Economic forecasting


Many loose words fly around this site when it comes to inflation, deflation, hyper-inflation, currency collapse and the immediate years ahead. What can we expect? What does it matter?

In the last few weeks stock markets have been twitchy and losing ground. So has oil. And gold. Plus the loonie. There’s only one reason for this: the American dollar. As the recovery proves elusive, a few national economies teeter on the edge of insolvency and governments ponder a slew of bad choices, investors have been rushing back into greenbacks.

There are several reasons. One is that the US dollar is still the global reserve currency and perceived to be the safest of safe havens offering total liquidity and shelter from debt storms. There’s no reason this is going to change much in 2010.

Certainly there’ll be no double-digit inflation in the States, no matter how damn much money they print. It is not in the national interests of Americans to devalue the currency in terms of families’ purchasing power while unemployment remains so high, or doing going into the 2010 mid-term elections. That will not happen.

The second reason for the US currency strengthening will come with Obama’s commission on deficit reduction – a movement in Congress that now seems unstoppable. Millions of Americans are appalled at the debt the country is accumulating, and there is a growing political appetite to (a) raise taxes and (b) slash Washington’s spending. In some form, both of these will happen, especially if Republicans win a few key seats next year. This will be very bullish for the greenback, even though it means more years of slow growth.

Thirdly, the longer the American dollar remains weak, the more its trading partners will cry foul at newly-cheap US exports. This has the effect of shipping American unemployment to other jurisdictions, which is the last thing places like Britain (a key Iran-Iraq ally) need.  So while Washington has hundreds of billions in bonds to sell each year – the majority to offshore investors – the greater the incentive to stabilize the dollar. The easiest way to do that is with monetary policy – a quick little rate hike.

And let’s remember that inflation is the result of economic conditions, while hyper-inflation is a purely political decision. It does not just happen. Leaders have to consciously decide to devalue a currency, and then do it in a massive and concerted fashion, generally with the overnight recall or effective redenomination of existing currency. This, I can assure you, will never take place in the US, as it would be the death knell of the entire North American economy. Washington is not about to impoverish its citizens.

Deflation actually remains a more potent potential threat, and the key reason $40 billion has now been pushed directly in the hands of people buying cars (cash for clunkers) and houses (the $8,000 and $6,500 tax credits). Consumer spending has simply not rekindled, household savings rates are higher in the States (and lower here), and prices keep on falling. This – not any hyper-inflation mythology – is what keeps Ben Bernanke up at night. (By the way he recently cashed in his own VRM for a locked-in mortgage. Ask me why.)

Make no mistake, we are not out of the economic woods yet. Investors today would be wise to (along with a good equity strategy):

  • dump real estate at the top,
  • buy commodities on the dips,
  • chase a tax-advantaged 6% dividend yield,
  • be wary of index ETFs in a range-bound market and
  • short bonds.

But wait for Armageddon, currency collapse, wheelbarrow cash and Mad Max?

In your dreams, puss.


#1 april on 12.17.09 at 8:54 pm

Really! Bernanke has a mortgage?? Are you serious Garth?

#2 Kurt on 12.17.09 at 8:54 pm

OK, I’ll bite: Why *did* Ben Bernanke trade in his VRM for a fixed rate mortgage? My understanding on VRMs is that they are inherently cheaper because the borrower is taking all of the interest rate risk. With a fixed-rate, the bank is charging not only a risk premium, but taking a profit on that risk premium as well. Are banks mis-pricing interest rate risk? If so, why? Is Mr. Bernanke living so close to the line that he needs to insure against interest rate increases? What’s up with that Ben dude, Garth?

I think he knows what will happen to rates, n’est-ce pas?

#3 Jax on 12.17.09 at 8:56 pm

“short bonds.”

Are you suggesting it would be a good idea to sell off my bond funds soon? Is it a bad idea to invest in low duration bond funds if one expects modest but persistent rate increases?

Rates up, bonds down. — Garth

#4 Steady Eddie on 12.17.09 at 9:09 pm

This blog posting is weak. Please consider the following alternative viewpoints:

Sure. More gold propaganda. Enlightening. — Garth

#5 Jeff Smith on 12.17.09 at 9:11 pm

Lol! Garth, you are getting carried away with that Photoshop software. Wish I can do that. Where is the best place to learn Photoshop? Please don’t say the user’s manual, I fall asleep after 3 minutes reading that.

#6 Jeff Smith on 12.17.09 at 9:17 pm

GT “•be wary of index ETFs in a range-bound market and”

Garth can you quickly explain why? I kinda like ETFs because I don’t have insider info on stocks and rather just ride the index for what its worth. Why you think ETFs are bad?

In a range-bound market (like 1970-75) index funds can yield zero. — Garth

#7 N on 12.17.09 at 9:27 pm

Certainly there’ll be no double-digit inflation in the States, no matter how damn much money they print.

inflation is the printing of money Garth. get a grip.
there was this economist, Milton Friedman… you may have heard of him? he had this quote..

“Inflation is always and everywhere a monetary phenomenon.”

it IS THE VERY ACT OF PRINTING MONEY that debases a currency.

#8 Dave on 12.17.09 at 9:39 pm

Rates up, bonds down. — Garth


damn, now I’m feeling stupid. How does this happen? I thought that higher rates would encourage people to get into bonds..

#9 T.O. Bubble Boy on 12.17.09 at 9:45 pm

At this point, I agree with the Deflation over Inflation theory, given that all of the stimulus dollars and near-zero rates in the US and Canada haven’t done a whole lot to stop the unemployment rate from rising and prices from falling.

Take away oil and housing, and pretty much everything else is on a downward trend.

Also – don’t forget about all of the future sales that were pushed forward because of these various stimulus programs (car buying, home purchases, home renos, etc.). 2010-2011 should see some significant dropoffs in markets that were targeted with 2009 stimulus money.

#10 kitchener 1 on 12.17.09 at 9:46 pm

Hyper inflation is not going to happen outside a total currency collapse in the US, is it possible, sure anything is possible, but is it likely, No.

Garth, you should just give up on this huge deflation debate, the people that understand already know and those that don;t never will.

What terrifies Harper, Obama and their finance guru’s is delfation taking hold. Consumer spending and confidence is what runs the economy, should that falter in a big way, we will see stagflation.

When interest rates rise, it will be a choregraphed effort by the G8 at a minimum, they do not want any of their member states to get slaughtered by currency wars or carry trades.

#11 Onemorething on 12.17.09 at 10:11 pm

Garth, will or will not Benanke see another term?

Of course. I turned the position down because of my duties here. — Garth

#12 Mad Max on 12.17.09 at 10:12 pm

“The second reason for the US currency strengthening will come with Obama’s commission on deficit reduction – a movement in Congress that now seems unstoppable. ”

What?!? Does anyone still believe anything that comes out of the mouth of Obama?

For those of you who don’t speak Obama, I’ll translate for you:

Obama: “America is going to decrease the deficit”
Translation: “We’re never going to repay our debt”

Obama: “Peace”
Translation: “War”

Basically, the trick is to take everything he says and negate it — then you’ll understand what he is really saying.

Learn to read. I said it is a ‘movement in Congress.’ — Garth

#13 raterise on 12.17.09 at 10:19 pm

Differing opinions from Garths now gets lumped into the gold whacko camp.

Cmon’ Garth you’ve got more depth than that. Don’t you?

I read the linked articles. Did you? — Garth

#14 kc on 12.17.09 at 10:23 pm

“”Millions of Americans are appalled at the debt the country is accumulating, and there is a growing political appetite to (a) raise taxes and (b) slash Washington’s spending. In some form, both of these will happen, especially if Republicans win a few key seats next year.””

As I was saying about the Copenhagen BS… I saw H. Clinton on the news tonight yapping about how they (the USA) are willing to put forth $100M. into the global warming scam. Giving China that amount of cash to do precisely WHAT???? I hope at least the US govt. gets free socket sets and air tools in exchange. If Harper opens his yap and says that Canada is giving half that amount of money they better build more prisons in this country for I for one will not be filing my tax returns.

#15 jr on 12.17.09 at 10:31 pm

N on 12.17.09 at 9:27 pm

Certainly there’ll be no double-digit inflation in the States, no matter how damn much money they print.

inflation is the printing of money Garth. get a grip.
there was this economist, Milton Friedman… you may have heard of him? he had this quote..

“Inflation is always and everywhere a monetary phenomenon.”

it IS THE VERY ACT OF PRINTING MONEY that debases a currency

Inflation is also–credit expansion–
Money and credit must be counted–as money

Same as deflation–credit which the flip side of is debt,must also be counted–as money

Credit isn’t actual money–but–it “acts” like money,so it is money–

Credit in reverse (debt destruction) also acts like money,so it is money–

The simple question to ask is,is money being printed as fast as debt is unwinding?

If you count the CDO’s/CDS’s blah blah–marked to market (not hid)

Then deflation–is winning –in fact its gaining momentum–

When you see this chart (velocity) reverse and turn up–
When you see people borrowing and spending and housing being the– go to asset again–
Bet on Inflation

#16 M-F on 12.17.09 at 10:35 pm

I generally agree Garth. Great website!!

