Worry

Days ago I described a soulless outer appendage of godless Toronto where debt stalks the burbs. Thousands of families moved into rows of big houses with little equity and insatiable house lust. For many, it was a disaster – unable to afford the lifestyle that bankers facilitated. It many ways, a microcosm of what 2011 will bring across the country.

More on that in a moment. As they say on Channel 7 Action News in Los Angeles, we have an eyewitness account!

Speaking of California, just received this email from Jeff. At age 40, after 15 years of living in Socal, he’s moved back to Vancouver where, he says, everybody is swilling the Kool-Aid.

“I haven’t heard one thing from anyone’s mouth that I didn’t hear in southern California five years ago. It was unfathomable there that your house could be worth half what you thought it was currently worth. After all, everyone wants to live in the sun, right? Markets there are in the toilet and will continue to be as credit is extremely tight and stable employment is a risk factor for many. No bank wants to announce that they have increased their exposure to residential mortgages, so values continue to slide. What people in Vancouver don’t seem to understand is that having strong banks is irrelevant. I can draw a chart of housing prices that dropped my house “value” from $900K down to $400K.”

I’ve said this before, but here it is again: 2010 was the year when housing sales declined, year-over-year, for an unprecedented six consecutive months. 2011 will be the year prices follow. The correction that will stun the media (not that hard these days) will be but the initial stage. Following that, a multi-year melt.

As Jeff reminds, a real estate recoil after years of rampant gains can be one ugly mother. In case you missed the latest news, the most recent drop in US house prices was twice what had been expected. After losing a quarter of their value, homes fell in October at the rate of 15% a year – four years after the collapse began.

Obviously this has nothing to do with subprime mortgages (there aren’t any now), weak banks (Washington saw to that) or profligate Americans (consumer spending has withered). Instead, it’s all about public sentiment. People see real estate as a wealth sinkhole. So it is.

Expecting prices to go even lower, buyers don’t buy. And prices fall further – another 10% looks likely. Maybe more, since mortgage rates have started to rise (as they will here). In fact 2010 is the worst year for house sales in the USA in a decade.

The point is (as Jeff spells out) a house is a commodity whose value is determined by what someone’s willing to pay for it. What you think it’s worth is irrelevant. What you paid for it is your problem. What the neighbours got last year is ancient history. And once prices start to decline, while long-term mortgage rates rise, the economy sputters and taxes increase, buyers hole up.

It’s a human thing. When something’s hot and expensive, everybody wants it. When values fall, people back off. And when listings surge – as they will in about 60 days – supply overwhelms demand. Everything changes.

Now imagine what would happen to Carlyle, in desperate Milton, if the value of his home plunged, say, 20%. He’s already screwed, and I bet there are more screwees on his street. He writes:

So I’ve been reading this blog for a few months now … long enough to realize that I guess I’m a part of the problem. I don’t have any excuses … but I do want to make a change and that starts by tackling my debt head on.

My situation is this: 34 years old. Household income 110K before taxes. Mortgage 246k at 3.79 fixed (another 4 years) with house valued at 310 – 320K. Credit card debt 25.5K .  LOC is 11K at 6.75%. Car loan (at 0%), $13,125 owing.

So I called the bank to see about consolidation. They gave me 4 options:

1. Put all the credit card debt on the LOC — $900 mthly payment over 5 years
2. Get a Consolidation Loan for only the credit card debt at about $380/month over 5 years, and keep paying $400 a month on 11K LOC
3. Move the LOC balance and credit card debt into a consolidation loan at about $637/mth over 5 years
4. Refinance the house at same fixed rate of 3.79% rolling everything into the mortgage

I’m not really sure which is the best option to handle the debt. I’m fairly certain option 1 and option 2 are bad as I’d pay more interest over the long term especially if interest rates go up (and from what I’ve read here they WILL go up. The consolidation Loan, option #3 is kind of appealing as the interest rate would remain fixed, and the payments would be going to something non revolving which means more debt can’t be racked up (I plan on closing all of my credit cards except one with a very small limit)

The final option, refinancing is somewhat appealing from a cashflow perspective … our mortgage payment would go up only 120 dollars a month, although stretched out over 25 years. The downside of course being if interest rates go up we end up paying potentially thousands more interest. Opinions?

Carlyle is so toast. Even with his house at its imagined value, he has no net worth – and yet earns a salary 30% higher than the average. Obviously he’s living beyond his means, or maybe just being squeezed to death by the social Miltonian pressures to have a new deck, giant BBQ, kids with iPhones, SUV and four hi-defs.

Now imagine if his real estate devalues by a fifth (Milton is Canada’s Stockton, just as Van is our Socal). Suddenly Carlyle has a house worth the same as his mortgage. His equity’s gone, but the debt remains. Now imagine if he had opened Door Number 4, and rolled another $36,000 onto his principal, amortizing it over 25 years.

Not only would be under water by that amount, but he’d be unable to sell his house. After all, if he found a buyer at $248,000, he’d have to show up on closing day with a cheque for just under $50,000 (commission plus grossed-up mortgage and closing costs). Yikes. A prisoner in his own home. In Milton, yet.

Finally, imagine this was just the start, and this home continued to lose value for three or four years until, like Jeff’s place in the sun, it surrendered 55% of its value. The family would be financially destroyed. Not because they got a subprime mortgage, or lost a job, or speculated. But because they did what society wanted, and a banker made happen.

Danger surrounds us. It’s a good week to worry.

215 comments ↓

#1 specuskeptic on 12.28.10 at 11:29 pm

Buy now and be priced in forever!! it IS different here (and now).

#2 dark sad person on 12.28.10 at 11:31 pm

#119 Oasis on 12.28.10 at 6:03 pm

actually, gold up, usd DOWN (not up), Swissie up.

and you forgot, US bonds, CRUSHED again today.

COPPER, new all time historical high. Grains, all up, Silver up MASSIVE, Coffee, sugar cocoa, ALL UP…

yes.. this is what goes on in the early stages of a hyperinflation…. oh…

hmmmm….

***************
I was being facetious to your earlier post when the USD was down 0.5% and of course you-the typical misinformed goldbugs lights went on-
Then the $ went up-then it went down-then you thought hyper-inflation was here again-

You call such enormous events–IMMINENT– “Hyper-inflation” US Bond market “crash
Yet your views are on such a microscopic scale it’s pathetic —

Here’s a call for you-

Your gonna eat those words-long before you see hyper-inflation in the US-

btw-did you hear China and Europe had failed bond auctions today?
Possibly seasonality-possibly not–

Did you hear Europe is going to QE?
Think the US bond is gonna crash against that?
Think again-

“CRUSHED”—-> http://finviz.com/futures_charts.ashx?t=ZB

“HYPER-INFLATION” —–> http://finviz.com/futures_charts.ashx?t=DX&p=w1

lol–
So this would mean you called a bond crash exactly 1 year ago and USD hyper-inflation back in 07 when they were at the exact same price as “today” and heading in the exact same direction?

I guess it took until now for you to find your head after it got handed to you?

#3 Toronto on 12.28.10 at 11:32 pm

Boxing week is insane with all these rich wannabe’s spending way beyond their means. All of which is facilitated by the fed through credit pipes fully open. This is bad news for Canada and it’s economy when these consumers have to face the music. I can see entire city’s going bankrupt.

Garth…your 6-8% return you talk about is just as risky as putting your money in a house. It’s better to sock it away in GIC’s until the dust settles.

Yeah, good luck with that. — Garth

#4 Jessica on 12.28.10 at 11:38 pm

Do you Canadians think your country is immune to the real estate and banking collapses that plague the US? Nicole Foss is a guest on the Max Keiser show where she predicts, with evidence, that the Canadian housing sector is about to collapse. AMAZING video to watch on youtube.

It is along the lines of what Garth is telling us.

We know. The 90% Betty Crocker show. — Garth

#5 BC Bring Cash on 12.28.10 at 11:49 pm

Correct me if I’m wrong but the impression I get is that in Carlyle’s opinion option #1 & #2 would cost him more in interest charges. How can a 5 year loan cost more than spreading the payment over 25 yrs? In the mortgage option in the first few years he will barely put a dent on the principle. His way of thinking is illogical and typical of the average consumer out there. How can I get away with the smallest monthly payment? The purchase price and total carrying cost over the years is not considered, only how much is the monthly payment? If the monthly payment looks affordable then lets go for it. He is truly F’d in more ways than one.

#6 dutch4505 on 12.28.10 at 11:51 pm

I can confirm that people I talk to in the lower mainland stare like deer in headlights when I mention what we have gone through in the pacific northwest for the past five years. (I live three miles south of the border and work in Canada) I might at well be from an other planet. “Will never happen in Vancouver” is their response.

The poor souls. In a few years I can welcome them to planet earth.

#7 Wayne on 12.28.10 at 11:54 pm

A credit card debt of 25K!!!!! … this is definitely a ‘shit for brains’ example … they deserve all the mess they got themselves into … no sympathy here.

#8 Nostradamus jr. on 12.29.10 at 12:03 am

“”(Milton is Canada’s Stockton, just as Van is our Socal)””

…Did you mean Carmel by the Sea in SoCal?

#9 kabloona on 12.29.10 at 12:04 am

Screwed Boomers in the USA:

http://tinyurl.com/249s2hp

As First Baby Boomers Retire, Many Facing Personal Finance Disasters
First Posted: 12-28-10 08:32 AM | Updated: 12-28-10 08:38 AM

“CHICAGO (AP, By Dave Carpenter) — Through a combination of procrastination and bad timing, many baby boomers are facing a personal finance disaster just as they’re hoping to retire. Starting in January, more than 10,000 baby boomers a day will turn 65, a pattern that will continue for the next 19 years.

