Sayonara?

Bank of Canada’s Xtreme rate slash

Click on headline for link to story
(& see below for implications)

__________________________________________________

Well, they tried it in Japan with boffo results.

(1) The problem: Asset bubble, leading to unaffordable real estate valuations and a financial system with massive loans based on inflated land values.

(2) The result: Crash and deflation. Stock market down 81%. Real estate off 60%.

(3) The medicine: Massive state intervention, pumping money into the banking system to prevent a banking collapse. Interest rates forced down to 0%, and kept there.

(4) The outcome: The worst deflationary recession in a Western country since 1930, lasting for more than 15 years and largely wiping out the Japanese middle class. Neither real estate values nor the stock market ever recovered.

(5) 2008: After a brief period of growth, Japan falls back into recession.

If the first three parts of this scenario sound familiar then, yes, you have been paying attention. And on Tuesday the latest instalment will play out here as the Bank of Canada collapses interest rates by another half-point, taking its benchmark down to 1.75%, on its way to 1% or less. And in the US, the Fed is already at that historic low mark, and on its way to zero.

Also about to happen, a further $15 billion to $30 billion bailout of the auto sector which everybody admits is pretty much useless. The intent now is just to stagger big bankruptcies, rather than to have them all happen concurrently. But so much for that plan, as one of the giant American media empires toppled Monday, felled by $13 billion in debt.

Thus far, Washington has spent close to $7 trillion  and Ottawa $75 billion.

So, if governments in Canada and the US are willing to spend without limit bailing out the banks and the car companies, why not the TV networks and the homebuilders? Or the oil sands when crude hits $30 a barrel? Where does this baby stop?

As they found in Japan, the money needs to be paid back. Which is why that country has amassed the largest per-capita national debt in the world, all but guaranteeing rising taxes for at least a generation to come. Now they’re in the soup again.

I’m just saying, you know.

In the news today: Japan’s gloom deepens

85 comments ↓

#1 Jeff on 12.08.08 at 11:38 pm

Garth,

Can you please provide Japan’s housing price chart from 2005 to present?

Thanks,

It flatlines. — Garth

Jeff

#2 Future Expatriate on 12.08.08 at 11:50 pm

Vancouver cancels Real Estate Industry Tradeshow:

http://www.vancouversun.com/Homes/Sales+drop+forces+realtors+cancel+conference/1034199/story.html

#3 Corey on 12.09.08 at 12:00 am

Wiping out the Japanese middle class? Hardly. Even in their current state, the economy of Japan is much wealthier than our podunk little country here.

Try living there before making such pronouncements.

#4 Anon on 12.09.08 at 12:10 am

Are you suggesting that anybody is planning to ever repay all these debts?

#5 anonymous on 12.09.08 at 12:15 am

I’m seriously going to be considering a little gold in my portfolio this spring. Not real gold of course (just the GLD). I don’t dig the goldbug thang…

While inflation won’t come for a good long while, the idea that we COULD have massive inflation may cause a little panic in the currency markets. Maybe a Barons article or something. But so far, the US dollar has been the safe-haven currency.

PS: You know, if I really wanted to became a goldbug, I’d go all the way. Bunker, guns, tin-foil hat, survival magazine subscriptions, and I’d even throw Zeitgest parties where we all circlejerk on a big ol’ pile of gold at the end. And Ron Paul (our saviour) would be there, too.

On second thought, nah…

#6 Investx on 12.09.08 at 12:35 am

Nice illustration with Japan.
Yikes.

#7 $fromA$ia on 12.09.08 at 1:31 am

Bring on the deflation…Garth for New Liberal leader!

#8 NA on 12.09.08 at 1:43 am

“(4) The outcome: The worst deflationary recession in a Western country since 1930, lasting for more than 15 years and largely wiping out the Japanese middle class.”

I thought Japan was an eastern country.

#9 Simon on 12.09.08 at 1:51 am

Pretty amazing to see the difference between the largest cities and the country as a whole.

#10 islander on 12.09.08 at 2:21 am

Who bails out me, Joe Taxpayer?

#11 patriotz on 12.09.08 at 7:13 am

Vancouver Condo Info http://vancouvercondo.info has shut down, apparently after pressure from the Real Estate Board of Greater Vancouver.

This should be a national news story.

Over to you, Garth.

#12 Bernard on 12.09.08 at 7:14 am

Hmmm…Interesting….so why did they not experience massive inflation after they pumped (printed?) all of that money into their economy? I have been thinking (probably naively) that the “quantitative easing” that will happen over the next year in the US will result in a massive over supply of $ at some point which will lead to devaluation of the paper and huge inflation? Do you think they will undershoot the easing procedure and therefore lag behind deflation, never quite catching up (is that what happened in Japan)?

Sorry for all of the questions…I guess I should get off my A$$ and read the history of the Japan crash.
Bernard

#13 Bottoms_Up on 12.09.08 at 7:55 am

I guess it’s time to revisit our debt/capita:

from the Fraser Institute, before our ‘bailouts’:

http://www.fraserinstitute.org/COMMERCE.WEB/product_files/CanadianGovernmentDebt2008.pdf
—————————————————–
“Largely due to increases
in program obligations, in 2004/05 federal, provincial, and local liabilities added up to
$150,211 for each Canadian taxpayer or $75,942 for each Canadian citizen.

Quebec has the largest total liabilities per capita at $81,820 followed by Ontario
($80,580) and Alberta ($76,870). Prince Edward Island records the smallest total government
liabilities per capita at $58,028, followed by New Brunswick ($61,056) and
Manitoba ($62,504). With the exception of Alberta, provinces have total liabilities as
a percentage of GDP in excess of 150%. If the government of Quebec taxed 100% of all
income generated, it would still take them almost two and a half years to pay of all their
debt and cover all program obligations.”

#14 buy gold on 12.09.08 at 8:22 am

Garth, why is North america doing what japan did if didn’t work?

#15 TOguy on 12.09.08 at 8:44 am

So if the world’s two biggest economies are drowning in debt, who exactly do they owe all of this money to?

You can Google that. — Garth

#16 Gord In Vancouver on 12.09.08 at 8:59 am

Japan can’t get a break, even after they improved their banking system.

