It’s here

Things I hoped you noticed this week:

* The average home price in Detroit is now $18,500
* Consumer confidence in Canada is at a 27-year low
* Governments threw $21 billion at the car companies on the weekend and Monday GM shares crashed and the TSX lost 300 points.
* Toyota’s bleeding money for the first time since ever.
* And Rick Wallick, a 57-year-old software engineer in Arizona told USA Today the new $200,000 house he bought three years ago is now worth $80,000. He’s walking.

It gets even more interesting:

* Oil is $39 a barrel, which means it’s lost 73.4% of its value.
* A share in General Motors has lost 84% of its value in the last year.
* The stock market has lost 52% of its value.
* Copper, wheat and plasma TVs have lost between 22% and 78% of their values.

Still more interesting: I bought a new SUV on the weekend, a Jeep. It was $36,000 when I started. Not bad value, I thought. Then I was offered an employee pricing discount of $1,500, and another $4,500 because I was paying cash. Then I got free winter tires, and finally the price was knocked down a further $5,000 when I hesitated. When I finally write a cheque, it was for $15,500 after getting a hefty $9,000 trade-in allowance for my sputtering 2003 truck with 153,700 km on the dial.

Here’s the point: Deflation. It’s not something you need to someday fear. It’s here

As I’ve said a few times on this blog, inflation is a walk in the park compared to this. Inflation simply means money’s worth less and everything money buys gets more expensive. Thus, it inflates the value of assets and makes every genius born since 1970 think houses go up each year. It also makes debt less onerous, since old debts can be paid back in currency which is worth less, dollar-for-dollar.

Flip that, and you have deflation. Jeeps and houses, Toyotas and GPS thingys cost less every month. Money actually grows in value because its purchasing power rises. But debt becomes more expensive, since it has to be repaid in dollars which are worth more. This is exacerbated when deflation, falling prices, reduced sales and the accumulation of debt lead to business failures, rising unemployment, less spending and broken and dispirited consumers.

Economists and political leaders know this to be the case, but will not speak the D word. It’s like the housing market collapse which didn’t exist when it was taking place and the ‘technical’ recession which wasn’t an actual downturn. This is an irresponsible attempt at public manipulation, since people deserve the truth.

They deserve to know that real estate will fall by at least another third, that oil (as I forecast some time ago) will go to $30 and stay there for a while, that unemployment will worsen significantly, the auto bailout won’t work, home values will not recover for years – perhaps a decade, maybe longer, and the government is powerless in the face of this global tsunami. Given this, nobody should be taking on more debt, waiting to sell their house or failing to take immediate personal precautions against the potential next phase.

Hell, look at me. I just bought a vehicle that eats logs and fords rivers. At 30% off.

140 comments ↓

#1 Carm on 12.22.08 at 10:46 pm

It will be interesting to see the value of the 50,000 condos that are coming into the market next year will be worth. Hope to get a deal such as yourself Garth. Are there any condo projects that have been cancelled in the GTA recently?

#2 gloom and doom on 12.22.08 at 10:50 pm

Deflation will be short lived with the amount of money being pumped into the system.

#3 colette on 12.22.08 at 11:03 pm

So a well paid software engineer walks away from his house…big management is getting rewarded for raping and pillaging and making bad decisions, the government is handing out well paid senate seats and judgeships for party loyalty…

And we have students on the hook for loans that will take 14 years to pay back? When there probably won’t be any job to help pay them back!

Where is the bail out for those who tried their best worked their butt off and now are left holding the bag?

#4 GhostRider on 12.22.08 at 11:10 pm

Rubicon, Garth?

#5 Derrin on 12.22.08 at 11:12 pm

Garth are you going to paint the Jeep so when you hide in the bush and hunt squirrels no one can see you.

Your post hits the nail on the head. Deflation is not good.
Not all of the provinces are in a muck…..yet.
I don’t see any of these horror stories in Canada…..yet.

I lived in Japan when they were still in their deflation cycle and it seemed as if they were quite content to buy products at 30% less than they did 5 or 10 years prior. What I heard was a lot of the excesses of the 80’s were reigned in. Like big expense accounts that allowed expensive boughts of eating, drinking and buy gifts for clients.
I think this would be the case in Canada. I worked for a company, one of the biggest finance companies and their office budget for coffee and misc free stuff for clients and employees was in the millions.
Yes, millions!
Life will be tough for awhile but no need for military Jeeps……..yet.

Oh by the way “Vancouver will not be a finance centre of Canada.”

Just want to be on record. “It will be Manitoba.”

Cheers,

#6 POL-CAN on 12.22.08 at 11:13 pm

Garth…

You got a nice deal on the Jeep but if you waited a few months you probably would have scored the same on a Toyota. After years of driving German I switched to Japanese 3 vehicles ago and will never go back :)

I have a 2007 Tundra which will keep me happy for the next 10 plus years, although it did cost quite a bit more then the 25K you paid for the Jeep.

#7 POL-CAN on 12.22.08 at 11:16 pm

by the way…

Here in T.O. house prices are going down faster now with sellers reducing their asking prices at a greater pace and by larger amounts…

Spring will be interesting indeed

#8 Deaninkelowna on 12.22.08 at 11:54 pm

I absolutely refused to believe garths’ comment of homes in Detroit averaging $18,000.00. Well, I was wrong, here it is:

http://www.google.com/hostednews/ap/article/ALeqM5gDDkEYkftLUizQVzX3twlauId1OgD956ILH80

This could surely be seen as a good thing for many. Low income families being able to buy homes. Houses for living in instead of getting rich. I just feel sorry for those who are under water. What do you do.

#9 squidly77 on 12.23.08 at 12:05 am

gloom and doom said
Deflation will be short lived with the amount of money being pumped into the system.

HAHAHAHAHAHAHAHAHAHAHAHA!!!!!

#10 Investx on 12.23.08 at 12:09 am

So for the consumer, what’s so bad about deflation if your money’s purchasing power increases and costs for goods are less and you have no debt?

#11 EJ on 12.23.08 at 12:28 am

Governments hate deflation because it rewards the savers and punishes those with debts. And there’s so many debtors to suffer, because for generations they have been promoting one behaviour: spend, spend, borrow, spend. Deflation shoves their faces in reality like you’d do to a dog with its “accidents”. Everything they’ve built up starts unraveling.

It’s the failure of Keynesian economics. Consumption-driven, inflationist policies with absolutely no focus on or reward for saving will ultimately end in disaster.

They’ll get their inflation, but only after deflation has naturally run its course and all the phony gains vanish. Then all of the deficit spending and unnecessary bailouts will come back to haunt them (and us) with a vengeance. Let’s hope they can avoid hyper-inflation. If they even bother trying, you’ll see interest rates skyrocket.

#12 nonplused on 12.23.08 at 12:39 am

Sputtering at 150k, eh? Must have been a GM.

I’m still driving a 1999 Cherokee (low km, second vehicle) because I know those old inline 6 4 liter AM built engines pull 250k without burning any oil. Although the alternator and all that will have to be replaced at some point. Plus nobody mistakes me for having any money that way.

Nobody understands inflation and deflation. Adam Smith for example, thought deflation was a benign and positive result of capital expansion. Increased investments on plant & equipment combined with greater technology made goods cheaper, which he thought was good. But he also thought paper money had to be exchangeable for fixed assets (gold and silver) and he never saw anything like our credit bubble.

Our current money system is only backed by highly enriched uranium strapped to the top of an ICBM. The system is likely to fail at some point though I won’t venture to say when.

We are experiencing a debt collapse, not deflation. But I guess in a system where all money is based on debt maybe the definition is academic.

And I think inflation is by far the greater evil. Once all the debts are written off, in a deflation a guy working at McDonald’s might be able to afford to eat there. The purchasing power of the poor increases. People with a little money are now rich. Only leveraged speculators suffer.

But in an inflation eventually nobody can afford the cost of living except those who own the means of production and have pricing power.

Would Garth have preferred to pay 30% more than list for his new wheels? Then he prefers deflation. But I guess we are all leveraged speculators now.

#13 Chincy on 12.23.08 at 12:44 am

Garth nails again…Deflation is here and going to very disasterous.

So Garth, how do we profit from this? Short Commercial Real Estate? What do you think about going long USD?

#14 Price declines on 12.23.08 at 1:13 am

Garth, thank you. Looking forward to the new book — already have my copy on order.

Here’s a rapidly depreciating house, in Toronto’s Beaches (sic :) neighbourhood:

http://www.realtor.ca/PropertyDetails.aspx?PropertyID=7750523

Nov 15: $399,000
Dec 21: $359,000
Dec 22: $329,000

In case anyone’s interested in that property, here’s the link you’ll be looking for next: http://www.greaterfool.ca/2008/11/26/how-to-be-a-vulture/

$70,000 in 37 days. Sounds like it could use a Jeep parked in the driveway.

#15 Hasbro on 12.23.08 at 1:25 am

Hasbro Inc. is pleased to announce plans to release an updated version of it’s much loved game Monopoly.

As many long time fans know, Monopoly, developed in the 30’s to mimic the behavior of the land barons of the time, is a great family game and can teach the fundamentals of inflationary economics even to children.

The secret to the game is that everyone collects $200 each time they pas go, but the Monopoly money never leaves the game except in small amounts on Chance and Community Chest. Thus, eventually bidding wars and extreme development lead to rent prices that eventually bankrupt all but the last player standing.

Hasbro has decided to update this popular game with a new version, to reflect modern economic conditions: the “Bailout Edition”.

A simple rule change to the game will enable the banker to pay each player not $200 every time they pass go, but instead whatever was the highest amount of rent paid buy a player as they rounded the board. For example, lets say player A has the highest payout on a round, and lands on Illinois Ave for $600 and Park Place for $2500. The new “pass go” amount will be $3100 for all players. Players who run out of cash before they pass go can now also take out unlimited unsecured loans, which may or may not be paid back upon passing go at the player’s discretion.

#16 Beer Coffee on 12.23.08 at 1:32 am

Why should anyone be surprised that the engineer cuts his loss and walks away from the house? Politicians are terrified of deflation because it exposes all their lies – but dont worry – with the amount of money being pumped into banks, mortgages, insurance co’s and various other corporate welfare, the economies inflation is going to come back for sure.

