housing slump.

Mr. Shiller, co-founder of the S&P Case/Shiller Home Price Index, said psychology is the primary driver of bubbles and it appears that Canada has been caught up with home buying fever just as the United States and other countries around the world.

Asked whether that meant Canada could face a similar bust Mr. Shiller said: “Yes, especially in places that went up a lot like Vancouver and Calgary. I don’t think Toronto has been quite as extreme.”

Mr. Shiller said there was a natural connection between the United States and Canada.

“I would be surprised that the bubble that appeared in the United States and elsewhere didn’t appear in Canada,” he said in an interview with the Financial Post. “It’s psychology, I think that drives it.

Mr. Shiller, whose book Irrational Exuberance came out in March 2000 just as the tech bubble peaked, said it was essential for the U.S. government to pass a financial bailout, though he believes the United States is facing a “severe recession,” regardless.

“I’m concerned problems are deeper than can be handled by the bailout but that doesn’t mean the bailout doesn’t do some good,” he said.

He said a bailout might help restore some confidence to the stressed financial system.

“What creates a crisis is a lack of confidence,” he said.

He said the housing crisis was primarily a policy failure by U.S. authorities.

The U.S. government was “totally blind” to it, regulators failed to monitor the mortgage industry properly and the U.S. Federal Reserve had very low interest rates at a time of the greatest housing bubble of all time.

While homeowners should take some personal responsibility for the debacle, they were being goaded into the fevour by an establishment that endlessly pushed an ownership society.

“They were doing what was considered right at the time,” Mr. Shiller said.

Mr. Shiller said human nature seems to predispose people to spectacular excess, fanned by a voracious news media.

“Until we had newsapers and other media we had no bublbles, he said.

While ups and downs in the market can lead to creative destruction the current housing crisis has morphed into a system problem.

“The problem is that perfectly good firms are in trouble,” he told the Financial Post in an interview at the Ontario Economic Summit.

A bailout may not be palatable, government assistance is required when the system fails.

The trick is to reduce conditions that fan bubbles.

In his current book, “The Subprime Solution,” Mr. Shiller proposes several measures to reduce bubble conditions in the housing market including better information for prospective buyers and broader markets that trade risk better, such as the housing futures he has developed on the Chicago Mercantile Exchange.

There should also be new retail products such as “continuous workout mortgages,” that go up and down with the value of the home equity and mortgage equity insurance.

Mr. Shiller, who would not give a precise forecast on the outlook for U.S. home prices, nevertheless said futures markets are predicting more price declines of 10% or more. His Case/Shiller index earlier this week showed home prices down 16.3% year-over-year this summer.

He expects things to get worse for the U.S. economy in the short-term.

“We’re going to have a severe recession, most likely,” he said. How quickly the economy recovers depends on policy.

“Unfortunately the bailout has hit a snag,” he said. “There is resentment of rich Wall Street people. I am worried that the sense of trust, in confidence of each other is being damaged.”

Mr. Shiller said he does not have another bubble in his sights as the U.S. economy will be “damaged for years.”

“The housing bubble was of record proportions,” he said. “Maybe the next big bubble will be your children’s or grandchildrens…The excitement we had in the 1990s and in 2000 in the housing market is a fragile thing and it won’t come back for some time.”

#25 anonymous on 10.01.08 at 2:48 pm

Well, I’ve been buying the dips and selling the rips. I’m pissed off that I left 10% on the table with C, but that’s Ok, I still make a huge amount of money and still have some exposure to US financials.

Tough market. It’s really hard to make money in this market. For me, I’m enjoying the experience of what its like to trade through a bear market.

The way I see it (whether it’s right or wrong does not make a different to me) is that the gov’t is going to be backstopping the market through various methods.

I’m building cash right now selling into strength by taking profits, but if we have another big downturn, I’m getting all in, again.

#26 kc on 10.01.08 at 3:05 pm

The writting that is on the wall is pretty obvious, in reality it makes no difference if the 700B is passed or if it isn’t, the damage has been in the makings for the last 10 years and shoving 700B into the mess only prolongs the pain.

The true culprits aren’t sub-prime defaults – even with 1million defaults @ $300K the total will be 300B – the true reason is to shore the fast unwinding Derivatives markets. The banks have been engulfing into the feds “emergency window” for the last month and still they don’t lend nor trust each other. The way I see it is that the feds are using the “sub-prime” mess as a scape goat to give it all an easy name. The general masses have NO IDEA what the derivatives market is nor that they have any idea that that market is sitting as an estimated $750 TRILLION financial time bomb.

You people on here seem to know your economic “stats and terms” however, the full impact of these derivatives bets arn’t mentioned often in here.

When the major banking system is microscopicaly examined and when looked under the first peel of the onion to the next layer, J.P Morgan Chase was given Bear Stearns’ (albiet) shotgun take over, one of the reasons for the fast decisions was to protect billions of the derivatives that B.S. held. If you search this you will find that J.P. now houses the greatest $$$ in risk with Citi not far behind.

I feel strongly that it is the slow (at first) cascading of the falling Derivatives that is playing out in the majority of the bank failures. Placing $700B onto the tax payers balance sheets won’t help the situation any more then trowing gas into an exploding propane tank.