Some general points to other commenters:
– Deflation is the real threat because it makes debt unserviceable.
– Inflation comes from an increase in money supply if velocity is constant, but velocity has dropped. (Print 10 trillion dollars and bury it in a mineshaft and tell me how much inflation went up.)
– I haven’t heard a single credible case for hyper-inflation, at least not any time soon. You really can’t have “hyper inflation” without wage increases, and with capacity utilization at 45 year lows, and unemployment in the US at u3 10% or u6 17% you have no wage pressure. Commodity/energy/food prices can go up but that will force cut backs and price drops in other goods & services – not hyper inflation.
– The US needs wage inflation, a rate of 5% to 10% a year for 7-10 years would bring debt levels back to being more serviceable – but it is nowhere in sight due to offshore competition and unemployment.

#17 Ottawa on 12.17.09 at 10:48 pm

Hi Garth,
I have been following your blog for the past couple of months. You have some great insights to the economy and I appreciate you sharing it with us.

With regards to your comments “Buy commodities on the dip” I thought you’re bearish on gold. Do you think gold will rise in the long run after the present pull back. Please comment.

The way I understand it the FED is printing loads of money and flooding the market with it. At some point in time there will be inflation which will cause the US dollars to fall and value of commodities to rise.

The expansion of credit and money supply should cause the dollars to depreciate simply because there is so much more out there. (I read that there is 210% of US dollars circulating presently compared to Oct 2008)

On the other hand, since the supply of commodities are relatively constant and it being priced against the dollar, the price has to go up to hold its intrinsic value.


My consistent position has been to maintain a 10-15% gold position. Just never buy it when there’s a lineup. — Garth

#18 tjmikey on 12.17.09 at 10:55 pm

I dunno Garth,

I think the US is going to keep moving forward with a lower dollar cheaper exports policy for as long as their creditors will tolerate.

Increased exports via a cheap Uncle Sam along with sweeping protectionism can only be good for a nation on the brink.

If they can manage to offset their trade imbalances as well as try to internally stimulate the via a garden variety of cash injections and protectionism it can’t be all bad…..except for Canada.

#19 Nostradamus jr. on 12.17.09 at 10:57 pm

Three very germane posters on this site.

Garth….Vlad…and humble little moi.



…Now back to regularly scheduled programing for your viewing pleasure…

Nostradamus jr.

#20 GenXer on 12.17.09 at 11:02 pm

Dave – both you and Garth are right. The market rate for buying a bond is based on the rate of interest on the bond vs. the current market interest rate. Let’s say you have a bond that has a face value (coupon) of $1,000, and it yields 10% interest. If interest rates rise, new bonds are issued at a 15% interest rate, and the face value of the original bond will drop by ~5%. Why? Well, that way anyone buying the original bond from you will make a 15% return on their money – an amount equal to what they would make on the new bonds.

So – yes – higher interest rates make people want to buy NEW bonds. And the push down the face value of bonds that are already out there. If you have bonds in your portfolio and interest rates go up – you lose. If you hold bonds when interest rates fall – you win.

I’ll be trading my bonds for oil stocks shortly – I’m waiting for the US dollar to get a little stronger first. Hopefully I don’t get greedy trying to time it.

#21 Real Estate Deal or No Deal on 12.17.09 at 11:09 pm

What is the 6% tax advantaged investment you were alluding to?

Bank preferreds. — Garth

#22 Jeff Smith on 12.17.09 at 11:20 pm

Just in case you are wondering, Japan is still keeping their interest rates low. Even after all this years

#23 greyhound on 12.17.09 at 11:30 pm

Usually I agree with Garth, however today —

1. US “double digit inflation” to a certain extent depends on US foreign policy. If the US gov. angers our Asian friends sufficiently, they could decide to begin selling US bonds. Say, a billion $ every day should do it. Economic warfare, like other sorts of war, does not have to have a logical, even non self-destructive motivation.

2. There might be a growing appetite in the US for raising taxes; as a politician, you must know that cutting government spending is an entirely different matter.

3. I hate the cat picture.

#24 TheBigLebowskey on 12.17.09 at 11:30 pm

America has two options to rid themselves of their debt. Print or Default. Any interest hike talk is laughable. It would instantly cause their already deflating housing market to spiral down the tube even faster. Commercial real estate, already balancing on a cliff and ready to fall would make the housing colapse look like a Sunday pick nick. The winter of 2010 you will see an official devaluation of the U.S dollar. 3 old dollars will equal 1 new dollar. The gold market in anticipation of this event will explode. All currencies will be revalued and devauled together at a meeting similar to the Louvre Accord. I have to wipe the tears from my eyes from laughing so hard reading that Obama, Congress or Bernanke would ever do anything with the people in mind. If Ron Paul’s bill hr1207 that is in the House passes, the bill to audit the Federal Reserve . It will reveal how the Fed has been rigging the stock and gold markets for years using taxpayer dollars. This is how the real world works. There are no free markets anymore. The Euro zone is not much better, their banking system is as toxic as the U.S . No Government numbers have anything to do with reality. They say U.S unemployment stands at 10.2%. But they use some obscure figure know as the birth/death ratio to fudge their numbers. On average they have said this has added 100k jobs a month, total lie. Take discouraged workers who have stopped looking, part/under employed workers and people who have run out of E.I payments and fallen out of the system. This brings the real unemployment in the States to 22.5%. This is depression level numbers. You really think they are going to hike interest rates and cause housing and commercial real estate to totally implode? Just remember the U.S has two choices, either print or default. Both will send the world’s financial markets for a spin.

#25 Future Expatriate on 12.17.09 at 11:33 pm

Betting against a complete currency collapse in the US is foolish, if only for the simple reason that IT DESERVES IT and IT IS LONG OVERDUE.

What goes around comes around, and what the US has been sending around for decades is very ugly.

#26 AO on 12.17.09 at 11:39 pm

Hey Garth

Did you grow up with siblings? You must have. It seems as though you enjoy the bickering. I do! So thanks. I always enjoy your posts.

I agree with all your opinions and conclusions EXCEPT for your bullishness on the USD. With all of the debt the US gov’t has and is planning it just does not seem imaginable that they will beable to fund that without printing more dollars. If they ACCEPT their debts as is and try to pay them off then yes I agree deflation will be the shape of the cake.

Garth, I hope you might find the time to give your opinion on the following two questions I would enjoy reading that.
1) What price does gold have to reach before you change your opinion on the fate of fiat dollars? There mus be a tipping point somewhere.
2) Do you think that a form of money that is controlled by a specific power makes for a better society than a form of money that is limited in its availability? Thus causing the governing power to live with in its means; balancing the needs and wants of the society. It seems to me that this form of money would create more sustainable economic growth and happier society. It would mean that if I work for a month and decide to save what I had earned for that work it would maintain its value much further into the future then a fiat form of money does.

#27 Joe Realtor on 12.17.09 at 11:47 pm

I had dinner with an American friend and his partner tonight. We were celebrating.

They finally sold their house in Ohio. They were thrilled and felt like a ton had been lifted off their shoulders.

How long did it take them to sell?

Three years. Any equity they had in it is gone, but fortunately the bank allowed the short sale (considerable $$) and they didn’t have to walk from it – they didn’t want to.

Apparently, selling a house in a neighborhood where any comparables are foreclosures is a tough sale.

Good thing we’re different here.

#28 Kurt on 12.17.09 at 11:50 pm

#8 Dave – what we are talking about is the trading of bonds that have been issued but not yet matured. In grossly over-simplified terms, if the interest rate on the bond (called the “coupon”) is less than you could get putting the money in a savings acount, it will trade for less than its face value. If the coupon is more, it will trade above its face value. If the bank rate goes up, suddenly *all* outstanding bonds trade for less. (For those of you familiar enough with bonds to know what the definition of “duration” is, please forgive me – I’m trying to keep the explanation as simple as possible.)

#29 Root causes of hyperinflation on 12.17.09 at 11:56 pm

Root causes of hyperinflation

Germany, 1923: banknotes had lost so much value that they were


This blog is not a dumping ground for Wikipedia articles. Don’t do that again. — Garth

#30 Jim Sinclair on 12.18.09 at 12:06 am

To answer the many calls and emails I am receiving, please understand that it is my opinion that the dollar market is the most fundamental of all markets.

I will never deny that the dollar can experience contra-trend positive experiences, but I foresee no bull dollar market, nor even firmness for months.

My view is based on the fundamental disaster that the dollar is, especially with the deceleration of foreign demand for the ever increasing size of Treasury auctions.

Supply from the desire for diversification and from the ever-growing size of Treasury auctions is dollar supply that will not be offset by increasing demand, except for the brief moments of Management of Perspective Economics.

When rates rise, which they will, it will be a product of a disdain for dollar instruments and not positive for the US dollar outside of a few days.

This business recovery is MOPE, smoke and mirrors, and is therefore totally brittle, locking the Fed into near zero rates and unlimited QE.

The Fed comments, even though carefully structured, confirmed that today.

Hyperinflation is a currency event, not an economic event. When it occurs it will be super bullish on general equities in the currency of the entity whose mismanagement caused it in the first place.

By Jim Sinclair

#31 Meet The Doomsayers Who Just Won't Give Up on 12.18.09 at 12:35 am

Garth’s views on what he thinks will happen is just that, an erudite guess but the link below will introduce you to just some of the folks (Pusses according to Garth) that disagree with Garth’s thinking and who believe there is a very strong possibility of, but wait for it, Armageddon, currency collapse, wheelbarrow cash and/or Mad Max!

Maybe not in our dreams Garth, but only the passage of time will decided if you were correct or incorrect on the above call and those of us who are not of the herd mentality thinks you are going to eat this one, big time, Puss, I mean Garth.