The boomers, who in their youth revolutionized everything from music to race relations, are set to redefine retirement. But a generation that made its mark in the tumultuous 1960s now faces a crisis as it hits its own mid-60s.

“The situation is extremely serious because baby boomers have not saved very effectively for retirement and are still retiring too early,” says Olivia Mitchell, director of the Boettner Center for Pensions and Retirement Research at the University of Pennsylvania.

There are several reasons to be concerned:

— The traditional pension plan is disappearing. In 1980, some 39 percent of private-sector workers had a pension that guaranteed a steady payout during retirement. Today that number stands closer to 15 percent, according to the Employee Benefit Research Institute in Washington, D.C.

— Reliance on stocks in retirement plans is greater than ever; 42 percent of those workers now have 401(k)s. But the past decade has been a lost one for stocks, with the Standard & Poor’s 500 index posting total returns of just 4 percent since the beginning of 2000.

— Many retirees banked on their homes as their retirement fund. But the crash in housing prices has slashed almost a third of a typical home’s value. Now 22 percent of homeowners, or nearly 11 million people, owe more on their mortgage than their home is worth. Many are boomers….”

#10 squidly77 on 12.29.10 at 12:17 am

There are already tens if not hundreds of thousands of people trapped in their homes and unable to sell.

Every mortgage debtor in Calgary that has signed a promissory note since 2007 is underwater, all 70,000 of em.

#11 ams on 12.29.10 at 12:19 am

Personally I would put the extra credit card debt on a LOC unsecured that way if you ever have to declare personal bankruptcy you don’t have it as part of the mortgage. Step #2 tear up the credit or put it in a small zip lock bag, put the zip lock bag in a larger zip lock fill the larger zip lock bag with water and place it in the freezer.

One the main things I look back at and wonder at is how much money I have personally wasted, over the last decade, I could easily have an extra $100,000 in savings if it was not for my stupid spending habits which I have radically changed.

#12 HouseBuster on 12.29.10 at 12:22 am

Hyperinflation nuts need to realize one thing. We are in Canada and we use the Canadian dollar. If the US dollar collapses it will mean that the Canadian dollar will skyrocket.

So let me spell it out for you. Even if there is hyperinflation in the US, which there won’t be, we will not experience it in Canada.

#13 Fiendish Thingy on 12.29.10 at 12:23 am

Garth-
Thanks for the SoCal anecdote; I can confirm the same thing happened here in Santa Cruz (Central CA coast), with a massive drop in sales followed by a significant drop in prices, followed by the “slow melt” (you should trademark that term) over the past few years. The median has dropped another 5-10% since we sold in June.
Fortunately, we had 19 years of equity stored up (bought in ’91 near the bottom of the cycle) so we should be in decent shape to buy in BC in a few years (relocating in 2011 as soon as we get jobs) when the melt slows/stops. Hope to park funds in some Canadian preferreds/fixed income until then.

Although subprimes aren’t much of a factor in CA prices these days, the backlog of foreclosures is (20-30% of sales each month in our area are foreclosures/short sales), and a wave of Alt-ARM/”pick-a-payment” loans are going to be resetting in the coming year, I believe. That’s got to have an impact on prices, don’t you think?

Won’t foreclosures, and especially loan resets, have a significant impact (although perhaps not as much as in CA) on Canadian home prices in the near future? I’ve already noticed several bank owned homes on the MLS in the lower mainland/Fraser Valley area.

#14 Utopia on 12.29.10 at 12:27 am

60 days to countdown eh Garth.

Sounds about right. And then the carnage begins. That seems obvious enough but as I mentioned day before yesterday I see an election call coming this spring in anticipation of a downturn in real estate prices.

I don’t think your friends in Ottawa will want an election late summer on the heels of what could well be the first housing bust in this country in a long time.

The threat of more changes to mortgage qualification rules or the hint of an interest rate increase might just be enough to keep the party going for one more summer though.

Let’wait and see. Carney and Flaherty are calling the shots on this one now. Everything else is just commentary.

#15 squidly77 on 12.29.10 at 12:27 am

Calgary prices are down 15% + 5% (7%-3%) realtor commission + legal costs + moving costs + early payout penalty on mortgage.

#16 Aussie Roy on 12.29.10 at 12:31 am

Aussie Update.

http://www.brisbanetimes.com.au/business/australia-leads-world-in-house-price-rises-20101228-1998u.html

Australia led the world in house price increases in 2010. But the prospect of more interest rate increases in 2011 is expected to force a slowdown in the rate of gains.

A survey by Canada’s Scotiabank on price movements in a dozen advanced countries ranked Australia as the ”clear front-runner” for house price increases. (Should that read we continued to blow up the bubble, pity they didnt look at the just the last six months. Of course cant do that you would see the price declines, better to report on yearly basis).

MMM Is that a story about a Canadian bank saying dont look at Canada, look at the Aussie bubble?….

http://realestatenavigator.wordpress.com/2010/12/29/unemployment-in-country-victoria-between-10-to-16-victorias-economic-reliance-on-building-new-housing-is-unsustainable/

http://www.news.com.au/money/property/report-says-australian-housing-market-worlds-strongest-in-2010/comments-e6frfmd0-1225977811410

Even more interesting than the story are the comments from people on the ground. Are the Aussie sheeple waking up?….

#17 Willa on 12.29.10 at 12:34 am

Where’s the bank’s responsibility in all this? Who let Carlyle rack up all that credit card debt and LOC, on top of the big mortgage? Aren’t there supposed to be limits?

The only way banks are going to learn is to get hit with the foolishness of their lending.

The other option on Carlyle’s table (not mentioned) is to declare bankruptcy, lose everything (we can assume he has no retirement savings), and start over. Then he walks away from a ravenous debt that would swallow the entire rest of his life.

Instead, the banks get burned. (Oh, and us, of course, thanks to F’s CMHC mortgage rules.)

But brushing that aside: Why shouldn’t our friend Carlyle declare bankruptcy?

#18 walter safety on 12.29.10 at 12:35 am

“its all about sentiment”- well its about shelter too people need to have a roof over their heads. House values should and historically reflect what a renter will pay. 5 % of value is a typical historical rent . If Carlyle’s house would rent for $1250 monthly it should be worth 300k . That also means it is affordable rent (plus utilities) for a family with 60- 70 k income.

#19 pablo on 12.29.10 at 12:38 am

http://www.homefront-game.com/

Is this propaganda, mental conditioning/brainwashing, a
prediction or just a game……… you tell me.

#20 Phil on 12.29.10 at 12:41 am

Just got done with the family xmas stuff. I thought it was my civic duty to inform all the inlaws about the impending housing value crash, as forecast by Garth and many others. Got my ass handed to me in the buffet line. Not one of these sheeple has a clue what is going on globally, in the US, or here in Canada. They all think I’m bonkers suggesting that home values will plummet. I am considering selling my almost paid off house in Saskatoon, hoping to beat the spring rush. By properly investing the resulting cash, I could probably pay my rent with the interest earned. However, if the market does not tank, but stays strong, I can’t express in everyday words how much heat I will have to endure as a result of selling the best home I have owned to date. In other words, if I screw up this one, start walkin, cause you are “outathere”. You get the drift. So, what to do. I would love to make the right move this time, if for no other reason than to be able to say “I toljaso”.

#21 T.O. Bubble Boy on 12.29.10 at 12:41 am

So, what if this “Carlyle” guy cleaned up the debt and started over?

$310k house w/ $246k mortgage = +$64k “paper equity”

-5% realtor commission to sell = -$15.5k ($48.5k left)

After other closing costs, let’s say he gets out with $45k.

-$25.5k CC debt (=$19.5k left)
-$11k LOC (=$8.5k left)
-$13k Car Loan = $4500 in the hole!

Good news is, Carlyle is one of those “safe” borrowers we hear about from the RE Associations who have over 20% equity in their homes!

#22 Kevin on 12.29.10 at 12:43 am

It is not so much that Canada has a housing bubble ( we do) but a spending problem that has led to a huge credit bubble. This guy is not unique, he is the norm and a reason why Canadian household debt to income is worse than the American household.

House value of 310k. Total debt of 294K.

Hopefully for him, he does not have to move for a few years. If he sets out a budget, gets his spending under control, slays debt, he is young enough to right the ship.

But the ride could be very bumpy.

#23 Michael on 12.29.10 at 12:47 am

Obviously this has nothing to do with […] weak banks (Washington saw to that) […]. Instead, it’s all about public sentiment. People see real estate as a wealth sinkhole. So it is.

Um, Garth. Did you miss the news about banks and TARP?

http://online.wsj.com/article/SB10001424052970203568004576044014219791114.html

Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.

Ooops.

#24 Cashman on 12.29.10 at 12:49 am

Garth, I am having trouble convincing my elderly mother (67) about the real estate market taking a dive. She doesn’t believe me. You see her and I bought a small bungalow in a small town in York Region, north of Toronto in 2000 for $187K and rented it out for while and sold it in 2008 for about $300k. I told her then as I am now that I will re-buy a similar bungalow in the same town for about the same price or cheaper in 2014-2015, for the reasons you have given over a million times already. She doesn’t believe me, the real estate agent who sold the property for us, doubts it, but I don’t. I am quite convinced that I can probably pick one up maybe even cheaper than $187k. After all, those boomers want to unload their mcmansions and their will be a gluttony of listings on the market. :-)

Those boomers always were selfish. Easy credit, easy employment situations, easy education and now not so easy retirement. My guess is CPP will be bust by the time the 2nd wave of boomers retire. That’s enough to make their hair go gray and fill them with fear and loathing.

