Toxic cash?

While the government cowers and the opposition squirms, while Stephen Harper licks his wounds and Stephane Dion contemplates rejection , while the economy disintegrates, houses devalue and Parliament is dark, there is something else for you to worry about. Something big. Disturbing.

Do you know what’s backing your money? You should. Because in the last 90 days this has changed drastically. There’s a big gamble been taken by politicians which was never explained, never debated, never questioned, and yet could affect us all.

Here is the way the system is supposed to work, and until this autumn, did.

* Our money’s printed by the Mint and backed by the Bank of Canada. The central is expected to hold assets equal to the amount of cash in circulation, which is more than $50 billion.
* Because our nation no longer owns gold reserves, our money is backed by the safest of securities, long-term government bonds and Treasury bills. This is what gives our money true value. At least, until recently.

But in the last 90 days, without public notice, the Bank of Canada has sold off more than $11 billion of those secure T-bills, plus cashed in billions more of its bonds. As stock market researcher John Paul Koning discovered last week, the central bank now lists on its balance sheet a stunning $32.4 billion in “other” assets, which comprises a whopping 42% of everything it owns.

That means more than two-fifths of the total assets backing our money supply is – what, exactly?

Well, let’s flip back a month to the middle of November, when finance minister Jim Flaherty announced the federal government was purchasing $50 billion in residential mortgages from the Big Six banks, following an earlier deal to buy another $25 billion in mortgages. “At a time of considerable uncertainty in global financial markets, this action will provide Canada’s financial institutions with significant and stable access to longer-term funding,” he said, adding, “with no additional risk to the taxpayer.”

So, the “other” assets the Bank of Canada has swapped for secure, near-cash holdings appear to be tens of billions of dollars in high-ratio mortgages. The money to buy those assets apparently came from the central bank, through CMHC, and ended up in the vaults of the Big Six banks. It’s also believed that the Bank of Canada has been buying up other commercial bank liabilities, such as credit card debt.

In fact, the central bank was at it again yesterday. On its web site, the Bank of Canada announced its buying another $1 billion in “private sector money market instruments” on Monday.

So, what are these mortgages with tens of billions that now stand behind a good chunk of our money? They are loans given to people who bought houses with little or no money down, many of whom purchased before October 15th, when it was still okay to buy a home with a 0% down payment and to take out an amortization of 40 years. The government, under intense criticism that these were Canadian equivalents of the disastrous US subprime mortgages, chucked them two months ago.

So, here we are. The Big Banks have unloaded tens of billions of dollars in potentially toxic assets to the Bank of Canada, which cashed in ultra-secure investments to hand over cash. The federal government orchestrated this in order to make the commercial banks more secure. But in doing so, what’s it done to our currency? As Koning wrote in an article in the Financial Post last week, “Our central bank has swapped a sure thing: a large chunk of liquid and non-volatile AAA-rated government debt, for a slew of ‘other’ assets whose nature remains uncertain to everyone but bank insiders, assets which are inherently more volatile and less liquid than government debt.”

That this compromising of our money supply could happen is alarming. That it could take place without citizens being told is shocking.

Why didn’t the finance minister explain his actions? Did he understand them? Where were the opposition watchdogs? What happens now if unemployment and falling house values turn some of those mortgages worthless, as happened in the US?

Let’s hope this comes to light on the floor of the House of Commons.

Oh wait. It’s been locked.


#1 dboy on 12.06.08 at 1:41 pm

checks out this – apt was 700,000 now 499,000 and no takers. the owner has walked away.

#2 dboy on 12.06.08 at 1:44 pm

further to my last post go to global bc stories and scroll down to foreclosures up –

#3 BC Resident on 12.06.08 at 1:44 pm


“”I’m surprised the separatist movement is not in Ontario. Quebec gets the sweetest deal of all.

Quebec has always always always gotten the sweetest deals.

Western Canada will secede one day soon.


Canada’s $50 billion slush fund in mtges is nothing compared to the rest of the world’s troubles…Canada really is the envy of the modern world.

Why dont you “factoid” us with examples of the rest of world’s stupidity.

Your ranting makes it sound like you are going to emigrate to Iceland next week cause things are so bad in Halton.

I thought you were separating? Good luck with your own currency. — Garth

#4 JO on 12.06.08 at 1:59 pm

Hi Garth, solid post. I am deeply concerned about these actions. At some point, the whole charade will come crashing down. As i have been posting over the last few months, these government insurance schemes such as CMHC and CDIC are a large part of the cause of our problems. The weakest borrowers were put into the largest debt of their lives under these programs that use faulty underwriting that itself is based on false assumptions. The investors and savers of Canada who are covered under CDIC will suffer under any recession (and dare i say depression) as much of this credit was created based on their prudence. They can expect lower savings rates and eventually a devalued currency as rewards for being good with money. Oops, add in the value of their house too which will be down 40-50 % in about 18 months or so. The CDIC program allows weak/imprudent lenders to take deposits under the CDIC coverage and create poorly underwritten credit which creates an incentive for string lenders to cheat or join in on the party because they will loose market share and be less profitable. With record levels of personal debt, much of it mortgage debt used to buy an illiquid asset at record overvaluation, I cannot stress enough how a normal 2-3 % rise in the unemployemnt rate will wreak havoc on asset prices and our economy. We need to eliminate or at least reform these programs so that they do not help create imbalances in our system. The most important reform is to reduce leverage and improve underwriting standards. The monetary system is built on sand – debt and fiat money. These BofC and government actions in just the last few months are setting us on a path for a dollar of under 60 c within 12 months unless the price of oil and gold gain 50-75 % pretty soon. We need to get our currency out of the hands of a central bank and manage it in reference to the value of a basket of commodities or gold as no central bank is honest enough to manage a fiat currency properly. The goal is always on “flexible” regimes – code for devaluation. All that accomplishes in many cases is a short term boost in exports / economic activity and a burst of inflation which tends to last a lot longer and hurt the most vulnerable in society. This nonsense will stop whether the government/BofC wants it to or not. You cannot print or stack your balance sheet with garbage and expect to get away with it. Not even the government of Canada has that luxury.
Keep up the good work

#5 Chris L on 12.06.08 at 2:23 pm

What the crap. We are doomed! That’s insane.

#6 Jeff on 12.06.08 at 2:29 pm

We’re talking about less than $100B in all government assets?
Not much?
Why the alarm bells?
My concern would be the amount of money the government is printing and the “true” strength of the Canadian banks.

#7 Roger on 12.06.08 at 2:30 pm

I think they have a problem in Vancouver…

#8 Roger on 12.06.08 at 2:31 pm

I think they have a problem in Vancouver. Click my name to see the prices go over the cliff.

#9 danny on 12.06.08 at 2:48 pm

You stupid ignorant CONservatives who understand NOTHING have now ruined Canada. Why should I the taxpayer pay for WORTHLESS mortgages given to dead beat banks? $75 B I L L I O N dollars you stupid ignorant uneducated “SUN” reading CONs . You idiots will never understand.

#10 dd on 12.06.08 at 2:58 pm


Still bullish on the US or Cdn Buck?

#11 Jon B on 12.06.08 at 3:05 pm

The answer to this one is simple; ignorance.
Ignorant Canadians have been responsible for indirectly electing governments in this country for years. I believe that ignorant Canadians; those who decide that following current events that show how the country is being run is a low or non priority, are in the majority. These guys in the federal government know this and I’d bet its a part of the play book of all our political parties.
Until more Canadians give two hoots about what Mark and the boys at the bank are doing, this kind of thing doesn’t strike me as unusual. If this T-Bill sell-off is really that important and Canadians really must know, just add it to the “Coach’s Corner” broadcast for an address to the ignorant.

#12 pbrasseur on 12.06.08 at 3:10 pm

Good work Garth!

Now, that’s good journalism (even though you’re not a journalist ;)

#13 squidly77 on 12.06.08 at 3:29 pm

MARKETS -I am writing this at 3:15PM on Friday afternoon and the market is up more than 200 points. This morning we learned that another half a million Americans have lost their jobs . . . and the market is celebrating like it’s 1999. No strike that. The market is celebrating like it is 1929 . . . just before reality set in. Here’s the sad part. The longer we ignore the problems, and the more money we hand over to Wall Street, the harder this Depression will be on everyone . . . and the more violent. I don’t see any way to avoid a Depression. Nor do I see any way to avoid civil unrest to rival anything we might imagine.

#14 From the West on 12.06.08 at 3:31 pm

All those high ratio mortgages taken ove by Bank of Canada are insured by CMHC. That means we, the tax payers, already owned them when it was advanced. I, as a lender in a bank, know first hand that the CMHC’s mortgage approval standard is far far below our bank’s. That’s why sometimes we worried the clients may not be able to a conventional mortgage. But if they go high ratio, we know it’s done deal. Sounds silly but this is reality.

#15 squidly77 on 12.06.08 at 3:37 pm

China – Recent statements from the Premier and President should have been warning enough to the world. They fear they will not be able to control the general population as China goes deeper into the financial crisis. The strong language from Chinese politicians is enough to give you goose bumps . . . if you are paying attention.

#16 Kash is King on 12.06.08 at 3:41 pm

Geeze Garth, I wish what you were saying was a bad joke or a mistake.

Those of us who are fiscally responsible have been 0/40’ed whether we want to or not.

They’re subprime mortgaging our future!

All for the illusion of “growth”.