Bill Bonner is in the business of selling Bill Bonner newsletters and Bill Bonner books, which I believe has led to the expression of extreme views without foundation. Follow him and you will truly be gambling with an undiversified portfolio and scant ability to adapt to rapidly changing positions. But, hey, it’s your money. — Garth

#32 Sluggo on 12.18.09 at 12:51 am

It’s a thing of beauty. A nice little retrace back to the neckline of the inverse head and shoulders around $1000. This set up took most of ’08-’09 and it’s not about to fail.

It’s ironic how the guy that made all the money on the US housing bubble just shoveled $250 million of Gold and proxies to gold into his hedge fund and you seem to be stuck on the short dollar theory.

#33 Not Garth on 12.18.09 at 12:58 am

Gold will go higher.

The C$ will go higher.

Commodities will go higher.

The US$ is looking less unattractive, relative to some of the more severe basket cases out there.

Inflation – yes, but muted…I agree…the money printing has not yet meaningfully impacted the supply of money in the system – its all clogged up on the bank balance sheets – no velocity, and nothing to drive velocity in the near term.

#34 Nostradamus Le Mad Vlad on 12.18.09 at 12:59 am

“What does it matter?” — Very good hypothetical question. Jimbo should be able to clear that up for you!

“. . . its trading partners will cry foul at newly-cheap US exports.” — What would happen if the US’s trading partners get into a snit, and start trading among themselves, bypassing the US altogether? Much stranger things happened before, and who can foretell the future with 100% accuracy?

Obama Falling. Dollar flying, markets tinkling
Note the name Hill & Knowlton. Sneaky “The Danish Ministry of Foreign Affairs has selected international communications consultancy Hill & Knowlton as official media sponsor for the UN Conference on Climate Change, COP15, to be held in Copenhagen over two weeks starting December 7.”

Webmaster’s Commentary: “Hill & Knowlton is the PR company that staged the fake crying nurse hoax at the United Nations to trick the American people into supporting the first Iraq war. No doubt they sign the paychecks of many of the ‘warmistas’ harassing the truth movement and assaulting critics at Copenhagen. H&K are the real “Wag The Dog” operators!” Here is the link to the Iraq story.

Is this Copenhagen? / From Washington’s Blog — a clear look at what Copenhagen will really cost — KEnron Lay Rides Again
Some of you have already read about this — Aspartame can shut down kidneys.
7:47 clip of stuff not covered by the controlled m$m (How Convenient!).

#35 victoria on 12.18.09 at 1:06 am

This picture is priceless :)))))))))))

#36 nonplused on 12.18.09 at 1:10 am

#8 Dave

Elementary my dear Watson. The price of a bond in the resale market is always a function of the bond yield compared to the yield on new issues (the current rate). Plus the time to maturity, etc., but let’s keep it simple.

So if you buy a 30 year bond yielding 10%, and 10 years later the current interest rate on a 20 year bond drops to 5%, the 30 year bond with 20 years remaining goes up in price. Dramatically. This is because it has a higher net present value of the cash flow than the new lower yielding bond.

On the other hand, if you have what we are seeing today and Garth is referring to, 30 year bonds are at less than 4%, and the yield on new issues rises to say 8%, the cash flow from the old bond is discounted with an 8% discount rate, and the bond sells for much less than it’s face value, due to the fact that new bonds have a higher yield. So if you sell them you take a big loss. You have to hold them to maturity to get the face value back, but then you only get 4% a year until then whereas new investors are getting 8%.

So this is why it’s time to sell long dated bonds and move to cash or t-bills. A t-bill has the same problem in theory, but because you only have to wait 1 to 6 months to get the face value back, it’s a lot less time to wait to convert from the lower rate to the higher rate.

Right now the market is buying t-bills at nearly 0% interest. This is probably because bond traders do not want to put the money into long term bonds that are bound to fall in value. Wait a few months to a year and get a higher rate.

But Canadian rates will lag until the Cando is $0.80 US, unemployment is trending down, and we have a majority government. They could still go up, but not as much. My opinion. However, even in that situation I am not sure what the Canadian 10 year bond (which determines fixed mortgage rates) will do. It could follow the US long term bond up. If that happens, we could be looking at 8% fixed mortgages while the prime variable rate is still only 3 or 4%. The spread could widen considerably.

Switching to the deficit/gold debate:

I disagree with Garth that the movement in congress will ever get the US to actually reign in the deficit. It might come substantially back down once the default crises is over and the bailouts and stimulus end, but the deficits are structural and at this point rising interest rates compound the problem. Servicing the debt is a major expense for every western nation already at these miniscule rates. When rates rise our governments will have the same problem as a variable rate borrower to some extent. New debt issues will be much more expensive to service than old issues. And since the debt is never paid off, only rolled over, eventually all the old debt gets the new rates.

Gold will rise until the deficits are beaten back down. Maybe not 35% per year any more, that was probably a function of the 1.4 trillion dollar deficit (plus all the other countries including Canada that are now running historically high deficits). But even if the deficits are trimmed 50% from here gold will still rise. (guess at 17.5%). When they get the deficit to a sustainable level (3% of GDP maybe? I don’t know) then gold will stop rising and probably it’s time to call a top. Then it may crash.

Actually gold could top before the deficit is actually at 3% GDP. If the market anticipates that the government will be successful, many traders will “panic now and avoid the rush”. That’s what happened in the 80’s. Gold continued to rise even with rising interest rates until it became clear that Volker was serious. Then it was game over.

#37 Guy named Bond on 12.18.09 at 1:10 am

[email protected]

I thought you were a regular here and would have known how this works. Here’s a Q + D explanation.

Please note how the article mentions the effect is on previously issued bonds. Also note the admittedly over-
simplified computation, which takes into account only the bonds yield, and not its future value or time to maturity.

3 Jax – I think Garth missed “low duration” in your post.
The interest effect is still there, but less severe than long term bonds.

#38 OttawaMike on 12.18.09 at 1:14 am

Let the commercial real estate collapse commence:
Morgan Stanley’s 2007 purchase price 6.5 billion$ in 2007, selling price this week 43% less.
Their solution, walk away.

#39 Freedom 85 on 12.18.09 at 1:22 am

Hyperinflation is a currency event as Jim Sinclair describes, a loss of confidence by investors in a particular currency. My view is the politicians will choose inflation over deflation anyday, even if it means impoverishing their citizens and they are burning down the US dollar (Canada will not be far behind). If we had deflation in our future the monetary base would be shrinking. As you know, it has doubled in size in one year in the US. Inflation is on deck. Currently, these politicians are answering to their investment bankers and not their citizens and all countries have been debasing their currencies. This process will only increase in speed and conviction in the year ahead. I think you give too much credit to the politicians. They only know how to get us all into these big messes but their only answer to getting us out is to print more money. Ultimately, their solutions are getting us deeper into the glue…..

#40 Another Albertan on 12.18.09 at 1:50 am

Sitting in an ETF in a range-bound market is just death-by-a-thousand cuts. Google around for “time decay”. This is especially so if the ETF is leveraged and/or if the range boundaries are essentially a tug of war between bears and bulls (is the range a top formation or a bottom formation?)

As for bonds, the internet is chock-full of articles and tutorials on the fixed income and debt markets. We’re approaching 3 years since the original HSBC writedown provisions in early 2007 that kicked off the whole financial market meltdown. We’re a solid 2.5 years since the pair of Bear Stearns hedge funds melted down and almost 2.5 years since Canadian ABCP froze. There is no shortage of writings out there for people who want to learn more about how machinations of the financial markets. If anything, maybe people would get a more solid grasp that Carney and his ilk can only influence rates. The control is really held within the bond market and within the influences and biases carried by the traders.

#41 Lorne on 12.18.09 at 1:51 am

So, would it be a good idea to put some money in a US Funds account?

#42 Tom on 12.18.09 at 1:56 am

In fixing his mortgage, Ben wasn’t necessarily forecasting rate increases. He was dealing with his own “exploding” rate increase in real-time:

Of course, at 5%, I’d lock in for 30 years too.

#43 Tom Araxias on 12.18.09 at 2:08 am

One is that the US dollar is still the global reserve currency and perceived to be the safest of safe havens offering total liquidity and shelter from debt storms. There’s no reason this is going to change much in 2010.

Haven’t you heard Garth, Bernanke’s renomination passed committee yesterday.

Certainly there’ll be no double-digit inflation in the States, no matter how damn much money they print.

Really, why, have they learned to defy gravity and the world didn’t get the memo.

The second reason for the US currency strengthening will come with Obama’s commission on deficit reduction – a movement in Congress that now seems unstoppable.

It ain’t going to happen Garth, they stop printing and spending and this ship goes down faster than the Titanic. Besides, have you yet met a politician who doesn’t believe in kicking the can down the road?

Thirdly, the longer the American dollar remains weak, the more its trading partners will cry foul at newly-cheap US exports.

That’s why it’s a fiat currency race to the bottom, Garth. Everyone will print, they have no other solution.

And let’s remember that inflation is the result of economic conditions, while hyper-inflation is a purely political decision.

Eeeh, no, inflation is driven by the supply of money in the system and hyperinflation in loss of trust in fiat currency. It sounds like you are suggesting that the Weimar Republic, Argentina and more recently Zimbabwe experienced hyperinflation because politicians wanted that way. You should start reading more.