On a local note…………………

Re/Max Tries to Save Vancouver Real Estate

As for Vancouver, sales will plunge by 33 per cent this year but stay flat at 26,000 in 2009, Re/Max said.

Average home prices in Greater Vancouver are expected to rise two per cent this year to $585,000 and fall by one per cent to $580,000 in 2009, the real-estate company said.

http://www.theprovince.com/Homes/Home+sales+stability+return+2009/1030121/story.html

#17 BC Resident on 12.09.08 at 9:08 am

“”Here in Canada, mortgage default rates are running at 0.25 per cent.

…Mortgage default rates in the United States were running at over 20 per cent and rising fast. Ditto for much of Europe, where the housing bubble was just as inflated.

We are heading into a recession, but Canada is in much better shape than most other G20 countries to weather it. To be sure, our biggest trading partner, the United States, is in the tank, its banking system rapidly being nationalized – the U.S. government now owns roughly 20 per cent of all bank capital. In Europe, they’ve already outright nationalized most of their big banks.

…Canadian banks, on the other hand, have relatively little exposure to subprime slime, to dodgy collateralized debt obligations (CDOs) and the rest of the alphabet soup created by the financial alchemists, and don’t need bailouts. To be sure, interbank funding mechanisms have had a spanner thrown into the works, and that is a real problem, but the Bank of Canada has been very pro-active in providing short-term funding through its TLF (term-lending facility) and PRA (purchase and resale agreements) programs, and the Finance Department has been quick to provide effective longer-term funding through its CMHC reverse auctions of NHA mortgage securities (a program that could be as big as $75-billion).

The Harper government has actually done a decent job of keeping liquidity flowing through the financial system. Apparently, though, that isn’t enough.

Not nearly, say the opposition parties, now banded into a coalition set to defeat the Harperites and take over, whereupon they plan to unleash a $30-billion stimulus injection to save the Canadian economy.

That sounds to me pretty much like a recipe for a $30-billion deficit. Gee, weren’t these same opposition parties whining just a week or so back about how the Tories were going to undo years of Chretien/Martin fiscal probity by allowing the Canadian economy to slip into deficit? Oh, I forgot, that would have been a bad Tory deficit, and this will be a good, Liberal/NDP/Bloc Québécois deficit.

Still, a deficit, even a $30-billion one, is a small price to pay for some economic stimulus. At least that’s what “all the leading economists” say. That the same group of “leading economists” entirely missed predicting the current malaise, didn’t foresee the housing bubble’s bursting, didn’t call the stock market crash, and up until a month or so ago, were still in denial about the possibility of a North American – let alone a global – recession, doesn’t matter.

Stimulus we must have and stimulus we are assuredly going to get, and likely the wrong kind. The new coalition government-in-waiting, you see, does not believe in creating economic stimulus by means of lowering our high marginal tax rates, nor by cutting (eliminating, even) capital gains taxes, nor dismantling interprovincial trade barriers.

No, they hew towards the more Keynesian style of stimulus, i.e., massive government spending programs rendered more saleable by attaching the label “infrastructure investment.” The Urban Dictionary (urbandictionary.com) defines “stimulus” as “a sordid economic nostrum administered on the advice of bankers and academics. . . Stimulus, or economic crank, like any other economic panacea, is a fake cure that gives its victims a temporary but false sense of wellbeing, even as it sets about causing long-term damage to users and the economic community at large.” ”

http://tdw.globeinvestor.com/servlet/ArticleNews/commentarystory/GIGOLD/20081204/koza04/home/home?back_url=yes

In case you hadn’t noticed, people in Canada do not default on mortgages much since we do not have ‘short sales’ or ‘jingle mail.’ Learn the facts. The situation here will be as dire in one year from now as it was in the US one year ago. — Garth

#18 Investor on 12.09.08 at 9:27 am

Garth,

Please don’t forget:

Japan suffered one of the biggest property market collapses in modern history. At the market’s peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.

Like downtown Vancouver? — Garth

#19 Joren on 12.09.08 at 9:44 am

I agree with Corey. I lived in Japan through part of the “bubble” and most of the past two decades.

The averages in the chart above are very “averaged” as Tokyo real estate was and still is extremely expensive – so much so that if you buy today, you don’t expect to pay it off in your lifetime – but for your heirs to do at some point in the future.

Bear in mind that Japan prior to the crash was incredible. Huge salaries, huge expense accounts, moreso than you’ve ever seen in North America.

Even at the worst of the crash afterwards, people would spend- electronic shops would still store inventory on the sidewalk because there wasn’t enough room in the shop to store it all – and not because it wasn’t selling. It was so they’d have enough and not have to turn people away.

#20 dd on 12.09.08 at 9:46 am

Japan:

The bank and government took years to write off loans from the banks and companies. The bank rate wasn’t lowered to the bottom for 5 years into the recession.

Hope this isn’t japan again … however, it does seem that this is a world wide problem with world wide solutions and implementations.

#21 Calgary_rip_off on 12.09.08 at 9:48 am

Interesting post Garth.

Of more relevance is what will happen with the Coalition next year. A minority of voters voted in the conservative party last election. Then Harper appealed to the Governor General to violate Constitutional Code in Canada.

Alberta is done. Once the majority power gets in next year, either by election or by majority, the oilsands will be shut down. A party such as NDP or Liberal is needed in Alberta, as the wealth spread is unequitable. You have poor and very rich here. There are no rent caps. And cost of renting and buying housing is not equivalent to earning dollars.

Forget about Japan, Calgary is about to get very very bad. Job losses, foreclosures, yucky.

Hopefully the Alberta separtists idiots dont get their way about becoming Americans.