Keep up the good work.

#25 Medic on 12.29.10 at 12:51 am

Besides Garth, the most entertaining poster on this site is Dan (POP, POP), hands down.

#26 Mean Gene on 12.29.10 at 12:55 am

Carlyle may as well put up a FSBO sign and dump the homestead before it takes a dump on him.

Another financial train wreck, Ach mein Gott!!

#27 Bullion.Bunny on 12.29.10 at 12:58 am

We know. The 90% Betty Crocker show. — Garth

Yes, it’s different this time. Credit markets don’t matter.

Ok, sure WHATEVER

#28 45north on 12.29.10 at 1:01 am

Even with his house at its imagined value,

pretty funny

Because should the 10 Year pass 4%, it is game over for housing, no matter how much Goldman protests, and the Chairman knows it all too well.

http://mcaf.ee/817d9

it’s game over in Canada too

#29 kitchener1 on 12.29.10 at 1:03 am

Wait till about Aug of next year at a minimum.

Listings will start to build up fast, 45-60 days max

Buyers will be on strike, desperate times call for desperate measures, some sellers will drop their price or the banks will do it for them via power of sale.

Still no buyers and the listings keep piling up.

Absolute carnage is coming for the condo market.

If gas hit 100-110 a barrel, that would put approx 20-25 cents on already 1.14/liter . 1.35-1.40/l gas??

That alone will drop house prices but at least 5-10% in Milton/brampton/barrie and durham, never mind everything else.

#30 Bullion.Bunny on 12.29.10 at 1:04 am

Obviously this has nothing to do with subprime mortgages (there aren’t any now)

That’s not totally true, option adjustable rate mortgages are about to reset along with Alt-A. Many of those are just as stinky as the sub-prime garbage.

http://bp3.blogger.com/_pMscxxELHEg/RxzD0s_7EYI/AAAAAAAABB4/ljDSXZhMG3o/s1600-h/IMFresets.jpg

#31 Carlyle on 12.29.10 at 1:08 am

I kinda figured you’d say that about option 4 Garth. Although I didn’t expect to be the star of today’s blog post.

So I guess option 3 — a consolidation loan — it is?

For the record, no SUV (I drive a Focus), no bbq, no big deck. The credit card debt came from a serious gambling problem, something realized, and faced a year ago, and beat down. But the debt of course remains.

Yes I pretty much screwed myself over. But I want to make amends and fix what I can … so that’s why I posted asking for advice.

I’m not expecting any pity … I was an idiot gambling addict and so reaped what I sowed. I’m only asking for honest advice on which option is the best to take at this point to try to get out of debt.

#32 dark sad person on 12.29.10 at 1:10 am

#12 HouseBuster on 12.29.10 at 12:22 am

Hyperinflation nuts need to realize one thing. We are in Canada and we use the Canadian dollar. If the US dollar collapses it will mean that the Canadian dollar will skyrocket.

So let me spell it out for you. Even if there is hyperinflation in the US, which there won’t be, we will not experience it in Canada.

***************
If the USD crashes or i guess hyper-inflate is the sexy buzz word circulating-

Kiss them all goodbye-

#33 Harry Cho on 12.29.10 at 1:11 am

If Canadian house prices go down 20%, unemployment will go over 10% in the blink of an eye. Deflation and another recession will be around the corner, can I get an Amen.

Virtually the entire recovery/boom in the Canadian economy in the last year has been fuelled by the housing bubble. Some would say last 5+ years.

#34 Carlyle on 12.29.10 at 1:12 am

In response to #5 BC Bring Cash

No I realize that the refinancing option will cost thousands more and could also possibly leave me underwater if housing prices tank.

I think option #3 (consolidation loan is the best way to go).

#35 realpaul on 12.29.10 at 1:15 am

Its always amazing to read in these blogs the comments of the union workers as to how they feel entitled to the unnatural and outrageous compensation they receive above the majority of the population. They justify their greed and power by saying things like “We spend the money in the community”….”We pay Taxes”….and other such dumb ass regurgitated spewings of union leaders dribble spun out over the decades.

The fact is that the taxpayer do’s not ‘deserve ‘ to be screwed by public sector unions….taxpayers do not need to ‘guarantee’ a lifestyle for some cretin whose only qualification is his ability to follow the directions of an alarm clock once a day so that he/she can clock in and promptly fall asleep or watch porn the rest of the day.

The fact is that the nanny state has screwed the pooch as far as taxpayers dollars are concerned and have left the accounts cleaned out with the only recourse left to increase taxes again so that the parasites can suck off the remaining blood from childrens issues, seniors issues and debt issues much more importnat to the taxpayer than paying the mortgage of some lazy parasite who hasn’t the guts, the brains or the education to find a real job in the real world.

These socialist parasites think the rest of us owe them a living…..we don’t.

#36 Jeff Smith on 12.29.10 at 1:15 am

that sucks!

http://money.canoe.ca/money/mymoney/canada/archives/2010/12/20101228-102410.html

#37 Carlyle on 12.29.10 at 1:17 am

In response to #11 ams :

Well it seems like it will cost more if I put everything on the LOC. A consolidation loan seemed to make more sense to me plus it’s not revolving so no way to run it back up.

Shredding the credit cards is a given.

#38 Bullion.Bunny on 12.29.10 at 1:21 am

So I called the bank to see about consolidation. They gave me 4 options:

1. Put all the credit card debt on the LOC — $900 mthly payment over 5 years
2. Get a Consolidation Loan for only the credit card debt at about $380/month over 5 years, and keep paying $400 a month on 11K LOC
3. Move the LOC balance and credit card debt into a consolidation loan at about $637/mth over 5 years
4. Refinance the house at same fixed rate of 3.79% rolling everything into the mortgage

I have a much better idea.

1.) Cancel all cell phone plans, everyone talk too much anyway. Plus the cell phones use a microwave carrier that fries your brain. (may be part of the problem)

2.) Cancel all Cable TV or whatever you have and get a set of rabbit ears.

3.) Internet…..back to dial up, it’s free in most cases.

4.) Make a food budget and then cut it 25%, forget about going out to lunch anytime soon. You are going to be brown bagging it for years to come.

5.) Forget about going out for dinners or entertainment anywhere for at least six months, maybe even a year.

6.) 25k in credit card debt. Man what are you smokin’, what you want to make the banks richer? Pay that of within the next six months and cut up the credit cards. You can’t handle them, never carry a balance period!

7.) The house is gone, push the eject button and run. It’s going to melt anyway after a years of all that glue decay. Rent, it will be cheaper.

8.)Pay-off the car.

9.)Save money.

#39 realpaul on 12.29.10 at 1:21 am

According to the CTF, a B.C. family of four with a single-income earner who makes $35,000 a year — receiving a 1.8-per-cent raise to account for inflation — will pay $384 more for health, CPP and EI premiums in 2011,

Read more: http://www.vancouversun.com/news/After+income+shrink+more+than+almost+anywhere+country/4034066/story.html#ixzz19TT1EM5E

Gee guess whose pockets this increase will go into. While people die in the hallways the fat cat civic parasites are looking forward to a rich and comfortable early retirement.

#40 The Game on 12.29.10 at 1:24 am

Canadians hit with increases to payroll and income taxes

Read more: http://www.vancouversun.com/business/Canadians+with+increases+payroll+income+taxes/4033855/story.html#ixzz19TTiJxz7
http://www.vancouversun.com/business/Canadians+with+increases+payroll+income+taxes/4033855/story.html

ncreases in premiums for the Canada Pension Plan and Employment Insurance mean Canadians will be taking home less pay come January 1.

Based on a variety of income and family scenarios for each province, the average hike in personal income and payroll taxes is two per cent nationally, the Canadian Taxpayers Federation said in its annual New Year tax change calculations.

In B.C., when health premium hikes are included, the average inflation-adjusted increase is 2.9 per cent, the second highest hit province after Ontario, according to Derek Fildebrandt, national research director for the Canadian Taxpayers Federation (CTF).

The fact that B.C. does not index health premium brackets to inflation — something the federal government does for income tax brackets — disproportionately hurts those with lower incomes who get bumped into higher brackets, Fildebrandt said.

“If you get just a small inflation-adjusted increase … you see a very, very substantial tax increase,” he said.

For example, a B.C. family of four with a single-income earner who makes $35,000 and gets a 1.8-per-cent raise to account for inflation will pay $384 more for health, CPP and EI premiums in 2011, the CTF says. A dual-income family making $35,000 would pay $365 more.

“That means people trying to move out of the very low income scenario of $35,000 with two kids is extraordinarily difficult when the government puts walls in their way that essentially penalize them for getting a raise,” Fildebrandt said.

Ontario residents will see the biggest tax hit in 2011 — an average increase of 4.3 per cent based on various family and income scenarios.

Canadians earning more than $44,200 annually will pay an additional $76 in EI and CPP premiums in 2011, while employers pay an additional $110 in payroll taxes, the CTF says.

Making the B.C. hike harder to swallow, Fildebrandt said, is the fact that Premier Gordon Campbell had promised British Columbians a 15-per-cent tax reduction on the first $72,000 in income in an Oct. 27 TV address. The tax cut was later reversed by cabinet after Campbell announced he would step down as premier.

“While B.C. is seeing the second-largest hike in taxes this year nationally, it should have been seeing one of the largest cuts in its history,” he said. “It should have been seeing a 15-per-cent cut in the provincial share of its income taxes.”

“EI and CPP are the common villains,” he said. “Everybody across the country is going to suffer from the government’s decision to create all these new programs they want to fund through the EI fund.”