#17 squidly77 on 12.06.08 at 3:46 pm

this guy has been on the mark for years..
From the point of view of Generational Dynamics, we’re headed for a massive worldwide generational panic and financial crash, the first one since 1929. It could happen next week, next month or later, but with the accelerating collapse of these two economies, it appears to be close.

#18 colette on 12.06.08 at 3:57 pm

well my anxiety was coming down after a good sleep…thanks alot Garth.

but really thanks. I guess it is helpful to know that we are screwed.

#19 eddy on 12.06.08 at 4:29 pm

my recollection is that flaherty’s original proposal was for 25 billion of ‘the best’ mortgages from the banks. in 2 months it becomes 75 billion in sub prime cmhc crap.

#20 dd on 12.06.08 at 4:31 pm

Calgary Rent Spot

August rentals about 900 units
Decem rentals about 750 units

So the rental market seems to be tightening … just an unoff observation.

What is everyone else finding out in the world?

#21 ForWhomTheTollBuilds on 12.06.08 at 4:39 pm

So my “learned on the streets” interpretation of what is happening (and maybe it’s more important to note that our government is once again copying the US) is as follows:

If the government pays 100 cents on the dollar for a mortgage backed security (or whatever security they purchase) when the market says it’s only worth, say, 50 cents, then what the central bank has done is effectively “printed” the difference between what the assets are worth and what the central bank pays.

Remember though that falling house prices, falling commodity prices and mass layoffs are deflationary in nature and tend to counteract the inflationary effects of printing. In the long run the money printers will prevail, but it might take longer than we think.

#22 nonplused on 12.06.08 at 4:41 pm

Go to Costco and buy all the non-perishable stuff you can fit in your car. Then go to Scotia Bank’s bullion window and buy all the gold they have on hand (yes you can probably do it).

Think about it. Why leave money in the bank at negative real interest rates if there is even a sliver of a chance it may implode (the money or the bank)? But batteries last seven years on the shelf and they never seem to go down in price. So buy seven years worth of batteries now. Right now they probably pay better inflation adjusted yields than bank accounts or bonds.

I bet other readers have lots of good suggestions on things you can stock up on now that don’t go bad and never seem to go down in price.

#23 ForWhomTheTollBuilds on 12.06.08 at 4:41 pm

From my last comment:

I should have said, “If the *central bank* pays 100 cents on the dollar…. “

#24 BC Resident on 12.06.08 at 5:13 pm

Factoid update by BC Resident.

…Instead of ranting and raving “the sky is falling, the world is at an end”…first figure out what got us here.

CHINA, CHINA, CHINA…many years ago they began producing goods at near 10 cents on the dollar cost for labour…..At some future point, Western Society could not withstand the onslaught against our own labour costs.


Subprime/toxic financing….we all know about how this was piled and pyramided.

Canada’s real estate prices will drop……….but Ontario will get royally creamed compared to Quebec and Western Canada.

Ontario is an “overpopulated” geared to manufacturing Province.

Quebec will survive just fine…they always get Federal handouts….you know, culture superiority and all that nonsense.

A relative small percentage of Saskatchewan and Alberta citizens will get creamed…that last 10% who bought at the peak, who financed w/ zero down and another 10% who speculated.

I believe a smaller or similar % results in BC….but in “””Vanouver Proper”””(not the suburbs)…its that similar 10% folk…Vancouver continues with huge ongoing infrastructure development with the buzzword still alive and well….for good reason…Vancouver has been finally discovered.

So…those 10% speculators will lose…be smart…scoop their properties before someone else does.

Dubai wil die but Vancouver will become the next financial centre for North America.

Don’t believe….just come visit.

You are polluting this board. Go away. — Garth

#25 buy gold on 12.06.08 at 5:24 pm


#26 mattbg on 12.06.08 at 5:26 pm

All this, and the Coalition says there has been no action taken by the government to stem the economic crisis…

#27 BG on 12.06.08 at 5:46 pm

We are all subprime now!!

Hi All,
So I have a question: We will move to Calgary within one month (from Germany)….we have read the Greater Fool blog, TAE, calculated risk and others and we have learned a lot. It is clear that we are heading for a big cliff, what lies beyond this cliff is uncertain (at least to us): 1932, “deep recession”, 1941-1945, the stone age, Argentina 2002…we can’t tell. Our plan is to get to Calgary, find a place to rent (we are thinking Woodbine because my wife has a good friend there with kids the same age as ours) and then start the process of preparing for the decent into madness (generator, sacks of food, cans, water, a good gun or three etc.). Here is my question….I will be a new prof. at the U of C and my wife will be a researcher…my contract is for 4-5 years before I come up for tenure but my wife only has a 1.5 year contract. We are wondering what you all think Canada will look like in 1.5 years? We want to know because we don’t really see my wife having her contract extended after it is up and we worry that when this happens she will not be able to find work anywhere else…we will be living conservatively (hoarding cash) on one salary and saving the other so the loss of her position may not be a disaster but on the other hand maybe it would be better to try find something more permanent right off the bat??

What would you guys do in our position…all thoughts are welcomed.

thanks all for your comments, and thanks Garth for your blog….it has been instrumental in opening my eyes to the reality of this madness.

#28 Jimster on 12.06.08 at 5:48 pm

The way things are going this can end only in one of two ways;

One, we merge all the central banks of the world, hence creating a one world government where our decisions are made in Brussles .

Or two, we start the reversal of recent trends and local governments start the process of succeeding from this greater ‘order’ to protect thier own integrity and interests.

I know this may be hard to see for some, but perhaps the sovereigntists in PQ (and AB) are on to something.

#29 quack on 12.06.08 at 6:12 pm

Garth are you asking the people to actually look at What a Dollar is? By that I mean who actually owns the big six banks, or Bank of Canada. (90 % of our M. P.’s don’t know the answer to this question)They believe in the myth!…. to look into what is actually backing our money, you have to know the answer to this question.If you know the answer don’t tell them on this blog, because most will think you have completly lost it….better to educate them a little at a time, for now all they need to know is…”our dollar =somebody’s debt.”

#30 Gord In Vancouver on 12.06.08 at 6:37 pm

#23 BC Resident

Thanks, Garth.

Ontario is an “overpopulated” geared to manufacturing Province.

Ontario overpopulated? Have you visited Vancouver recently?

I believe a smaller or similar % results in BC….but in “””Vanouver Proper”””(not the suburbs)…its that similar 10% folk…Vancouver continues with huge ongoing infrastructure development with the buzzword still alive and well….for good reason…Vancouver has been finally discovered.

Most of Vancouver’s infrastructure, including 2010 facilities, has already been built or updated. Expect other regions of BC to get the premier’s “stimulus by infrastructure” dollars

So…those 10% speculators will lose…be smart…scoop their properties before someone else does.

Dubai wil die but Vancouver will become the next financial centre for North America.

You must be one of those “you missed the Vancouver real estate boat/2010 is a savior” kool aid drinkers. I hope your retirement doesn’t hinge on Vancouver real estate that was bought between 2005 and early 2008.

#31 dekethegeek on 12.06.08 at 7:21 pm

And Banadian Banks are considered some of the most secure in the world? Greaaaaaaat.
As for BC Resident (#23) statements.
Sorry Dude ! I live in Hongcouver also. Moved here in 1981 and suffered through 4 years of unemployment/mediocre jobs due to the last “real” nasty recession.
You must be born and raised in Vancouver because only a native Vancouverite who has never visited other cities of the planet Earth would actually believe vancouver could be a financial center of anything ( except perhaps Jack Laytons Reelection Campaign Funds)
I only say this as i have worked downtown and every Friday afternoon around 3pm the mass exodus begins. All those “hard working Lotus eaters” peeling out of work because Toronto Head office has closed!
Vancouverites have the work ethic of a stoned californian surfer dude on holiday in Thailand.

#32 Barbara on 12.06.08 at 7:59 pm

From the West brings up a good point that we already owned the risk to these mortgages anyway. The problem is not that the government has put $75 billion of high-risk mortgage assets onto BoC’s balance sheet, but that CMHC insured these mortgages in the first place. At least if the government owns the most high-risk mortgages, it may be able to avert a fire sale as thousands of them go into default at once. That will happen as people lose their jobs in the coming recession. Prices will still go down, but not drop off a cliff the way they would if the banks had to sell homes in order to collect their insurance from CMHC.

CMHC does not back our currency. The spectre of non-perforing mortgages standing behind the twenty-dollar bills in your purse should be of concern, no? — Garth

#33 BC Resident on 12.06.08 at 8:14 pm

98% who read this board are scared sh*tless with the onesided negativity on this board….Good news is bad news…isn’t it.

lol Garth….I read Mish, Roubini, Clusterstock, JFSAG mb, Debka, Dealbreaker, Minyanville, HoweStreet…shall I go on.

The answer is obvious….for those in questionable financial circumstances….PULL BACK….back in the 50’s my family shared a two family rental flat…one bathroom.

To those who have it tight and still own their variety of (Mini)Mcmansion……START RENTING OUT ROOMS IF NECESSARY.

….It is possible that 10/20% of the Canadian population may become poor as described above.

Look at our hard working foreigners who work long and hard hours in their Mom and Pop businesses… but are happy as pigs in Sh*t to be living in Canada…Where they came from Canada is Heaven on Earth.

Those Fools who bought the Kool Aid, speculating in real estate deserve to get creamed.

Garth, you were right in the middle of the early eighties in Toronto when we lived with +22% mortgage rates!