#22 dd on 12.09.08 at 9:51 am

Japan had a debt to GDP ratio of 1.2 to 1 in the 1990’s with an aging work force.

http://www.chrismartenson.com/forum/help-me-understand-gdpdebt-ratio/9438

Japan’s demographics are quuite similar to ours, BTW. Over 32% of our pop are Boomers. Is the intent of your comment to suggest the Japanese experience is irrelevant? — Garth

#23 kc on 12.09.08 at 9:55 am

Garth, Trying to educate the youngin’s with history is hard when they don’t want to open their eyes to what happened years ago. Japan’s explosive bubble had all the ear marks of a living history lesson that should never been repeated, unfortunately history was (semi) repeated in the bubble that is unwinding. We witnessed the frog in the pot theory, Japan in the last run up was catious not to repeat their own disasters. Today explaining to those who can’t fathom what happened 20 years ago is wasted breath for they will only understand it after the fact, not before. Today we live in the instant gratifaction world. They want the answers now, and don’t want to do their own research into the facts and make educated decisions for themselves. Google has made a library become a place where only OLD people go to waste time.

cheers

#24 pbrasseur on 12.09.08 at 10:03 am

Macro-economy is a fascinating subject but so complex that all predictions should be taken with a grain of salt. What appears to be logic is not always true because other facts are neglected.

Japan is certainly an interesting case and a good example of deflation. It is also a society and a culture very different from North-America’s. For one it has no immigration and a very low birth rate.

So contrary to Japan (and much of Europe) North-America’s population is growing quickly and will continue to grow. That helps growth, a lot.

In fact Japan’s workforce is now shrinking faster than what can be compensated through productivity gains. It should be no surprise then to see deflation and an almost permanent recession, especially when coming down from the insane bubble they had in early 90’s.

And demographics are not the only factor differentiating Japan and North-America, for example Japan is a very fatalist, rigid, protectionist and regulated society which creates problems for them adapting to new reality. No-one will ever accuse the Americans of being unable to adapt…

I’m not saying things are not bad here and I can certainly imagine countries in Europe following Japan in the stagnation/deflation scenario, but things have to be put in perspective, beware of easy comparisons…

#25 Drummer on 12.09.08 at 10:07 am

You all forgot to mention one important fact: Japan has a much higher personal savings rate than Canada. I wonder how that’ll affect things as they unwind here?

#26 shmoe on 12.09.08 at 10:22 am

Garth

Quite right about the lessons of the Japanese bubble.

Quite wrong about the Japanese middle class being wiped out. Your analysis of Japan’s response to deflation needs to be a bit more fine-grained.

The comments above about Japan’s higher savings rate and the slowness with which Japan responded to the problems of bad paper in banks and lowering interest rates are all spot on.

Japan has sustained its GDP through its economic disaster. North Americans should be so lucky.

Some reading:
Income inequality shrinks Japan’s middle class
It no longer pays to be middle class in Japan
Japanese middle-class meltdown
Japan’s new middle class
At the limits of new middle class Japan — Garth

#27 My_View on 12.09.08 at 10:25 am

Let’s not forget,

Japan is a producer, savers, creditors and has a huge surplus of $$$$$$. Where as the U.S.A. is a complete opposite.

#28 Mike B formerly just Mike on 12.09.08 at 10:32 am

My office neighbours here in Toronto are well educated bilingual Japanese . They have been saying how bad it has been in Japan for over a year. Even with low interest rates , their economy, save for commodities, is industrial based much like Ontario and China has taken over much of that market. Korea with cars and China with pretty much everything else.
Bank of Canada dropping interest rates … two takes
ONE— tells you how worried they are and that things are worse than they expected.
TWO- honestly think this will trickle down to the average Joe and get them to drop their drawers on a major purchase such as house or car.
GET THOSE MONKEYS BACK IN DEBT .
I am most interested in what happens to the price of GOLD…

#29 Bruce @mortgagehelp on 12.09.08 at 10:39 am

Garth, what do you think?

Is Halifax different than the rest of Canada

“The corporation projects that Multiple Listing Service prices for existing homes in Halifax will increase by six to seven per cent in 2008, to an average $230,000, and by another three to four per cent in 2009.”

http://thechronicleherald.ca/Business/1094988.html

#30 squidly77 on 12.09.08 at 10:58 am

japan graphs

http://img124.imageshack.us/img124/7905/japanlandpricesef1.png

http://finance.yahoo.com/echarts?s=%5EN225#chart1:symbol=^n225;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

bye bye middle class

http://devinemulvey.com/media/images/news/poverty1.jpg

in a mirror darkly..

#31 Larry on 12.09.08 at 11:21 am

Here in Oilberta we are asking the Feds (You and me) to give tax breaks to the poor people involved in the oilsands.
http://www.theglobeandmail.com/servlet/story/RTGAM.20081208.wrupgraders08/BNStory/energy/home
This is in addition to other requests to bail out poorly run companies like the big 3. Yesterday Obama announced a stimulas package never seen since 1950 which helped the Dow and TSX jumped back up again. I don’t understand all this printing of money, My rent has increased over 40 % in 3 years and my grocery bill 15% in the past 3 months. Will someone bail me out if i stop paying. My salary will increase 2.5% next year.

#32 pjwlk on 12.09.08 at 11:35 am

I ran across an old email from a R/E agent friend of mine from the begining of the year where she laughed at me when I said R/E was in for a swan dive. “Bring it on” she says… “Last year was my best ever!…” “So it should have been” I told her, we were at the top of the market then. Working at a builder’s sales office in Pickering ON, where no one has sold a house in about 4 months. “Bring in on” we shall… lol

#33 Bottoms_Up on 12.09.08 at 11:45 am

http://www.marketoracle.co.uk/Article1571.html

Japan holds a ton of US debt.

#34 Bottoms_Up on 12.09.08 at 12:05 pm

David Miller a renter’s best friend:

“Mr. Miller’s tax – a levy of up to 2 per cent on top of the province’s existing levy – is responsible for a 16 per cent drop in sales and a 1.5 per cent drop in house prices in the city compared to its suburbs.”