The federation’s annual new year tax change calculations, which were based on several income and family scenarios adjusted to inflation, found there will be a national average two per cent increase in 2011 over 2010.

Traditionally, the federation’s calculations have predicted some winners and some losers, depending on individuals’ income level, family scenarios and the province in which they live, Fildebrandt said. But this year, that trend has been bucked.

“This year, everyone loses,” Fildebrandt said. “Although, some more than others.

“In every province, family and income scenario, our research finds that the government’s take from inflation-adjusted incomes will increase, in some cases, substantially.”

Federal payroll tax increases, effective Jan. 1, will affect almost every Canadian worker — but those living in provinces with rates of inflation above the national average will see even bigger increases.

Ontario, for example, will see an average increase of 4.3 per cent, according to the scenarios the federation analyzed. A single-income family in Ontario earning $45,000 in 2010 looks poised for a 5.1 per cent increase on the taxable portion of the income — or $389. A double-income family earning $80,000 will be paying 3.5 per cent more on the taxable portion of that income — or $590 — the calculations show.

The average increase in Nova Scotia will be 2.8 per cent, according to the study. A double-income family earning $60,000 in that province, will see a 2.9 per cent hike on the taxable amount they owe, meaning they will pay $345 more.

“The federal government likes to talk about stimulus a lot,” Fildebrandt said. “But normally, stimulus is just code word for borrowing money and spending it on road signs and hockey arenas . . . The best and only kind of stimulus that works is tax cuts.”

With a file from Postmedia News

[email protected]

Blog: vancouversun.com/yourmoney

© Copyright (c) The Vancouver Sun

Read more: http://www.vancouversun.com/business/Canadians+with+increases+payroll+income+taxes/4033855/story.html#ixzz19TTpVuhW

#41 Nostradamus Le Mad Vlad on 12.29.10 at 1:29 am


“2011 will be the year prices follow. The correction that will stun the media (not that hard these days) [m$m are nothing more than a band of drunken pilots ready to take off from an aircraft carrier] . . . about 60 days (time for a brand-spanking new FF, to divert sheeple’s attention away) . . . hot and expensive, everybody wants it.”

That counts me out, as I can’t afford it!

Is it possible that some are getting a gut feeling that what is happening isn’t right, simply isn’t sustainable? Sixty or so days is a mighty short time to get caught with one’s pants around the ankles.
*
2011 Non violent resistance, refusal to take or listen to orders. TPTB are becoming more aggressive toward us, retaliate with passiveness ( do nothing).

Chinese takeout of US economy.

Free vs. Govt. controlled gold / silver markets. Ivory Coast Oil is being orchestrated to justify foreign intervention. Hmmm. Who may be causing the trouble there?

The universe is getting annoyed with us!

Revolution time in UK against EU?

China cuts REM exports by 11%.

Vermont This should also apply to Bill C-36. Stuff the feds. in an acid-rain lake.

GC — See headline.

4Closure inventories rising.

#42 Crazy Eddy on 12.29.10 at 1:40 am

Carlyle is not screwed; even in the Great Depression, people bought houses.

option 5: sell the house..if it is at the value you say it is you can use the equity to pay the cc and loc debt… all is left is the car debt…keep the car, you gotta get to work… at $110K a year…it’ll be easy to do it again right

#43 Aussie Roy on 12.29.10 at 1:46 am

Aussie update

How about this little gem from one of the strongest banking sectors in the world.

http://www.couriermail.com.au/business/suncorp-gets-tough-on-transfers/story-e6freqmx-1225976799560

In a November letter to customers, the fifth-biggest bank in Australia also said customers opening deposit accounts would no longer be able to require payments of principal or interest to be made “directly by cheque”.

Lenders are coming up with novel ways to retain deposits. Bank of Queensland recently opened a new lottery account that pays low interest but offers chances to win $20,000.

Casino banking?.

#44 The Apocalyptic One formerly Old is Gold on 12.29.10 at 1:47 am

Time to worry is long gone; now its time to batten down the hatches and start practicing the squirrel recipes. This may be the last year that people actually celebrate the holidays and splurge on boxing day sales. What will next year bring? A small dose of reality perhaps? To be followed by bigger and bigger doses of reality for Realtors and house porn lovers for many years to come. We ain’t in Kansas anymore and Vancouver ain’t Monaco even though the left coasters fancy themselves to be royalty!

Anyhow anyway Happy New Year Garth and fellow blog hogs.

#45 Alex on 12.29.10 at 1:54 am

More upcoming financial burdens for BCers.

http://www.vancouversun.com/news/After+income+shrink/4034596/story.html

Soooo glad we are now renters. What with the cost of living and the cost of owning a home out here in the Greatest Place Not Of This Earth, you really gotta wonder how the hell some people will make ends meet.

#46 nonplused on 12.29.10 at 2:06 am

Garth, great case study today. I still don’t see eye to eye with you on the tax thing, although I will admit the government will try to raise taxes through raising tax rates. But I do not believe they will actually raise tax revenue this way more than marginally and for more than a few years. The tax raises they implement will slow economic growth or cause something like the revolt we are seeing in BC.

There is simply nothing left to tax, and the applied rates are already hindering the economy. But, again, that doesn’t mean they won’t try, and thereby make matters worse.

The fact of the matter is that we are already taxed to death and indebted up to our eyeballs as a result. Any government that tries to raise taxes or debt servicing costs is a one term government. In fact, I think it may have been part of the Canadian subconscious to maintain a minority government so long as we have so that neither the tax rate nor the cost of carrying debt can be raised, because we just can’t afford either option.

#12 House Buster,

Hyper inflation, should it happen, would not necessarily affect all assets and commodities the same. Or inflation for that matter. You could have food and energy going up dramatically while house prices still decline. For all asset classes to rise, wages have to rise too or the banks have to be giving free money to the rich to buy assets. I don’t think the rich are interested in the general housing stock at this point. So, I sort of agree with you, inflation or not, it won’t immediately affect house prices.

#47 nonplused on 12.29.10 at 2:11 am

PS, damn busy at the ski hill today. No sign of a credit crises there. But it is “pay week”, and I understand (and have observed) overall numbers are down year to date. That has to be factored with the fact that Eveline Brown’s forecast of lots of cold weather in North America and lots of snow in the rockies was right except about the snow at Sunshine and Louise. Fernie is doing good, as is the US all the way down.

#48 Toronto McMansion on 12.29.10 at 2:15 am

Great post today as usual even if it is somewhat depressing given the holiday time.

One topic point that is rarely mentioned on this blog is the over-building of residential units. In the past 5 years I have never seen so much fast and furious building of housing units. In Toronto, it seems like there is a new expensive 300+-unit condominium going up on every available plot between the Beach and Etobicoke. Does anyone have the figures on how many units have been constructed in the Canada or the GTA this year and how many of them were sold to “investors”?

#49 R on 12.29.10 at 2:23 am

How much longer will we be drinking the Kool-Aid? Should I start shorting Kraft Foods?

#50 Mikey the Realtor on 12.29.10 at 2:23 am

I went to the mall 2 days ago and people were literally lined up and waiting for their turn to enter the stores, guided by security guards like some downtown nightclub, I went to the food court to grab some grub and was not able to find a seat. People are spending line there is no tomorrow.

#51 TaxHaven on 12.29.10 at 2:35 am

A ZERO PERCENT car loan? Now?? Must have been a recent “purchase”. Obviously Carlyle is still delusional enough to be car-lusting in THIS sucky economy…

I see where his problem comes from.

#52 Joseph [Original] on 12.29.10 at 2:37 am

I hate to pour cold water on my kindred spirits on this blog, but if our anticipated housing bust is tied in any measure to the US economy’s recovery, we will be in for a disappointment. Mitt Romney, former Republican candidate for President, has all but called the re-election of President Obama in 2012. Based on what? He states emphatically that the legislation being passed by the incoming Republican Congress to get the US economy moving will work, albeit in the short term. He states that America’s economic challenges will not disappear but the economy will recover by 2012 ensuring the re-election of President Obama. He states that Obama and Biden will take credit for this expansion (falsely) pointing to their stimulus spending programs as being responsible for the turnaround. But it will be the Republican’s doing instead, but the people won’t care. They will be happier and re-elect Obama. That’s from the horse’s mouth. If Romney sees this, we should too.

#53 Western Canadian on 12.29.10 at 2:46 am

Wow, Garth seems extra negative in this posting.

I don’t see how Carlyle is “screwed” as Garth puts it. He may be on the path towards screwed but why is Garth so melodramatic.

All Carlyle has to do is sell the house, pocket the $40,000, pay off his high interest debt and live more conservatively. By renting he should be able to invest $15,000/year and in 30 years he will have $1.6 million, assuming $20,000 initial investment, $15,000/year and 7% CAGR.

So WHY is he screwed Garth? Seems like he’s got more than enough time to recover from his early mistakes.

#54 TaxHaven on 12.29.10 at 3:13 am

I really am having a hard time getting my head around this Canadian concept of “value”, in regards to real estate.

Either sellers remain in deep outer space regarding the true state of (un)affordability OR real estate is considered some sort of supremely liquid “asset” which can be sold instantly as need arises…

“Value” is not some concrete dream plucked out of thin air nor is it some sort of objective assessment by real estate “experts” or governments. Perhaps “price” – by transactional history of a property – would be more helpful, though even that could be outdated immediately.

A property is only “worth” what a willing seller and buyer agree on, and only at that one instant in time. So the idea of lasting “value” becomes meaningless in an ever-changing marketplace – and an increasingly illiquid one at that.

In this economy – with job precariousness, looming price inflation, unfunded retirements, rising taxes and absurdly (to me, at least) high asking prices for houses – I’m one of those waiting for lower prices.