#17 wealthy renter2 on 12.23.08 at 1:34 am

Awesome post Garth. Merry Christmas, I leave you with this:

THE CAT IN THE HAT by Avery Shenfeld

The sun did not shine
All our stocks had gone down
So Sally and I
Could just sit there and frown

We’d dumped corporate bonds
And our equities too
But with bills yielding zero
Didn’t know what to do

“Have no fear, have no fear,” said the Cat in the Hat
“Go invest, go and lend, do not sit there and carp
Sure there’s rain in the forecast, a slump and all that
But you can play here quite dry being under my TARP”

But Sally and I we remained very wary
After Lehman’s demise made even banks all too scary
And it was all too odd that the man sent to save them
Had a name that said he just preferred to Cash-Carry

Then our fish said “Look, Look”
And our fish shook with fear
“You’d better start saving, a recession is near
Oh the things it will bump
Oh the things it will hit
I do not like it
Not one little bit”

Then the cat ran out
And then fast as a fox
The Cat in the Hat
Came back in with a box
Said the Cat
“In this box are two things
I will show to you now
You will like these two things”
Said the Cat with a bow

“This first thing, Thing One
Is a printing machine
It prints money to play with
It’s Ben’s little dream

If you’ve lost too much money, then borrow and spend
The Ben’s Fed’ral Reserve is quite ready to lend
He will charge you no interest, trade good bonds for bad
Help pay off your mortgage, so you don’t look so sad.

I call this Thing Two the John Maynard Keynes
It takes trillions of dollars and spends when it rains
On sewers and bridges and other fine toys
And even a bonus for car sector boys”

Then the Keynes ran upstairs
Where he met our mouse Stephen
Who initially said he would try to get even
“I’ll match his spending with cuts” he told all in the House
But soon that thing Keynes had control of our mouse

Then those things ran about
With big bumps, jumps and kicks
As our house filled with money
And with mortar and bricks
And those things from the box
They did bump up our stocks

Then the Cat picked up
All the things that were down
He picked up our funds rate
He picked up our rebate
He picked up the prices for gas in the town.
And he put them away
Then he said “that is that”
And then he was gone
With a tip of his hat

#18 garth garth on 12.23.08 at 1:42 am

First you said in your book that oil will go through the roof, now you are talking about how oil is cheap.

*Then* you compare Detroit a dead city from long ago to Toronto.

Don’t get me wrong, I believe we were in a RE bubble AND a stock market bubble too.

Too bad you are too deep in denial to admit the latter burst and will not recover for a long time.

The baby boomers are pulling out their money and Generation X and Y will not give them their 10% minimum allocation to fill up the pot.

As much as you want to ignore it, the price of a stock will only go up if someone else is willing to pay a higher price for it.

why do you think we have so many stocks selling at book value ? because the bubble burst and one one wants to be part of a pyramid.

I hope you didn’t own RIMM because you would be burning right about now.

bahaha

#19 The_Dude on 12.23.08 at 6:25 am

“#2 gloom and doom on 12.22.08 at 10:50 pm
Deflation will be short lived with the amount of money being pumped into the system.”

The amount of money being pumped into the system is nowhere near equivalent to the “wealth” destruction taking place right now. Owners of Google, since March of this year, have lost about 140 Billion (that’s billion with a “B”) US dollars of net worth. How much money has been pumped into the system?

We (the world collectively) is deflating, and will continue to do so for a couple of years yet. Even negative nominal Fed rates won’t stop the bleeding.

#20 Mini-Garth on 12.23.08 at 6:50 am

Garth, have you ever considered releasing your upcoming book as an “E-Book” that we could purchase and download?

I live in Asia, and it’s highly unlikely that your book would be carried locally, and shipping and duties would probably be more than the book itself.

#21 Downsized on 12.23.08 at 7:09 am

Garth,
My wife and I are renting on the sidelines after selling our custom built home at the top in 2007 north of Toronto. Given the deflationary pressures you illustrate on commodities, material and labour, would it still be practical and forward thinking to rebuild another home in 2009 or 2010, or purchase a resale that has received ongoing haircuts? To better understand this situation, you need to be aware that we general contract the project ourselves which economizes an additional 40-50K in the overall budget.

#22 Meo on 12.23.08 at 8:49 am

Well I must admit that things will be interesting in the next 3-4 months from now.
I for one have little debt. My house is 70% paid off and my truck payments are coming from some annuity.
I now work part time and my wife does not have to work any longer…
Sure, we don’t have a second vehicle.
No fancy 52″ LCD TV. Just a crappy 42″ EDTV.
No boat, quad, home theater, latest laptop, fancy iphone or RV.
Nope… we pay for it cash or we wait.
Always have, always will.

For those suckers who got HELOC’s on their equity: you’re as dumb as the banks.
I was told before that I was cheap for not getting the latest toys “like everybody else”.

Now we shall see how they fare in repaying that impossible debt at 20% interest…

…and me for one will be laughing it off in a GIANT “I told you so”…

CASH IS NOW KING.

#23 Gold Bull on 12.23.08 at 9:09 am

Deflation isn’t when consumer prices fall. What about the money supply? If the bank of Canada start rising rates to 10% and above then you will see real deflation. People are broke and car dealers and retailer have to crash margins to make anything. More pain to come.

In your dreams. Rates have cratered and will stay there. — Garth

#24 dd on 12.23.08 at 9:21 am

#9 squidly77,

Hope you are right.

#25 real estate expert on 12.23.08 at 9:21 am

Miracle on Nanjing Road: It’s
A Wonderful Life for Chuppies!

China’s economy isn’t feeling a consumer spending pinch at all. In fact, the Chinese National Bureau of Statistics reported that retail sales soared 20.8% on a year-over-year basis in November.

“”China is expected to become the #1 luxury market in the world within 10 years.
What’s more, Chinese consumer spending is projected to reach $1.3 trillion this year.
Those Chinese shoppers aren’t just buying chopsticks or tofu, either. They’re buying big ticket goods like crazy.
Get this: As recently as five years ago, the Chinese bought only 1% of luxury handbags. Now, according to a Goldman Sachs survey, the Chinese are the third-largest consumers of luxury goods, accounting for 12% of the market. And within 10 years, the country is expected to become the #1 luxury market in the world.””

Source? — Garth

#26 J.B. on 12.23.08 at 9:37 am

Colette – I have no sympathy for you and your student loan. It was your choice to borrow money so you could obtain presumably a university degree. You could have chosen a community college course and would probably be working full-time now. “And working your butt off” is working for 34 years and wondering if you will be able to find another job at age 53.

#27 peter on 12.23.08 at 9:53 am

Garth,

Agree 2009 will see continued deflation for many commodities and products. Less sure about oil specifically — could easily snap back to 70 / 80 +, could it not??

P.S.

Congratulations on the new Jeep, we all need to reward ourselves from time to time! But I can’t believe a financial guru like yourself sold an ’03 vehicle already — isn’t it more economic to run them at least 10 years??

Send duct tape. — Garth

#28 Rose-Marie on 12.23.08 at 9:58 am

HI Garth,We
We as well would be very interested in the your thoughts regarding post #21 “Downsized”. Our situation is exactly the same as this couples, and we are sitting on the sidelines really unsure of what our next step should be!
Any insight you could provide would be greatly appreciated!
Thank you!

#29 Crystal Radio on 12.23.08 at 10:24 am

On real estate expert’s comment:

Google his title Garth and you get this:

http://www.moneyandmarkets.com/miracle-on-nanjing-road-2-28925

Which seems to be another guy with a book to sell:) Then hit this link to see why his book will soon make the remainder pile:

http://uk.reuters.com/article/marketsNewsUS/idUKPEK29458520081219

Have fun in that pig machine tearing up what’s left of The Wild Rose:)

BTW I just put my Bike to bed yesterday as the snow and climate chaos is here on the Pacific coast with great vengance. I ride a neat and nimble Bonneville but my guess is you are on a pig like every other tie wearing sunshine biker yuppie cretin.

Don’t take that personal Garth I hates everyone equal and come by that honestly:)

Gotta go now as I am running short on smiley faces for this year so have a last great consumer pig of a Christmas, it’s beans on toast in the new year for all except thee and me I think :)

#30 dan on 12.23.08 at 10:30 am

Garth I do not care what anyone says Deflation is the BEST thing that can happen. Now I do not have to over pay when I buy anything. I no longer have to compete with others who have no money but have a credit card and spend it like it’s their money. No more having to fight and look for better deals as I can easy find deals on anything. No more having to wait,save, and work longer hours to over pay for what I want. Deflation is the best thing and what is needed . I do not care what the propagandists say……viva DEFLATION.

Hope you’re self-employed. – Garth

#31 homeless and happy on 12.23.08 at 10:38 am

hi Garth, I have no debt, and cash in the bank so wouldn’t deflation be the best thing for me? When the real estate market bottoms out would you recommend buying rental properties ie duplexs, small apartment building in the GTA?

#32 bingbang on 12.23.08 at 11:08 am

Ahh deflation friend of the poor. And us who don’t own a home yet.

#33 Kevin on 12.23.08 at 11:09 am

Victoria Real Estate Deflation:

Check out this prime Beach Drive recent sale:
661 Beach Drive, Victoria, BC MLS #250510

Bought in April, 2006 for $1,850,000 (Owner has Calgary address)

Just sold (Dec. 18) for $1,427,000. Owner took a 23% haircut.

On market since August 1. (original asking price was $1,995,000).

By the way, the BC assessment value was $1,770,000.

#34 Pierre on 12.23.08 at 11:16 am

If house values tank, will our Ontario provincial property assessment for taxes be lowered?

Mine just gone up.

And the city of Ottawa wants to build a 2 billion transit to nowhere?

Thanks Garth for the great info.

#35 Diabolo on 12.23.08 at 11:17 am

Investx on 12.23.08 at 12:09 am So for the consumer, what’s so bad about deflation if your money’s purchasing power increases and costs for goods are less and you have no debt?

Its bad because its a visious cycle.
People will refuse to spend money expecting prices to fall further. Business will fail because of less sales.
Many people won’t have jobs because of failing business. Jobless people can’t buy goods.
More business will fail .
On and On and On….

#36 doom and gloom on 12.23.08 at 11:44 am

#19) The amount of money being pumped into the system is nowhere near equivalent to the “wealth” destruction taking place right now. Owners of Google, since March of this year, have lost about 140 Billion (that’s billion with a “B”) US dollars of net worth. How much money has been pumped into the system?