IS IT WORSE TODAY?…Home ownership was a bigger pipe dream then.

Owning a home is not an entitlement…if you own one, rent rooms if need be…no one is entitled to be rich.

….For decades in small town Canada, many homes are multi family shared….

Anyone could see, +10 years ago, Mcmansions would one day end up being dinasaurs

It is nothing compared to various parts of the world where the vast majority live in poverty.

You do not know the true facts behind the “Van Wall Towers $500K was $750K Condo”.

Lending in Canada is completely different to those policies in the U.S…..and you know that as a fact.

Start balancing your blog.

Perhaps you could begin showing support for Single Moms raising kids….Hard Working Single Moms deserve our utmost respect….How many of these single Moms have been speculating in real estate renovations?

I know, you cant write about that, it wont sell your new book.

Funny…I look around….all North American sporting venues remain sold out week after week…hmmmmmm

…I stand by my view that Vancouver will become the new North American financial capital.

just my two cents

#34 $fromA$ia on 12.06.08 at 8:35 pm

Garth, Are you sure the Bank of Canada has no gold reserve at all?

I’ve looked at lists of countries with quantities in gold reserves and Canada was in the first 20.

Are you so sure?

Last I heard we had $260 million in gold, and $51 billion in currency obligations. — Garth

#35 Jeannie on 12.06.08 at 9:36 pm

So Garth..American dollar shot, Canuck buck headed downward.
Do you have any advice for us thrifty savers, you know. the ones who thought that finally paying off the mortgage, educating the kids,owing nothing to no-one, and ready to finally live a little ?
Should we rush out and buy little gold coins costing over $700 each, seems risky to me, but what do I know.
Convert to Eurodollars,swiss francs.British pounds?
Sigh, a crystal ball would be welcome at this point.

#36 HalifaxFamily (Frugalistas) on 12.06.08 at 9:38 pm

Garth, those stats are alarming. Are you sure they’re right?

In the era of fiat currency and currency debasement, it’s all about who you have more relative trust in.

Right now, everyone seems to “trust” the USD, but it is only because of deleveraging and the need to transact (sell shares, liquidate things) in USD – thus it is rocketing up.

The problem is that leveraged hedge funds guessed wrong on the oil and wrong on the USD (long on oil, short on USD), are caught with their pants down now, and have to liquidate everything in a global margin call. We have the magnifying influence of the Yen carry trade (notice the yen goes up with markets going down) also adding fuel to the fire. To add insult to injury, another catastrophe in the upcoming commercial real estate, prime mortgage, and credit card loans sector. We’re lurching downward.

For those who have continued living the debt fuelled high life, you may be in for a big surprise.

For those with cash on hand, this will be a buying opportunity.

I have a feeling that oil’s retreat will be short lived – if the USD debases faster, we may see a commodity-based currency (gold or oil denomination) in which case either or both will increase in price. Alberta will again be the beneficiary of such price increase.

…just my 2 cents’ worth of jumbled thoughts.

#37 chaser on 12.06.08 at 10:05 pm

So, do you still think that deflation is the threat Garth? When nothing is backing the currency you get inflation, probably hyperflation, for us and the world.

Said it many times: Deflation now, inflation later. Of the two threats, deflation is by far the most deadly.– Garth

#38 CTA on 12.06.08 at 10:27 pm

Eventual Outcomes

-Gold will be king.
-USD will crash
-Middle class will be wiped out
-Equalization of Canadian, American, Mexican dollars
-Introduction of the Amero Dollar
-Large influx of poor Mexicans
-A Lower of standard of living
-Elite control
-Staged terror attacks
-Loss of freedoms
-Control of the masses

#39 BC Resident on 12.06.08 at 10:44 pm

Jeannie…..dont’ do anything rash….gold, euro’s, commodoties are going nowhere…ride out with what you have…jmo

…Garth nailed….deflation is by far the most deadly…it will stay with us for longer than people realize.

World politics and wars will keep us entertained…hopefully we wont have any….highly doubtfull of course.

….99% of all us is getting hit by Major deflation… the super filthy rich, you, me…and those who sold their properties at the peak…they’ve lost their profits investing anywhere else.

Unless you converted everything you own into the U.S. dollar, you are losing to deflation…so no one is winning…even Garth is losing to deflation.

If you lose your job in Oshawa, Toronto, or Alberta….adapt…WHAT DID YOUR PARENTS OR GRANDPARENTS DO?

We are all viewing an economic war of “who outlasts the other, China vs US.”

…As long as China keeps paying with 10 cents on the dollar labour…today pretty much manufacturing anything and everything….autos and planes were next on their agenda…the world is in catchup mode.

Homes double every seven years…it doubled in only four…excaserbate that with speculators…wise people should have seen it coming…except the old problem of deflation….you lose regardless if you sell or hold.

…Canada will never suffer the attrocities many other parts of the world are suffering this very minute.

The 50-100 billion dollar writeoff would have happened one way or another…the world controls Canada, not the other way around….name one country not infected?

…The sooner Americans and Canadians adapt to new lifestyles…smaller homes, smaller/more efficient autos…the better…That is the first proper step.

#40 $fromA$ia on 12.06.08 at 10:58 pm

Sorry Garth, May I ask why deflation is by far the most deadly?

sorry if this sounds like a stupid question.

#41 My_view on 12.06.08 at 11:05 pm

BC Resident

Please stop with the uneducated, misinformed crap. “Homes double every seven years”. I know BC has got some good bud, but smoke/inhale in moderation.

#42 nonplused on 12.06.08 at 11:06 pm

I don’t know if I agree that deflation is more deadly than inflation. The North American experience was with deflation in the 30’s and it was bad, but the German experience with hyperinflation was worse. Zimbabwe? Inflation has turned Africa’s wealthiest nation to its poorest nation in less than a generation.

Inflation favours debtors by making debts easier to service but it punishes savers by confiscating their wealth. Deflation favours savers by increasing the purchasing power of their savings but is difficult for borrowers because loans become more difficult to service. However, neither phenomenon produces or destroys any real wealth, just the amount of zeros in existence. Both processes simply transfer wealth.

Of course the government is a net borrower and also owns the printing press so they will always favour inflation.

Here is an example: When a house is foreclosed on, how much “wealth” is lost? Adam Smith wise, the answer is zero. The house is still there. As long as it is not destroyed, another family will soon move in on better terms. There is a lot of money lost sure but money isn’t real. People have to understand that dollars, inches, and minutes are the same sort of thing. They are measurements! In fact, money used to be regulated by the same bodies the oversee weights and measures. So when a bank loan is written off, it merely changes how many electronic credits the borrower owes and how many electronic credits the lender can expect to recover. Nothing happens to the house.

Inflation and deflation just change the size of the measuring stick. If for example there was a “Federal Length Reserve Board” that through the manipulation of tool manufacturing regulation could mandate that the inch (cm for us Canadians) would decline in length by 2% every year, people would think it’s weird. But it would be the exact same thing. Now when you went to get a length of 2×4 that was priced at $0.50/foot last year, it would still cost $0.50/foot this year but you’d need 8.16 feet to reach the ceiling. This is the great mystery of all things finance. Money doesn’t really exist in the real world any more than inches do. It only measures things in relation to other things.

However a change in the number of imaginary units a man thinks he has can dramatically affect his behaviour.

To make a long post longer, how about the metallic standard of gold and silver bugs? Indeed the US paper measuring system derived from the US silver standard. One US dollar is defined in the US constitution as a unit weight of silver close to one ounce, which is why up until 1968 US dollar coins contained an ounce of silver. (Canada had 8/10 once coins). So when you said “this is worth a dollar”, you were literally saying “this has the same economic scarcity as an ounce of silver”. The paper system begins as a bank note exchange system for the silver or gold itself, but eventually can stand without any backing because the paper has found its own scarcity relationship with goods and services.

Inflation, then, is printing money faster than the economy expands, and deflation is printing it slower than the economy expands.

What’s happening now is that all sorts of near money like hypothetical stock market valuations are being marked significantly down. But this isn’t destroying any real wealth. You had 100 shares of Ford. You still have 100 shares of Ford. Fact is they were worthless the day you bought them because the companies have been running on pure inertia for the last 10 years. All that’s happened recently is the mark to market has changed. The guy who sold you the shares still has the money. You just can’t personally sell the shares for the same money now yourself. Boo hoo.

#43 patriotz on 12.06.08 at 11:31 pm

Canada’s real estate prices will drop……….but Ontario will get royally creamed compared to Quebec and Western Canada.

You’re a “BC resident”, and you can’t see how absurd RE prices are in your own province?

BC RE will get absolutely clobbered. No place in Ontario will come close, not even Toronto.

#44 Bobby on 12.07.08 at 12:01 am

To BC Resident
Thanks for the words of wisdom
I feel same as Jeannie
I don’t even feel safe with cash in the bank
Just try to weather the coming storm

#45 Deflation on 12.07.08 at 12:18 am


You warn of deflation followed by hyper-inflation. I get it.

You warn us that our dollar is unstable, that it will become worth half of what it once was. I get it.

I don’t get what steps to take. (Buy gold, buy oil, buy drugs? — you can never go wrong with the last one in any economy :)

Or what this means to us in real terms, for Canadians and Americans. Or what kind of a timeline we’re looking at here.

Is it fair to assume that you’re being cagey because your answers are in After the Crash?

Will your new book be out in time for your fans to take action?