#35 Nick on 12.09.08 at 12:13 pm

While you’re right to point out the issues that have plagued Japan for the past 20 years, it could be much worse , they’re still a world-class country. I think a lot of countries around the would be thrilled to do in the kind of shape that Japan is. As long as we don’t end up like Zimbabwe…

#36 Defaults on 12.09.08 at 12:14 pm

Post-Lehman company defaults to soar

http://www.ft.com/cms/s/0/7e3d4eae-c575-11dd-b516-000077b07658.html?nclick_check=1

#37 JO on 12.09.08 at 12:48 pm

Japan has suffered a so-called soft depression. Unemployment has remained relatively low and asset prices, despite coming down a lot, are still relatively expensive. Japan has several major issues, one of which is the political system which has been and continues to be a major disaster. I think if you ask most Japanese people to name their last three PM, you’d be lucky to get 1 in 10 answer. They change PM once every 18 months or so and their politics have been solidly on the left side for a long time now. Their tax code is a case study in how not to manage taxation with high levels of tax on income and investment activities and relatively lower consumption taxes. And to top it all off, they are notorious for a huge number of special deductions and tax credits that water down the system even more. On the monetary side, Japan has been an even greater disaster as they have bailed out major banks and prevented (temporarily) the market forces from destroying the enormous debt problem. It has been called the zombi approach. Companies that should be dead aren’t. Japan has followed Keynesian policies blindly and the end result has been worse than if it had done nothing and allow the debt to be destroyed. After lowering rates to near 0 and becoming the carry trade currency of choice, the yen helped contribute to the “liquidity” (read: debt) that helped fuel commodities and most assets up until the last year or so. For the last few years, the Japanese have implemented a so called quantitative policy which amounts to massive printing to buy financial assets and it to has, not surpisingly, failed after short term, temporary recovery periods in the economy. Add to that some protectionist policies and a harsh stance on immigration which is no help on its ugly demographic situation, include a massive debt load, and you have the makings of an inevtiable disaster. Japan will have to default on its debt or print its way out which will work only once sufficient debt has been destroyed and people are in the mood to buy cars and homes in large numbers. Japan’s saving grace and the reason why it has been able to muddle through with relative calm is that Japan’s problems were / are mostly corporate debt problems and the Japanese citizens have/are among the world’s best savers. The Western Europe and NA situation is far worse.

In some ways, we have a lot to learn from Japan’s failure in dealing with this economic situation. They implemented Keynesian policies and massive printing with zero rates, yet the Nikkei hit a 23 year low not long ago. Japan has been a more protectionist country and has major demographic problems. It is now in a situation where a noose in on its economy as a result of years of doing things to avoid/delay the inevitable. If it raises taxes in a major way (as it will have to do at some point to re-pay debt and help pay for health care, etc), it will slow down/mitigate any economic recovery. If, by some miracle, Japan’s economy starts on a path of sustainable economic recovery, the massive printing and other policies being executed should lead to some sort of inflationary crisis. If this happens it may do so only a few years down the road as the private savings have so far insulated the country relatively well from a bond crisis. We will not be so lucky in the US and Western Europe.

Keep this in mind when you hear our politicians yelling out for stimulus and the need to do something because most other countries are doign it. They are getting advice from the same people who on the whole have completely mis-diagnosed and ignored this coming crisis. How can they be relied upon now to give us “solutions” to get out of a crisis they never saw coming?
JO

#38 squidly77 on 12.09.08 at 1:03 pm

Oswald predicted the job situation will get much worse in Alberta very soon

#39 if you don't like it on 12.09.08 at 1:04 pm

Whats the variable interest rate now then?

#40 Adrian on 12.09.08 at 1:27 pm

Hi Garth,

I occasionally read your blogs. They contain useful stuff, otherwise I wouldn’t come back. I just put my fingers on a story that brings up your name and your book. The funny fact is that they say “Ultimately, Turner’s book will likely find a home next to your Y2K doomsday collection”. I would ask them now how good of predictors they are, as your book will go on the best shelf of ‘2008 and so’ recession. This is the current link to that smart article … http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20080428_198701_198701

All the best, Adrian

Yes, that article was written last April when my predicitions were dismissed by those who thought houses would go up in value forever. Guess what? — Garth

#41 pbrasseur on 12.09.08 at 1:39 pm

@ JO

Nice post!

You are right of course, people may think of Japan as a very well managed economy but despite some obvious successes it’s far from being the case. In some ways, specially by choosing to avoid immigration, that society has taken a suicidal path.

I say there is no way North-America will follows Japan’s deflationary ways.

Maybe some other disaster path but not that one.

Not so sure about Europe though, but even there I have my doubts, anyways Europe would erupt in social unrest much before getting to that point.

#42 dd on 12.09.08 at 1:55 pm

#5 anonymous,

Some port managers suggest a 5-10% weighting. Most suggest the real stuff if you are buying for uncertainty.

If you are buying for inflation look at the Horizon Beta 2x Gold E.T.F

#43 dd on 12.09.08 at 2:04 pm

#22 dd

“Japan’s demographics are quuite similar to ours, BTW. Over 32% of our pop are Boomers. Is the intent of your comment to suggest the Japanese experience is irrelevant? — Garth”

Not in the least. Hopefully we can learn for the Japanese on how to handle this mess that we are in. I see signs of an coordinated effort from the world.

It seems like the “Roubini – how to get out of this mess” list is being checked off. Of course that will not rule out a long U shaped recession.

I just hope to God that all can move quickly to side step a depression.

#44 JO on 12.09.08 at 2:18 pm

A couple of comments on buying bullion. I am no gold bug per se, but i respect its value as a store of value. If you are interested in exploring how to increase exposure to bullion at a reasonable cost/minimal risk, there are several options. Of course, the most liquid is GLD ETF. I would consider this only for short term use and not as part of a strategic allocation long term. It is still a paper/security and it is likely to be included in any confiscation attempt down the road. I do occasionially use GLD Puts as a hedge on my strategic holding (GTU.UN) and plan to add some soon. I do want to get to 20-25% in bullion. I really prefer not to hold the thing – it pays no dividends and offers no real capital appreciation potential. I believe in getting some as part of my goal to minimize the inevitable loss in real purchasing power most of us will see in the next 3-4 years. Anything can happen at anytime, so the hope is that by having some bullion, the impact of any negative financial black swan would be mitigated somewhat. I am anxiously watching this bear market rally and look to add some USD, YEN (FXY) and a small short position if and when SP500 hits 990 or so. I do think bullion will hit low – mid 600s in the next year before making some sort of bottom. I do plan to add only when gold declines. If it doesn’t and somehow breaks new highs I can always protect against some sort of gold take off by adding it then or through short term in the money GLD calls. Not perfect but hey, life is a compromise. I know Garth is thinking oh god, another bullion bunny…I am not really..maybe a part time, occasional and reluctant bullion renter is a better way to say it. The prospect of a CAD in the 60’s or even lower with near 0 rates scares the hell out of me. If anyone has any other ideas on how to store value in real terms, let me know ! Please do your own research before making a decision on any of this I mentioned