We (the world collectively) is deflating, and will continue to do so for a couple of years yet. Even negative nominal Fed rates won’t stop the bleeding.
_____________________________________________

The powers that be have no choice but to keep creating money and inflate themselves out of this problem. We will see deflation in short/medium term but with fiat money you will always have inflation.

#37 kabloona on 12.23.08 at 12:07 pm

Agree with doom & gloom. Deflation of some asset classes like Real Estate and commodities in the short term, followed by inflation in the medium term as the massive US stimulus packages work their way thru the system…eventually leading to a stagflationary scenario with large government deficits and mediocre employment and growth afterwards.

Just because Garth can buy a discounted truck from a company every analyst has written off as bankrupt doesn’t mean we will see a repeat of the dirty thirties.

Anyway, what happens with the warranty and parts supply for that truck when Jeep/Chrysler goes toes up? The last thing I would buy right now is a Chrysler product, sorry…. ;-)

Did I say ‘depression’? As for Chrysler/Jeep failing, replacement warranty/parts suppliers would immediately fill a void. That’s what capitalism is about, son. — Garth

#38 Brittanny on 12.23.08 at 12:30 pm

Garth, I will give you $14000 for the Jeep.

#39 Decisions, decisions... on 12.23.08 at 12:40 pm

I read Garth’s blog (and book) religiously, and yet, still with all of that wisdom, I’m still unsure what to do in my own situation…

I have cash on hand, earmarked for a house at some point in the next little while. Like most (all?) here, I’m expecting the housing market to continue to tank — probably up to the 1/3 devaluation in T.O. that Garth seems to suggest.

With RRSP season now upon us, that leaves me with a few options for that money:

1) Sit on it in cash, with 5K of it in GICs in a TFSA. It will “appreciate” in value vs. the house, without a doubt, making cash a guaranteed return thanks to deflation with virtually no risk

2) Put the money into the stock market outside of my RRSP, with 5K in a GIC/TFSA. Granted, there is more risk here, with potentially higher reward, and probably more potential for upside than down with an already-hit 50% dunk. While the market, as Garth has pointed out numerous times is “on sale”, there is still obviously some risk that the inflationary measures taken by governments won’t take and we’ll end up with lousy stock markets. I could dollar-cost-average it in over a year to mitigate some of that risk.

3) Drop (some) of that money into my RRSP and put it into the stock market or GICs, then do the RRSP mortgage that Garth suggests, realizing the tax deduction. Having said that, I’m self-employed, and my tax bracket is lower right now, which means that when I take money out of my RRSP when I’m 65, I’ll likely be taking it out at a higher marginal rate — bad for me.

My ideal would be to get one of Garth’s aforementioned “smart guys” to advise me — but I don’t know how to suss out the good ones.

Any pearls of wisdom?

#40 colette on 12.23.08 at 12:56 pm

JB.

oh 1/2 of my degree was for a community college and you know what when I got my diploma in Business nobody wanted someone with a diploma and no experience…they wanted degrees…and you know what else I was 41 years old at the time and had spent 20 years volunteering and working at service jobs that didn’t pay enough to cover daycare costs for 3 kids, travel and work expenses and the extra income tax our family had to pay because my husband couldn’t declare me on his return.

So the story gets better. After 25 years of marriage the husband whose new job takes him up and down the CN rail line found a more worthy partner and I was left to wonder just how I was going to support myself well enough to be able to pay for all the things one must when they are a responsible self reliant person. So I went back for a degree even though that while graduating at 48 I would not have 35 years to work rather 17.

There is another twist to this story but like so many others out there who are trying hard to make something of themselves and doing it in a time where there is less government help, less willingness by business to hire, train or keep all but the more experienced, educated and productive staff and sometimes not even these.

Yes times are tough, but tougher still is the assumptions of others who think they know the motivating factors of others and their situations.

#41 eddy on 12.23.08 at 12:57 pm

Here in Florida I’m seeing GM commercials on TV everyday since the bailout was announced. “Red Tag events. hurry in before Jan 5” Nice to see tax dollars at work

#42 dd on 12.23.08 at 1:06 pm

#37 kabloona

“Anyway, what happens with the warranty and parts supply for that truck when Jeep/Chrysler goes toes up? The last thing I would buy right now is a Chrysler product, sorry”

A record number of cars and truck were sold on North America over the last couple of years – 16 millionish. These auto will have to be replaced sooner or later no matter if it is GM or Ford or Honda. We just can’t do without a car in this society … Some company will fill the void.

#43 JOHN on 12.23.08 at 1:07 pm

http://www.edmontonsun.com/News/Alberta/2008/12/23/7837081.html

I remember the bill board back in the 80’s that said
“Please let there be another boom and I promise not to piss it away next time. I hope Alberta learnt, but I really dont think so. RIP Alberta Oilsands

#44 dd on 12.23.08 at 1:08 pm

#30 dan,

Deflation = recessions
Deflation = less jobs not more
Deflation = contractionary

Deflation = not good.

#45 dd on 12.23.08 at 1:13 pm

23 Gold Bull,

10% interest rates? Where are you getting your info from? If people are broke why would the Fed increase interest rates?

I see inflation still in foods at the grocery store, property taxes, and insurance but not much else.

Inflation is not the worry at the moment.

#46 dd on 12.23.08 at 1:14 pm

#32 bingbang,

Ya, if the poor do not have debt.

#47 dd on 12.23.08 at 1:17 pm

#25 real estate expert,

Ya and Vancouver is the financial capital of the world.

However at the moment China is coming in for a hard landing at 5 – 6% GDP. At this rate the government or enterprice cannot create enough jobs for the people coming into the city. It doesn’t look good in China for a while.

But you keep up with the posts … get people upset and mad.

#48 kabloona on 12.23.08 at 1:20 pm

Hi, Garth:

I didn’t mention the “D” word explicitly, but by definition if you’re talking about a persistent deflationary spiral, then that would constitute a depression rather than a recession.

As for the Jeep, it wouldn’t be profitable to support a defunct automobile in a deflationary environment…much more likely that the parts-supplier business would contract to support only the auto survivors – and unfortunately that won’t be Chrysler. Cerberus is desparately trying to flog the company to anybody who will take it off their hands. The only thing Chrysler has of value is the Minivan plan where they make those VW vans.

Lots of great cars went defunct in the thirties. Deflation killed them deader than a doornail….

#49 pete on 12.23.08 at 1:21 pm

” Diabolo on 12.23.08 at 11:17 am Investx on 12.23.08 at 12:09 am So for the consumer, what’s so bad about deflation if your money’s purchasing power increases and costs for goods are less and you have no debt?

Its bad because its a visious cycle.
People will refuse to spend money expecting prices to fall further. Business will fail because of less sales.
Many people won’t have jobs because of failing business. Jobless people can’t buy goods.
More business will fail .
On and On and On….”

That’s pathetic propaganda from the banker propagandists . The FACT is I am spending more money now they I did when prices were inflated. The fact was demand was never there as people bought overvaled products with money they never have. If prices come down people can buy and spend within their means but the bankers will not make interest on monies they would of lent to people inorder for them to buy now but at inflated prices. Yes, people overall would buy a little less but they won’t need to borrow and borrow and be forced to live a life of being a debt slave. The propagandists want you to believe deflation is bad but the facts are clear to anyone with a brain being able to buy without the need to borrow is a good thing.

#50 Ken on 12.23.08 at 1:35 pm

WHY THERE IS MORE HOUSING PAIN TO COME–

This is the best Power point I have seen to date–(All 116 pages worth)!!

Highly recommended–You will never see these kind of truthful numbers and data from the government…

Just posted today on patrick.net–

http://www.designs.valueinvestorinsight.com/bonus/pdf/T2_Housing_Analysis.pdf?ref=patrick.net

#51 Jon B on 12.23.08 at 1:45 pm

So it would seem that a deflationary environment would, from an economic standpoint, heavily favor those with no debt and cash in the bank. For those that are significantly leveraged on everything from RE to credit card credit, things might not be so rosy in times of deflation.
Given the StatsCan data on Canadians and their levels of debt, what is the possibility of a new type of social class structure? Those with debt and those without. The two classes living definitively different lifestyles. I’m not talking about rich and poor. Could deflation over a prolonged period of time really produce such a social-economic impact?

#52 Kash is King on 12.23.08 at 1:53 pm

#58 Pete: ===> “the facts are clear to anyone with a brain being able to buy without the need to borrow is a good thing.”

That’s not what the string-pullers want… they want you in their debt, and working to pay them.

========================

A good tip for anyone thinking of buying a vehicle from a manufacturer “on the edge”. Forget about warranty and offer to buy the new vehicle “as-is” for a further discount.

#53 Kash is King on 12.23.08 at 1:54 pm

#49 Pete. Sorry not #58

#54 Jelly on 12.23.08 at 2:15 pm

Colette,
Brutal…Sweet post, take that JB, you gotta be feeling pretty crap about your ASSumptions, no?

BTW,
loads of credit cards in US, with 0% interest for a year!
Damn, wish we had those here…

They just have better things in the US don’t they?

#55 miketheengineer on 12.23.08 at 2:23 pm

To all:

This is the very best time to buy a new vehicle. Prices have never been this low, and the cars are Loaded with every option available. (hint luxury) If you got the cash, now is the time to buy one, while the lots are over stocked and the dealers want to move product. Good going Garth. Any domestic car has relatively cheap parts, and there are plenty of them around. Once the Auto restructure happens, and the supply equals demand, the price will stablize. Ie the car companies won’t give it away. So now is the time to buy if you got the cash. Right now it is a buyer’s market for cars. Oh and that company got outa trouble back in the 80’s to become one of the most profitable company in the 90’s, due to a loan, which they eventually paid back with interest, to the profit of the US government. Loans may work this time, but the auto companies are going to have to cut hard and fast, like Ford did a couple of years ago. Get the right product mix, and quality and people will buy them again. Right now they are too high on SUV’s. People need the “K car” again. Bring it back, a good basic, no frills car, that everyone can afford. Watch Ford, they seem to be heading in the right direction right now, lets see if the others follow. The market for cars has gone from 16 million to about 10 million…the whole industry has to shrink by that much. I think it will stay that way for at least 2 to 4 years. Which means that Ontario has lost a lot of jobs, and some more will happen, till things stablize. Those plants will not come back.