#46 charliegosurf on 12.07.08 at 12:49 am

toxicity…AMERO style

well got a few beck’s inside me and lost a well fougth game in ot, ill choose my word carefully…

great journalism Garth, a lot of Zeitgeist stuff in here…fore sure this is the set up for our new currency, no doubt about it, and for the better of it anyhow.

the parliement locked-out…thre’s a lot of neo-com, gangwolf, matrix philosophy behind this, i hear the beighbours dog bark as i write these words…

some nice comments around, for sure vancouver or somepalce in america’s as the potential to be th switzerland of the new world…

it’s not the end of the world, it’s the end of a society, and the start of a new world. call me an extrapoler if you wish, the fact remains that this crisis exist because there is a huge problem on this sphere.

the world trade centers felled to ashes for a reason in this new Milleniun, it;s all about you to choose the new identity this new age will get by your everyday actions.

keep on riding…., toxic=rebirth!

#47 Lance on 12.07.08 at 1:25 am

It’s scary, isn’t it. All of this investment money fleeing to cash and this very cash may end up vanishing in to smoke overnight.

Holding (appropriately priced (that rules out real estate)) physical assets may be our only saviour.

#48 kc on 12.07.08 at 1:31 am

Extremely interesting post Garth. Now things are starting to make way more sence. Of course Canada’s banks are the “strongest” in the G7… hold up a minute…. wasn’t that before the Con’s open purse strings AKA $80 B. (non) bail-out…
THen… opening “secure” trades and selling them off, while holding the (non) sub-prime mess, of … wait… CMHC owns that so we are in the clear (feds) that is…

Only real question left is… WHO bought up the “good” paper? while tax payers hold the poison? China? USA? Now the only thing that bothers me is the thought of Canada running deficeits while we are trying to keep ahead of the snow ball that is going to roll from coast to coast…. WHO is going to be canada’s banker when most of the world is in the deep red as it seems….

A few threads ago I was asking about the greatest shell game unfolding infront of our eyes, this being the sale of debts to willing buyers… Hang on folks something is telling me that Harper has sold Canada down the river without even giving us the option to don floatation devices…

“But in the last 90 days, without public notice, the Bank of Canada has sold off more than $11 billion of those secure T-bills, plus cashed in billions more of its bonds.”

Dr. Gonzo: Let’s give the boy a lift.
Raoul Duke: What? No. We can’t stop here. This is bat country.

#49 texpat on 12.07.08 at 1:45 am

Exactly the same garbage has swollen the Fed’s balance sheet, so it shouldn’t come as a surprise. Treasury bills and bonds “backing” a currency are a joke. They’re obligations of the federal government, not assets! Their value depends on future taxing power and the naive hope that you won’t get paid back in devalued currency.

Deflation now, inflation later? Not exactly. What we have now looks like deflation but is actually forced liquidation. If central banks continue their current behavior, what will follow is hyperinflation, which is even more deadly than deflation. It typically wipes out the middle class. But hey, real estate and stocks will make a spectacular comeback!

Got gold? The Bank of Canada doesn’t, and there is strong evidence to suggest that the US and other central banks have sold, leased, or swapped a lot of their gold.

Printing money without gold to back it is like printing deeds for houses that will never be built. It’s profoundly immoral and eventually ends in tears.

#50 rusty on 12.07.08 at 1:47 am

#26 BG
Take it from a current woodbine resident – this is one of the worst communities to live in if you work at the U of C. I commuted there daily during my undergrad from 95-2000 and the only way to get there is 14th street, completely over capacity and no improvements to be made there. The road was terrible then and is worse now. Find a place north of the glenmore reservoir and you will be far happier. If you and your wife work different hours at the U of C you would need two cars and that is clearly a poor choice if you have the conserver mentality. Taking the train is a poor option (even worse than driving). Drive to visit your friend in woodbine during off peak times and it will be a short and efficient trip.

#51 Brittanny on 12.07.08 at 1:59 am

Garth — All North American currencies:

1. Print like ink is a finite commodity
2. Devalue
3. Demonitize
4. Pay foriegn debt with fiat wooden nickels
5. Gov’t wins, general publics sucks it up
6. Rinse and repeat
7. Add Amero dollar
8. Problem solved (for Gov’t)

#52 midas on 12.07.08 at 2:47 am

Blogs like this and other alternative news websites such as expose the deceptive nature of our mainstream media. Is there no one over at CBC, CTV, Global, Torstar, Globe & Mail, Post etc. etc. that can put two and two together and come to the conclusions that Garth has and many average folks have about the true nature of the crisis? Why is that they always tell us after the fact rather than before so we can do something to protect ourselves? And the same goes for the politicians. So the question then arises who interests does the mainstream media represent? That of the average person or that of their elite masters who pay their salaries? The media is corrupt and in the business of deception not of revelation, and the same goes for politicians. Let’s heed Peter Finch’s advice from the great movie Network and turn off our TV sets, and cancel our subscriptions to Torstar, The G&M, Maclean’s and others of their ilk. If we continue to listen to their lies we should not act surprised when the Matrix world they construct for us falls apart all around us as is happening right now. Let us all open our windows and shout from the rooftops, “I am mad as hell and I won’t take it anymore!”

#53 David on 12.07.08 at 3:35 am

It was busy week for the Harper government. Violating the Conventions of Westminster in
suspending Parliament without a confidence test, accusing people of treason and sedition and having staged political rallies worthy of North Korea.
Amazing that the bare cupboard argument did not apply when it came to buying up billions of dollars worth of private debt instruments in a vain attempt to reflate the housing bubble.
Typical Ponzi schemes like the housing bubble require a steady flow of new cash and with a diminishing supply of easily gulled marks, Flaherty helped fill the void with a rescue package.

#54 Blacksheep on 12.07.08 at 4:25 am

BC Resident#23

“Vancouver continues with huge ongoing infrastructure development with the buzzword still alive and well….for good reason…Vancouver has been finally discovered”

I was born and have lived in Van. for 45 years.

YOU give information about your self in your posts.

YOU are in denial.

YOU are a realtor, or you are not liquid and stand to loose big $ when we get the now obvious 40%+ R.E. correction in Van.

YOU best get your Sh*t together, and start preparing yourself & family for the coming economic storm.

YOU or I cannot control how events will unfold.

We only control our reaction to said events.

Take care,


#55 TheVancouverDope on 12.07.08 at 4:47 am

“BC Resident

Homes double every seven years… ”


wow!! – BC Resident, you do gooder math! Only in Vancouver. Every seven years homes double. I took out my business calculator and realized homes give a 10.41% per year gain. A home worth 200,000 now would be 400,000 in 7, 800,000 in 14, 1.6 million in 21… Buy now, while you still can! What a pinhead.

#56 Rosedale, say it ain't so! on 12.07.08 at 4:47 am

“In Rosedale, some sellers are slashing millions off the list price of their palatial residences to draw buyers back in.

“Agents who work in the Rosedale area call the softening in Toronto’s high-end real-estate market a major correction. “What’s happening here is not a tremendous drop in value,” said Chestnut Park Real Estate Ltd.’s Jimmy Molloy

#57 canuck#20 on 12.07.08 at 5:15 am

cta has it right , now just take each point and figure out how it will come to pass. the un is behind all. 1977 they made the community revitalization act, it was put into motion in 96. they mandated the banks to give morgage’s and played a heavy hand on them. ninja loans wer no job ,no income. this will end up as a one world finace system. a social system. the liberals want this so they should be happy. they want free medicare,free gas ,free rent , free food. yes most things will be given to us but don’t expect a paycheck. we will be taxed to death. remember the food stamp? the gas rations? the sugar rations? well that iswhat is coming. the cencus i hear is pull back. start putting away food. keep some jerry cans of gas with stableizer,keep as much cash at home to last 6 months,cut ,cut now! you will be able to hold out for a time but the inevitable will soon happen.9/11 took our freedom away,every thing just eats more at the rest of what we value. wer headed back in time,learn how to live like they did then and submit to the lord of the land,ha,ha. peasant and king,he will take what he wants,you have no rights,no guns ,and now i hear no bullets. get ready!

#58 islander on 12.07.08 at 5:58 am

danny writes: ” You stupid ignorant CONservatives who understand NOTHING have now ruined Canada. Why should I the taxpayer pay for WORTHLESS mortgages given to dead beat banks? $75 B I L L I O N dollars you stupid ignorant uneducated “SUN” reading CONs . You idiots will never understand.”

Isn’t that cute. You think politicians who wear different colors would have done differently.

#59 kingbing on 12.07.08 at 6:49 am

It is a big scam 2 buildings fall, the elite buy up all the stocks. Then deregulate drive prices sky high, after that when your 8 year term is up. You have a massive sell off.
The economy is fine. The crooks are just stealing while they still have power.
OH no run for the hills everything is going back to a normal regulated fair price.

#60 Bob on 12.07.08 at 7:49 am

#8 danny

are you really that ignorant? blaming the conservatives for this? do you think the Liberals would not of done the same thing? The NDP? LOL that is funny to even contemplate. Let’s face it the world economy is in big trouble and there are no easy solutions.

#61 Mini-Garth on 12.07.08 at 8:48 am

#37 CTA:

You forgot the next phase…

“The Dictatorship of the Proletariat” as lead by the Halton intelligentsia -that’s you Garth! High five!