This, I can assure you, will never take place in the US, as it would be the death knell of the entire North American economy. Washington is not about to impoverish its citizens.

When it happens, Garth, they’ll have no choice. You should like one of those guys who has a blind belief that the “government can fix anything”. I almost forgot, you were a politician.

But wait for Armageddon, currency collapse, wheelbarrow cash and Mad Max?

Hear that sound at the distance, Garth? It’s not a herd of buffalo I assure you. They have become extinct much like the US dollar is becoming now. Enjoy the dark ages.

#44 Expat on 12.18.09 at 2:22 am

Sounds like some folks are hoping for hyperinflation to wipe out that real estate hangover. Dream on.

Personally I’m going long on energy, I have some petroleum and uranium stocks, and wind energy stocks too just to blunt the guilt. I’m not remotely considering selling for the next 2 years, minimum.

Hey gold guys, anyone who bought before 2003 is looking like a hero – kind of like real estate – but your run is done. I wish I bought in 2003, but I wouldn’t touch it now.

#45 K Smith on 12.18.09 at 2:33 am

You have often talked about people with 5% down and 35 year amortizations having Variable Rate mortgages backed by CMHC. I believe that under CMHC regulations you have to have 10% down before you can take a Variable Rate mortgage? Anyways I am thinking this may save some people some future pain as they have to lock in today according to CMHC policy. Just trying to find some positive in that not everyone today getting a mortgage with little to none down will get killed by Prime rising. There are enough things that many of these people will have to worry about such as keeping the jobs, not getting divorced, not being forced to sell because they would like to move elsewhere.

#46 Amy on 12.18.09 at 2:54 am

Carney: risks to financial stability “continue to increase”
Dec 16, 2009 Matt Stiles

Mark Carney, Canada’s top central banker, gave a refreshingly colourful and provocative speech to The National Forum in Toronto on Wednesday. As with recent communiques, Carney focused on issues pertaining to Canadian and American household balance sheets, further suggesting that rising debt levels have superseded currency fluctuations as the Bank’s biggest concern.

#47 MAXIME on 12.18.09 at 3:00 am

Garth, please explain me something. If there is no danger of inflation and that the biggest threat to the economy is falling prices and deflation, how could you forsee significant rates hike? Rates may move a little bit away from zero but without inflation they won’t go u p much. And no housing price crash (maybe a slow decrease through coming years, but no crash). Plus, if you look at the yield curve and its big spread (between short term and 5, 10 years) a small increase in BoC rate may have almost no effect on bond yields (and mortgages rates) since the spread is very large and will shrink.

I agree with your housing prices crash theory, but it is incoherent if you don’t call inflation, hence no rates hike.

It’s interesting how the debate on your blog is moving from specific housing to more general economic forseeing.

Sorry for my bad english, I’m french canadian.

Bonne nuit,

#48 TaxHaven on 12.18.09 at 3:45 am

Maybe you’ve bought the farm.

The last thing the Obongo administration wants is a stronger dollar, for the simple reason that it makes debt repayment much harder. Nor do they want higher interest rates, though the market will force those on them.

In terms of the larger picture, Americans (and Canadians) have for years – decades – been enjoying a standard of living unsupported by their expensive products & labour, burdensome social welfare states, and resultant low productivity cost-wise. Large swathes of the world’s consumers simply do not wish to pay ludicrously high prices for North American products merely to support consumerism.

Face it: lifestyles in North America are on their way DOWN, and have been for years. The necessary reining in of consumption has been delayed through the taking on of more and more DEBT. This is a historic shift, and unstoppable one. Something has to give: real or nominal wages? Credit exceeding ability to repay it? Price s for products? Tax raises? Price inflation? Monetary inflation?

The preferred choice is a weaker dollar, something that STILL hasn’t registered with the mass media or with the hoi polloi because they don’t see it – yet.

It’s an unspoken but conscious – and unavoidable – policy.

And no, Mad Max is not coming. Just higher structural unemployment, lower real wages, price inflation, monetary inflation, more debt, shoddier products and fewer imports.

#49 Jane54 on 12.18.09 at 3:48 am

Garth any way of changing this photo before Canada wakes up as I actually find it quite upsetting.

Maybe I’m not as hard as some of my fellow bloggers. Sadly some people do some sad things in life.

Snowing in the real London and everyone is freaking-out! They got about one inch.

#50 JOS on 12.18.09 at 4:48 am

For each point you made Garth, first, do you thinks that a spring market crash is going to be more acceptable than milk .50 higher per jug, or gas a few dimes higher per gallon? Will that bode better for mid term elections
popularity on a fresh spring crash? Most who vote are boomers and unions like Calpers etc who have their retirement account tied up in the markets, crash?

Probability low until after mid elections. As well, since they just raised the debt for 1.8 Trillion for next year, I would expect they will digi-print as much as they can in jan feb and march, so watch for record bond auctions in these months. Essentially, they will likely create most of the years funds as soon as they can so it becomes a distant memory by mid elections.
However, if the Commercials keep their shorting ratio this high it very well may cause a crash, that would be business in America forcing a president out of office, a very real possibility as well. I have taken note that the Commercial shorts are very high on the markets and the S and P particularly, should make for a very interesting spring. Overall we may see a corporate coup of the government, simply waged financially. The presidents working group for financial markets may very well be in a serious conflict of interest and could be attrition for way to practically treason. A great risk if you deminish away the retirement of the people.

As for double digit inflation, when CRE banks stop failing, and the mortgage and housing market finally bottoms in 2012, and money velocity through the economy picks up again, there is a reasonable probability of double digit inflation after that time. Remember that Stagflation party during the ghost of Christmas 70’s, you ate, partied and you still haven’t paid for it.

Debt reduction? Where? 1.8 Trillion for next year? 30,000 more troops deployed to Afgan soil (As well as an record increase in Defense expenditures), Health Care reform with Obamas laughable estimate of only 1 trillion added over 9 years? Where Garth? %16 government employees make over $100K/year now when only 3 years ago it under %10. A new stimulus package on the agenda ready for next year, I can go on with alot more. Where do you possibly see debt
reduction and fiscal prudence? What trend do you see that makes this so? I see trends in the exact opposite direction.

As for America’s trading partners crying foul, who? Do you really believe the US gives an X about them? They have the world’s most powerful army, unemployment edging towards %11. The only one that matters to the US is China credit, end of story, and China was so
very wise to peg their currency to the Dollar so that when the dollar devalues, so does theirs. I surely hope you do not mean us as in Canada, my goodness. We only wait for them to ask us to jump so forget that.

#51 Jojo on 12.18.09 at 4:53 am

Garth said “I think the Fed, Geithner, Bernanke and Obama are smarter than you (or me). This will not happen.”-ABOUT CURRENCY CRISIS….
WOW, Garth do you really believe to Fed, Geithner, Bernanke,Obama? Did you believe to FED,Greenspan,Paulson, Bush in 2000?
So current crew Geithner, Bernanke and Obama are smarter than Greenspan,Paulson, Bush ?
“This will not happen.”??? THINK AGAIN
Budy around Obama is the same crew “Goldman Saks Guys”
Look the economic disaster in USA from 2000, only one Trillion goverment debt jumped up to 13 Trillions.
Tech. bubble,housing bubble, Oil bubble Enron,GM,Chrysler,Lehman Brothers,Nortel,Bear Stearns,Washington Mutual,WorldCom,
CIT,Conseco,Thornburg Mortgage,
Pacific GasEl,Merrill Lynch
and what about Rocket-pocket guys AIG, City, Fanie Mae, Fredy Mac.
“This will not happen, Again.”???
Almost 8 millions jobs were wipped out from 2007, and
over 20 millions homeowner are under water, also we saw worst stock market crash after great depression.
And what Obama did about Iraq, Afganistan?
Even worst than Bush, now he moved 60,000 more TROOPS in Afganistan. Military budget $ 600 billions is not enough for another front Iran,North Korea or Venecuela.
Well they will print money and print,print,print.
Look the Gold price from 2000?
Ha, from $ 250 jumped to $1,228.


“But wait for Armageddon, currency collapse, wheelbarrow cash and Mad Max?
In your dreams,” ………..


#52 JOS on 12.18.09 at 5:15 am

As well, to add about inflation from my comment above. There is great confusion about inflation and deflation. In its original definition, inflation is an increase in the money supply. So indeed we do have inflation.
Many confuse inflation and deflation with this definition just because they see the prices of assets going down in value.
There are two types of inflation and two types of deflation. So, without going out of control in description I’ll keep it simple simon,
Type A: Asset price inflation, Keynesian term for things going up in price like milk and houses etc due to supply demand.
Type B: Asset price deflation, Keynesian term for things going down in price as the money supply contracts via credit.
Type A2: Inflation, Austrian definition which is an increase in the money supply.
Type B2: Deflation, Austrian definition which occurs in a decrease in the money supply, example is before 1933 when the US Dollar was tied to the gold standard. By the way this is the only true deflation in the money supply that has occurred in the last century and therefore is the only deflation that has occurred in relatively recent history.

It does little to no service to confuse so many when tossing around terms like “Deflation” Garth until you have a better understanding of monetary theory. So to keep it simple, price inflation is constantly occurring because of an increase in the money supply. Just becuase the price of assets goes down does not define that as deflation, however that is “Asset Price” deflation.
I see the terms Inflation and deflation confused so often, I could go on and elaborate how credit fits in this but for now that’s the bare bones of it.