If the feds and congress pass the package I believe strongly that we will see full blown civil war in the streets of America. The general population votes 90% against any bailouts. And with this hanging over the heads of the congressmen in the states in a very important election race taking place…… they are sitting on a time bomb… dammed if they do…. and dammed if they don’t.

Here in Canada, why do you think Harper called this election….(garth) “Although Stephen Harper did not know the events of today would take place, he knew the danger of imminent financial chaos.” let’s palce a huge FAN here and blow away the smoke and mirrors.

#27 nonplused on 10.01.08 at 3:24 pm

#23 won’t be able to pay for his internet service soon.

#28 nonplused on 10.01.08 at 3:30 pm

There can be no deflation in a fiat money system, because the government can always “will” more money into existance. It’s just a matter of how they do it. The stalled bail out program in the US is an example of an effort to monitize the problem.

However, asset bubles can still burts. House prices, stock prices, derivatives, were all in a bubble and that will go away.

But once the crooks in Washington figure out how to “Bail Out” thier bankster rulers on Wall Street, the amount of money flowing out into the hands of speculative community will be breath taking. Only they won’t be buying US stocks and real estate this time, they’ll be moving the money over seas.

#29 APCM on 10.01.08 at 4:12 pm

#1 – You would choose a leader based on charisma rather than choose a leader who is in your own words “brilliant” and has “advanced degrees.”

This is how the US ended up with George Bush. They all wanted to be invited to his backyard BBQ. Don’t you think Canada needs someone who is brilliant and a problem solver in these times?

#30 David on 10.01.08 at 5:34 pm

One can not personally blame Harper for everything go so wrong in the financial markets. Harper does deserve the blame for calling an election no one really wanted for purely opportunistic reasons. Harper spent the better part of year baiting the opposition parties to try and stop him from getting his much coveted majority. The timing of the election was no accident, Harper wanted to beat all the bad news and it looks like that was not successful. I really do question his leadership abilities after this week. Huge financial meltdown and he either chooses to avoid any discussion or gives some lame reheated Republican rubbish about the strong fundamentals of the Canadian economy and the absence of any housing bubble.
The man is probably spending too much time and energy on his political makeover with all those image consultants. Blue V-neck sweaters and the hockey Dad Kodak moments don’t address real issues facing most of us, like jobs, affordable housing or the possibility of a comfortable retirement.
I am against carte blanche corporate tax cuts. If the government is going to forego revenue then there should be something to show for it other than job losses and outsourcing. Investment tax credits targeted aimed at green technology, alternative energy infrastructure and rebuilding Canadian manufacturing is probably a better path. Same thing with an earned income tax credit for low to middle income Canadians.
New financial market regulations are definitely in order. The Bay Street Boys had a pretty sweet 20 years of playing with other people’s money without any adult supervision and look where it got us.

#31 RimmyJ on 10.01.08 at 5:51 pm

For David-#3(Post #18), I would recommend you get a copy of Robert Prechter’s book “Conquer The Crash” to see why this time around , even with massive printing of money, we are headed for deflation. Just as you can lead a horse to water,you can’t make it drink, and you can print all the money you want but you can’t force the banks to loan it out.

#32 Chincy on 10.01.08 at 6:25 pm

#26

Well what if the gov’ts are “willing” more money into existence, but can’t keep up with the deflating R.E., stock market, commodities etc etc…deflation is the name of the game right now friend…good luck trying to print money as quick as these assets and credit markets are deflating.
Cash is King.

#33 dd on 10.01.08 at 6:25 pm

18 David,

Deflation because asset prices are going down. The banking sector is contracting not expanding. It is over leveraged … to many loans and not enough equity on the books. The banks are getting rid of loans now. This is what this bail out is about. Less loaning will mean higher interest rates or higher qualifications to get the loans = lower assets prices.

#34 dd on 10.01.08 at 6:28 pm

23 anonymous,

Use the EFT’s shorts to protect yourself if your funds are falling.

#35 brazer on 10.01.08 at 7:16 pm

“Condo developments will go bust. ”

garth, regarding the above comment in your blog. i was reading a story in the national post where the author stated that there were several high profile condos in toronto that have already been cancelled.

why the ‘whispers’…..is it possible to post this information publicly? does anyone know which developments have been the 1st to go bust here in GTA?

#36 brazer on 10.01.08 at 7:17 pm

here is the link to the condo bust story:

http://www.financialpost.com/story.html?id=849294

The contagion will spread. Five banks had to be propped up over the weekend, and in Toronto, financial sources tell me that three high-profile condo projects have had their financing pulled. The leveraged buyout of BCE and others could be casualties. Trump’s empire is for sale.

#37 Dom-GTA on 10.01.08 at 7:48 pm

#27 it is not about who I would choose but who would the vast majority choose??

A leader without Charisma is like a sniper without a rifle pretty useless. He can’t use his brilliance unless he gets elected and he won’t get elected because he is as exciting as a poopy diaper that my 7 month old has. Not fair but reality. And if you think Bush was more charismatic than Kerry then you have a perception problem.