#62 Mike B on 12.07.08 at 8:52 am

Not surprised the cons and Flaherty botched this one. Not surprising they kept it quiet…. ie buried it. They make the automakers go through hoops to get even a loan but the money guys get it at the drop of a hat. The Schiff, Roubini, Turner and other predictors are at least getting close to accurate in addressing the problem. The Cons are so out of touch … Just look up what Flaherty said last year and early this year… “we’re all good here, our banks are solid, no subprime here” Interesting how after an election politicians become insightful.

#63 Rob in Onterrible on 12.07.08 at 10:15 am

#33. Between 1990 and 1995, Canada sold its entire gold reserves so we have no more gold reserves. There is a pretty good explanation of this here:

Scroll down to point 5.

#64 BC Resident on 12.07.08 at 11:44 am

The world is a whole new ballgame friends.

The U.S. will not let the big 3 -5 banks fail…that is not Capitalism, it is Fascism.

China continues to manufacture items, sold to the world, by paying its 1.3 billion workers 10 cents on the dollar labour.

To those “smart” Canadians who sold their Calgary/BC/Toronto homes at the peak, nearly a year ago….have lost a big portion of those profits if they invested in “ANY INVESTMENT”, other than leaving that money in cash…..look at what happened to stocks, Mutual Funds, what have you.

…gold will go nowhere…..Orientals, Indians, Russians, INCLUDING Arab Nations and all those teenie tiny emerging economic nations, , will need to sell their gold, sooner than later, for U.S. dollars to pay for things…that means gold goes down before it goes up.

We can only watch the world events unfold….unfortunately wars are now inevitable.

China can’t stop their manufacturing machine.

The world has wisened up about China,,,,it needs to bankrupt China and to avert war we may need to stop world trade.

…In canada we are very very lucky…Ontario will have a big big hurt…it is a manufacturing Province competing with China et al.

There may not be a magic bullet for a “Deflationary World Economy”.

If you can afford to keep your home, do so…if need be do what your parents and grandparents had to do.

This Canadian $$$ deficit we are all surprised to see would have happened one way or another, the world controls Canada not the other way around.

We are very very very lucky to live in Canada compared to any other G7 country right now.

#65 California eyes paying w/ IOUs on 12.07.08 at 1:04 pm

“California, the world’s eighth-largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said.”

#66 timbo on 12.07.08 at 1:29 pm

poker economic theory

#67 whoa on 12.07.08 at 2:18 pm

Um. Aren’t those mortgages CMHC insured? So if there’s a foreclosure, the holder of the mortgage is indemnified?

The next question is, is CMHC adequately capitalized to handle paying out on a large number of foreclosures? If not, does it then tap taxpayer funds?

In all the discussions of this government initiative, I see very little analysis.

1. What has been the participation rate — how many banks have swapped these assets, and how much has the government actually taken on?

2. What is the risk profile of the assets (harder to determine). What percentage are at risk of default?

3. Of those at risk of default, what is the likelihood that CMHC cannot fully indemnify these defaults?

4. If CMHC cannot full indemify all defaults, what percentage of the defaults will not be covered, and what is a decent ballpark figure for any actual losses — ie WHAT IS THE ACTUAL RISK to the govt here.

There’s a lot of hyperventilating, but I haven’t seen enough information to actually get wigged out by this program yet. There may be some risk to the govt, but I’d suggest it’s fairly low.

The information you reference is secret. Feel better? — Garth

#68 Havoc on 12.07.08 at 2:41 pm

At #51, Midas:

Good post, and nice reference to Network. That movie is one of the finest pictures ever made. And being the stickler that I am, the actual quote is “I’m mad as hell, and I’m not going to take it anymore!” :)

Garth, I just stumbled upon this blog and I wanted to thank you for all your insight and commentary. Keep up the good work!

#69 TOguy on 12.07.08 at 3:05 pm

BC Resident #32

Now that Vancouver real estate is about to get obliterated beyond recognition, the 4 sectors of the economy left will be the port, tourism, the film industry and marijuana. Judging by the lunacy of your posts, I’d say you are doing more than your fair share to help support the latter. Somehow I think Wall St. is a little more concerned with competition from London than from Vancouver.

#70 Jimmy on 12.07.08 at 3:40 pm

#26 BG

In 1.5 years, Alberta will be Canada’s only job creator. Calgary will essentially lead the country out of this correction. China and India will be back to double digit GDP. The US will have expanded their war zone. Oil will be over $100 per barrel again (on it’s way to $300). Your only concern living in Calgary 1.5 years from now will be choosing the best inflation-proof assets.

#71 TOguy on 12.07.08 at 4:03 pm

Jimmy, you sound like a guy who’s heavily invested in Calgary. How would you feel if I told you that oil is headed to $20 and probably won’t be above $50 again for at least another decade?

#72 dd on 12.07.08 at 4:29 pm

#70 TOguy,

If we have a world depression I guess that you would right. If not prices could be over $100. Supply is still an issue going forward.

#73 GrandePrairiegirl on 12.07.08 at 4:36 pm

#70 TOguy,
There’s the impending Peak Oil theory. I think ten years to reach $50 again is a stretch.

#74 dd on 12.07.08 at 4:40 pm

#69 Jimmy,

I hear again that Saudi is serious about the $70 barrel range. My guess is that oil will come down a bit more … might even come down to $30 a barrel then work its way back up.

#70 TOguy,
A lot of supply will be shut off at $20. And oil sands will stop production. Period. So what ever the sands produces (1.5 -3 million a day?) will be shut in. The avg cost to produce a barrel of oil in the world is $28. The marginal cost to produce a barrel of oil must be around $38 – 40 today.

Consumption was at 85M BOE a day before the crash. I would guess that this slump worldwide is decreasing demand by 10% or 8.5M boe a day (or oversupply). So you take the oil sands that could add up to 1/3 of this oversupply.

At $20 now or $50 long term … again the oil companies will just stop production.

#75 Investx on 12.07.08 at 5:24 pm

I thought subprime mortgages in Canada only amounted to 5% of the total mortgages, unlike in the US, where is was 25%?

Our subprime was called the 0/40. Exactly the same consequence – selling people houses they could not afford with traditional financing. — Garth

#76 Brad on 12.07.08 at 5:35 pm

For those Western Canadians thinking about separating… should think carefully whether Eastern Canadians would be willing to share essential Depression-related supplies, such as squirrels. Alternatively, one could always learn how to hunt gophers (prairie dogs) instead of squirrels — here’s a helpful instructional (tongue in cheek) video:

But do they taste as good as squirrels?

#77 TOguy on 12.07.08 at 5:38 pm

DD #71
10 years ago, oil was trading at $12.75. Has demand increased and supply contracted enough during the past decade to justify a tenfold increase? I think not.

Grande Prairie Girl,

Peak oil is real, but it probably won’t happen until 2050 at the earliest. And it’s not like peak oil will cause oil prices to skyrocket immediately. Low oil prices are here to stay for a long, long time, and we may even see the low teens again some time next year.

#78 kc on 12.07.08 at 5:39 pm

Here is a Washington writer with interesting opinions about our (non) government….

Canada in Crisis Prime Minister Harpers Coup- Power Grab in Ottawa

#79 squidly77 on 12.07.08 at 5:56 pm

total oil sands production for 2008 is 1.2 million bbl/day
just google it..

do you think that upgraders are like cars..just turn the key off and it stops then just turn it back on when desired ? when mines/upgraders/refineries are started up they are never turned off except for routine maintenance or emergency repairs..they run until they are mothballed..

so think about that when you buy oilsands connected stocks..suncor and syncrude kept operating through 20/bbl oil-1986-1999 (suncor very nearly locked the gates in 1998) oil price chart is below

people coming to alberta looking for work had better make sure they have gas money to get back

#80 $fromA$ia on 12.07.08 at 6:27 pm


Heres a link about deflation in case you don’t know what you are talking about and can’t answer my question about what is deflation. ;)

I actually know quite well. And it’s lurking. Pray it does not land. — Garth

#81 Sam on 12.07.08 at 6:31 pm

anyone knows the latest numbers for november sales in toronto ? Maureen o neil does not seem to talk about it on her site… ?!?!?

#82 Lothian Vasquez on 12.07.08 at 6:59 pm


ANY sale of assets by the B o C is a GOOD thing…it helps keep inflation in check. Buying up garbage assets is of course, a bad thing, but it is better to sell off assets if you are going to buy toxic crap, anyway.
As you point out, Canada has no appreciable gold reserves. We have a fiat money system, backed ONLY by the good faith and taxation power of Ottawa. It does not matter what “assets” the B o C holds.

#83 Lothian Vasquez on 12.07.08 at 7:01 pm

And Garth, if the B o C were the least bit worried about DEflation, they would not sell a single cent’s worth of their reserves. Period. Deflation is a non starter.

Too late. Reserves went long ago, dude. — Garth

#84 The Tallyman on 12.07.08 at 7:05 pm

This mess is intentional.
One govt blunder is followed by another until the wheel is completely despoked and unfixable.
Diapers get soggy, people get cranky.

Then a shiny new wheel gets rolled out.
New World Order
People cheer and happily strap on the ankle bracelets.
The music is fresh and never sounded so good…
But it’s a bitch dancing on one leg.

#85 The Tallyman on 12.07.08 at 7:49 pm

FDIC is using parent talking down to child tactic in a radio ad running in USA.


Hi, everybody, I’m Suze Orman with an important message from the FDIC about keeping your money safe and sound.

Recently, I got a letter from a woman who told me she took all of her money out of the bank and put it in a shoebox in her closet. What was she thinking? That’s not a safe thing to do. You know what I told her? “Put it back in the bank, now!”