PBrasseur – I do agree any deflation will probably not be anywhere as long as Japan for a variety of reasons. But in my opinion we will not be able to come out of this thing on a sustainable path until the massive debt that is tied to malinvestment in housing, and related industries is cleared or flushed out by paydown or default (default is most likely). I am still leaning on the Euro being done and finished by end of 2010. Europe has a wonderful history of disintegrating itself at major junctures in history. If many in France and Germany and Italy had their way,the Euro would be long gone by now. We are entering a dark period of negative mood that will allow populist, left sided governments to come in the world over. The electorate is angry and wants to blame someone and elect someone who promises to fix things. Of course, in most cases, these phases in history lead to more turmoil as protectionist policies are implemented and the laws of economics ignored. My family is from Europe and I cannot believe how my few remaining family on the other side of the pond still live there. It is a great place to visit, but way too much red tape, taxes, and expensive for my liking. I wish them well.
JO

#45 pbrasseur on 12.09.08 at 2:23 pm

In november 2008 compared to previous november RE transactions have diminished by 31% in the greater Montreal area. However prices were up a bit.

What do this mean? In the medias the word is that Quebec market is holding and “resisting”.

What do you make of this? Seems to me the trend is travelling from west towards east.

#46 Nicholas P on 12.09.08 at 2:33 pm

Hi Garth;

When TOguy asked you “So if the world’s two biggest economies are drowning in debt, who exactly do they owe all of this money to?”, I am wondering why you told him to google it?

Tell him how it works Garth.

Those of us who have followed the money trail have learned that those debts lead back to the respective- and I use that term loosely- central banks i.e. The Federal Reserve, BoC, ECB etc. which in turn feed into the World Bank and IMF.

Just today headlines covering a Financial Times editorial read “Financial Times Editorial Admits Agenda For Dictatorial World Government”.

Read FT article here: http://www.ft.com/cms/s/0/7a03e5b6-c541-11dd-b516-000077b07658.html?nclick_check=1

To those of us who laughed at the conspiracy geeks years ago (me included). The joke is on us! And someone is laughing all the way to the bank.

Who are THEY Garth?

#47 dd on 12.09.08 at 2:40 pm

#21 Calgary_rip_off

“Once the majority power gets in next year, either by election or by majority, the oilsands will be shut down.”

… do you have any clue how much the Feds make in oilsands taxes?

Who is going to pay hospital wage with zero taxes? Please think a bit.

#48 squidly77 on 12.09.08 at 2:40 pm

Von Palmer, a spokesman for the Toronto Real Estate Board, said the study shows his group’s warnings against the tax were right, and urged the city to repeal the tax.
http://ctv2.theglobeandmail.com/servlet/story/RTGAM.20081209.wmiller1209/business/Business/businessBN/ctv-business

#49 marimba on 12.09.08 at 3:00 pm

further to patriotz’s post, the communication with the REBGV and vancondo blogger is posted at condohype.ca.

REBGV didn’t want its name associated with charts showing price decreases, and made ominous noises about forwarding communications to its legal department. The result — the blogger shuts a very popular and informative site down, not wishing to deal with legal BS. It’s a tragedy.

Shame on the bullying tactics of the REBGV!

#50 dd on 12.09.08 at 3:03 pm

Oswald … from above…

“There are a lot of layoffs happening in the shops and downsizing in the field,” said Oswald, who is particularly unhappy with politicians saying a slowdown is good for the province’s overheated economy. “The massive importing of labour into Alberta has obviously ended and a lot of those people are looking at going home again.

If oilsands fall so do alot of jobs Canada wide. So for all you people that hope to see the oil jobs go … so does Canada go down the hole.

http://www.edmontonjournal.com/business/Unease+grows+among+oilpatch+suppliers/1050463/story.html

#51 JO on 12.09.08 at 3:50 pm

Nich P
This has been a hotly debated issue for decades. Most proponents of the conspriacy are still laughed at. My view is that from my perspective being an average person, I do not have anything to concretely say there is a plan on part of the IMF/WB or any other party to take over with a global dictatorship. Instead, i have always viewed the IMF and similar bodies (OECD/WB/Fed) as part of the problem with our financial system. The IMF has a shamed history of managing third world countries into oblivion through disasterous (and some would say deliberate) economic policies. The core issue in our world comes back to the Fed and their offspring in most developed countries. They allow fractional reserve banking and have completely disregarded any effective regulation to keep the growth of debt at a manageable level. The world’s able and willing debtors in the last 6-7 years (some would say since 1971 or early 80’s when amount of debt took off) have in fact become debt slaves thanks to the policy of maximizing debt accumulation and the resulting devaluation of the fiat currencies managed by the Fed/CB’s. The Fed itself is a private entity owned by over 100 private banks (some call them the Illuminati) who pay $ 100 for a share. In turn, most large FI’s have a few seats on the boards of the regional fed banks. In addition to the bank directors, there is usually another class of directors who tend to come from non bank corporations. Each regional Fed bank has a governance committee who elects a president of the regional Fed. They then have to get approval from the Board of Fed Governors in Washington who are the real power holders and who Ben Bernanke oversees (i haven’t studied their org chart for quite a while but it does operate in line with what I am saying). The US president has final say on any appointment as s/he is basically in charge of the Board Of Fed Reserve. Itis obvious the Fed plays a huge, foundational role in all of this. They mico manage interest rates, “manage” the currency (read: Devalue it as an ongoing policy) and allow the magic wand of fractional reserve banking to create as much credit as possible. Of course, the question of debt accumulation rests with lenders and borrowers only. Credit can only be created if both parties are able and willing to extend and take on the debt, respectively. We are now in a situation where both parties are in trouble. Now that the credit game is in its terminal stages, the world has seen a power grab by the Fed and the early workings toward a new regime through the G20 meetings. The IMF was created out of the BW system and word has it that it will see some sort of expanded role. Anything that gives more power to the Fed and / or IMF/WB has to be stopped. We need a better system where debt is managed more conservatively and where there’s no quasi-private organization in charge of a country’s money and credit creation. The taxpayers of the World are being taken to the cleaners by politicians and their gov’t affiliated agencies called central banks. The same people who helped put us into this will never get us out of it. I doubt the Fed will survive in its current form before its 100 anniversary in 2013. Whether there is any conspiracy to take over the world, I do not know, but adding more powers to the IMF / WB and Fed will be a huge red flag that something big is coming down. You cannot overlook the wannabe global IRS – OECD. They are part of the team. I reccomend you review mises.org and go onto the actual website of the Fed itself to reserach more about how they operate. Quite interesting and disturbing. When you add up the total amount of municipal, provincial, and federal taxes and then add the average price inflation (the rate at which your money is losing value – not the rate at which the cost of living is rising as most say), the average middle class worker has well over half their income confiscated from them. In the years ahead, this will get higher. So there is no real need for an official dictatorship – it will be done under the guise of some other program and positioned as a must have for the average person. The end result will be the same.
JO
JO