It is going to be a bumpy ride for everyone. Canadians are tough people. Almost everyone has an extended family. Sure we are going to loose some homes to people who are extended too far out. They will either go and live with relatives, or go on welfare. In Toronto, and GTA, we have the most diverse ethnical group around. And they stick together, and they will stick together in times of trouble.

As long as the country holds together and we maintain a positive attitude, our faith in God, we will make it through. You hear that God, we need to make it through, that means you gotta help.

#56 vtj on 12.23.08 at 2:45 pm

For what it’s worth, I think any vehicle purchased new from the Detroit “big 3” is going to depreciate even more rapidly than such vehicles have over the past 5-7 years. Have a look at used car ads and you’ll see what I mean.

I’m certain many people like Garth are purchasing new cars these days at unheard of prices. An acquaintance of mine just purchased a brand new Pontiac Torrant for $23kCDN cash after they took back his 4-yr leased vehicle one year early with no penalty. The Pontiac’s original sticker price was $39k!

Can you imagine what these vehicles will fetch in the second hand market in the next few years after all this excess product has flooded the market? No problem if you plan on hanging onto it for the long term I suppose but IMHO, I wouldn’t recommend wasting hard earned cash on a new car today. Rather, I think it makes more sense to purchase a well-maintained, 1 to 3 year old vehicle. The trick then is to continue to maintain it properly so that it lasts at least 10 more years.

I’m speaking from experience: my daily driver is a ’94 foreign-made vehicle with over 320k on the clock, no rust and still very comfortable and reliable. I bought it for $4k five years ago from the 72 year old original owner who religiously took it to the dealer for regular maintenance. Of course, I don’t look “hip” in it but hey, I’m secure and my wife doesn’t mind being seen in it with me (what can I say, must be true love or she’s got low standards, but I digress …).

The best part is the freedom of not caring about scratches & dents when I load the thing up with feed, fertilizer and other supplies which will be needed in the near future. I can probably fit a couple of goats and hens in the back seat as well I think. Just kidding on this last point – sorry, couldn’t help myself given all the squirrel comments of late.

Happy Holidays to all and please, try to be good to one another.

Cheers,
vtj

“Please, try to be good to one another,” is inconsistent with your exhortation not to buy cars. Be a scrooge if you want, but don’t brag about it. Others in this society depend on you, and me, to buy what they produce. — Garth

#57 vtj on 12.23.08 at 2:56 pm

#55 miketheengineer:

Great post but man, I dunno about wanting the “K car” back. That’s the last domestic car I had before I switched to foreign in the late 80’s and never looked back. If I recall my experience with the thing correctly, the engine head cracked twice, the metal around the front struts seemed to vanish before my very eyes, the rear defrost wouldn’t shut off after the engine was shut off thus leaving me stranded on more than one occasion, the cruise, radio and AC crapped out soon after the end of the warranty, etc., etc. Thanks for the fond memories though!

Cheers,
vtj

#58 nonplused on 12.23.08 at 3:04 pm

Buy a car now? Forget about it this thing has just started.

Hey, great idea. Let’s wait until all the autoworkers are unemployed! — Garth

#59 J.B. on 12.23.08 at 3:07 pm

Jelly – Yes, you’re right. Got off to a bad start today and the student loan thing has been around more than once here. We all have our problems at the moment. Colette, apologies as my life doesn’t sound too different from yours. I plan to get through this thing by keeping calm, debt-free and helping those less fortunate than me, and keeping faith in God.

#60 Here comes the New World Order on 12.23.08 at 3:13 pm

#49 Pete. Agreed. Deflation puts more money into the hands of consumers. Has everyone so soon forgotten that just in the summer we were paying $1.50 a litre for gasoline? You’re telling me that was good for us?

The only thing that worries me is that governments are printing money like there is no tomorrow, which eventually result in hyperinflation.

To summarize: Inflation is bad. Hyperinflation is super bad. And deflation means that the economy is hurting, but we’ll be spending less (which is a good thing … duhh).

#61 Anon on 12.23.08 at 3:14 pm

wouldn’t cars get cheaper when Chrysler and GM go under? I expect all those cars in the dealer lots to need to be liquidated in a market that is not buying cars and the prices will drop much further.

#62 Diabolo on 12.23.08 at 3:16 pm

#49 pete
Where did I say ” Borrow and buy”

My opinion is that, I am not sure if we are in Deflation yet. I think we are just in the process of returning to normal prices which some might call deflation.

I believe we were in actual inflation in the last few years in asset prices, commodities, food etc. Now its coming down to normal market prices and might even go further.

I was merely explaining the effects of actual severe Deflation… which is never good.

If a car costs $20,000 to manufacture and you buy it for $60,000 , you are in past few years(2006,2007)…
Currently if you can get it for $30,000 ( Median or Normal) as we are probably crossed it(2008), business can survive with minimal job losses
If you can’t buy it even for $20,000 or even for $15,000
then my friend the business is in trouble and has to restructure or go out of business which infact is lots of job lossess . This is also called Deflation.

#63 Paul on 12.23.08 at 3:32 pm

You know it’s really getting bad when Santa needs a bailout

http://www.canadiannexuscapitalmarkets.com/?p=308

#64 Calberta on 12.23.08 at 4:38 pm

Here is what my friends at World Energy are telling me and everything they are saying fully supports what Garth is telling us:

° During the past week, energy commodities have continued their steep descent with February oil now trading around $40/barrel and natural gas for January delivery is settling consistently below $5.50/MMBtu. Energy futures seem to be snowballing with such velocity that supply cuts from OPEC, cold weather, worsening demand, and a falling dollar have all had very little effect on supporting the markets. Volatility remains a critical concern in global markets as recent price swings are very negative for current and planned investments.

° During the month of November, ERCOT added 2,010 MW of new generation, 1,678 MW of which is wind power. The grid operator for most of Texas is reportedly now tracking 102,149 MW of generation interconnection requests. Additionally, ERCOT has announced that reserve margins are adequate through 2014 as forecasts for the next six years exceed the system reliability target of 12.5% reserve margin capacity.

#65 Marlene on 12.23.08 at 4:52 pm

Garth,

What are your thoughts on this info?

Statistics taken from CMHC shows the average Canadian annual 5 year mortgage rate.

Some of the highlights include:

* Annual average 5 year Canadian mortgage rate has ranged from a low of 5.46% in 1951 to a high of 18.15% in 1981.

* What impact does this have on a mortgage payment?
o A $100,000 mortgage at 5.46% would cost you $608.07 per month. A $100,000 mortgage at the 1981 peak of 18.15% would have cost you $1,477.49, a difference in monthly mortgage payments of $869.42.
o Your total principal and interest payments, assuming a 25 year amortization period based on a 5.46% mortgage rate would be $182,419.52 while your total principal and interest payment based on a 18.15% interest rate would be…$443,246.39, a difference of $260,826.87.
* Mortgage rates in 2003 at 6.04% have not been seen since 1954 at 6.01%.
* Notice that in most cases, interest rates reached something of a peak at the beginning of every decade. Could we see a spike in 2010?

http://www.lendingmax.ca/artman/publish/Canada_mortgage_rate_5_year_annual_average.php

#66 Marlene on 12.23.08 at 4:54 pm

Do you think we will see a spike in 2010? Will interest rates spike as it has happened historically since 1950?

No. — Garth

#67 George on 12.23.08 at 4:58 pm

Garth,
Let me know if you happen to find out where the deflation is hiding in the grocery stores. Deflation on items typically bought on credit is a no brainer. I think your government is about to surprise you. Check out the Baltic Dry Index. This is liquidation and debt collapse. Viva La Deflationistas!

#68 The First Rick on 12.23.08 at 5:50 pm

#55 miketheengineer on 12.23.08 at 2:23 pm To all:
….snippage…..
As long as the country holds together and we maintain a positive attitude, our faith in God, we will make it through. You hear that God, we need to make it through, that means you gotta help.
========
I’m no religious scholar, but I’m certain praying to ones god when ones ass is in a jam isn’t faith. It’s blind faith.

http://www.lionsgate.com/religulous/

Good movie on the topic.

#69 Wealthy Renter on 12.23.08 at 5:58 pm

George,

You have defined the basic contradiction of this deflationary event. Our basic grocery bill has easily gone up 10% ore more this year. The same would be true for basic consumer staples.

I am not complaining. We live well, but I would guess that single moms, the working poor and those on welfare are not feeling the “deflationary love.” The extra ~$100 a month (compared to last year) must be hard on some families.

#70 East 905 on 12.23.08 at 5:58 pm

#65 Marlene,
My 5-year mtg is up for renewal in 2010, so I’m banking on rates not spiking. Currently paying it down like a maniac. We got a builder’s rate + bank discount back in 2005 and will probably cry when we have to renew.

Got an e-mail from my favourite CDN store today. The purse I want, reg. $220 before tax, is now $128 after tax. I am going to keep the Canadian leather goods manufacturers in business!

#71 anonymous on 12.23.08 at 6:06 pm

Why not live like a hermit, pinching pennies ALL the time? Simple. When the economy is expanding, inflation eats away at your money.

Like Garth said in his post… during deflation you want cash and NO debt. Debt will cripple you. When there’s inflation you want to take on a lot of debt and don’t want to have cash… because credit is cheap, debts lose value over time (purchasing power), and people want to take on more risk.

It’s good to be a basement dweller right now (and will continue to be for the next couple years), but when we turn, get ready to spend that cash (stocks, housing, cars, TVs, businesses, etc.). Your other basement dwelling friends who didn’t take advantage of cheap credit will be so jealous.

#72 anonymous on 12.23.08 at 6:10 pm

miketheengineer,

Just got off the phone with God. Apparently the lord lost most of his money investing with Madoff. He’s super-pissed. I didn’t bother to ask him about a spiritual bailout for humanity. There was a lot of yelling and thunder on the other end of the line… I just quietly hung up.

#73 Wealthy Renter on 12.23.08 at 6:20 pm

“Be a scrooge if you want, but don’t brag about it. Others in this society depend on you, and me, to buy what they produce.

I agree with you 200% My family does not consume a lot, but when we buy big ticket items, we search diligently for Canadian-crafted goods and pay more for them. Even today, Canada has some of the best furniture for middle class consumption.

Every car I have bought is Canadian assembled too, but I can’t purchase a Big 3 car. As a kid, I remember my dad and I walking through a massive array of Fords at the Oakville plant – they were selling them right there. I also remember him pointing out rusting spots on the new cars. I truly wish that were a joke.