If your money is in an FDIC member bank, and you stay within coverage limits, you have no reason to worry. You can’t lose a penny—no matter what. That’s a lot safer than a shoebox, if you ask me.

How can you make sure your money is totally FDIC-protected? If I were you, I would want to know that. So, here’s what I want you to do — go to and click on EDIE The Estimator and find out. That’s EDIE The Estimator at Go there today. Because the more you know, the safer your money.
(end of transcript)

With Suze and Edie the Estimator doing all the thinking and making the citizens feel foolish for having the moxy to take personal action in protecting their money,
The good ol’ US will finally be able to sleep at night….
Ya right!

#86 The Tallyman on 12.07.08 at 7:54 pm

Here’s the link to that Suze Orman shoebox ad

Shoebox radio ad

Scroll down page and it’s located under RADIO heading.

#87 Wealthy Renter on 12.07.08 at 8:03 pm

See the post at the following link. DBL click it to get a better version.

#88 Vancouver_Renter on 12.07.08 at 8:36 pm

Like many people, I’ve be hit by the downturn in markets in the last six months. Several of the “experts” I count on for good advice didn’t see this crisis coming, and my portfolio suffered as a consequence. I wasn’t prepared and I’m pretty bitter about it.

With all this financial chaos, everyone seems to have an opinion on what logically should happen or what will happen. But logic isn’t working right now. Rather than looking at what should happen, how about looking at what DID happen in the past in similar circumstances?

Most people are familiar with only one example of economic expansion followed by a severe deflationary contraction – and this is the 1929 Great Depression. But this kind of devastating deflationary collapse also occurred in 1873, 1825, 1772, 1720, etc. It seems there have been many Great Depressions over the generations. And central bank and government intervention to try to stop the meltdown happened in these previous examples, too. The markets in the last few centuries were very mature and can be used to help predict the future in our current situation.

I’ve been listening to Bob Hoye’s free weekly commentary for over a year. He’s a market historian who talks about what DID happen rather than what SHOULD happen. He predicted everything that has occurred in the last year. I remember in early August I heard him say, “Oh October. Oh boy… This October… It is going to be bad…” I thought he was out to lunch.

But he was right. And he’s the only guy I listen to or read who was right. He was recommending to get out of everything – stocks, commodities, gold, etc – and get into US$ at a time when these investments looked rock solid and the US$ appeared to be in freefall.

So what does he predict is going to be the best place to part your nest egg in the future? Gold stocks. I know. We’ve heard it all before. But it’s not his opinion… It is what WAS the best performing asset class after the crashes of 1929, 1873, 1825, 1772, 1720, etc.

You can listen to Bob Hoye here every week…

#89 dd on 12.07.08 at 9:15 pm

#78 squidly77,

Utilities like upgraders can be shut down. Utilities can be shut down. They shut down utilities with major turnaround. The key turns off.

If companies long term cannot make money … utilities or oil sands or donut shop they will shut down.

#90 dd on 12.07.08 at 9:16 pm

#76 TOguy,

Well it happened.

Ask Garth were he thinks oil is headed 10 years in the future.

#91 dd on 12.07.08 at 9:25 pm

#76 TOguy,

Demand doesn’t have to increase much if supply is tight. Suppy is still tight. When demand picks up again in a couple of years the world will see higer oil prices once again.

It is a drug … we can get enough of it.

And peak oil … 2050 maybe. But the cheap oil is gone.

#92 BC Resident on 12.07.08 at 9:28 pm

War efforts building in the Mediteranean and near India/Pakistan.

#93 squidly77 on 12.07.08 at 9:43 pm

Utilities like upgraders can be shut down. Utilities can be shut down. They shut down utilities with major turnaround. The key turns off.
thats what i said..for scheduled maintenance or unexpected repairs and only then its small parts of the plant at different times
if you shut an entire plant down for an extended period it will quickly turn into a giant rust bucket
so plants do choose to run at times at a loss or for small profits..even for years

the other option is to walk away and lose your entire investment
dont aways believe the msm propaganda
when it gets right down to it companies care less about the returns to there common stock holders as the survival of the company becomes paramount

#94 timbo on 12.07.08 at 9:46 pm

cartoon’s anyone?

#95 Peter on 12.07.08 at 9:49 pm

As I always talking about how our PC govt always painting out a nice picture of our economy and faking numbers..(example : recent release of the employment numbers were a joke..100,000 part-time jobs created 2 months ago prior to election to paint a nice picture on our economy and now 76,000 full time jobs were disappeared, I will be glad to see how many part time jobs Mr.Harper has to create this time to balance this loss next month ?) Mr. Garth, I have 3 questions for you : 1) Do you think that Bank of Canada is following the people down south by swapping out secured t-bills or bonds for MBS to rescue the banks (cdn version of bank bailouts) ? 2) Do you think the PC govt also knew that once Obama is the President of the USA in Jan, the USD will goes in MAJOR DEPRECIATION and RAMP UP THE PRINTING PRESS to give out benefits for their citizens down south so that this plan was a concerted effort to DEPRESS or DEPRECIATE our currency ??? 3) Do you think if the world begins to find out if CDN $ is also worthless currency backed up by toxic mortgages and toxic bonds, our CDN $ and economy will be smoked worst than right now ?

#96 Derrin on 12.07.08 at 9:56 pm

Money is the grease that keeps the economy from grinding to a halt. No fluid and everything stops.So, inject or use enough cash to get us rolling again.
What’s the problem? If the economy starts chugging away government gets its money back. Big deal.
I think you are using this site recently as more of a bashing blog on Harper’s gov’t.
Not nice. Keep it clean.
I thought it was about real estate??
I don’t imagine this move will cause much movement in the real estate market.
The Harper gov’t is damned if they do and damned if they don’t. Which way do you want it.
This economic situation didn’t happen over night. It took years to develop.
Whether you hate them or like them it is time to grow up and either you want economic stimulous and shoring up of the institutions(Toronto Stock Exchange, Banks……housing market, auto industry…..etc) that you loved before.

To the BC Resident……….. the only reason BC is weathering the stormto a degree is because of the massive spending on infrastructure for the Olympics. There will be a hangover after the 2010 Olympic party is over.
And it won’t be like one of those Whistler one day hangovers it will last for awhile. Buy some Tylenol(or sorry some of that no name Shoppers Drug Mart stuff).


#97 Another Albertan on 12.07.08 at 9:56 pm

Another ridiculous anecdote:

With the major snowfall hitting Calgary, there are many neighbourhoods with impassible hills. I won’t get into a rant about people’s general inabilities to drive under less-than-perfect conditions. Watching people red-line their engines in a futile attempts to crawl their Accords up inclines can be rather amusing – today was a bonanza day for that.

Anyway, I was out for a walk in Mount Royal. What should have been quiet stroll was constantly interrupted by the growls of big-block diesels ripping around the side streets.

I happened upon one fellow whose car was stuck against a curb. A posse of rough-looking guys was standing on the curb and the lead henchman was badgering the stranded motorist. “For 50 bucks, I can guarantee that we can get you out.” The response was a polite “No thanks. I’ll take my chances. It isn’t that bad.” The henchmen smirks and turns and walks away – “Good luck with that.”

They pile back into their F350 and proceed to fishtail through a 4-way stop at high speed. (That image by itself should be enough to describe who we’re dealing with.)

I approached the driver with “I’ll guarantee to get you unstuck for zero dollars.” About 90 seconds later, the stuck driver wasn’t so stuck any more.

That wasn’t the end of the story. As I continued on my walk, I noticed at least two other large pickups ripping through the neighbourhood, likely on the same quest for stranded drivers. Large pickup trucks with decals of contracting and trade companies on the doors marauding around in circles looking for victims.

All I could think to myself was “you fleeced people for renos and construction in the last few years to the tune of thousands and thousands of dollars and now you’re driving through the same streets looking for 50 bucks. And even at 50 bucks, your pricing is ridiculous. At least at $40, someone desperate might part with a pair of 20s, but at 50, it’s a clear gouge. And how many people actually carry Kings around in their wallet anyways, even in Mount Royal?”

#98 Daniel on 12.07.08 at 10:07 pm

But the houses and condos are still expensive in Markham!

#99 squidly77 on 12.07.08 at 10:17 pm

i am disagreeing with you that $20 oil would slow alberta down..$20 oil would knee cap the alberta economy even at @ $35 oil it would severely impede our economy

no one really can predict the price of oil going forward
one geopolitical act such as israel attacking iran could take it to $200 in a day but if all things remain equal
$30-$35 bbl would be my guess

remember also that the oilsand companies completely manipulate the ft mcmurray real estate picture
they know before anyone else whats really gonna happen there next

#100 squidly77 on 12.07.08 at 10:19 pm

i should have also added that where the USD goes so goes oil

#101 squidly77 on 12.07.08 at 10:34 pm

remember the exteme pressure that realtors and the boards would inflicting on calgarians a few years ago

she has since divorced her husband and remarried a renter who is cash heavy
she cited her ex-husband in family court as being financially irresponsible

#102 $fromA$ia on 12.07.08 at 10:34 pm

Vancouver Renter, you deserve the $hit your in… Anybody with the ability to do the math would know this meltdown was comming.

You got caught up in the crowd.

Thats the problem, you got caught listening to the likes of Rennie and Cam Muir. Joke!!!