#52 dekethegeek on 12.09.08 at 3:56 pm

#17 BC Resident.
Wow ! A rational series of statements from BC Resident without the usual ” Vancouver/BC is the Best Place on Earth ” drivel. ( hmmmmm where have i heard that before, oh yeah, It’s on every BC license plate if your dumb enough to pay $80 for the priviledge of being a BC Govt. advertising shill. But i digress).
The US meltdown is now at least a year in, 80% of our trade is with them. If they dont buy our commodities, visit our Country, or invest in our businesses. We be up the proverbial creek without a paddle. ( just ask the Olympic Village developers, Quest developers,Ritz Carlton developers, Semiahmoo Developers, etc.,etc.,etc.,. all US money that has pulled OUT)
No amount of Canadain Govt intervention is gonna get our pip squeek of an economy( on the world economic scale) up and running without the US economy back in a healthy state.
Get used to beans and weiners folks, never mind Jenny Craig. We’ll call this new diet the “Depression de jour”

#53 David on 12.09.08 at 4:27 pm

British economist Christopher Wood wrote a splendid book on the Japan property and equity bubble way back in 1992. Not enough people bothered to read this thoughful tome.
Bad news seems to travel slow and always arrives far too late.
Here is a good essay on the legacy of massive deflation from a few months ago and still worth reading.

http://www.economist.com/finance/displaystory.cfm?story_id=12437739

#54 Shifty on 12.09.08 at 4:48 pm

Chrysler threatening to close plants in Canada if it doesn’t get bailout money from Fed. and Prov. government. Geeez don’t let the door smack you on the ass when you leave!!!

#55 Calgary rip off on 12.09.08 at 4:56 pm

Comments related to newcomers contemplating moving to Calgary or recently here:

The oilsands are not in your personal best interest at buying a house and getting ahead. The boom in the oil market has helped falsely inflate real estate values and has lined the pockets of a few.

The majority of people new to Alberta for only a couple of years may or may not be related to oilsands production. The benefit is just not there for these people: Here’s why: 1)Cost of housing is so far out of whack with wages its almost better off leaving the province and going back to where they left(they arent getting ahead lining landlords pockets); 2)Oil prices never benefited them at the pump(how is it that oil is obtained here and gas prices are still ridiculous-what do they ship it to the Quebec refinery?)

An absolute and final disintegration of the oil sands would be of course dismal to Calgary. However, a mild shutdown would cause housing values to plummet and therefore a house could be obtained. Paradoxically during times of stress certain hospital industries business would be INCREASED and more workers would be needed and the benefit would be there. There already is a lack of workers in hospitals. If you get laid off in one area, shift to another part of the hospital. This has happened many times before.

Look for good times for non-oil people soon. A coalition majority in and rampant Alberta Americanistic style thought and actions down. No more paying for this bubble equity crap that so many Calgarians seem to relish. Median Calgary house prices 2004=$250,000. Something still very WRONG about the current prices.

However, the good news in the oil industry should fix all the bull attitudes.

#56 Calgary rip off on 12.09.08 at 5:05 pm

$20 oil predicted. Will take about 3-4 years for energy levels to recover from this.

This is great news: Lower house prices and less paid at the pump.

The full story.

http://www.calgaryherald.com/predicted/1052815/story.html

#57 Wateredge on 12.09.08 at 6:12 pm

Coming from Asia. I would say Japan is a different case from Canada.
Japan has no resource other than people, pretty hard to bounce back once in recession. The country is developed and has entered into a bottle neck.
You may notice that Japan did not even have a noticable house boom which enjoyed by essentially every Asian Country for the recent three years.
For Canada, Economy is positively related to energy price. When the recession enter its third year (Presumbly in 2010), Canada should see another wave of boom, largely depends on the energy price.

#58 dd on 12.09.08 at 6:26 pm

Tories doing the back step:

http://www.globeinvestor.com/servlet/story/ROC.20081209.2008-12-09T215441Z_01_TRE4B877T_RTROPTT_0_CBUSINESS-US-FINANCIAL-CANADA-HARPER/GIStory/

#59 dd on 12.09.08 at 6:37 pm

#56 Calgary rip off,

Lets read a little more into article:

“I don’t think it stays there (at $20) very long (but) I think it’s going to be some time before it goes back just because of the state of the global economy.”

“Panelist Randy Ollenberger, managing director of North American energy equity research for BMO Capital Markets, agreed prices might touch $20 in the very short term but they will quickly rebound as supply costs make uneconomic even sustaining oil and gas plays.”

“We may see $20 oil,” said Ollenberger. “My point is we won’t see $20 oil last. We saw $10 oil in 1998; $10 oil didn’t last.