The Toyota he bought later that week lasted for 400,000 km. I have driven new and used Toyotas for 15 years, and never had a single problem. I am not sure anything could make switch brands.

#74 confused and a little crazed on 12.23.08 at 7:00 pm

Hi garth

regarding poster 58 # . It’s true everything just started really . I mean you mentioned back in 2006 the signs were there. In 2007 the bear and Stearns funds collapse . Only in 2008 the feds started the bailout extravaganza 35 billion here…80 billion there. It starts when the govt actually begins to do something.

I don’t think anyone wants to see the auto industry collapse but the product is sub par relative to the foreign counterpart. Therefore supporting a bad business model / product is bad.

You probably know better than I, they need to revamp the product line to suits the consumers until then few people will buy.

” BUild it and they will Buy” just doesn’t work here.
One of the big 3 will most likely get swallowed up . But life goes on and a better product product will come out of it .

But if all 3 fail…then 800000 more people will be looking for jobs and that’s not considering the ripple effect with nearby restaurants/ pubs, small business mechanics, car dealers, loan officers so on … so on.

It’s hard not to think about depression after that. I don’t think anyone wants that. If you NEED a car, buy one …but a more reliable one. My Honda Accord is running fine after 12 years. I don’t need one yet but I will eventually

#75 Darryl on 12.23.08 at 7:10 pm

It’s good to hear that Garth made a sweet deal with a dealership. My experience was a little different today.I went to look for a new minni van to replace our older Pontiac. I asked for a cash price and the dealer said no difference in price. However if I went through one of the big banks (GMAC will not finance any more) they would give me 7000.00 off. I questioned him again and said “if I pay cash there is not a discount? but if I finance there is???” and he confirmed. I looked at the computer screen and saw that the interest rate was 9.5 %!!!%&()$!! Sounds like a company that is changing its colors eh? na na na na hey ey ey ……good by.Then I went to Infinity and they still crap gold. 3 k off for a cash sale on a 50k car that they say is an SUV (sure it is)and I still get to pay the taxes and other cost.Hey guys , cant you see I’m the only customer in the house?
So I guess chrysler is the only company thay is scared right now.
Accura offered 10 k off a 50k vehcle for cash.Thats a little better.

#76 Derrin on 12.23.08 at 7:15 pm

So you’re using your vehicle purchase as a – look how nice I am to the common folk.

Please, try to be good to one another,” is inconsistent with your exhortation not to buy cars. Be a scrooge if you want, but don’t brag about it. Others in this society depend on you, and me, to buy what they produce. — Garth

He is being good. He just paid for the 4Billion dollar bailout via his taxes.

Cheers,

He hasn’t even started, nor have we. This is debt being dumped on the children. — Garth

#77 vtj on 12.23.08 at 7:26 pm

“Please, try to be good to one another,” is inconsistent with your exhortation not to buy cars. Be a scrooge if you want, but don’t brag about it. Others in this society depend on you, and me, to buy what they produce. — Garth”

Garth, sorry, seem to have hit a nerve there. I don’t see how my post came off as bragging as that certainly wasn’t my intention. My apologies if it indeed came off that way.

By the way, my family unit is doing our fair share of supporting the economy – my wife’s car is an ’07 Civic which she decided to purchase new at the time. Not to mention our expenses for this Christmas season … Premier McGuinty wanted us to spend so by golly, we’ve spent (using cash as you did for your Jeep).

As for my car, I can’t help hanging on to the thing since I’m quite fond of it. I don’t have the stomach to trash it just yet – imagine getting rid of your bike for instance. Perhaps you could muster the courage to get rid of it but judging from your past posts, I don’t think you could do so without creating a knot in your stomach.

Also for the record, I would have loved to have supported NA car manufacturers rather than purchasing Japanese, but the reliability ratings just weren’t there at the time, not to mention that I couldn’t stomach the depreciation rates on NA vehicles in general.

Cheers,
vtj

#78 vtj on 12.23.08 at 7:35 pm

#73 Wealth Renter:

I forgot to mention that I absolutely always make it a point to purchase Canadian made products whenever such products exist. Unfortunately, the list of such products seems to be forever shrinking. I too recently purchased a Canadian made piece of furniture (couch) – outstanding quality compared to some of the scrap that’s being sold at outrageous margins out there.

vtj

And guess why the lost is shrinking? Re-read your last post. — Garth

#79 hal on 12.23.08 at 7:41 pm

Garth: You say above that” interest rates have cratered and will stay there” and that “rates will not spike”. What will happen when inflation rears its ugly head gain ? Are the rates going to stay “cratered “or are they going to “spike” to prevent excessive inflation?

Inflation is several years off, and rates will not jump until they absolutely have to. Don’t count a surge to anything approaching 10% for a long, long time. — Garth

#80 brazer on 12.23.08 at 7:44 pm

US economy shrinks as IMF warns of Great Depression
http://ca.news.yahoo.com/s/afp/081223/business/finance_economy_world

WASHINGTON (AFP) – The US economy shrank in the third quarter, official data confirmed Tuesday, as the IMF’s top economist warned of a second Great Depression offering no respite from relentless gloom ahead of Christmas.

The abrupt 0.5-percent contraction of gross domestic product (GDP) in the world’s largest economy was seen as marking the start of a steep downturn for the United States after GPD growth of 2.8 percent in the second quarter.

#81 brazer on 12.23.08 at 7:52 pm

Economy to get worse, experts say
http://www.thestar.com/Business/article/557775

OTTAWA–It’s going to get worse.

As bad as the past few months were, even the rosiest of economic forecasts shows on average Canadians will get poorer in 2009, and many – perhaps as many as 200,000 additional workers – will lose their jobs as the economic recession deepens.

The economic tsunami that was well below the surface as 2008 began hit Canada’s shores with a crash in the fall and is only now washing deeper inshore swallowing an economy that once appeared impregnable – having withstood both the Asian financial crisis a decade ago and the 9-11 fallout in the United States.

#82 dekethegeek on 12.23.08 at 8:06 pm

“Planet Earth Calling #25 Real Estate Expert!”
“Planet Earth Calling #25 Real Estate Expert!”
China is NOT going to be the #1 luxury goods purchasing market within the next 10 years due to the fact that they are already the #1 forgery market of “knock off” luxury goods! Why would 700 million rural farm workers even consider buying leather shoes let alone Gucci Bags ? When they can buy a much cheaper knock off fogery?
They have far more important things to worry about;ie their Exported Goods market has dropped 2% in the last quarter ( first time thats happened in 12 years).
The Central Government is so worried about the coming recession( yes China is gonna get hit bad too. First World Countries don’t need Plasma TV’s, Nokia phones, and Melamine laced Baby food.) .The Govt. is pumping 600 Billion U.S. into an infrastructure stimulus package . Many experts are worried that the layoffs in southern China will spur more violent riots than have been seen so far. Officials in China are concerned due to the amount of simultanious protests/riots erupting in various cities. People are awakening to the power of the internet and cell phones. ( C.I.A. analyists predict that when a country reaches phone or internet saturation of 50% or more, control of the population is impossible.)
( 10,000 separate riots in China over job losses, food prices, corrupt officials, etc. in the last year alone).

Stay tuned, because if things get real bad here, they will escalate to much,much worse in China.(whats a 100 million starving people when you need a luxury item a’ la Real Estate Expert?)
As Napoleon once said about China,
“It is a slumbering giant that the world will notice when it awakes”
Time for Real Estate Expert to read up on a little more than the TV Guide.

#83 brazer on 12.23.08 at 8:10 pm

Sorry for the long re-post but this is from Nouriel Roubini’s blog (subscription required), and his views have been bang on.

======================================

Canadian Outlook 2009: How Severe Will the Downturn Be ?

Dec 23, 2008

Canada faces a precarious political and economic situation in 2009. Harper’s government barely avoided a no confidence vote in early December on proposed spending cuts and the country faces a growth contraction in 2009, as faltering domestic demand adds to weak exports. Although Canada’s internal finances have remained strong, it seems more and more likely that Canada will not be able to escape the severe down turn in the U.S. and the global economy:

* Canada is in recession: the stock market is down 40% in 2008, house prices are down, and unemployment is rising. Canada’s economic growth is forecast at a very uncomfortable -0.4% for 2009, which nevertheless is much better than the performance of the other G7 countries (Global Insight)

* Canada’s strong housing market is now slowing, putting pressure on its banks, though both may avoid the collapse faced by the United States. With the US absorbing over 70% of Canada’s exports and the prices of Canada’s commodity exports slumping, Canadians have experienced a major decline in their terms of trade and net income

* Dec 17: Expect output to contract 1.2% in 2009, with much of the weakness concentrated in Central Canada. Overall, 2009’s retrenchment is likely to be about half the setback recorded in the U.S., with the prospect of a slightly stronger recovery in 2010 (Scotia)

* Dec 10: Softening Canadian economy is collateral damage, because when it comes to jobs, incomes, consumer spending and the housing market, the Canadian economy has been quite resilient relative to its American and European counterparts (TD)

* Nov 14: An accommodating monetary policy with real interest rates in the stimulative zone could mediate the severity of the downturn, avoiding what Canada experienced back in 1982 or 1990 despite the negative (NBC)

* CIBC: All economic indicators except one are suggesting that Canada is teetering at the edge of recession. The Labor Force Survey will, sooner rather than later, fall in line with the other indicators and reflect the weakening Canadian economic fundamentals

* BMO: Given the US severe and protracted recession, in spite of Canada’s strong financial health., Canada will also experience a recession – albeit possibly less severe- due to the interconnected nature of the two economies and the world financial system as a whole

* EDC: A weak Canadian dollar will prevent exporters from drowning in the global financial turmoil next year, albeit barely, with Canada’s auto sector and aerospace industry the main beneficiaries

* Conference Board: High commodity prices masked Canada’s sliding socio-economic performance when compared to other advanced countries

#84 squidly77 on 12.23.08 at 8:27 pm

i bought chevys for 20 years but i finally couldnt take it any more..in 1999 i purchased a new silverado and had nothing but trouble with it..and there service departments was a joke
the final straw was after the sept/11 attacks when they lowered the interest rate on a new car to zero
this effectively lowered all used chevys by about 15%
sold the silverado in 2002 (took a bath) and bought a toyota truck
i have never had a single problem with my toyota
there are 9 cars owned in my family and only one is part of the big three
these companies did it to themselves and i resent my money going to bail them out
they are as good as gone anyway

the unemployment that will be created will be devastating
but bad companies can not be saved by handing over tax payers money

#85 from Tokyo on 12.23.08 at 8:27 pm

Living in tokyo since 99, just wanted to remind you that this city is the size of the GTA with 20MM people living, rougly 2/3rds the population of Canada… Land here is expensive, and when they say land has certain value, it does… But in Canada there is way to much land and yet you consider land value??? I was always amazed when people said toronto had no land…

Also, recession with inflation/deflation… Japan has financed its recession debt within its own boarders, 80% of all debt is held in Japan… Canada and the US on the other hand is financing using China/Japan funds… guess what happens than…. the US$ is gonna tank…. as for inflation/deflation, think of it this way, the lazy western society has to learn to work and manufacture better products! China during the boom has helped keep inflation from rising, how else did you think Walmart and other big box outlets were able to keep prices so low… I think there is a chance of inflation if fx rates go lower, because it costs canada/US which imports so much from asia, but than again china may weaken their own yuan to negate the import/export costs.