#53 breezer1 on 12.18.09 at 6:11 am

garth, i wish you were right but if you just look at the way things are unfolding, collapse is a question of definition. i see things getting so bad that hyperinflation will be the end result. deflation will be so bad that a collapse is inevitable with hyperinflation only the loot bag at the end of the party. your view is wishful thinking. merry Christmas and God bless us all.

#54 Mike (Authentic) on 12.18.09 at 7:10 am

#5 Jeff Smith “Where is the best place to learn Photoshop?”

In 1-3 year Graphic Design program at George Brown College in TO, that’s where I learned it.

#7 N “inflation is the printing of money Garth.”

Yes and no. You need to look at the big picture. Money that is paid back in taxes, gov’t loans paid back (ie banks TARP), worn out/removed currency, lost jobs, lowered incomes, higher interest rates, no bonuses, paying debts, investors buying the CDN will all cause deflation and/or a increase in CDN value (or so I think).

#9 T.O. Bubble Boy – Great points especially like the future sales that were pushed forward part.

Garth – With the USD/CDN exhange rate at 1.06ish should I trade in some CDN for USD and pay a little money market myself that the USD will go up vs the CDN? (note, I have a bad track record for guessing the USD/CDN…haha)


#55 Nick on 12.18.09 at 8:20 am

RE #5 – Jeff

If you are interested in learning some quick photoshop skills, then check out this site.

The “You suck at photoshop” videos are hilarious and teach you a few cool things.


#56 pbrasseur on 12.18.09 at 8:26 am

Dollar gaining also because the risk in Europe (which so far has attracted investment) may prove just a little too much…

My money in on the US, especially US multinationals that do business all over the world.

#57 Hiteclowtec on 12.18.09 at 8:43 am

If interest rates are going up won`t preferred shares take a hit because they are like long bonds ? Especially the perpetual prefs.

The value of preferreds does mimic bonds, but in a less pronounced way. However, the reason you buy these is for dividend income, the yield on which is not determined by market rates – so who cares if the capital value of the shares declines a bit, for a while? Dividend income, as you know, is even more lightly taxed than capital gains. — Garth

#58 Kash is King on 12.18.09 at 8:55 am

1) Garth knows a thing or 2

2) If anyone knows when to refi and lock in @ bit above 5% for 30 yrs, it’s bald Ben- world’s best beard tho…

3) What Ben Fulford is saying dovetails with what Garth outlined; namely, the Federal Reserve has alledgedly ALREADY been audited, and alledgedly fraudulently created money (derivatives) are being snuffed out, thereby reducing the $$ supply= deflationary.

#59 Confused in T.O on 12.18.09 at 9:14 am

listening to the radio this morning while driving to work there was news/discussion about:

-debt and how more Canadians are falling into the trap
-Federal Government debt increaseing
-Municipal government debt, out of control
-U.S pleding to bring a $100B to the table to combat Climate Change
-trade deficite increasing
-1 in 3 have no personal savings towards retirement
and then…you guessed it…
HOUSING MARKET IS SO HOT! with great gains in value!

Other than the people on this site,

It feels like im living in this futuristic dream world totally obscured from reality. I’m no economist, but in science, it’s all about “equalibrium”, everyhing must return to its balance or it can’t sustain itself!

It’s sad governments tamper with this stuff to buy votes!!

#60 HK Canuck on 12.18.09 at 9:15 am

#35 nonplused

You make a lot of sense, and your discussions always sound credible and knowledgeable. Thank you for your comments and I hope you will continue to provide your rational commentary to this blog.


#61 Alister on 12.18.09 at 10:10 am

GARTH- where have you been the last 50 years???????

I’m 56, so we have lived the same life !!!!

US (or Canadian $) is a reserve currency?????? Reserve of what??? Safe haven???? Safe from what??????? Storehouse of value???????

Here is my 56 years of observation.

1. All my life, the US has run deficits, and Clinton surpluses were just lies. Deficits mean they print the difference between what they tax and what the spend. Its that simple.Thats why the $9000 house my father bought in 1955 is $300,000 now, yet its the same house. Dollar reserve? Dollar safe haven? Oh ya, his new car was $2200.

2. There will be no stopping fiat creation! Its THE GREAT GAME. Busy hands are happy hands, and the gov knows that people who aren’t working make trouble. So devaluing the currency means they must always work to make up for the loss in purchasing power ( and keep em busy). When I was young I saved 30% of my pay each week – that was $30/wk or 15 hours pay. $30 is a lunch now. 15 hours pay is $450 – the point is, my fiat savings now have little value so it WASN”T A RESERVE OR SAFEHAVEN

3. based on my life experience, I would say your money depreciates 6% a year – EVERY YEAR. Forget all the analysis of what the FED is saying or doing. Just face the facts -its 6% to stay even – period.

#62 Gord In Vancouver on 12.18.09 at 10:13 am

Carney’s Cautious Comments Angered Canadian Banks

On Wednesday, Mark Carney warned Canadians to watch their debt levels:

Looks like he’s ruffled a few feathers……

On BNN today, Eric Lascelles (TD Securities) was basically begging for Carney to not raise interest rates as he said that bubbles are hard to identify.

Benjamin Tal (CIBC senior economist) was also featured and basically said that Carney overexaggerated the situation.

Here’s a video of Tal’s comments:

#63 Weeping in Windsor on 12.18.09 at 10:26 am

Online in the Windsor Star today:

Average Windsor resale house prices drop nearly 10 per cent

#64 View from the south on 12.18.09 at 10:40 am

Wanna know what it looks like?
15% plus unemployment.
Falling house prices.
Greater need for social services but lower donation levels.
I spent the day yesterday delivering food boxes. The new needy come from every walk of life and live in every part of the city.

#65 Popeye on 12.18.09 at 10:43 am

Thanks Garth, I just locked in a 3.99% 5-year fixed (from a 2.65% variable) at a major bank based largely on the information that your website provides (I’ve been frequenting the site for almost 2 years and it’s been invaluable).

Now I gotta go re-read my signed copy of ‘After the Crash’.

On another note, anyone see BNN this morning and the anchors talking about how the real estate gains in Canada are ‘different’, and they even indicated the gains are ‘real’ or based on ‘real wealth’? It was a little surreal.

#66 charles on 12.18.09 at 10:48 am

“You will not recognize Canada when I get through with it.” Stephen Harper

Make Canada an international laughing stock on Co2 emissions reductions. Check.

Get Canada branded a torture state as it holds the bullies coat. Check

Bankrupt the public purse through strategic revenue cuts and out of control spending contrary to Conservative values. Check

Encourage and profit from organized crime by continuing the war on drug users. Check.

Increase the prison population with an eye on GDP. Check.

Brand all opposition as terrorists and Taliban. Check.

Thank you very much New P.C.s, Reform and Neocon Liberals, I dont recognize the place. Well done.

#67 Popeye on 12.18.09 at 10:51 am

#47 MAXIME on 12.18.09 at 3:00 am
Fixed rates will go up when countries raise money to fund deficits (i.e. they will raise interest rates to increase the demand for their currency). Think of all those countries out there running deficits, at some point they will need to increase rates to fund operations. (hence largely why I just fixed my rate to get in ahead of the rate increases).

The variable rate moves up when the Bank of Canada raises it’s overnight lending rate. This one is more difficult to forecast because increasing this rate increases the value of our dollar, hurts our exports and slows our economy.

#68 McSteve on 12.18.09 at 10:55 am

Sure money = XRB

Nothing is sure money, not even a real return bond fund. — Garth

#69 Durrman on 12.18.09 at 10:59 am

To #8 – Dave

If current interest rates go up, previoulsy issued bonds will sell for less then face value, in fact so much less so that the real return on the bond will match current interest rates.

In other words, if you try to sell a $100 bond that pays 1% interest, when you can buy a new bond paying 5%, you would not be willing to pay $100 for that bond, but something less.

#70 Kurt on 12.18.09 at 10:59 am

Jane 54: Think of the graphic as a wildly-exaggerated cartoon – too silly to be taken seriously. It’s very obviously photoshopped – the highlights on the gun indicate a very “hard” light source on the right, and the light on the kitten is from a “soft” source on the left and behind the kitten. No cute and cuddly animals were even inconvenienced in the creation of this photo, never mind posed with a lethal piece of hardware. See also Scott Adam’s tussle with the Girl Guides of America.

#71 PeckedToDeathByDucks on 12.18.09 at 11:19 am

The ears of a cat…

– Please consider changing that picture Garth. It offends my sensibelly and is rumoured to put PM Harper off his Copenhagen feast.

– In that $100 billion fund that Mrs. Clinton promised, she didn’t specify how much the U.S. share would be. She mentioned “multilateral” sources, which could include the World Bank. That’s us Canadians. Everyone is falsely assuming that it will all come from the USA. This way Canadians will still get all the derision while their people pay quietly in the background.

– An interesting and disheartening measure of the Economy for one in eight Americans relying on food stamps…
Midnight in the food-stamp economy (Reuters)

– In case you missed it, the USA raised their debt ceiling again while President Obama signed bills for spending of more than 1.5 Trillion. Cutbacks? Is the paperprestidigitizer carbon neutral? Only if you sequester the paper.

– When considering any investment decision these days the movement of the American $ seems to be in control. You have to determine who controls that and then factor in the amounts of bing they could make in other markets by ratcheting it up and down like a ball in a pinball machine.