“What made low oil prices last for such a long time in the 1980s was that big inventory of capacity. We don’t have that today,” he said.

BMO is forecasting that the economy won’t get much worse and will start to rebound in the second half of 2009, leading to an oil price forecast of $50 to $60 over the next six months and improving to $70 to $80 in the second half.

“If the economy worsens, I would shift down those near term trading bands by $20,” he said, adding recent declines are due to downside speculation in markets.

Ripoff … read past the headlines.

#60 Derrin on 12.09.08 at 6:40 pm

#23 KC and the Sunshine Band

Do us a favor and get off the soapbox….. of how educated the mature individual is. By the way you should checkout the library when it is not senior time(9 to 2). There are many young people there. Just because the young receive there message by way of new technology doesn’t make them less wise!
If you look at who are the leaders of all the political parties in Canada. They are old farts like you.
Get out of your old guy routine. Geeeez…… I remember people like you that used to come into my dad’s business and complain about the price of a cup of coffee. How it used to be .50 cents.
Geeeez.

#61 Derrin on 12.09.08 at 6:49 pm

I agree with the posts on Japan. I lived there for one year and they aren’t shooting squirrles.
They are an economic power house. They are doing fine.
There bubble deflated but they continued and still continue to be a prosperous nation.
People should get there ideas around that money is paper.
Resources(raw materials, educated workforce, technological advances and leadership). Provide the future.

Not the Bank of Canada’s rate cut. Get real.

Cheers,

#62 dd on 12.09.08 at 7:00 pm

Comments related to newcomers contemplating moving to Calgary or recently here:

Yes it is going to be tough in Alberta … however this province will be the first one out of the recession.

#63 dd on 12.09.08 at 7:37 pm

#61 Derrin,

Interesting. I have heard from a couple people that have lived over in Japan … and until recently it was not as bad as the graphs are depiciting.

#64 My_view on 12.09.08 at 7:47 pm

Japan has one of the greatest resources “Innovation”.

#65 My_view on 12.09.08 at 7:50 pm

All my big ticket luxuries are Japanese. God bless them for introducing us to quality and reliability.

#66 Simon on 12.09.08 at 8:01 pm

I’d imagine the whole real estate “crash” would be pretty easy to foretell; it isn’t a big secret families are getting smaller, the population is getting older, etc.

How does it follow, then, that the plan should be to slap up tens of thousands of ever larger and ever more expensive homes?

I think the problem was more that there were lots of folks making lots of money pushing that the boom times would never stop and that houses are always going to be worth more. Sort orf the ultimate game of musical chairs. Looks like the music stopped. It will be interesting to see what steps the various areas of government will take to try and offset what is pretty inevitable. Is it the role of government to support inflated real estate values?

#67 $fromA$ia on 12.09.08 at 10:02 pm

Gold bullion is good to hedge against your current diversified portfolio.

It’s the ultimate in hard times to come. Stocks are good too but having one without the other is like being half pregnant.

#68 Brad on 12.09.08 at 10:04 pm

Another important difference between Japan and Canada:

Japanese squirrels are definitely fluffier and much cuter than Canadian squirrels because of their bigger ears, but I suspect that the bigger ears of the Japanese squirrel translate into better hearing….which probably makes it harder to catch them. Thus, even greater Japanese middle class anxiety over viability of eating squrrels as a back-up plan….

Check out photo of the Japanese Squirrel….cute! :

http://www.ngsprints.co.uk/images/M/714624.jpg

#69 dd on 12.09.08 at 10:45 pm

60 minutes and oil. Great clip. Pay now or pay the prices later.

http://www.clipsandcomment.com/2008/12/07/video-cbs-60-minutes-the-oil-kingdom-december-7-2008/

#70 Derrin on 12.09.08 at 11:04 pm

#67 $fromA$ia

“Gold is a good hedge”.
Really!
Show me.In the last two recessions how gold has been a good hedge?
I buy physical gold at top dollar. I pay for storage. I can’t use it because it’s not divisible into smaller units. It is not that liquid. It would be difficult to purchase anything with it.
Last time they thought gold was important, the US Government said you had to surrender it to the US Government.
Yeah, sounds great.

Maybe you should hedge buy buying a potato field in Idaho. I hear french fries(fast food) sell well in a recession.

Cheers,

#71 Bailing in B.C. on 12.09.08 at 11:28 pm

Check this out. Very scary…. glad I’ve got my tin foil hat on! I think I’m gonna need it

http://www.chrismartenson.com/blog/floating-air-treasury-bills-go-negative/9994#comments

What do you guys make of it?

#72 charliegosurf on 12.10.08 at 12:07 am

arigato greater fool san

yummy squirrel brad, almost better as apet,lol, deke, it’s du joue…lol and youre so rigth does license plate are so lame, always on fancy new rides, people love to flash…

like if you need to brag that you are the best if you really are, just shows the insecurity the people of this province are made of…

since the governement sponsor the bank now, is it possible that soon we could have positive interest rate, imean you ow, and that lets say -5% rate helps paying off your loan evry month,lol

that’s an idea now, so fun too, it’s the samurai or the kamikaze rate, man these times are fun, can we start a squirrel club somehow???

sayonara apocalypse riders, keep on rollin!

#73 charliegosurf on 12.10.08 at 12:09 am

oups i meant negative rates, and du jour, those, sorry

#74 Jeff Riverdale on 12.10.08 at 12:09 am

I just watched a Global News report about lots of people walking away from their deposits on condos in Vancouver. I never thought that could happen, you know we have such limited land here and the Olympics are coming here so the world will want to buy here at any price :)

Watch out below!

http://www.globaltv.com/globaltv/bc/index.html

#75 $fromA$ia on 12.10.08 at 12:53 am

Brad, you have quite a fetish for Gerba…. I mean squirrels. :)

#76 Charles on 12.10.08 at 1:10 am

What to me is so extraordinary is the temper tantrum being thrown in Alberta right now at the prospect of having to be ruled by a majority — by a coalition of parties representing the majority of the people in this country. I really do think it is worth asking who the real separatists are, because of course the undercurrent of everything they are saying is that they will take our oil. So who are the real separatists?

~n.k.