Also, the government throwing money at banks and credit problems… although they acted faster than the Jap government, get real… No one is gonna have the mind set to borrow again for a while, Canadians and Americans are over indebted as is at a household level… consumer spending is goin to crap, and the GDP is 2/3rds affected by this!

anyways, enjoying the melt down from afar and I love Canada and am a Canadian but I really think what has happened over the last 10yrs was outrageous and hope our society wakes up to the reality that we cant live for cheap without manufacturing our own needs and not importing everything that we need…

cheers

#86 real estate expert on 12.23.08 at 8:34 pm

The Darkness And The Power
Jim Kirwan
12-20-8
“”This is the last link in the chain that will complete the Total Redistribution of Wealth in American society. And too many still, will not connect the dots……

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=34385578

#87 vtj on 12.23.08 at 8:46 pm

#76: … “And guess why the lost is shrinking? Re-read your last post. — Garth”

Garth, the Civic is assembled in Ontario. If you’re suggesting that we should purchase from one of the big 3 NA manufacturers even though the quality and the resale value is not comparable to certain foreign manufacturers, then we’re going to have to agree to disagree on this one.

vtj

#88 real estate expert on 12.23.08 at 8:53 pm

Deke the Geek,
That was not my opinion, it was an email from a tout.

…But since you mention China and its growing unemployment…which I already posted, days ago…in fact I predicted war between China vs Russian over Siberia.
Europe, India and Arab oil countries are toast too.

…Leaves North America doesn’t it.

Have I ever mentioned that Vancouver will become the financial/trading centre, certainly for Canada and probably the US too……..WHY YOU ASK?……

Location, climate and a teenie tiny population compared to So Cal with its huge unempoyed population.

Eastern Canadians can’t afford to move here.

…Those unfortunate druggies near Gastown is the last problem to be delt with.

just my two cents

#89 Derrin on 12.23.08 at 9:07 pm

Everyone keeps asking if INTEREST RATES will go UP.

If they(Governments) want you to spend the central banks aren’t going to increase rates. The banks have access to too much cash right now……they don’t want your money.
They want you to spend. They are BEGGING you to please start spending again by cutting rates.

People will start to spend again. Once the fear is removed from the marketplace(the stockmarket is the dictator of peoples hopes and fears – rather sick isn’t it).
When money starts to move back into the markets you will begin to see a lift as the media moves onto a new headline.

I enjoy this blog as Garth is really just a media guy. He has been spinning headlines for awhile. Editors by trade always know what buttons to push with their employees and their readers. The key with information rec’d via old and new media is to know “Headlines” sell.

Cheers, and happy holidays!

#90 realtor slayer on 12.23.08 at 9:25 pm

The big three should go down.
I’m sure that the employees worked their best and were very good at their jobs.
But the CEO’s and execs were out to scam the customers. So the customers went away.
No bail out. Die already!

#91 The First Rick on 12.23.08 at 9:47 pm

#73 Wealthy Renter on 12.23.08 at 6:20 pm
…….snippage….
I am not sure anything could make me switch brands.
===========
Possibly a step back in time with your father playing the role of an unemployed autoworker???

#92 dd on 12.23.08 at 9:50 pm

#58 nonplused,

Let forget about x-mass shopping while we are at it too.

#93 john on 12.23.08 at 9:57 pm

Hi Garth,

I thought higher interest rates on debt and mortgages would be inevitable and be the one factor that exposed those who are overextended. Assuming low interest rates and that those people do not experience job loss I am wondering wouldn’t those people continue to prosper? Pls assist in clarifying for me.

You are equating interest rates and inflation. — Garth

#94 Yalie on 12.23.08 at 10:13 pm

#85 from Tokyo

You’re right about US foreign debt, but wrong about Canada. Over the last 15 years the government has nearly eliminated the net foreign debt – almost all of our debt is now held by Canadians:

http://www.budget.gc.ca/2008/plan/chap3a-eng.asp#debt

#95 john on 12.23.08 at 10:15 pm

Hi Garth,

Let’s assume couple A bought a 2006 $400,000 home with $300,000 mortgage and they manage to hold their jobs and have no designs on moving their effect with low interest rates will be nil.

Using the same example but spiking interest rates I would think couple A would be in panic mode.

Wouldn’t those overextended continue to prosper?

#96 john on 12.23.08 at 10:22 pm

Hi Garth,

As a sidenote, I really think you should expose yourself more in the mainstream media and be even more visable. You are exactly what we need to lead this country and I truly believe you can accomplish this if you wish. I think you would certainly appeal to the young demographic as well and get them out to the polls.

#97 Gonzo on 12.23.08 at 10:25 pm

Garth, just wondering… given the deflation we are in, does this mean your book is going to be 30% off? Or maybe come with with a fancy new cover? I mean, my money now should certainly be able to buy 30% more Garth than before.

#98 Gold_Bug on 12.23.08 at 10:37 pm

#87

Garth, not sure I understand your point…
How does it help Big 3 if we buy their vehicles?
They are losing money, have been losing money for a while because of a flawed business model, are burried under pension obligations they can’t meet. This bailout will only prolong the agony, because nothing changed related to Big 3. And our gov’t gets non-voting shares in these companies, that’s just great.

I hate to see people lose jobs, but you can’t have it both ways in capitalism. Unless we talk protectionism. We may not have been ready for globalization…

#99 nonplused on 12.23.08 at 10:38 pm

Garth,

I don’t think buying a car now can save even one auto worker’s job in the short term. That market is even more oversupplied than real estate. The world has been using no money down no interest 60 month loans to bring forward automobile demand for so long it’s hard to imagine there is anyone left who needs a new car in the next few years.

I am 100% confident that at least 2 of the NA 3 will be bankrupt in the first half of next year no matter what. The bailout is just a bridge to get the event forward and under control. Then they will restructure like everyone else and start over.

But I don’t see, with everyone else loosing their jobs even you, how we can all be expected to save the CAW. As I said before, give the auto bailout money to me, and I’ll be happy to buy a new Ford. But the government knows all that will do is clear the lots of already built supply that is sitting there rusting. The workers will still be laid off.

#92 dd,

Not an all bad idea. Xmas is part of the indoctrination procedure used to make sure our kids grow up consumerists like the rest of us.

And although the malls are busy (habit I guess) the stats seem to show that is exactly what everyone else is doing. Scaling back big time.

All,

Word from my dad over casual Christmas dinner conversation on the weekend (“Can you believe this freaking economy? Everyone has gone nuts! Bernanke is insane! Paulson is a crook!” What else do people talk about at dinner these days?):

Apparently, Polaris shipped a whole truckload of skidoos to the dealer in (Small town Alberta). It’s all consignment, the dealer did not have to pay anything. Nor did they order any of them because the show room was already full and nothing was moving. So they are all stacked up in the yard in the shipping boxes. The word was the factory had run out of room to store inventory and was just pushing it out to the dealers.

Deflation is some assets is coming soon, indeed. I wonder if there will be a skidoo manufacture bail out? If they use the nonplused bailout strategy (give the money to me) maybe I’ll buy one of those too!

#100 $fromA$ia on 12.23.08 at 10:52 pm

Guys, Garth says rates won’t rise for a long time….

I agree, they can’t rise or the foreclosures would skyrocket and the Canadian banks would all bankrupt. Nobody could afford to take a loan out.

#101 ATM on 12.23.08 at 10:55 pm

This more than deflation. This a major diarrhea damnit!!

#102 ATM on 12.23.08 at 11:07 pm

To Real Estate Expert

What about the major eartquake of historic proportions in the west coast that’s due sometime in this century. Doesn’t it sweep through Vancouver?
I wouldnt put my property investments on those areas.

#103 Blacksheep on 12.24.08 at 12:14 am

THE JIG IS UP

People are waking up and seeing this debt
based, consumer driven economy, for what it is,
FAKE.

Judging by all the stats flooding the net, many people
do not own assets, but choose to rent liabilties.

Choice is starting to shift from excess to modesty.

GM Hummers are out, and honda civics are in.

As as a society, we are being forced to look in the mirror and take stock of the choices we make economicly.

I’m willing to bet many high powered CEOs are not sleeping well these nights.

take care
BS

#104 nonplused on 12.24.08 at 12:15 am

More thoughts on why Chrysler needs to go bankrupt for its own good.

First let me say it’s not the CAW. Those guys actually build things, and they are plenty capable of manufacturing anything that management sends them blue prints for. Management on the other hand….

I want to talk about the difference between a Jeep Cherokee

http://en.wikipedia.org/wiki/Jeep_Cherokee_(XJ)

and a “Liberty”. Yes I am talking my book here but everyone talks their book. You can’t help it and neither can I.

Prior to 1984, American Motors was building big cars just like everybody else in NA. Look at the previous named Cherokee:

http://en.wikipedia.org/wiki/Jeep_Cherokee_(SJ)

For unknown reasons, probably in response to the first oil shock, AM decided to build a smaller but capable 4×4. The unibody design (which most modern compact and medium size cars have had since the mid 1960’s allowed great ground clearance in a fairly low slung vehicle, plus light weight. The axles are GM S-10, which is why the rotors warp if you pull a tent trailer. Really the only major drawback of the vehicle. This vehicle offered people a capable off-road vehicle at twice the mileage of the full size vehicles before it, although still not great by today’s standards.