#72 Solitario on 12.18.09 at 11:20 am

Can’t dump real estate at the top, cause I have nothing to dump.
Commodities- just bought Husky Energy (4% dividend). I like HSE’s China connection.
Just followed Garth’s advice and bought BCE stock (7% dividend) using secured line of credit (2.25% tax deductible interest). This way I earn 4% using somebody elses money. Plus the dividend tax credit…
ETF’s?- I don’t like and I don’t use.
Don’t know what’s the best way to short bonds. Maybe Mr.Turner could elaborate…

#73 jr on 12.18.09 at 11:24 am

To all those who buy Gold–based on Jim Sinclair’s calls–
btw–i’m long term bullish on Gold–but–
Sinclair is a deamer-

Here’s Sinclair’s magic gold price numbers–

Giving you gold price objectives has not proved in the past to be in your best interest as we are read by both sides of the gold market spectrum.
However, one time ONLY, here they are:
– $1000. Three tries and success. This is the third try.
– $1024
– $1089
– $1156
– $1225
– $1296
– $1369
– $1444
– $1521
– $1600
– $1681
Then on to Alf’s numbers.

He never reveals how he comes up with those numbers-
here’s how–

this is the mystery of his numerical order => take each second addend and add “2”
– $1024 +65 = 1089
– $1089 +67 = 1156
– $1156 +69 = 1225
– $1225 +71 = 1296
– $1296 +73 = 1369
– $1369 +75 = 1444
– $1444 +77 = 1521
– $1521 +79 = 1600
– $1600 +81 = 1681
– $1681 +83 = 1764

These came from a blogger in Germany–

#74 $fromA$ia ( o Y o ) on 12.18.09 at 11:26 am

Three very germane posters on this site.

Garth….Vlad…and humble little moi.

Garth, I didn’t know you were a groupy?

#75 Toronto C9 Renter on 12.18.09 at 11:37 am

#30 Jim Sinclair…

“Supply from the desire for diversification and from the ever-growing size of Treasury auctions is dollar supply that will not be offset by increasing demand, except for the brief moments of Management of Perspective Economics.”

Jim, what the heck does this mean in english, if anything?? So confusing!

#76 knucklewalker on 12.18.09 at 11:43 am

I always laugh when I hear so called sage and experienced commentators shake their heads and “wisely” proclaim that there is no crisis, it is all just part of the grand game of economics that has been played out for 100s of years.
None of these jokers have ever actually experienced a “hyperinfaltionary event” (because they would damn sure not be saying that gold isn’t money…ask an Argentine what he thinks of that whacked concept). I laugh at those folks who think that their money is safe parked in any “paper instrument” and that RRSPs are in any way a reasonable way to preserve wealth in the long term.
I suggest that folks on here that buy into the “all is well” and we are just in an “economic hiccup” go spend a kittle time in a third world nation……or better yet…if in Canada…just shut off the central heat for a couple of hours …..see how “secure” your RRSPs and your paper assets make you feel as the cold creeps in.

Then you can burn your gold in the fireplace. — Garth

#77 GrimWeeper on 12.18.09 at 11:52 am

Thanks to Dr. Doom (Nouriel Roubini) and this Garth Vader blog, I’m rather fearful that the worst is yet to come.

#78 MR4PUTT on 12.18.09 at 12:00 pm

I didn’t read all the responses, but one thing I notice year in and year out is that the US$ rises in December. I believe that part of this is due to US Based companies with overseas branches repatriating profits. This creates a demand for US$ as the currency gets converted. I don’t know if this profit repatriation outweighs anything mentioned in the article, but it sure helps push up the US$. Just My 2.5cents worth.


#79 Mike Turner on 12.18.09 at 12:12 pm

The economy was created by humans who evolved from monkeys. I’m gonna go eat a banana mmm…

#80 jr on 12.18.09 at 12:19 pm

Money is King in deflation–
Gold is money-the best money–
Very funny that Mulrooney sold all of ours–
Guess because he didn’t believe in Gold–
Very funny that he now sits on the board of directors of Barrick Gold–
700 metric tons–is a high price to pay–for becoming a member of the G8 and to help collapse the world gold price-
Funny as well that the Saudies opened their taps at the same time and collapsed the price of oil–
Funny as well,that those two actions,caused the bankruptcy of the Soviet Union–

Question is–who bought all that cheap useless Gold?

#81 miketheengineer on 12.18.09 at 12:38 pm


Merry Christmas… all and hope all are doing well.

I really, really hope your prediction here is 100% on. Too many others on the big old web are saying the US is going for even tougher times in 2010, and this means we will have it tougher. Nostra is predicting an event. Let’s hope no events will happen. An event could change things, and several web sites are predicting an event. However, those same web sites predicted events before and were wrong. I showed my spouse the article from yesterday. We still have a VRM, which is good for 1 more year, and an unbelievable rate. I want to lock in, but she still wants to wait. Either way, being out of a full time, decent paying job, is hurting us, and my fear is that we will have to sell, or re-finance the debt somehow.


I wish I had a full time job, so I could pay the mortgage and buy food. I am grateful for the part time job that I found, but I still need a full time one. No matter what happens, I am going to keep this part time job. No more will I depend on one employer. I was told by a few to take the time, and to look for a good self employment opportunity. Hey, if not one wants what you have to offer, you need to change directions, look at everything.

#82 McSteve on 12.18.09 at 12:52 pm

“Nothing is sure money, not even a real return bond fund. — Garth”

Fair enough. I’d never put all my eggs in one basket but the realitive downside to upside looks pretty good right now with the XRB. With rates at 0 – 0.25% they have to go up. If we get deflation, the underlying bond value will give it some support.

Interesting to see Norway hiked rates from 0.25% all the way to 1.75%. Rate hikes might not be so incremental after all…

#83 Just Janice on 12.18.09 at 12:56 pm

Heard the funniest thing on the radio today (CFAX) in Victoria…Murray Langdon was saying that Victoria and Vancouver are immune from the ‘housing bubble’ because they are not resource towns. He concluded that short of something catastrophic happening there would not be a collapse in housing prices.

Apparently, Mr. Langdon, can’t fathom what a more than doubling of the local unemployment rate and soon to be higher mortgage rates will do. Not being ‘resource based’ didn’t really help Arizona, California, or Florida. And if only the rest of Canada is ‘susceptible’ to a collapse, then where are all of our retirees going to come from?

#84 PeckedToDeathByDucks on 12.18.09 at 12:58 pm

“Our children and grandchildren will ask not what our generation said, but what it did. “…Prince Charles
– that’s what he said

– here’s what they did:
PM Brown and Prince Charles take separate jets to Copenhagen along with other World Leader jetsetters to lecture the people of the world who pay the price.

what ever happened to videoconferencing?

#85 HJ on 12.18.09 at 1:03 pm

Deflation is a contraction of money supply and credit. Period.
While the Fed is increasing money supply, it’s not moving (no velocity, no multiplier effect).
Meanwhile the enormous credit bubble (many times LARGER than the money the Fed has printed to date), which fuelled all the bad debt in housing, industrial and commercial property, is and will continue to deflate for years to come.
We have overcapacity everywhere in the US, housing, industrial and commercial.

So who is going to lend or borrow this newly created money when everyone is already up to their eyeballs in bad debt?
Where are the credit worthy borrowers when everyone is already drunk with excessive debt?
What would business do with it, build more housing, industrial and commercial property where there already exists a massive overcapacity?
Build more plants and buy more machinery to manufacture more goods that the consumer either does not have the money to buy or the desire to part with it?

You cannot help a drunk by feeding him more alcohol!

The economy is not ‘fixed’.
US unemployment will continue to rise for another year and remain there for years.
People are trying to save and pay off debt.
Even if they are employed, they’re worrying about being next in line for the pink slip.

Consumer spending is way down and will remain there for YEARS … there will be no ‘price inflation’ caused by consumer spending, because consumer spending is and will continue to be down.
Wage arbitrage (job outsourcing) has been going on for years, this alone has keep ‘wage inflation’ down.
What is left of the unionized automotive sector in the US had their wages and benefits slashed and NEW automotive hires in the US (whenever that occurs) will start at half the wage of existing members … no ‘wage inflation’ there.
Public sector employees will have there wages and benefits cut as well as MANY cities and states teeter on the verge of bankruptcy.
Others in many other industries have experienced wage roll backs.
What about public pensions, they’ll be around in the future but will pay dimes on the dollar … NO help for consumer spending there, No ‘price inflation’ there.

DEBT, DEBT, DEBT, the result of ever cheaper interest rates and ever loosening lending standards and loosening bank regulations for the last 25 years will lead to a lost decade (if not longer), just like Japan experienced (and continues to experience).
Average debt to family income ratio has NEVER been higher in the US and is TWICE what it was just 25 years ago!
All this debt needs to be paid off or written off before we ever have a ‘recovery’.
The consumer has withered on the debt vine and demographics do not help as the baby boomers circle the wagons trying to prepare for retirement.

Our standard of living was unsustainable because it was fuelled by an ever increasing amount of debt and now we pay the piper.

Europe, China and the rest of the world have there own MAJOR problems.
Don’t just look at the US under the microscope.
When push comes to shove, people will pick the currency that is the best of the worst.
For all it’s faults, the US will not collapse, nor it’s currency in the near future and there certainly will not be any major inflation or hyper inflation … but WTF do I know?