#77 kc on 12.10.08 at 1:32 am

Here is a report written in 1987 that looks deep into Japan’s banking and property situations. When reading this think about then and what has transpired over the last year, can you connect the dots?

http://72.167.117.219/pdf/euromoney-0987a.pdf

referenced from here – http://www.unsustainable.org/index.asp?navID=2

Garth, Can you do a piece on your thoughts about where you feel the commercial RE market is? I feel this is a larger BUST coming than housing, what are your thoughts?

#78 JoJo on 12.10.08 at 1:32 am

Heloo Guys,
Oil price about $ 20/barrel and Gold price $ 600/oz ???
With less production of Oil and Gold every day and very,very low interest rates and printing money like crazy in USA and Canada you still thinking that somebody will sell oil for $ 20/barrel ?
Alredy OPEC-Arabics countries cut oil production two times by 1.5 million/barrels and now at Dec/17/08 they will cut again more than 3 millions/barrels.
Also Russia and Venecuela cut production.
What About Canadian Oil Sands? If oil price hit less than $ 38 than more than half oil production in Canada will shut down. Yes,we have less market demand on Oil but you’ll see very soon less production. And again in July/09 will see oil price $ 120.
Story is very simple less demand will cause less production.Period.
BTW, I still can’t see any RE crash in Oakville,Burlington,Mississauga,Georgetown,Caledon.
Prices are higher than last two years and sales down 50%. Well you can walk around and see new builders prices and after that you can cry. Interest will going to 0.5% and soon will be Hyper-Inflatory depresson.
When I’ll see 5-years old detach in Oakville for less than 300K than I’ll think that is real RE crash in GTA.
All ETF’s and papers will going in toilet.Why?
Because $ US, CAD,TSX and DOW will going in bancrupcy(or those will lose value 89% as 1929-1932)
Only Real Gold,Silver,Food,Oil, Land and Houses will have value. Papers investment are for greaterfools.
Today USA has money supply 7 times more than 1998 and with worthless paper money they want the same price of Oil and Gold as 1998. Do you think that rest of the world are so stupid.

*Ratio money supply of $ US and Oil and Gold Price:

1998 – $ 10 (oil price)
current oil price $ 42/barrel
Inflatory money supply ( 7 times) in USA today:
2008- $ 70 (plus avg.more oil demand 60% than 1998 )
Real current value of Oil is $ 102/barrel.

1998- $ 250 (gold price)
current gold price $ 773/oz
Inflatory money supply ( 7 times) in USA today:
2008- $ 1750 (plus more gold demand 40% and less production than 1998 about 10%)
Real current value of Gold is $ 1900/oz.

Communism collapsed in 1991 and now in 2008, Capitalism is following in Communism’s footsteps.

All managed markets – whether managed by government allocation as under Communism or by government sponsored central bank credit as in Capitalism – are doomed to failure. The triumph of free markets over managed markets is coming.

http://www.321gold.com/editorials/schoon/schoon120808.html

#79 Lothian Vasquez on 12.10.08 at 2:50 am

“The outcome: The worst deflationary recession in a Western country since 1930, lasting for more than 15 years and largely wiping out the Japanese middle class. Neither real estate values nor the stock market ever recovered.”

For gawdsake, Garth, time to put up or shut up: Japan has had net INFLATION since 1990. There have been only a few, brief, periods of fleeting deflation, after which prices, along with the money supply, continued UP.

You are now well into the realm of reporting FALSE NEWS. This kind of crap may wash at certain tabloid newspapers, but the blogosphere will bust you for it.

So, I throw down the gauntlet: produce your PROOF for the “deflation” you claim for Japan throughout the period 1991 to present.

#80 quack on 12.10.08 at 2:51 am

I need to take a course in this new math…
I lend my money to the Bank of Canada at 2.25 % via canada savings bonds,and they lend it to the banks at
1.5%(target rate)which means they are probably lending at a even lower rate to some. So how much profit now does the receiver general of Canada receive?
If a loss will it show up on the gov’t books,or be hidden in Bank of Canada? Okay so I have to pay tax on the interest I receive…but that would be a pretty good tax increase. Where can I take this new math course Garth?

#81 HalifaxFamily on 12.10.08 at 5:57 am

There is definitely something that the BOC knows that we have no clue about. When I drive around and look at the shopping malls in Halifax, it seems like there is no concern about the economy. People are still buying things they don’t need and driving larger vehicles than they require.

I think there is a lag time in Atlantic Canada, and we still think that the economy is rosy, despite what is happening in the rest of Canada.

What are your thoughts? Is there a lag here?

#82 lgre on 12.10.08 at 9:12 am

jojo AKA mike.slob – YES, buy, buy, buy, brampton, oakville and mississauga are all immune and I see a 15% price increase in 2009. Dont wait, you will be priced out of the market forever.

Dont you get it yet?? nobody is going to slash their product by 50% after several months of hardship. There is something called HOPE, these sellers are expecting a miracle to happen in the spring. It will be several years before you see what you are expecting if at all.

#83 Calgary rip off on 12.10.08 at 9:51 am

Some Albertans DO NOT want increased oil prices. Newsflash!!! More cost of oil=greater gas prices and greater price on houses.

Anybody who WANTS $45 per barrel of oil is STUPID. Remember the days when oil was less than $20 per barrel? Anyone that tells you that it is not possible is FOS.

Im looking forward to $0.50 a liter in Alberta(and the rest of the country). Its ironic the oil is gotten here and the prices in Alberta are just as high as the rest of the country. Perhaps the people are dumb here that WANT the price to stay high. Who does it benefit? Just those in the oil industry and homeowners. No one else.

Bring on the collapse of the conservatives, oil goons, rip off real estate schemes.

#84 Kestral on 12.10.08 at 10:14 am

According to the Japan chart, it took about 15 years from the peak for house prices to finally flatline. I hope it won’t take that long for house prices here to go down that much. A quick drop right away is preferable to death by a million papercuts.

#85 dotava on 12.10.08 at 10:53 am

#82 Calgary rip off on 12.10.08 at 9:51 am

Agree with you but you do not have to wish – collapse is happening. :-(