Unless I find something irreplaceably unique at a price I like, I plan to RENT: there’s no possibility on God’s Green Earth that I won’t get the $10K-$20K/year rental cost back in reduced house prices for at least a couple of years yet…

#55 betamax on 12.29.10 at 3:28 am

“Credit card debt 25.5K . LOC is 11K at 6.75%.”

OMFG. Not only are people spending every penny they make, they’re spending much more. It’s like pigs at a trough and you know it’s not going to last much longer.

As for the USA — my wife and I were recently in Vegas and saw huge suburbs of tract housing that owners had given up trying to sell and instead had put up signs offering “FREE RENT” if you signed a lease. Previously, my wife had suggested that we should vultch a place down there for cash and rent it out, but after seeing those soon-to-be slums going begging for tenants, she has reconsidered (thankfully).

Vegas itself was dead. Casinos were half empty, and we didn’t have to wait in line for anything — shows, restaurants, nada. We saw several top-rated shows at 40-50% off regular prices and even then some weren’t completely sold out. A taxi driver told me it was the slowest he’d seen in 20 years. We had a great time, but the natives looked a bit desperate. We had a couple of first-class dinners in restaurants that had more staff than customers. I felt sorry for them and grossly over-tipped.

If you have money, you can live well in a recession. But those burdened with debt get crushed.

#56 Aussie Roy on 12.29.10 at 3:32 am

http://www.bloomberg.com/news/2010-12-28/sweden-shows-central-bankers-how-to-fight-against-next-asset-price-bubble.html

Growth vs Debt

House prices, by contrast, rose for a 19th consecutive month in the quarter through November, gaining at an annual rate of 5 percent. The Riksbank, which raised its repo rate to 1.25 percent on Dec. 15, said then higher rates are needed to slow credit growth.

The bank is also trying to steer the fastest economic rebound in the European Union as it estimates growth of 5.5 percent this year. It expects the repo rate to average 3.3 percent in 2013, while economic growth will slow to 2.3 percent in 2012.

“The focus on issues such as the level of household debt suggests the Riksbank might rather have a period of slightly weaker growth or below-target inflation than a surge in indebtedness and perhaps another boom in house prices,” May said.

Outside Europe and the U.S., Bank of Israel Governor Stanley Fischer has incorporated bubble fighting into policy in a country where housing supply is shaped by government control of land. Fischer, who also oversees Israel’s banking regulation, left the benchmark rate at 2 percent this week in part because house prices cooled.

According to Mortensen at Citigroup, regulation alone has done little to cool Sweden’s house-price growth. Banks, which have had to cap mortgage lending at 85 percent of a property’s value since Oct. 1, “just seem to come up with alternative products” to bypass the rule, Mortensen said.

“I wouldn’t be surprised, given what we have just been through, if this leads to some kind of rethinking, also globally,” she said.

#57 The Original Dave on 12.29.10 at 3:52 am

I was being facetious to your earlier post when the USD was down 0.5% and of course you-the typical misinformed goldbugs lights went on-
Then the $ went up-then it went down-then you thought hyper-inflation was here again-

You call such enormous events–IMMINENT– “Hyper-inflation” US Bond market “crash
Yet your views are on such a microscopic scale it’s pathetic –

Here’s a call for you-

Your gonna eat those words-long before you see hyper-inflation in the US-

btw-did you hear China and Europe had failed bond auctions today?
Possibly seasonality-possibly not–

Did you hear Europe is going to QE?
Think the US bond is gonna crash against that?
Think again-

“CRUSHED”—-> http://finviz.com/futures_charts.ashx?t=ZB

“HYPER-INFLATION” —–> http://finviz.com/futures_charts.ashx?t=DX&p=w1

lol–
So this would mean you called a bond crash exactly 1 year ago and USD hyper-inflation back in 07 when they were at the exact same price as “today” and heading in the exact same direction?

I guess it took until now for you to find your head after it got handed to you?
————————————————

ATTN: DARK SAD PERSON

do you have an email or a way for me to contact you? I just have a few thoughts on seasonality of gold junior stocks, rare earths and uraniums. I’m pretty sure you’ve delved into these markets. I’d like your opinion on some stuff.

The ree action should be great tomorrow!

#58 Vancouver on 12.29.10 at 4:02 am

Carlyle is so toast… I have no debt at all, my rent is simple, I’m happy with my tube TV, our vehicles are paid for. My wife and I invest 21% of what we earn every month plus $5000 a year in RESP for two little kids. We are in our 30’s and waiting til homes are affordable. I just dont understand what people are thinking. I couldn’t sleep at night if I was in Carlyle’s shoes. When hearing about peoples poor decisions, helps us appreciate our circumstances. Sorry that I might sound rude but we too make tough decisions everyday hoping for the day when we can be at ease.

#59 Peter Pan on 12.29.10 at 4:09 am

Bankers are the equivalent of financial drug dealers… Mark Carney is the monetary equivalent of “Mom” Boucher… The HA who controls it all.

Remember, when the next credit crunch happens, those who used the services of the bankers should not be considered victims, merely those who willingly indulged.

#60 TS on 12.29.10 at 5:41 am

Nicole Foss is a guest on the Max Keiser show where she predicts, with evidence, that the Canadian housing sector is about to collapse. AMAZING video to watch on youtube.

This is far from an ‘amazing’ video. The host comes across as an uninformed bumpkin and the guest throws out a 90% decline number without any justification for that massive fall…unless you believe like she does that the world is headed for a depression of catastrophic proportions. Maybe she has books to flog on this subject….and that may be her motive for her alarmist prediction.

#61 Drew on 12.29.10 at 6:08 am

Carlyle says “and from what I’ve read here they (interest rates) WILL go up. ”

What he’s read here? What a testament to ignorance!! Has he not been listening to anything that Carney (BOC head) has been saying over the past few months?

Yo, Carlyle. Got a newsflash for ya! Taxes are going to go through the roof too. This spending spree our governments have been enjoying over the last couple of years in the name of stimulus has to be paid for.

When the shit hits the proverbial fan and we start seeing defaults…. Oh Canada, we’re so screwed.

#62 Mr. & Mrs. Happy on 12.29.10 at 6:33 am

@ California Jeff – Live in California or Vancouver? Easy choice, California! Beautiful place outside of LA with the temps, warmer ocean, endless sunlight… Jeff makes a great point about Vancouver and Canadian attitudes.

@ Carlyle, in desperate Milton – If I was you, I would look at selling the home if I thought prices were going to go down, better to sell now and make some $ than lose more down the road. I’d pay off the highest % debts first (CC) and do it by selling what I didn’t need and re-directing all lower debt % cash flows to the higher debt %. As for the 1-4 options, I wouldn’t take any of them and just go bananas on paying off the CC as fast as possible (keep it simple).

Remember debt does not equal wealth. Debt is the credit of the slaves. Cash is the credit of the masters.

#63 Herb on 12.29.10 at 6:59 am

… they did what society wanted, and a banker made happen.

– Garth

The whole ugly truth in one nutshell. Let’s hear you neo-Republicans blame unions, public sector salaries or the nanny state for creating the “lifestyle” demands and banking practices that led the suckers down the garden path!

(Hint: “Follow the money” – who pays for the marketing that shapes lifestyle demands, and who determines bank lending practices? The victims?)

#64 Mr. & Mrs. Happy on 12.29.10 at 7:06 am

I have seen many agents out there now offering $150 or less fee to list on the MLS. Thanks to the MLS rule changes, some agents are now offering FREE listings on the MLS. Slowing melting away the days of “non-negotionable” realtor commission fees.

http://realtysellersrealestate.com/programs/for-sellers/

Sellers can really save their $$ hides using a $0-150 MLS listing only services.

(not associated with above).

#65 Tony on 12.29.10 at 7:55 am

#2 dark sad person

What you’re seeing is a temporary blip upward in American rates, soon American rates will fall sharply and almost all commodities will plunge in price. Canadian mortgage rates will fall likely for all of 2011 as American interest rates trend downward. I suggest you buy the long term treasury bond in America or buy some TLT. Deflation is the catchphrase it’s still ongoing and inflation or hyperinflation is an illusion in someone’s dreams.

#66 Sock it to them on 12.29.10 at 8:28 am

There’s only one way to smarten these banks up. Run the credit up, which is unsecured and walk away.

Banks go down, you go down. — Garth

#67 Oasis on 12.29.10 at 8:39 am

So this would mean you called a bond crash exactly 1 year ago and USD hyper-inflation back in 07 when they were at the exact same price as “today” and heading in the exact same direction?
_______________________________________

no my little dark sad clown. i called it back in 2002, when event were clearly heading where they are now.

your 30 year bond, is going to break it’s 30-year trend, and US rates will head to 7-8% first, before they go higher. as for the toilet paper they call the USD, it’s heading for a minimum of 25-30% losses from here. the US is going to be the next Argentina/Iceland/banana republic. events were clear a long time ago.

Fiction. — Garth

#68 VMT on 12.29.10 at 9:02 am

#54 (@TaxHeaven)
I really am having a hard time getting my head around this Canadian concept of “value”, in regards to real estate.

So am I … As I`ve already pointed out once here, – if we measure the “value” of real estate in Canada against, say, gold, – instead of the dollars, – the picture would be totally different.

Again, over the last 10 years real estate (against the dollars) appreciated roughly by 100% (ie doubled in price).

At the same time gold QUADRUPLED since its all time law in 1999.

Where does it leave us?

It means that against gold real estate LOST half of its value since 10 years ago, which makes perfect sense because there is much more real estate in Canada now than 10 years ago (supply and demand).