Really, some people should read more about what deflation actually is.
Here are two good posts to start with.

#86 Michael on 12.18.09 at 1:06 pm

Right on #19 (Nostradamus jr) – something up with unprecedented money flow into short-term T-Bills. Expecting another severe market occurrence – soon.

The recent Iceland fiasco shows how a nation can experience both deflation and high inflation via a currency collapse.

The rising interest on 30-year US Treasuries may be signalling increasing inflation.

Saaaafe Púss

#87 Mountain man on 12.18.09 at 1:13 pm

Garth I have been following your website for a number of years now when initially your thoughts may have been viewed as unpopular or severely contrarian. The fact is, I was real estate heavy, sold at the height of the market, kept a workable piece of land (grow veg and livestock if and when necessary) and now have a 1800 sq ft. home with a family of four. We are debt free, no mortgage. Downside is that the work prospects are poor. In any event, I write today to tell you that I can sleep at night and large in part it was based on advice from you. You must be a busy guy, and to keep this blog updated daily is much appreciated.

#88 Roial1 on 12.18.09 at 1:14 pm

I think that this guy has read your book —-Before you printed it.


All that this guy says is “Just the facts mam, only the facts”.

This is not a link. You will have to type it into your browser. I could not get my editor to copy and paste for some unknown reason.

#89 brett on 12.18.09 at 1:19 pm

garth said….”Washington is not about to impoverish its citizens.”….I say hahahahahahahahaha.

They already have. theft is natural, why are we surprised when people in power steal?

just wait for the 1000 trillion OTC derivative blow up, and the downgrade of US credit. the nightmare scenario for the US and this world is not just possible but very likely. and guess what ….IT IS PLANNED.

#90 jess on 12.18.09 at 1:22 pm

“no velocity, and nothing to drive velocity in the near term.”

Policy drivers

principle based needs some guiding rules and regulations our finance minister speaks of ‘codes’
n., pl., -cies.
A plan or course of action, as of a government, political party, or business, intended to influence and determine decisions, actions, and other matters: American foreign policy; the company’s personnel policy.

A course of action, guiding principle, or procedure considered expedient, prudent, or advantageous: Honesty is the best policy.
Prudence, shrewdness, or sagacity in practical matters.

Remember the decoupling speculation


November 22, 2007
…”It is possible to trace the relative health of the Canadian housing market at least partly back to regulatory matters. The Canadian banking sector was less adventurous than the U.S. over the past several years, choosing not to mimic the U.S. innovations of ever-more precarious mortgage products that are now coming home to roost in the form of elevated default rates, major bank losses, and declining home prices. Canada’s securitized mortgage market is also substantially smaller than in the U.S, leaving more debt on the balance sheet, and thus ensuring caution. These differences can be attributed at least in part to a less competitive mortgage market in Canada – one where a handful of big banks dominate. In turn, this is at least partly due to government regulations that limit foreign competition in the sector. The other regulatory influence upon this sector has been the fact that even risky mortgages in Canada are insured, whereas in the U.S. this is not the case. These two factors now position the Canadian economy to perform somewhat better than the U.S. on housing and consumer related factors.”

#91 Future Expatriate on 12.18.09 at 1:28 pm

“Then you can burn your gold in the fireplace. — Garth”

There you go again, Garth… you know darn well gold doesn’t burn.

It smelts.

#92 Chip From My Three Sons on 12.18.09 at 1:29 pm

Garth, you’re quoted in this article, so you’ve likely seen it already, but worth a read for everyone on here:

#93 MC on 12.18.09 at 1:30 pm

I found this article interesting in the aspect of the scenario of currency revaluation mentioned above, considering North Korea just performed that.

It’s a bit off beat but thought this article might interest some to see a micro version of an actual event play out although few parallels with anywhere else to match, it is N. Korea after all.

#94 j on 12.18.09 at 1:33 pm

One decent approach IMO would be to short the actual CMHC bonds (CHT or NHA auction securities). Problem is how do you get ahold of them when time to buy them back to close your trade?
Maybe there’s a long bond etf that can be shorted which will do the trick?

Any suggestions?

#95 Duane on 12.18.09 at 1:34 pm

Washington’s intentions are one thing; what it has control over is another. The idea that the US has full control over the value of their currency flies in the face of what has actually been happening (see dollar index). The only thing the US can do is delay through manipulation of the GDP and CPI – something they have public documents on that shows you how they do it (substitution, geometric weighting, and hedonics); we do these in Canada too. While it is never wise to try to predict a precise time, I can confidently state that the fiscal and monetary policies conducted in the US, along with their mounting debts and off-balance sheet debts, will ensure Washington has no choice but to monetize a larger and larger percentage of debt as time marches on, thereby forcing the inflation rate higher and higher. Their is no amount of intention that can overcome this.

Also, the US is extremely sensitive to foreign demand for their debt. I believe that existing holders of US reserves are actively looking to unload without that action backfiring on them. I would not be surprised if the Chinese start unload some reserves during the current dollar rally.

#96 Ultraman on 12.18.09 at 2:13 pm

#45 K Smith said ” I believe that under CMHC regulations you have to have 10% down before you can take a Variable Rate mortgage? ”

Not correct. You can with 5% down but for the purpose of calculating your debt service ratio the payment is calculated based on the posed 3 year fixed rate. In anticipation that you variable rate could go up.

#97 PeckedToDeathByDucks on 12.18.09 at 2:28 pm

Economic forecasting… interesting documents appearing on the G&M site about proposed Climate Change contract. An economic gun to our head?

Since Obama told the Copenhagen summit, “I came here not to talk but to act,” he has had talks with about a dozen foreign leaders… that funny only to me?

Don’t you usually pre-arrange your victories before the meeting? Didn’t they have ten months to prepare and act?

Ahhh, feggit about it, it’s time for me to hibernate.
Best wishes to Garth and all his posters.

#98 Comfortable in a coma on 12.18.09 at 2:54 pm

#19 Nostradamus jr.
“Three German Pointers on this site.”
Garth and the Looney Tunes

#99 Medic on 12.18.09 at 2:59 pm

The argument that “it’s different this time” in support of economic doom and collapse is just as weak as when it is used to support Nasdaq 5000 or Dow 30000.

#100 wise on 12.18.09 at 3:10 pm

My forecast of CHMC/CREA forecast:

This december average and median housing price is going down. Total sales is going down as well compare to previous month, but still higher than dec last year(yoy).

CHMC/CREA will says: to last December ( (yoy), there is increase in number in sales and average price compare to dec 2008.( every one also knows this dumb things, that last year RE is down).
how ever..they will say.. compare to last month there is little bit decrease in sales and average price.. this is only seasonal pattern when winter is usually everything is freeze ( Duh…).

But they will see that in several month the average sales and price are still going down slowly. And CHMC/CREA will says: It is a little bit correction after several months boost in RE market.

So… if we know already what CHMC/CREA will says every month..what should newspaper put their comments??

Go to hell

#101 Soylent Green is People on 12.18.09 at 3:23 pm

Less jardon-speak and more plain English please.

#102 Soylent Green is People on 12.18.09 at 3:24 pm


#103 Ian on 12.18.09 at 3:30 pm

Please don’t be so naive about Obama and Bernanke thinking about people!

Here is an excellent documentary on their real intentions, the Congress interrogating Bernanke episode is just priceless.
Everybody who seeks TRUTH must watch this:

You have linked to a subscription commercial site. Don’t do it again. — Garth

#104 jr on 12.18.09 at 3:35 pm

#85 HJ on 12.18.09 at 1:03 pm

Deflation is a contraction of money supply and credit. Period.

you gotter HJ

Mish will give ya a lesson in economics–
btw–he likes gold–

#105 TorontoBull on 12.18.09 at 3:56 pm

#85 you need to start your own blog… very well presented and thought through. I do think however that we will see some headline inflation in the next six months or so, because commodoities really crashed this time last year so Y-O-Y comparisons will show some inflation. I will watch what is happening in the second half of 2010
A piece of advise – don’t make comparisons with Japan -Garth doesn’t like it…we are different, blah blah, blah

#106 Until then, we wait and watch. on 12.18.09 at 4:23 pm

Many of us who believe in honest money and thus are advocates of gold are contemptuously dismissed and sneered at by the elites as “gold bugs”. Contrary to the image that they have spun into existence, I do not want to see the Dollar collapse and head into decline. No nation can ever be great and prosperous with a weak currency. Find an example in history in which that has been the case and I will cede the point. The truth is however that we are faced with certain realities, the least of which is a ruling crowd who seems determined to follow the same policies and practices that have led to the inevitable decline of any nation or kingdom which has implement them. To ignore these facts or pretend as if they do not exist is not the fruit of wisdom. Wisdom goes hand in hand with prudence and the prudent man seeks out a refuge during a time of crisis. For many of us, that place of refuge is the “barbarous relic” from a bygone age – gold. When we get leaders who implement policies that are sound then we can leave our place of refuge. Until then, we wait and watch.

And make multiple posts here under different names. That takes some time. — Garth

#107 TheBigLebowsky on 12.18.09 at 4:41 pm

The reason for U.S dollar strength.