Bob Hoye???? LOL What you couldn’t figure out the October was the month that 40 year ammortization and Zero down was taken back.

I’ll give you some advice… Don’t beleive everything you hear… find your own way. We all have nobody to blame but ourselves, from who we vote for to what we sign on the dotted line for. It’s our skin.

#103 DumpNowOrRegretLater on 12.07.08 at 10:51 pm

Based on everything we’ve been seeing the past few months, I’m starting to get the feeling this is a big setup to implement the “Amero” currency… similar to how “911” was a precursor to the Partriot Act and an erosion of the American Constitution and rights. I’m thinking of loading up on Swiss Francs before they completely devalue the Canadian Dollar, anyone see a problem with that?

#104 Indicator on 12.07.08 at 11:00 pm

Pre-Depression (Recession) vs Supply & Demand for Oil

Garth, here is an interesting scenario.

We understand crude oil price could drop to $30 dollar levels. Its already below $45 so why not? Maybe even in the $20 ???

But since consumers require this resource, our world supply becomes depleted. Eventually the true price of the barrell has to surely go up. Forget oligopolies collusive behaviour, world propraganda and the struggles over oilfield ownship…Economic 101 tells us that if there is a demand for a product and there is a short supply, then prices will go up.

I know the Oil market is only part of the reason for the Global economic collapse, but I do believe is key.

What do you think?

#105 timbo on 12.07.08 at 11:05 pm

wow , just found a gem.

at about page 6 take notes….

very , very interesting…

#106 GenXer on 12.07.08 at 11:09 pm

Wow – I remember not too long ago, this blog actually seemed counter-culture. It was advancing new ideas on where real estate markets would be headed – now it simply mirrors the bad press covered in the daily papers.

I believe that this financial mess was caused by the use of credit to accelerate demand in order to fill capacity since 2002. We are now dealing with the fallout from having pulled forward 6 years of demand – consumers no longer have the real capacity to continue purchasing. Production capacities will have to fall, and demand will take some time to return – but it WILL return. It always has.

Some of the greatest corporations of our time rose from the ashes of the ’82 recession. Times like these are like a forest fire on the surface of humanity – they will offer new opportunities, new business models, new ways of transacting. If you find this scary, stay at home with a gold bar and some chef boy-r-d. Otherwise, these are times of huge opportunity for those with their eye on the future.

Be smart with your money – be good to your neighbors and being a pessimist. The one thing that will get you through all of this is belief in yourself and hope for the future. Otherwise, what’s the point?

Ever hear of Janis Joplin, son? — Garth

#107 Toronto Bear on 12.07.08 at 11:55 pm

Anybody go to the malls this weekend? I stopped by Sherway Gardens today around noon and I was absolutely stunned by the fact that there was parking spots available everywhere and there were very few people shopping.

Totally anecdotal, but that is the first time I have ever seen the mall so sparse on a weekend in December.

#108 timbo on 12.07.08 at 11:58 pm

looking at this from the past and from our southern looking glass this will probably happen…

and fast….

interest rate drop at least 1 point in 6 months

huge job losses in the us dec and jan

self feeding cut back in production to offset sales to keep solvent.

drop in wages to keep solvent

almost no new building in real estate due to house price collapse due to high unemployment

big 3 reporting monster losses, all other car makers report ugly losses.

all prices drop commodities, etc.

leads to bankruptcy etc. etc. self feeding back to start

I understand this now and ask one thing

why the heck if you know this is coming do you not institute a floor on prices now to stabilize the markets. make it very temporary but give a said bottom to a price and let the private sector build from there. work out a deal with your creditors to forgive part of the debt as it is impossible to pay and show how within 2 years confidence will return and trade will normalize.

I now agree with what the fed is doing. They are trying to prop prices to end the deflation spiral. They have to keep the economy solvent somehow so that it can stabilize and not feed into itself.

Just a little line in the sand is needed to stabilize everything and call a bottom to the slide. Everyone hates price control but I believe that is the key..

just thinking out loud.

#109 dd on 12.08.08 at 12:06 am

#98 squidly77,

Again long term the price of oil has to be above costs which is about the 35-40 range world wide. If the rate of return is not there the companies will not bring on new supply.

Supply of oil will be about 8% less next year and 8% the year after that. The solution for low oil prices is low oil prices. So companies will wait (just like in Alberta today) until the price is favorable.

If prices stay low … no new supply.

#110 dd on 12.08.08 at 12:08 am

#99 squidly77,

With the US consuming 25% of oil production world wide this would be correct.

#111 Vancouver_Renter on 12.08.08 at 1:23 am

#101 $fromA$ia wrote… “Vancouver Renter, you deserve the $hit your in… Anybody with the ability to do the math would know this meltdown was comming.”

Oil plunged from $147/barrel to $41/barrel in just 5 months. So you obviously purchased a mountain of out-of-the-money short-term put options. Given the pro-oil sentiment in mid July, you would have locked-in a tremendous “once in a lifetime” leverage to the crashing markets, given said put options were so inexpensive at the time. I expect that your resulting windfall must be easily north of $100 million, given you knew it was coming in October. You must have done the same with the other commodities and stock markets.

You don’t have $100 million? I guess it’s always easy to be right and boastful… after the fact.

This actually brings up one of my biggest pet peeves… There are way too many “experts” who claim to have seen it coming. But when you review their newsletters and audio, you find that they conveniently ignore their bad predictions and only highlight their correct ones.

With regards to Bob Hoye, you can listen to his predictions in the archived audio at Seeing a storm coming is one thing. But getting the timing almost perfectly right every step of the way, over a variety of asset classes, is another. He truly had it right.

Does this mean he will be right going forward? No. But I’m sure paying attention to what his historical knowledge is suggesting will happen. It clearly has been much more accurate than others who predicted runaway price and asset inflation, $200 oil, soaring stock markets, strong gold stock performance (in a stock market crash), and/or a crashing US$.

#112 Patrick on 12.08.08 at 9:27 am

This article misses the greater picture.

Garth has it correct about the approx $50B of BoC notes in circulation (The BoC Annual Report reveals this), but he fails to point out that this represents only a tiny fraction of Canada’s overall money supply circulating in the economy – about 5%. Furthermore, he expresses alarm that they are no longer backed by “safe” government securities – secured under government’s “right” to extort (tax) future productivity of it’s citizenry under threat of violence – and instead backed by “other” debt.

If they backed these notes by “furbies” they would still circulate as long as the masses had confidence in the note. Translated: I accept paper money from you, confident that someone else will accept it from me. Given the citizenry’s complete lack of understanding how monetary theory as a verboten topic in the public “education” system, they would continue to use these notes as long as no mass hysteria campaign appeared in the papers causing loss of confidence in the note, which will NOT happen. Why?

To answer that question, we have to ask ourselves where the other 95% of our money supply is manufactured. It isn’t me, as I am not allowed to counterfeit. It isn’t the government, as they cannot create money, having outsourced that function to the Bank of Canada. It is our chartered private banks.

Whazzat? Banks “print” money?

Yes. Not in the conventional sense, but they create “checkbook” money – digital entries in your bank accounts. In order to explain this, let’s have a look at the loan process:

1) You go into a bank for a mortgage of 300K. Let’s say that the mortgage is fixed at 6% for 25 years, payable monthly. You will make no early pre-payments or double up your monthly payments. Very simple.

This means at the end of your mortgage (after 300 monthly payments = 25 years). According to this calculator here, this means that you will pay $1,919.00 a month. You will pay back the amount you borrowed (300K) + the interest – a whopping $275,826.00. So at the end of your mortgage you will pay back $575,826.00 – almost double the amount you borrowed.

2) The bank puts you through some preliminary hoops to see if they are going to make money off of you. I.e. you have a job, your credit is not maxed out, etc.

3) The bank creates 300K out of thin air. They do NOT take that money from their depositor’s accounts to give to you. Because of the fractional reserve requirements, they only have to keep a very small amount of “money” in the vault to back that loan. I say “money” because that is easier for most of us to understand, rather than the term “capital instruments”or “securities”.

So if a central bank requires the private banks maintain a reserve requirement of 10%, this means that they have to have $30,000.00 dollars of “money” in the vault. Here in Canada, the reserve requirements for our private chartered banks is 0%. That is not a typo. Our banks, in reality DO keep reserves, but there is no law that requires them to do so. Instead they police themselves with such governance documents like Basel I and II, which are always in flux. I am not aware if banks are required to follow them, and if they don’t what penalties apply for failure to comply.

4) You pay the seller of the house with your new $300K loan from the bank. Be it the builder or the owner, they take that money and (a) pay for all the labour and materials used to build the house and keep a profit, which they will spend into the economy sooner or later, or (b) the owner of the house takes that money and buys a yacht or another house or whatever. That new “money” you borrowed (the 300K) makes its way out into the economy. In otherwords, by you willing to shackle yourself to debt, the banks get to add 300K to the money supply.

By a simple accounting trick, the bank records the loan in two columns in the ledger book. The mortgage goes in the asset column as it is an interest bearing financial instrument. It ALSO goes in the liability column as someone will deposit it into an account and start writing checks against that account. Thus, the books balance.

5) You work for 25 years to pay that back, paying your $1,919 a month.

6) Around year 13 of your 300K mortgage, you would have paid the principal back. You still have 12 years to go to pay the $275K in interest back. Question. Where did the money come from to pay back the interest? What created the $275K and added it to the money supply in order for you to obtain it by working to pay the bank?