#69 Sand Piper on 12.29.10 at 9:32 am

Hope G-Man and the devoted followers had a good Christmas –

While driving to my sister-in-law’s for Christmas Dinner, we drove by countless homes in the Brampton area (just East of Milton) looking at what was prestine farmland is now rows of homes, faceless, dull, without character and it finally dawned on me what the entire group here has been asking!

This entire housing cycle / debt cycle / job cycle – reminded me of a circus act that can be so aligned to what is materializing before our very eyes.

This part of the show had a performer place a chair, then a 2nd one ontop of the 1st – a third, fourth and so on – each level higher – the audience gasped as it began to sway – we all knew that each chair added – the likelihood of it falling and with it the performer who balanced on these tettering chairs – we all knew what might happened – but were so fixated by this act that we cheered him on to go further – seems alot like what is happening around us – its just a matter of time before these chairs come crashing down – and those who built this unstable structure –

2nd observation on Christmas Day – some have said Brampton is quickly sinking in this housing mess – I didn’t notice any for sale signs – but noticed a housing site on Mayfield and Hurontario – prices starting from the low $429,990 – sales office obviously closed – lots of construction trucks up front – I wonder what sales (if any) are happening!

As my sister-in-law showed us around their decorated house(appeared no expense was spared in making it look very festive). Her Husband was let go a few months ago and now does the occasional “painting jobs” while she works for a art gallary – wondering how financially things are going (just bought 3 yrs ago) and they didn’t bat an eye. Her husband even said they were considering buying a house (currently own a semi) and rent out the semi – I just thought of this site – but unfortunately – I wouldn’t dare express my concern for them, plus that’s not much of a festive conversation…I feel for them – they must be just making due, a ripple will sink them..

Finally – we can ask when will this all end – and there is a side that is never discussed here – the human toll of those who suffer from financial ruin.

I caught up with my buddies annual “Boxing Day” gathering – a bunch of buddies who stuck together in school in the mid 80’s and we get together for some old time cheer.

Well, I sadly found out – that a very close friend in grade school – who did have a hot streak in his blood – had took his life in September..jumped out a 17 floor balcony – everyone had their own reasons why – but he had lost his job as a driver a few months earlier, debts seemed to have crushed his spirit – a wife who some say was chirping endlessly on they would soon live on the street – 2 young girls – marriage probably hanging on a string and so one September evening while his wife was with her parents – he checked out!

My heart was broken for him, his family and those 2 young girls who are so young – they probably won’t have any memories of him down the road – this unfortunately people is the true aftermath of a economy gone wrong!

Yes, house prices will drop – and many will be hurt – some will sense all is lost – so before some in here cheer on this pending destruction, remember there are some who will not recover, some who just wanted to have a small piece of what our media has exposed to us relentlessly over the years. There will be a price to pay – and not everyone deserves to be flushed down the toilet.

#70 jman on 12.29.10 at 9:36 am

Carlyle, unfortunate about the gambling addiction but at least you corrected the behavior before further damage was done. You’re in better shape than I was at your age. Ten years can make a big difference in either direction. My advice is to read lots of financial articles and stay focused. Discuss your current circumstances with your partner and establish a plan so that you are on the same path with the same goal financially. Revisit it and discuss it periodically. Lastly, but very important, set up a spread sheet to track your progress and update it every two weeks. Track debt principal, interest, payments and cash flow. It takes some effort but the payoff can be substantial. While this not for everyone it worked for my wife and I. Got out from over three hundred large in eight years. Now debt free with a substantial net worth. You should read Greater Fool and Money Road, both helped me even though we were well on our way. Realize that everyone has an opinion and make your own informed, educated decisions regardless.

While a gambling addiction is a serious disease and labeled, living beyond ones means holds far greater consequences and is far more pervasive in our society yet is still largely ignored on all levels.

Good luck and more impotantly be smart.

#71 Don't Believe the Hype on 12.29.10 at 9:38 am

It’s different here in Waterloo (so I’ve been told), plus we have the Bieber supporting the local economy:
http://www.therecord.com/news/local/article/306759–bieber-fever-spreads-with-more-local-sightings

#72 Herb on 12.29.10 at 9:56 am

Unreal Paul,

if we had any in the comments on this blog, the “dumb ass regurgitated spewings of union leaders” might make a lot more sense than yours.

#73 David B on 12.29.10 at 9:58 am

It appears bad things are about to raise their heads in 2011.

> All at the hands from a man who said ” TRUST ME”<

Tax man to hit Canadian workers harder in 2011
SUNNY DHILLON
From Wednesday's Globe and Mail
Published Tuesday, Dec. 28, 2010 8:51PM EST
Last updated Wednesday, Dec. 29, 2010 8:00AM EST

to be continued ….. more bad news bears that is!

#74 Oasis on 12.29.10 at 10:03 am

Fiction. — Garth

______________________

what’s fiction Garth, the USD falling 25% from here, or US long bond heading to 8%

??

#75 DARLENE on 12.29.10 at 10:07 am

Carlyle, you’re right about taking option 3. It gives you the lowest payment and interest charges. It’s the best option for payback on your “mistake”. The house is going to be a gamble either way you go. Since you don’t even have a deck, you’re going to need a home stager and improvements to sell. Do some research on how much it will cost you to sell. Go by worst case scenario because that’s more likely at this point. Hopefully if you sell make sure there’s enough money to pay off consolidation loan. The car loan is insignificant because it’s 0% financing rate. It’s the only good debt you have. Good luck to you, you sure need it.

#76 T.O. Bubble Boy on 12.29.10 at 10:09 am

@ #31 Carlyle:

You seem to have your head on straight… and you seem to realise that getting rid of the CC debt in any way possible is the first step.

You have a high household income (especially with the lower cost of living in Milton vs. Toronto), so you’ll start seeing some serious cash/investments piling up if you just clean up your finances.

There are a ton of places to rent in Milton, probably identical to your home and hundreds of dollars cheaper per month, for example:

$1475/month:
http://toronto.kijiji.ca/c-housing-house-rental-FABULOUS-ESCARPMENT-VIEW-2-STOREY-2-YEAR-OLD-TOWNHOUSE-IN-MILTON-W0QQAdIdZ250478389

Looks pretty similar to this $310k place for sale:
http://www.realtor.ca/propertyDetails.aspx?propertyId=10188535&PidKey=-898888998

Now, based on the fact that you have $246k on the mortgage and 4 years left in the term, you probably started with about $250,000 1 year ago?

$250,000 @ 3.79% w/ 25-year amortization = $1287/month

Property Taxes in Milton are 0.878423%:
http://www.milton.ca/corpserv/tax/Taxrates2010.pdf

So, that’s $227/month (on a $310k assessment), and puts you at $1514/month.

Then, throw in maintenance and other home ownership costs, and you’re probably behind by at least $200-$300 per month.

And, by selling now, you could just about wipe out all the debt, which would save $500-$1000/month in CC/LOC payments.

Considering that you’re only paying off maybe $25k in principal over the rest of the 4 years (assuming 25 year amortization), that’s only about $6k per year that you’re gaining in equity… with the obvious risk that the price of the house goes down and wipes out any mortgage principal gains.

That $6k in principal repayment is $500/month, which is probably less than what you’d save by eliminating the consumer debt!

So, the choice seems fairly clear:
– Sell the current place
– Pay off all debts (except maybe part of the car loan), saving hundreds per month
– Rent an identical place for hundreds less per month

This probably saves you AT LEAST $1000/month.

Put the $1000/month into a TSFA (you’ll have $30k combined between you and your wife by January 1st, and a total of $60k of contribution room in 3 more years).

Even at say 5% return, in 4 years, you’re looking at:
Year 1: $12,228
Year 2: $24,962
Year 3: $38,225
Year 4: $52,038

So, saving $1000/month in a TFSA would double your mortgage principal gains that you get by paying the current mortgage ($52k vs. $26k).

#77 T.O. Bubble Boy on 12.29.10 at 10:13 am

Apparently Carlyle isn’t alone… a near identical situation in the Globe and Mail today: a 30-something couple with $150k/yr income and $40k in non-mortgage debt!

http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/she-wants-to-save-he-wants-to-pay-down-debt/article1851618/

#78 Nuke on 12.29.10 at 10:16 am

I brought up that four letter word “Debt” over the holidays and my plan to pay it down over the next year or so. Unfortunately that doesn’t equate with sending the family and parents to Hawaii in March. My wife wants me to seek counselling for being such a downer and money ogre. After all, this is my wife’s debt and I only co-signed for it and it carries for $100 a month (interest only) compared to the $500 a week I set up as a pre-authorized payment. But the catharsis looking at that $500 per week amortization schedule made my Xmas.

#79 Bullion.Bunny on 12.29.10 at 10:20 am

Maybe this applies?

http://www.businessinsider.com/yes-it-is-ok-to-close-commment-threads-when-your-blog-has-angry-trolls-2010-12

#80 doctore on 12.29.10 at 10:41 am

So I open the paper today and in bold across the top page, Canadians to pay more in taxes in 2011. We are going to be paying more in payroll taxes come 2011 and property taxes. On top of that inflation is eating away at us constantly with NS and Ontario having the highest rates thanks no less to the HST increases from 2010. Yet our overseers F and C say that inflation is only 2% or lower! This off course is on top of the financial mess of people with huge debt piles we have come to see on these boards.
One thing that gets me though, is that for all the problems in the USA they actually get payroll tax reduction! and carryover of tax cuts from BUSH era! How is it they can do this, yet every other country is forced to enact draconian cuts!?