The Federal Reserve prints 500 billion dollars out of thin air. It swaps this money with other countries central banks, buying their local currency. Whe the U.S wants the USD stronger it sells these currencies into the market, thus making the dollar look stronger and the othe currencies on the USDX weaker. This is how our governments manipulates the currency markets . As well as temorarily driving the price of gold down. This is artificial and can only last a week or two. This is how the real world works. It is all done in secret . There are no free markets anymore. The Governments have their fingers in everything, and use our tax dollars to do this . The Foreign countries who exchanged their currency for the 500 billion U.S dollars, uses this money to secretly by U.S treasuries during their auctions. This props up the bond market and allows the U.S to keep printing. But Some people with a Blog would say I need my Meds . Be very careful who you take financial advice from. A little knowledge can be a dangerous thing.

Careful! What’s that behind you? — Garth

#108 Coho on 12.18.09 at 4:50 pm

And let’s not forget that we will be paying billions each year to a global tax scheme called carbon emissions trading, supposedly to help developing countries grow in a “green” way. This sounds like sending money to international agencies to feed the hungry, with the hungry who receiving very little or none of it.

Nations are being stripped of their wealth and homogenized into a “global community” where we and our representatives from municipal government right up to the federal government will be effectively silenced by a central world government body…our mouths shut with our wallets out.

#109 Vancouver_Bear on 12.18.09 at 5:48 pm

Canada is doing really good …….reporting record deficits:
Canada’s Budget Deficit Widened in October as Tax Revenue Fell

#110 DaBull on 12.18.09 at 5:57 pm

#82 McSteve

Norway raised their interest rate by 0.25%. It was 1.50% and they raised it to 1.75%. They didn’t raise it 1.50%.

#111 Lasttoleavetheparty on 12.18.09 at 7:08 pm

No witty comments from this user. I’ve been sitting waiting for a correction in Real Estate for a few years now, but nothing yet. Took a 35% hit in my portfolio with the Financial crisis last year and was seriously considering the “Couch potato portfolio” of ETF funds as I’m not a day-trader. Is this a bad idea now? If so, I’m lost! Any insights welcome.

Btw didn’t understand the “range-bound” comment- had to look it up. Still not clear on the “chase a tax-advantaged 6% dividend yield”

That ‘couch potato’ portfolio should have a skull-and-crossbones on it. The thing is toxic. — Garth

#112 X on 12.18.09 at 7:09 pm

Let me guess, Bernanke just locked in and now Flaherty is trying to sell before:

“If we have to, we’ll do what we did last year and limit the rate of amortization further than we already did, and require higher down payments,” said Mr. Flaherty.

#113 My_view on 12.18.09 at 7:38 pm

“But wait for Armageddon, currency collapse, wheelbarrow cash and Mad Max?

In your dreams, puss.”


Thanks, you keep me glued to this blog, the flow and those great comments. Especially the great deppression part deux dude. I love it. I only wish you talked more about your real estate empire.

#114 Wondering on 12.18.09 at 7:50 pm

Garth any way of changing this photo before Canada wakes up as I actually find it quite upsetting.

Maybe I’m not as hard as some of my fellow bloggers. Sadly some people do some sad things in life.

Snowing in the real London and everyone is freaking-out! They got about one inch.

I agree Garth, I don’t like the photo either, especially since it’s a kitten. Your blog isn’t too bad though!

As for the snow in London, I think it also snowed in Copenhagen. Fitting tribute to end the climate change nogotiations. I wonder where in the world the climate is warming beside the Poles???

#115 Sluggo on 12.18.09 at 8:11 pm

Don Coxe on Gold – read it Garth

I read it when it was still news. Does not change my published position that a prudent gold position is 10-15%. Beyond that is extreme. — Garth

#116 $fromA$ia ( o Y o ) on 12.18.09 at 8:18 pm

There will be no currency crisis, nor hyper-inflation, at least not in the next five years. — Garth

Why Garth, why wont there be a currency crisis or hyper inflation?

Explain why your so sure, damn it.

I think the Fed, Geithner, Bernanke and Obama are smarter than you (or me). This will not happen. — Garth

I still can’t get over that you wrote the above in the last thread.
I don’t trust or have faith in these people for good reason. It’s for the same reason that you or me have no faith in Canada’s housing market.

Then the morons that couldn’t get figure out there was a bubble in the Nasdaq, and American RE say that GOLD my be in a bubble.

These polititions are drunk at the wheel, sooner or later theyre going to crash.

#117 SWM on 12.18.09 at 8:45 pm

#92: Thanks for the link to the macleans article. One quote I found surprising….

“28 per cent of Canadian homeowners over the age of 50 plan to sell their houses to fund their retirements, according to a survey by Royal LePage in 2006”

I didn’t realize how bad the coming boomer retirment is for real estate. 28%!!!! that would have an enormous effect.

I expect the number to exceed that. LePage ‘surveys’ are totally suspect. — Garth

#118 Nostradamus Le Mad Vlad on 12.18.09 at 9:05 pm

#19 Nostradamus jr. / #25 Future Expatriate / #86 Michael / #89 brett

Life is way too short and a gas, so to begin —

First, a different military fairy fun!

Is this one of the causes of the Dubai debacle?

Guess these all run together, esp. the first two. Detroit’s near 50% unemployment rate. – Claims / From zerohedge on US Treasuries — No Buyers Not sure how accurate zerohedge is. Seems to be fairly reliable. / Greenspan Speaketh “Memo to Alan Greenspan: are you standing there with a straight face, telling Congress and the American people that the continued, sink-hole funding of these immoral and illegal wars without end isn’t the primary factor?!?” (Courtesy

See the date — Nov. 2000, after dubya took office, Gore was toast and Copenhagen was a nice city — Ice Age / The Dawning of Sheer Lunacy.
#74 $fromA$ia ( o Y o ) o — Garth is one bloodsucking, mean-spirited dominatrix!

#109 Vancouver_Bear — “. . . Tax Revenue Fell” — Do I hear shouts of the GST heading north to 7% again, maybe 10%?

#119 Bottoms_Up on 12.18.09 at 9:49 pm

.#116 $fromA$ia ( o Y o ) on 12.18.09 at 8:18 pm
Truth hurts eh? Do you really think those people made it to those positions without being intelligent and motivated?

#120 ottawa pete on 12.18.09 at 10:30 pm

Garth – You really have to comment on what Benjamin Tal said on BNN. I was astounded at what he was saying re: how people will absorb the rise in interest rates.

And who does he work for? — Garth

#121 pjwlk on 12.18.09 at 10:36 pm

Garth said: “…redenomination of existing currency. This, I can assure you, will never take place in the US”
With the Gold Reserve Act in 1934, The US dollar saw devaluation of 69.3% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce.

So essentially, the government took one ounce of your gold and gave you USD $26.70 and then later you could buy the same ounce back for USD $35! That act instantly made your money worth 69.3% less against the same amount of gold.

That looks a lot like redenomination to me… n’est ce pas…

Irrelevant, since gold was not allowed to circulate. Therefore no impact on consumer prices. No devaluation. — Garth

#122 jr on 12.19.09 at 10:22 am

Irrelevant, since gold was not allowed to circulate. Therefore no impact on consumer prices. No devaluation. — Garth

They doubled the money supply–Inflation–

It weakened the dollar–Devaluation

The dollar was locked to gold–

Therefore–Gold did circulate-

Prices are irrelevant,because wages never increased,unemployment didn’t decrease and the loot,never circulated amongst the peasants–

Sadly, you have no idea what you are spouting about. — Garth

#123 Dave on 12.19.09 at 10:38 am

[email protected]

I thought you were a regular here and would have known how this works. Here’s a Q + D explanation.

Please note how the article mentions the effect is on previously issued bonds. Also note the admittedly over-
simplified computation, which takes into account only the bonds yield, and not its future value or time to maturity.

3 Jax – I think Garth missed “low duration” in your post.
The interest effect is still there, but less severe than long term bonds.

I am a regular, but for some reason my brain doesn’t process information related to bonds. I never really informed myself yet on the subject

#124 jr on 12.19.09 at 10:44 am

Sadly, you have no idea what you are spouting about. — Garth

Enlighten me then–

If the money supply was doubled–which there is no denying,then inflation occurred and if inflation occurred,then devaluation–happened–

Maybe some sort of Keynesian wizardry,that says inflation doesn’t mean devaluation?

#125 $fromA$ia ( o Y o ) on 12.19.09 at 3:28 pm

.#116 $fromA$ia ( o Y o ) on 12.18.09 at 8:18 pm
Truth hurts eh? Do you really think those people made it to those positions without being intelligent and motivated?-bottoms up

Just what are you getting at… your telling me with years of university and a high paying job that they understand well, the lifestyle of the middle class?

They are like real estate agents. Very detatched from the 9-5 working stiff that gets paid by the hour.

reply , an be more descriptive.

#126 jr on 12.19.09 at 4:40 pm

124 $fromA$ia ( o Y o ) on 12.19.09 at 3:28 pm

.#116 $fromA$ia ( o Y o ) on 12.18.09 at 8:18 pm
Truth hurts eh? Do you really think those people made it to those positions without being intelligent and motivated?-bottoms up


How about up your ass buddy–

If your too stupid to read and understand what what i said in simple form–then there’s no point in going any further with these elementary debates–

Try reading Von Mises–
You might learn something

#127 Deliverator on 12.20.09 at 7:38 am

I thought that higher rates would encourage people to get into bonds..

Not the bonds that have already been issued at lower rates.

#128 gold bugger on 12.20.09 at 9:39 am

You’re on crack.

Another characteristically deep comment from the gold lobby. — Garth