Look at McCain vs Obama, I much prefer McCain the Man vs Obama the politician but Obama has more warmth and charm in his little pinky than McCain has in his entire body. The only reason McCain is the candidate is because everyone knows the reps are going to lose after the fiasco of the last 8 years.

Bush is about as charismatic as Dion but a hell of a lot better connected.

#38 dotava on 10.01.08 at 8:16 pm

Guys you can’t have it both ways – you can’t cut tax to corporation (Garth wasn’t clear which size of corps he count in) big ones are the bad ones who shipping our jobs away. Much smarter is to give the brake to middle class and of course small and medium size business. That is what is turning wheel of economy in begging of 21st century (completely opposite what was done in 20th). Give the some brake to average Jo than try over and over to save crooks who broth us here in first place. Also we make big mistake few years when we didn’t try to compete with Japanese/Korean cars with new type of – now we are behind since Mercedes and most likely other car producer will/are following and moving toward “non oil dependent cars”. Let’s be smart at list ones and do what Canada deserve (become the country – but not banana one).

#39 re-aligned on 10.02.08 at 12:42 am

Whatever happened to taxing consumption out of the principle of freedom of consumer/taxpayer choice? Is it not better to tax consumption giving the consumer choice as to whether or not they pay taxes or to what degree they pay? Canada’s economy has never been driven primarily by domestic consumption so why has the emphasis been on reducing consumption taxes? This is back asswards! By the same token, if income (labour, work, HARD work) is taxed, doesn’t it discourage exactly what we need to get out of this? I submit that taxing consumption has the added bonus of being more environmentally friendly as well as it encouraging conservation. It also encourages “better” consumer behaviour by discouraging spending that inflates bubbles and fills 3-car garages with Hummers purchased on 0/40 financing.

#40 kc on 10.02.08 at 3:34 am

to add to my derivatives post above, I have done you some home work if you cared to read a 2 part section of deep essays on JP Morgan’s exposures. (written in 01-02) however, think about what has happened since then.

part 1>>> http://www.zealllc.com/2001/monster.htm

part 2>>> http://www.zealllc.com/2002/jpmgrows.htm

charts and data to date

http://www.occ.treas.gov/ftp/release/2008-115a.pdf

#41 brazer on 10.03.08 at 1:27 pm

Flaherty says ‘tragic’ consequences of U.S. crisis in won’t befall Cdn home owners
http://ca.news.finance.yahoo.com/s/03102008/2/biz-finance-flaherty-says-tragic-consequences-u-s-crisis-won.html

“Speaking to students at the University of Western Ontario in London, Flaherty says Canadians can afford the mortgages they have and adds the domestic housing market is stable.

i won’t ask whether you agree with minister, garth.

#42 Mike on 10.03.08 at 4:05 pm

Why all the hate for the income trust move, that, combined with the revision of the dividend tax credit was probably the highlight of Harper’s tenure.

Look at Telus, they were about to convert. As it stands, Telus pay’s Canadain Tax based on their income. When I invest I will pay CDN taxes on any dividend and CDN taxes on the capital gain.

When a US investor buys the same; Telus pay’s CDN tax on their income; the investor pays USA tax on dividends and USA tax on capital gains.

Now, assume Telus switchs to a trust pay pays out all their retained to unit holders. Telus will pay no, or significantly lower CDN taxes (depending on how much they retian), I will pay higher tax as I will assuably be recieiving more as way of a distribution. I will then pay a lot of tax. So we are cool.

But…look at the US investor. Telus will be paying no, or significantly reduced CDN tax, and the USA investor will be paying his taxes to the IRS (his NITP will of course be net of interest he gets to deduct on his home) Canada looses, no?

I think there is a valid reason Income trusts are primarily a Canadian thing, other governments know it is better to tax 1 huge source than try to recoup it by taxing thousands of little guys.

Imagine if the NYSE was full of trusts. I bet ever company on the Dow 30 would switch, People would seek higher payouts as they know that can generate a bunch of writeoffs against it and money would flow into it. Those Dow 30’s would then payout all their earnings (future capital needs be damned) and the unit holders would have to be taxed. So the IRS is then short all the moneies they previously received by way of tax, they have to go after the little USA resident investors, and kiss goodbye all the tax revenues for foriegn investors.

The only benefit Income trusts offer, as far as I know, is a favorable tax treatment if they pay out most of their earnings. This will benefit the company, as far as having the ability to defer taxes, and benefits the unit holder via way of recieveing a higher proportional payout, but how does it help an average Canadain with a small portfiolio. Sooner or later the corporate tax will have to be repaid… and you aren’t getting more tax money through corporate taxes they will just revert to a trusts. TSX will be filled with nothing but trusts and unprofitable companies who need to pay not tax anyway.

Sure, I will hate on Harper alongside the next guy, (shit, I had a few $k in IT’s at the time of his change of heart) but I truly wish I understood why people think IT’s were good for Canada and its citizens over the long haul.

#43 islander on 10.04.08 at 1:23 am

Paul Martin balanced the federal budget on the backs of the provinces. Harper gave that stolen money back.