#81 Sphinx on 12.29.10 at 10:47 am

Garth says, “…The family would be financially destroyed. Not because they got a subprime mortgage, or lost a job, or speculated. But because they did what society wanted, and a banker made happen.”

very well said!

#82 Bullion.Bunny on 12.29.10 at 11:25 am

#39 realpaul on 12.29.10 at 1:21 am

Not to worry, the civil service will be compensated for the tax increases. Expect more strikes and work stoppages.

#83 Moneta on 12.29.10 at 11:34 am

From the NYT: http://www.nytimes.com/2010/12/29/us/29families.html?_r=1

“Of the myriad ways the Great Recession has altered the country’s social fabric, the surge in households like the Maggis’, where relatives and friends have moved in together as a last resort, is one of the most concrete, yet underexplored, demographic shifts. ”

The bursting of the real estate bubble probably accelerated the whole process which was coming anyway.

For the last few decades, the size of the average household has been dropping and now stands around 2.6.

We have been living in a society that promotes individualism where most people have been brainwhased into thinking that kids are clingers-on if they don’t move out.

This Western mentality has promoted consumerism by forcing us to believe that we need to buy everything so as to not depend on our neighbors and family.

But what is wrong with bigger households if it makes financial sense? What is wrong with kids living at home if they are contributing to a healthy household? Actualization of individuals should be the goal and moving out is not proof of independance.

I don’t think our way of life, the “me, myself and I” one, is sustainable financially over the long term. I would not be surprised to see a change in paradigm over the next decade or 2.

#84 Rich Renter on 12.29.10 at 11:35 am

Meanwhile in the real world, experts in the UK are predicting RE prices to drop at least 10% in 2011.
That means it will be double.
http://www.dailymail.co.uk/news/article-1342385/House-prices-set-plummet-10-2011-experts-predict.html
Anyways back to planet Canada where all is well.

#85 Moneta on 12.29.10 at 11:48 am

My wife wants me to seek counselling for being such a downer and money ogre.
———-
It’s hard to find a juste milieu when money means different things for each person.

Early in my relationship, I found it very tough to put money aside. My husband is in the tech industry and can’t get enough toys. Unfortunately, there is nothing that depreciates faster than computers. After 1 or 2 years of monthly nagging, it dawned on me that if I did not find a win-win solution we’d either go broke or separate.

I asked him how much he needed annually for his toys. We settled on a number. Every month, there is an automatic transfer to his toy account. He is not allowed to buy his toys with any other money but the toy account.

And I have kept my end of the bargain as I have never passed any single comment on his purchases even if I disapprove of what I consider excesses.

#86 Carlyle on 12.29.10 at 11:49 am

Just want to stress I don’t think my wife and I (no kids) live extravagantly.

We don’t have cable (download whatever we want to watch) and no home phone line since we have our own cells. We rarely go out (too tired from commuting 2 – 3 hours per day), and when we do it’s with free movie tickets from air miles.

About the only thing we do “waste” money on would be take out since we’re usually not home until 8 – 9 at night. We also usually do one vacation a year to the Caribbean (done cheaply last minute 750 pp type deals to Cuba or Mexico)

My single biggest expense is the car … 376 a month car payment, 400 a month on gas and 400 a month on 407etr. I did try driving 401 or city streets to work … it made a 2 hour commute round trip closer to 4 hours (I have to drive my wife to her work in Oakville in the morning before commuting to Highway 7 and Leslie). I may start trying the “leave at 5 am” thing some people do to avoid the traffic but I don’t think that’s sustainable.

In all honestly if not for my gambling problems we’d probably have very little debt aside from the mortgage. In December of 2009 we were sitting at 6k debt total on the LOC, 0 credit card debt.

Our combined income is good at 110k (split about half half so it’s not as badly taxed as a single earner).

I still feel somewhat positive about the future … 30k is alot but not insurmountable. As for our mortgage it’s not like we took an enormous 350 to 400 thousand dollar mortgage (which the bank DID offer us by the way when we bought way back in January 2009). I was very firm about “buying what we could handle” … and to be honest in the GTA burbs a 250k mortgage IS about as low as it gets (currently). Is this amount unreasonable?

We have no plans on moving anytime soon so selling the house is off the table … while I wouldn’t mind doing so, this would probably lead to serious marital problems as my spouse would feel like I screwed the family over financially (I did) and selling is basically giving me a “get out of debt free card” while she loses her home to pay for my idiocy … I can’t say I really disagree with that assessment and so we’re not selling.

Truth be told we plan on living here for a long time so even if prices crash we wouldn’t feel like a prisoner in our home. We can easily afford our mortgage payments (1500/mth, 25 year amortization, 246k mortgage) and even if rates go up a few percentage points we can STILL handle this … but I need to deal with my other debt so I think consolidation to a loan is the way to go …

Am I thinking all this through properly?

#87 Ret on 12.29.10 at 11:54 am

$25,500 of credit card debt at 19.95% is really like carrying another $125,000 of mortgage @4%. $11000 LOC @6.75, not unlike another carrying another $18000 of mortgage debt.

Carlyle, are you sitting down? In simple terms, you are servicing a debt not unadjacent to $425,000 at almost 4%. Over $17000 a year of after tax income just to service the interest alone.

No wonder the bank didn’t tell him about option #5. Carlyle, you don’t really want to go see what’s behind door #5, do you?

#88 Barrie profit taker on 12.29.10 at 12:00 pm

Here is another example of real estate “pros” being totally out to lunch…

Here is what the Barrie and district real estate board says about consumer confidence in November. Be sure to read the rose colored last line…

“The balance of sentiment about making major purchases, such as a home or a car, fell to its lowest level since April 2009. A negative balance of opinion means more households said it was a bad time to buy a big-ticket item, such as a home or car, than said it was a good time to do so. This is an important factor underlying the housing market.

The balance of sentiment on the outlook for household budgets dropped sharply in October after a considerable increase in September. Nonetheless, the overall balance remained positive.”

How do theyu even hit the save button on such stuff?

On a related note I just told my wife that I’ll be returning my christmas gift this morning. It is the wrong size, my least favorite color, nothing I would ever wear even if I new that I would freeze to death and I was on a deserted ice cap and no one would ever see me. She is so out of touch with my needs. I’m not even sure the gift was for me in the first place or the tags got mixed up…Nonetheless it is the pefect gift and I couldn’t have picked it better myself…

I see how this works.

#89 BudTheSpud on 12.29.10 at 12:37 pm

This statement posted yesterday is worth repeating over and over and over( my apologies for “stealing it” from another poster)
…”CHICAGO — Through a combination of procrastination and bad timing, many baby boomers are facing a personal finance disaster just as they’re hoping to retire. Starting in January, more than 10,000 baby boomers a day will turn 65, a pattern that will continue for the next 19 years…”

Our problems are just beginning.

#90 Nostradamus jr. on 12.29.10 at 12:37 pm

Garth, will Quebec and Ontario’s runaway Provincial Deficits cause an inevitable showdown about Secessation by the Western Provinces?

tia

Nostradamus jr.

#91 dark sad person on 12.29.10 at 12:38 pm

ATTN: DARK SAD PERSON

do you have an email or a way for me to contact you? I just have a few thoughts on seasonality of gold junior stocks, rare earths and uraniums. I’m pretty sure you’ve delved into these markets. I’d like your opinion on some stuff.

The ree action should be great tomorrow!

*************
OD-

Yes I’m heavy into PM’s/REE’s and U and all three are flying-
One up 37% today-

As far as e-mail goes-i would gladly give it to you here-but-i have a feeling i would be spending 2011 reading hate mail and being spammed to death-so-if you know of another way-sure-

#92 Michael on 12.29.10 at 12:47 pm

@41

Revolution time in UK against EU?

If the UK wants out they should ratify the contract of Lisbon (aka EU Constitution) and then start the process outlined in it to leave the EU.

That anti-Euro establishment is opposing the ratification tells you a lot what they really are about: Hint: It’s not about getting out of the EU.

#93 ken on 12.29.10 at 12:49 pm

Who are our worst “predators” the banks,investment firms, car dealers and lawyers. Beware !

#94 45north on 12.29.10 at 12:50 pm

Sand Piper: My heart was broken for him, his family and those 2 young girls who are so young – they probably won’t have any memories of him down the road – this unfortunately people is the true aftermath of a economy gone wrong!

sorry for your troubles

Carlyle keep your head up, play your cards as well as you can.

Bruce Springsteen’s song keeps going through my head

“they’re closing down the textile plant cross the railway tracks
foreman says the jobs are gone and they ain’t coming back”

#95 throwstone on 12.29.10 at 12:54 pm

Carlyle!

You know the government reaps the rewards of your addiction. For what it is worth, I beleive the Government has been enabling gambling addictions for some time. They quite enjoy the profits.

The only other irony would be if you were employed by the government….

This is no condemnation of our government employee’s I believe most of them are good people who are good at their work.

NONPULSED makes the point there is nothing left to tax, and REALPAUL takes the hardline, evidently passionate about the issue(man go easy on the people and hard on the principle/policy)…

Garth I apologize if I offended you yesterday, although I think it is important not to underestimate the issue of compensation in relation to the economy as greater whole. Especially if the economy can be viewed as two halves-PUBLIC & PRIVATE.

I would just like to note that the issue most self employed and privately employed tax payers have… is NOT THE NEED FOR PUBLIC SECTOR EMPLOYEE’S BUT THE COST OF THEM.

If you think it will not become an issue Garth, look at the pension fund liabilities in the U.S. and the austerity measures elsewhere. Why do you think it will not become an issue in Canada?

#96 Mike on 12.29.10 at 12:56 pm

So where do we put our money?