The Cherokee is credited with starting the SUV mania, although most SUV’s were put on truck frame chassis, adding weight and reducing mileage and ground clearance. In fact, my 1998 Cherokee is considered a “Station Wagon” to this day by the Alberta Motor Vehicle Registry. Back then, there were no SUV’s.

This thing was so good they made and sold them in China!

Then came the Liberty:

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

Notice how the thing is 1000 pounds heavier. (3000 plus change to over 4000lbs). They ditched the unibody and put a truck frame under it. Plus a bunch of “luxury” features nobody wanted. In terms of performance, it went to 5000 lbs towing from 4000. And the mileage went down due to the weight, just in time for the second oil crisis.

These Chrysler bozos won’t or can’t learn. The company needs Chapter 11 and a new management team.

#105 nonplused2 on 12.24.08 at 12:16 am

More thoughts on why Chrysler needs to go bankrupt for its own good.

First let me say it’s not the CAW. Those guys actually build things, and they are plenty capable of manufacturing anything that management sends them blue prints for. Management on the other hand….

I want to talk about the difference between a Jeep Cherokee

http://en.wikipedia.org/wiki/Jeep_Cherokee_(XJ)

and a “Liberty”. Yes I am talking my book here but everyone talks their book. You can’t help it and neither can I.

Prior to 1984, American Motors was building big cars just like everybody else in NA. Look at the previous named Cherokee:

http://en.wikipedia.org/wiki/Jeep_Cherokee_(SJ)

For unknown reasons, probably in response to the first oil shock, AM decided to build a smaller but capable 4×4. The unibody design (which most modern compact and medium size cars have had since the mid 1960’s allowed great ground clearance in a fairly low slung vehicle, plus light weight. The axles are GM S-10, which is why the rotors warp if you pull a tent trailer. Really the only major drawback of the vehicle. This vehicle offered people a capable off-road vehicle at twice the mileage of the full size vehicles before it, although still not great by today’s standards.

The Cherokee is credited with starting the SUV mania, although most SUV’s were put on truck frame chassis, adding weight and reducing mileage and ground clearance. In fact, my 1998 Cherokee is considered a “Station Wagon” to this day by the Alberta Motor Vehicle Registry. Back then, there were no SUV’s.

This thing was so good they made and sold them in China!

Then came the Liberty:

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

Notice how the thing is 1000 pounds heavier. (3000 plus change to over 4000lbs). They ditched the unibody and put a truck frame under it. Plus a bunch of “luxury” features nobody wanted. In terms of performance, it went to 5000 lbs towing from 4000. And the mileage went down due to the weight, just in time for the second oil crisis.

These Chrysler bozos won’t or can’t learn. The company needs Chapter 11 and a new management team.

#106 nonplused2 on 12.24.08 at 12:39 am

Now put your aluminum foil hats on for this next one!

I love a conspiracy theory as much as anybody, but generally don’t believe people are actually smart enough or organized enough to actually pull one off. 9/11? Somebody would have bungled their job or leaked something to the press. It has to be more or less what we saw on TV (but not necessarily what we were told). I don’t believe an inside job could have been conducted on that scale without falling apart somewhere. A conspiracy can be conducted by a maximum of 3 people assuming 2 of them end up dead.

But what about the auto bailout? I think this following scenario has some compelling logic.

Bush said he “threw out free market principles to save the free market”. Whatever. I long ago leaned to disregard what people say and focus on what they do. The words are just post mortem justification.

So why did he personally implement a bailout with just days left in his presidency? Was it because Obama wanted him to? Maybe, but then congress could have too. Must be something else….

Now, other than war, and some feeble attempts by anti-poverty advocates, protests in North America are pretty rare and pretty lousy. We don’t protest much and we don’t do it well. But yet people were protesting the bank bailouts.

It’s easy to believe politicians don’t care about public opinion, but I say oh yes they do. A million pollsters were commissioned to find out the nature of this one.

“No bailout for Wall Street unless you bail out Main Street” was the response.

So as an outgoing white rich guy who invaded Iraq and bailed out the banks, can you let Detroit fail? The main industry for all these people shut down on your watch? The city would look worse that Montreal after they win the Stanley Cup! Riots.

If they are going to go bankrupt, much better they do so under the watch of a mixed race president from the area. It’s about national security. Give them enough money to push the problem to at least February, no matter what.

It was a conspiracy of 1 and maybe Bush isn’t so dumb after all.

#107 Wealthy Renter on 12.24.08 at 1:20 am

A real estate bubble story with an ounce of humour:

http://www.theglobeandmail.com/servlet/story/LAC.20081222.LTAYLOR22/TPStory/National

#108 Wealthy Renter on 12.24.08 at 1:26 am

Should also mention it is a pretty interesting read on Vancouver.

#109 Blacksheep on 12.24.08 at 2:13 am

The big three will fail as planned.

Has no one else noticed that domestics are losing
huge sums of money in North america, but making profits elsewere in the world?

So, i’m supposed to believe the big 3 just cant get the
product right for the market? what total crap.

Management and government want to be seen as “going to bat” for the blue collar worker, trying to save ventures that are already bankrupt.

They will eliminate the unions, wipe out all legacy costs & renegotiate wages from a position of power.

30-50% of the jobs & plants will leave US & CAN.

That correction sounds just about right, people are realizing, its not in there best interest to lease/buy a new vehicle @ $30-50k every three years.

People will start keeping cars longer, bad for car sales,
good for peoples bank accounts.

So in regards to the comments,

“Buy a car now? Forget about it this thing has just started”

“Hey, great idea. Let’s wait until all the autoworkers are unemployed! — Garth”

I like to base purchasing decisions on quality of product & price, not a guilt induced need to support the poor autoworkers, who are ridiculously over paid.

Garth, Nonplused is correct, your jeep will be signifcantly cheaper once bankruptcy is declared,
unless of coarse you just doing your patriotic duty,

but don’t you feel bad about grinding em on the price?

take care
BS

#110 Saucer on 12.24.08 at 4:02 am

Deflation: Good for those with no debt and a job, bad for everyone else.

Inflation: An expansion in money AND credit
Deflation: A contraction in money AND credit.

These definitions of inflation/deflation are simple and can explain what is happening better then other academic defintions. The destruction of credit is far far greater then then expansion in money supply.

Inflation and high interest rates will likely be a possibility in the future, but that may be a long way off. For the next year or decade it may be VERY low interest rates and deflation continuing.

Using the above definition, the CPI numbers were understated the majority of this decade and are overstated now. Deflation is here and no way to hide from it.

#111 Lothian Vasquez on 12.24.08 at 5:27 am

Garth,

Inflation and high interest rates go hand in hand, for TWO reasons: a) lenders need to protect themselves from a depreciating currency; b) governments need to put the brakes on a falling currency.

Price deflation will be short lived. Inflation is in the mail. And when it hits, interest rates will sky rocket. Coindidentally, this will curb stomp any attempt by real estate to get up off the mat. House prices will inch up, cuz double digit mortgage rates will restrain them.

You better step off on this deflation mania you are branding yourself with; we GET that real estate is OVER, for a generation or more. But the rest of your prognostications are kinda like a guy showing up at an accident scene and screaming about how bad car crashes are without shedding any real light on the situation. You are gonna look awful silly during hyperinflation, bro.

Inflation is not imminent. You already look silly. — Garth

#112 patriotz on 12.24.08 at 7:26 am

Deflation: Good for those with no debt and a job, bad for everyone else.

Even better for those with cash or guaranteed creditors (holders of GIC’s, government bonds) because their cash buys more stuff. Simple.

Deflation is also neutral for holders of many real assets without debt (i.e. a paid off rental property), because the real income from the assets is maintained. They might get fewer dollars, but it buys the same amount of stuff.

#113 patriotz on 12.24.08 at 7:31 am

It was a conspiracy of 1 and maybe Bush isn’t so dumb after all.

That’s not a conspiracy, that’s just politics. Try to offload your problems onto your successor.

That was the goal of the Bush administration all along, the problems just arrived a bit ahead of schedule.

#114 Chincy on 12.24.08 at 7:52 am

#111
I second Garth’s comment…you are making yourself sound silly, oh…and stupid.

#115 dd on 12.24.08 at 8:42 am

#111 Lothian Vasquez,

Inflation when a lot of people are losing their jobs?

#116 dd on 12.24.08 at 8:46 am

#99 nonplused,

It was a joke. I have bought some x-mass presents for the kidlets and others. We don’t buy a lot anyways, however, I have given to the economy … I have done my part.

#117 Kash is King on 12.24.08 at 8:47 am

squidly 77 I’m not defending the big 3, and I have personally owned several Toyotas… but they are not without their own problems:

Tacomas being bought back by Toyota for 150% of black book due to frames rotting out from under the truck:

http://wheels.blogs.nytimes.com/2008/05/07/toyota-offers-to-buy-back-rusty-tacomas/?apage=5

Echos recalled to have floors rustproofed and/or floorboards replaced if rotted out:

http://www.echodrivers.com/forum/viewtopic.php?f=2&t=14398

Then again, Toyota just posted it’s first ever loss…. hmmm
=====================

The problem generally amoungst most manufacturers is that the cars/trucks/suvs are simply vehicles(pun intended) for selling debt and leases, this where the true gravy has been for them.

Most folks are presently unable to do like Garth just did… go and plunk down some real cash for a car.

Take away easy credit (risk had previously been sliced and diced and costed into dervatives and fraudulently sold abroad) and there is a disconnect between what people can truly afford, and what manfrs are trying to sell.

Once upon a time folks actually “owned” their cars, and when they were done with it, it would go at the end of the laneway with a for sale sign in the window. That’s a pretty rare sight these days… since most just get dumped back to the leasing company. Leasing companies have their own problems in that the present asset deflation means their lease takebacks are worth less than what they had budgeted for, so when they auction them, they are left underwater on the whole process.

Probably what will come of this will be small affordable cars that people can pay cash for. Like a small FWD tin-can of a car should be no more than $6k new.

#118 Kash is King on 12.24.08 at 8:50 am

*amongst

#119 Ron on 12.24.08 at 9:34 am

Three words that make me cringe:
consumer, human resource, tax payer.

I hear all of these terms way too often and find them ridiculously dehumanizing.

Is it just me?