Do you see at this point? The bank loan actually reduces the amount of money in circulation over its lifetime! It transfers wealth out of the economy and gives it to the bank for the bank’s unearned work (their right to mint “checkbook money”)! Normally, this system would collapse!

But our system hasn’t collapsed – yet. So what gives?

The answer is simple.

The money comes from people who borrowed AFTER you. They borrowed the money via the same mechanism from their private banks, dumping their newly minted “money” into overall money supply.

7) To sustain the money supply, we need to attract new borrowers into the system as old loans are being paid off. Rate of money created = rate of money disappearing = stable money supply.

If the rate of money creation is higher than the money being destroyed, we are told it is economic “growth” and possibly inflation, which rewards producers/spenders, but hurts consumers.

If the rate of money creation is lower, we have the opposite effect. The money being retired, we are told we have a “recession” and possibly deflation, which rewards consumers, but hurts producers. However, we rarely see deflation. The reason is that producers (i.e. big business) are in positions of affluence and influence in government. It is the little guy that bleeds via the inflation tax.

8) This is where the Fed (or any central bank) comes in. These central banks (or cartels of government agents and banking interests) look at a pool of economic data, have the power to artificially raise or lower interest rates. If they see the economy getting “hot” and inflation rising, they raise the interest rates.

This deters people from lining up for new loans. The money supply begins to contract. The economy slows down.

If the economy gets too slow, they lower interest rates, thus enticing people to line up at the loan window of the banks. New money is dumped into the economy. It heats up again.

In other words, the Fed is always looking for the sweet spot where banks can maximize its members profits of the backs of slaves (run as fast as you can on the old hamster wheel = keep up payments), but not kill them (i.e fall off the hamster wheel = bankruptcy). What’s that old saying? “You can’t beat a dead horse.”

9) The bank, believe it or not, does NOT want to foreclose on your house. They hate that. Now they have a non-paper asset they have to pay taxes and maintenance on. They might have to sell it into a market where there is a glut of foreclosed homes on the market = lower prices. They hate that. They just want your payments.

10) That money you paid back to the bank does NOT stay in the bank. Banks record the interest as profit. From that profit, they pay their employees, taxes, shareholders, capital/operational costs, finance business growth, and of course, the obscene bonuses to the CxO’s. Since shareholders are making a profit, they cheer the bank on! Employees are grateful for their jobs! Government relishes the tax revenue!

But all of these people who work at the banks/government/shareholders have loans they have to pay back too.

Since the money is backed by debt and issued by the bank, it’s ultimate destination is always back to the bank.

You can see where this is all going right? Because we have a money supply that demands new loans to be created to keep the money supply stable, this means that we MUST have infinite economic growth.

More loans = more houses = more jobs = more consumption.

Continuing our example. Your loan will cause a deficit of $275K when it is paid back in 25 years. We need Hank to take out a 300K loan to fill that deficit so you can actually pull the money out of the supply by working. This leaves us with a surplus of 25K (300K – 275K) in the money supply.

Now Hank needs to pay back 300K + 275K in interest. Since there was a surplus of 25K in the money supply, we need $550K in the money supply for it to be possible for Hank to pay back his loan!

This calls for Bill and Bob to take out two 300K loans. And so on, and so on…

Now in reality, the rate of creation, amount, interest rate, terms, and amortization of all these loans varies. The arithmetic can be quite complex when you multiply it by all of the players in an economy, but the underlying problem is the same.

This is not sustainable. The economy is 100% driven from whatever we can fish out of the sea, farm off the land, or dig out of the earth. It can’t go on forever. The planet will collapse into a smoking hole. I am not a big truther on global warming, but it would be insanity to ignore ALL arguments. The earth is flashing warning signs at us.

And we bicker without understanding the nature of the problem. There can be no environmental sustainability unless the money supply issue is fixed. We need to have a non-debt based money where we can prosper in a zero-growth economy. This concept is usually pretty foreign to most people.

And as the earth declines, it will be the banking industry and their debt based money standing on our corpses, before they are killed too. All their power won’t save them. You can only buy your way out if there are goods and services to be bought, meaning that there are people to produce them.

So how do we avoid this? I have answers but I want to see if questions appear on this board first.

Thanks for your time and apologies for the length.

#113 whoa on 12.08.08 at 6:47 pm

“The information you reference is secret. Feel better? — Garth”

So you’re saying you don’t know?

It is not public. — Garth

#114 Rob5 on 12.08.08 at 6:51 pm

#52 midas

Blogs like this and other alternative news websites such as expose the deceptive nature of our mainstream media.

>> I’m hardly one to stick up for the media but the sheer economics of private media these days mean weak coverage and piss-poor analysis leaving a massive void for bloggers to fill.

Many of those with nicely packaged, Nostradamian, Chomsky-like revelations/rationalizations…sound familiar?

You give far too much credit to the ‘powers that be’.

#115 $fromA$ia on 12.08.08 at 7:38 pm

Van Renter,

I am not talking accuracy I am talking 5 years of RE Boom (manipulated by 2010, zero down and 40 year ammorts) that will eventually drop. If you get caught holding multiple properties or have a rediculously high mortgage because you bought this late in the game then you deserve to lose your nuts.

Furthermore I enjoy listening to all the anylists comments some make sense and others don’t, why you ask…The whole essence of my last comment….

…Because I draw my own conclusion.

I will admit, I got out of the market early but I am not stuck in it holding negative equity.

#116 whoa on 12.09.08 at 12:11 am

“The information you reference is secret. Feel better? — Garth”

So you’re saying you don’t know?

It is not public. — Garth”

What information exactly are we (you) talking about? My crude list up above is simply a back of the envelope analysis that would get you to a ballpark range of taxpayer exposure. It is fractions upon fractions upon fractions. Obviously only a small fraction of the loans will be impaired (though “small” may still be significant). Of those that are impaired, all should be subject to CMHC indemnifcation. There is a possibility that “small” is too big for CMHC to handle, and the govt won’t be fully indemnified, only partially. As I say, fractions within fractions, with a strong dollop of unlikelihood thrown into the mix.

That’s just inductive reasoning. Now you seem to be saying there’s “information” that “they” won’t let anyone have. What information? CMHC analysis of its capitalization and risk exposure? Some ministry of finance brief? Do you have it? Is it just not public, or is there an effort to maintain secrecy?

If you do have it, then it can’t be much of a secret. If not, then why scaremonger without the facts? Things are plenty scary without this starchamber narrative you seem to be hinting at.

Looking forward to your next oblique statement.

#117 Vancouver_Renter on 12.09.08 at 3:28 am


Well, I think we agree on many points. I’d place people in one of 3 camps:

Camp #1. They just go with the crowd. “Real estate has made people rich so I’ve got to hurry up and leverage into real estate.” No research. No recognition of risk.

Camp #2. Recognized that storm clouds are brewing. Turned to “expert” advice on how to weather the storm. The experts turned out to be wrong.

Camp #3. Same as #2, except they got their hedges right.

I’m in Camp #2. I saw the storm coming and told my wife that I believed a big financial shakeup was coming. I did a lot of reading and a lot of Internet research. My wife and I sold our two condos in 2006 and have been renting ever since. The “experts” in books like “Crash Proof” and on Internet broadcasts like FSN preached that the US would melt down, the US$ would crash, US markets would crash, hyperinflation would occur, commodities would go straight up in the chaos. Developing nation stocks and gold shares would also do extremely well. I positioned half my portfolio accordingly.

Well, these experts were wrong. It turned out to be a classic deflationary spiral. So even though I saw the storm coming, 1/2 of my portfolio was positioned in the wrong assets and I got clobbered.

Your rather polite and thoughtful response was, “You deserve the $hit your in.” No, I wasn’t reckless. I was cautious. I did my research. I’m upset with all the financial “experts” who were so confident of their hyper-inflationary predictions.

You post implied that EVERYONE should have easily predicted the US$ going straight up, oil crashing to 1/4, commodities freefalling, gold stocks being decimated, developing nation stocks markets crashing, etc. I have some very smart friends who run investment funds and even THEY didn’t appreciate the scale of the coming storm. This may turn out to be a once in a multi-century event.

I assume you’re in cash right now. What happens it there is a massive currency devaluation next week? Are you 100% confident that there won’t be? Don’t pretend that you know for sure and DON’T BE SO COCKY.

#118 The (Toxic) Penny Drops « bonnie.willimott on 12.09.08 at 6:42 pm

[…] December 9, 2008 · No Comments In case you were wondering where our government got that $50 billion to bail out the Bix Six Canadian banks from their mortgage peccadilloes, Garth Turner will set you straight. […]

#119 $fromA$ia on 12.09.08 at 7:46 pm

“Your rather polite and thoughtful response was, “You deserve the $hit your in.””

Van Rent, your past post sounded like you were caught holding the bag with Vancouver RE.

Gold did not take as big a hit than you think, actually Gold is good!!! :)

#120 $fromA$ia on 12.09.08 at 9:04 pm

Oh ya, Van rent… If you got cought holding comodities before this last correction than shame on you as well.

All these things don’t go up forever without change.

#121 Denis on 07.21.09 at 1:23 pm

Hi Garth,

Have you come across any updates regarding Toxic Cash? It’s been just over 6 months now & the BoC is still buying these things.

#122 Denis on 09.17.09 at 9:54 pm

Interesting Response by the Bank of Canada posted online. Dated, but relevant to this post:

If these are temporary? How temporary were they? They still have “Other Assets” – and it’s grown.