#120 Kash is King on 12.24.08 at 10:10 am

U.S. Economy: Home Prices Fall Near Depression Pace (Update1)
By Bob Willis and Shobhana Chandra Dec. 23 (Bloomberg)

http://www.bloomberg.com/apps/news?pid=20601068&sid=aQ7HBEgYCzUE&refer=economy

#121 md on 12.24.08 at 10:27 am

http://www.nationalpost.com/life/homes/story.html?id=1032929

If the economy is crumbling all around us how is it possible the the average price in a home is went up in november. Can anyone here explain this to me?

Idiot buyers. — Garth

#122 Marlene on 12.24.08 at 10:34 am

Do you think we will see a spike in 2010? Will interest rates spike as it has happened historically since 1950?

“No. — Garth”

Garth,

Could you please provide an explanation? You are saying this time around it’s going to be different than the last 50 years and we’ll beat historic records and patterns? How and why? Don’t believe it! Rates will be double digits from around 2010-2015.

In a post 2 months ago you said…”interest rates would go up” now you change your mind as the headlines change. Do you know and do you believe the headlines before historic data and what a sophisticated computer can provide?

Rate will go up, but not by 2010. Except maybe on your planet. — Garth

#123 if you don't like it on 12.24.08 at 11:14 am

MERRY CHRISTMAS EVERYONE!

Take a day off and stop worrying about all this impending doom and enjoy whats important: family & friends

#124 chaser on 12.24.08 at 11:20 am

Garth:

You say that your jeep purchase points out that there is deflation? Do you care to illustrate how?

Deflation is a reduction in the supply of money or credit.

In your purchase you have given your $15,500 to the dealer who now has it (the same amount of money). There has been no reduction in the supply of money, just a transfer.

There may have been stagnation in the supply of money at best. If in this purchase you would have borrowed the money, instead of paying cash, there would have been inflation. The bank would have created that loan out of thin air. I hope you know that much. Even though the price of the asset may be what you consider low there still would have been inflation in that case.

Low prices do not necessarily mean deflation. That is the point.

Where did I say the purchase of my car equals deflation? Rather I talked about the collapse in commodity values. Stop cherrypicking. This economy is devaluing fast, and falling car prices are a sympton, not a cause. — Garth

#125 Curious on 12.24.08 at 11:31 am

Why is Iceland in the grip of 18% inflation after their banks failed. Is it because of IMF conditions on the bailout money? What is different for them that they get inflation and we are looking at deflation?

#126 Just a Girl on 12.24.08 at 12:03 pm

#119 Ron – “Three words that make me cringe:
consumer, human resource, tax payer.”

At my workplace, whenever someone brings a problem to the table, they also bring a solution. So, what do you propose we use instead? :)

#127 Nick on 12.24.08 at 12:49 pm

#125 Just a Girl – “So, what do you propose we use instead?”

Whatever happened to being citizens? I also find the constant use of the word consumer to be disgusting.

#128 Charles on 12.24.08 at 5:16 pm

#77 vtj

Please remove your lips from cranky knee-jerk responder Garth’s butt.

There is no need to apologize for Lord’s sake, grab a spine Mo-Fo.

#129 chaser on 12.24.08 at 7:46 pm

Garth says he talked about the collapse in commodity values:
· Copper, wheat and plasma TVs have lost between 22% and 78% of their values.

Cherry picking huh. OK, now commodities then. BTW, you are still confused about a symptom. This collapse in commodity values is not deflation, just a symptom of something. Not necessarily deflation.

Just for illustration let’s say that the value (price) of one unit of one of these commodities was $100. I sell you a unit of that commodity for $100. There is a transfer of $100 from you to me. No net change in money supply. The $100 that was once yours is now mine.

Now the price comes down 78% and the value (price) is only $22.

I still have my $100.

Do you care to illustrate where the money supply has decreased?

Yeah the price of the asset was reduced by $78, but there was no $78 reduction in the money supply. So no deflation.

Deflation is not the result of fewer dollars, but rather fewer in circulation. — Garth

#130 Ron on 12.25.08 at 1:19 am

#126
Just a Girl

My little statement was just a random thought really but I agree with Nick that the word citizen or person sounds somehow kinder. I can respect the concept of being a person or citizen engaging in a certain activity but I find it disturbing when I am defined as being that activity. I guess that the difference is subtle, I just find it hard to ignore the coldness of this type of language. Unfortunately, I haven’t come up with any great replacement words. I’ll work on it.

#131 nonplused on 12.25.08 at 2:05 am

If anyone is still reading this thread…

I think Garth’s definition of deflation is different from the classical view. In the great depression gold became very valuable and was the basis of money, so prices of other commodities fell, and that put pressure on producers who had debt and wiped a lot of people out.

This time there is no gold backing. Instead, what we are seeing is wholesale mark to market declines in the value of assets, wiping out trillions in imagined wealth. It’s deflation too, in my mind, but a new type. Not “new under the sun” (bubble), but new to our generation.

However, it’s a big problem. Huge. People made long term plans based on delusions of wealth that are now being revised for them.

#132 John_E on 12.25.08 at 11:03 am

Hi Garth,

I do have one observation to make: The price of food is NOT deflating. Even with seasonal adjustments I have seen increases of around 30 to 40% since labour day. A local “StupidStore” had the nerve to move the price of one staple product we use from $0.69 to $1.39 over the last 4 weeks. Now at $1.39 they have the NERVE to put a “price lock” sticker on it thereby implying that it is some sort of great deal. Mind you, this was the same chain that became a national joke when it was pointed out that their “fresheness never cost so little” promotions were only ever applied to products whos price increased. Everyone in the store would start laughing when they saw those tags because you KNEW the price went up.

Anyway, what say you on food?

Did you notice that white stuff outside? Yeah, snow. It’s winter, dude. In Canada. Prices go up. — Garth

#133 John_E on 12.25.08 at 11:54 am

Wow, quick response! Merry Christmas Garth to you and the people special to you. I did make the comment about seasonal adjustment though. I expect produce to cost more, but not thinks like dried beans. My apologies if my query was not clear.

#134 ThumbsUp on 12.25.08 at 2:08 pm

#132 John_E: “A local “StupidStore” had the nerve to move the price of one staple product we use from $0.69 to $1.39 over the last 4 weeks”.

-Imported inflation, because of our weaker CDN $, commodities that are imported can become more expensive.

I second Garth’s view of deflation – less circulation. today, record high % Canadians & Americans committed our 20-40 years of future earnings to our dream homes (aka cardboard sh*t shack?), and every penny left is sent back to the banks to pay back our mortgages, money sits in the bank and nobody is borrowing, our debt is maxed out.

We could be in the middle something big, everything is being adjusted & readjusted by the market, even our own jobs and beliefs.

Merry Christmas and Happy Holidays

#135 GFS on 12.26.08 at 6:32 pm

#8 Deaninkelowna …….in all fairness, googel also as to what you can get for $ 18,000 in Detroit.

#136 Deaninkelowna on 12.27.08 at 12:31 am

Gfs, I checked it out on the mls.ca. just click international properties, then click United States. I was amazed at what five thousand dollars could buy you. Sure they need a little work and some paint, but at that price you could put granite and hardwood throughout! I saw some beautiful homes selling in the upper 30’s! For many in Detroit I’m sure this means freedom, no mortgage, no rent. I know, I’m sure it’s a tough city but think of the opportunities.

#137 daniel_in_london on 12.27.08 at 5:13 pm

Hmmm … i think there’s a lot of panic going on in here, and not enough commentators with any economics training. Obviously, this is a massive issue and one that can’t be commented in a meaningful way by a 300 word blog response, but … here goes!

Don’t confuse a short period of negative CPI prints as a deflation. That really refers to a sustained period, not simply a month or two of negative headline prints (there are a lot a technical reasons why this is likely as anyone who has worked on/studied index construction in the past will know).

Secondly, and i am only referencing the points that people seem concerned about in here, nominal interest rates will be very low and stay low as governments and central banks pump money into the system. This is something they can do almost without limit (obviously there will be a very urgent need to take back these excess reserves when the deflation risk has past).

Their aim is to get money moving again and restore the money multiplier to average levels (not levels of the last couple of years!) and to avoid a sustained deflationary event.

There will be very very few winners if there’s a long deflationary period so these calls of “viva deflation” etc are, quite frankly, rather foolish. Be careful what you wish for! The one thing i will add is that, if and when the central bank/government policies work (and lets assume they will work, and by that i do not mean Japanese style, but properly) then you will need to move fast since you won’t want to be holding cash when the mountain of liquidity that the central banks have created (i.e fed reserves etc) is flying around everywhere (that is, when you see monetary aggregates such as M2 flying higher). Fed Chairman Bernanke isn’t nicknamed “helicopter Ben” for nothing in the financial markets! Don’t underestimate what this guy will do – he spent his life studying for this situation… literally!!

Finally, and i am in the UK, so a little away to the North American situation but i will leave you with this…. what would be the thing that most freaked out the markets and people? Well, over here it would be if property prices stopped falling and started selling at their current prices (probably down around 15 to 20% from their 2007 peak now). There is already some evidence of this in the better suburbs of inner London which i myself was a little staggered by (annocdotal evidence, i know, however, i have heard a few stories of places that have been for sale for more than 180 days all clearing in the last 5 weeks as sellers realigned their prices to about 15% lower than last years peak and as lenders start opening up again. Perhaps the fact that the UK has a severe housing shortage renders any comparison useless…

Oh and by the way, just cause someone lowers the offer price on a house for sale that doesn’t mean deflation – just unrealistic initial expectations!!.

Good luck to you all.

#138 vtj on 12.28.08 at 4:14 pm

#128 Charles:

Got up on the wrong side of the bed there, huh?

How about sharing some useful information or opinions with the rest of us rather than insulting perfect strangers online?

vtj

#139 GFS on 12.29.08 at 10:58 pm

# 136 – Deaninkelowna

Yes, you can get a good ‘ deal’ on housing there, but in what kind of a neighborhood……I suppose if you want to weld everything shut so it don’t move……yes, you can put in granite and hardwood while all the properties around you decay….think about that one.

Unfortunately for the next while, , it is a city where unemployment can only go one way……same for crime……so where do you see the opportunities?

#140 Chaser on 01.25.09 at 12:57 pm

Guess what Garth, while you were telling everyone that deflation was happening, M0 grew by 98% in December. How does that equate to your statement about there being fewer dollars?