I’m 35, with about $160k in index funds, a few risky stocks and sadly some in cash. No idea what to do with it. It’s cheaper to rent than to buy, gold is worthless, banks pay nothing, and I don’t want to over-expose myself to the stock markets.

I’ve considered buying a shack in the woods. It’d be a fun place to go for the summer and it would give me some diversification into real-estate. But even the shacks look overpriced, and labour is far too expensive to get any work done on it.

The most sensible investment I can think of is to quit my job and travel the world. Learn some new languages, maybe teach English in China, and wait for the markets to change to my favour.

I personally believe education is always a good investment, and no amount of money in retirement would give me a year of my youth back.

It seems in this time, when jobs are somewhat scarce and abusive employers are plentiful, it’s a good time to walk away for a while.

Is there an opportunity I’m missing here?

#97 Mike Turner on 12.29.10 at 1:00 pm

it’s not much of a drop but it could be the start of a trend.

http://www.bnn.ca/News/2010/12/29/Teranet-home-price-index-falls-in-October.aspx

#98 dd on 12.29.10 at 1:02 pm

#3 Toronto

…It’s better to sock it away in GIC’s until the dust settles….

And when will the dust settle?

#99 Michael on 12.29.10 at 1:03 pm

This is far from an ‘amazing’ video. The host comes across as an uninformed bumpkin and the guest throws out a 90% decline number without any justification for that massive fall…unless you believe like she does that the world is headed for a depression of catastrophic proportions. Maybe she has books to flog on this subject….and that may be her motive for her alarmist prediction.

She and “Illargi” are giving “speeches” on events they are invited too. They do run “The Automatic Earth” which I think gives a pretty good snapshot as far as collecting news items go and then try to analyze them.

Her “reasoning” isn’t very well put in the interview and I admit that the presenter strikes me as a bit of a puppet with a lot of gesturing for dramatic effect that comes off as…. badly acted.

As for the 90% decline: I could see this as the end game as well but I don’t think it’ll happen over night. 10, 20 years of decline and stagnation are more likely (Just as the Japanese, 15 years in and counting).

The worth of a house an investment lies in the believe of the buyer that it is a good investment. So far the trust has not been destroyed but a prolonged downtown WILL do that. That RE industry is now very carefully phrasing their releases to make it sound better than it is is a sign of things to come, I am pretty sure they have spun their last yarn and next year they will have to fess up, albeit very reluctantly.

#100 shane on 12.29.10 at 1:03 pm

Garth, what month do you expect to see a large drop in house prices in 2011?

Shane

#101 dd on 12.29.10 at 1:10 pm

#4 Jessica

…Nicole Foss… she predicts, with evidence…

What evidence? No rationale what so ever. 100% nutbar.

#102 Bullion.Bunny on 12.29.10 at 1:11 pm

GARY SHILLING: And Now House Prices Will Now Drop Another 20%

Read more: http://www.businessinsider.com/gary-shilling-and-now-house-prices-will-now-drop-another-20-2010-12#yes-with-mortgage-rates-so-low-houses-look-cheap-and-for-a-while-this-seemed-to-be-helping-1#ixzz19WLWGY84

#103 Daniel on 12.29.10 at 1:17 pm

House Prices down in Calgary again this month.

Single Family Home last month $455k average, this month $439k … down another 15k.

Down over 45k (approx. 10%) since May.

I just inherited a house, fixing it a bit and selling it asap.

—————

Silver is up again, up over 75% this year. Get some hard assets in your portfolio, even Garth recommends some Gold and Silver (he’ll correct me if I’m wrong).

#104 arctodus on 12.29.10 at 1:22 pm

#12

While it is true that hyperinflation events normally do not cross political boundaries….

We are in a rather unique situation at this stage of history. The Central bank of canada has already made the appropriate noises to confirm that it will “protect” canadas interests by devaluing the loonie as the US dollar falls. Thus we have the stage set for rapid devaluation domestically of our currency as a result of classic money printing in the USA.

Most people simply do not have the worldview and the basic understanding of what “wealth” really is to understand the abyss that the world economy is now facing in a peak oil reality.

Fiat currencies worldwide are in a state of collapse…but these things take time to play out.

The singapore dollar may well be the strongest fiat currency on the planet in 2011 but that does not mean it is one whit stronger in the long run than any other…

It is simply a race to the bottom now…and it will never stop

#105 Mr. Plow on 12.29.10 at 1:29 pm

First off Carlyle should be commended for admitting he made a mistake and for wanting to do something about it.

This seems pretty easy for me. Carlyle has a small window in which to hit the reset button. Talk to a realtor (you need to sell now, for sale by owner may take too long) find out what the cheapest comparable sale was in your area. Then list your house, $10,000 below that number.

You will have your place sold in a month (hopefully) take whatever equity you can and get rid of the high interest debt first. Find a place to rent, cut up your credit cards (all of them!) and make a budget.

With income like this, a measly little debt of $25K (or whatever it would be, I’m not doing the math) should be easily paid off in the next few years, while also putting money away into savings. I didn’t hear anything about any dependents, so I think Carlyle could get out from under this in a short while and still recover over the long term. He’s not toast yet, if he keeps the house I think that would be it since it would not be long to be in negative equity.

This is very similar to what happened to my brother in Calgary. He overspent on his credit cards, had a car loan, a condo etc… He sold the condo, got very little equity out of it, but paid off his credit cards with it and cut them all up. He pays for everything in cash, rents, and just paid off the last of his car loan 3 years later.

Good luck Carlyle.

#106 kitchener1 on 12.29.10 at 1:37 pm

With Canadians in record debt, Carlye is more representive of the average person then most would beleive.

What happens to this group of Canadians if interest rates rise? Housing prices fall?

Basically, we have pushed demand forward. This does not bode well for the economy.

People in debt do not spend, thus, the economy slows.

Look at Caryle, makes great money, drives a brand new car, has a nice house. Nobody would ever guess he is in financial trouble. The story of success.

Now look at the renters in an apt building, no debt, some cash saved up, driving a beater car– looks like a loser but in terms of net assets, the person in the apt is much wealthier.

Carlye, my advice would be to either sell that house outright and rent, if thats not feasible, take on a consolidition loan with the most aggressive repayment option that is possible, eat kraft dinner if you must but pay it off asap.

Option #4 is the worst one possible, it gets ammort over 25 years, its the desperation move as with option #4– refi- it means that you still have access to credit cards and LOC.

Thats why so many people take option 4 and refi their bad loans into their mortgage. In a consoldition loan, the lender will cancel the LOC and CC but not so in refi.

#107 Boomer62 on 12.29.10 at 1:37 pm

#78 Nuke

Dude, buy her a one way ticket and grow some nads.

#108 David B on 12.29.10 at 1:44 pm

” Danger surrounds us. It’s a good week to worry”
——————————-

News from inside the G&M …

Outsourcing about to hit the oil sands …. 10,000- 15,000 jobs could be outsourced to India …. Hello? this bad news after Peter MacKay said he plans to cut 2800 jobs in the DND.

So just how will this effect Real Estate and the housing industry? …. what happens in one industry in the name of profit only snowballs.

Yup!

Danger surrounds us. It’s a good week to worry

your words Garth have a larger meaning for many …. perhaps even some journalist who thought they would be safe by holding back on the truth may be taking quill to paper with a high sense of self importance.

#109 TheBestPlaceOnEarth on 12.29.10 at 1:46 pm

Well well well. Gold over $1400 and soaring watch for my $1500 gold by Easter to come true. Vancouver just like gold a solid investment holding strong as the weak hands get shaken out to be bought up by offshore investors. Nothing is stopping Vancouver folks. Most recent reports have other parts of Canada looking at a 5% drop over the next 2 years before the uptrend continues (i think the drop will be more myself)
Happy 2011 folks get is while you can. If you think you can compete with over a billion investors coming from India, China, Europe then be aware you have been forewarned. Lots will be in the mega millions in the next couple decades
^
OTTAWA — Home prices fell in October, the second straight monthly decline, led lower by Toronto and Calgary, according to a national survey released Wednesday. In Vancouver, however, prices were oughly unchanged.

Read more: http://www.vancouversun.com/business/Canadian+home+prices+continue+decline+October+Vancouver+prices+stay/4036647/story.html#ixzz19WTAMuir^^^^^^^

#110 Dave in Victoria on 12.29.10 at 1:48 pm

#31 Carlyle on 12.29.10 at 1:08 am

Sell the house buddy, whack the debt, live appropriately on your far above average income.

In five years you could easily save 50K, then maybe look to buy another house.

#111 Dorothy on 12.29.10 at 1:54 pm

Everyone is up in arms about increases to EI and CPP premiums, yet everyone is grateful that these payments exist whenever it becomes necessary to access them. My hubby lost his job a year ago and we were very, very grateful that EI exists. He found another job 3 months later, but then I lost my job and again, we were very grateful for the existance of EI. Ditto for the CPP. We read every day about how many Canadians are going to be suffering a huge reduction in income following retirement, albeit possibly from their own lack of savings discipline, but think how much worse that income reduction would be if the CPP didn’t exist. And then consider how much of a burden on society all these poverty stricken pensioners would become. Surely it is much better to “force” people to save for their own retirement via a vehicle such as the CPP than to allow them to squander all their earnings and then expect the rest of us to support them. Personally I’m all in favour of an increase to the CPP premiums if it helps ensure I won’t have to support financially challenged pensioners in the future. As for the increase to MSP payments in BC, well if people would stop abusing the health care system by making a lot of unecessary visits to the Doctor and/or hospital emergency rooms, maybe such an increase wouldn’t be necessary. I know it’s not everybody who abuses the system in this way, but there are far too many who do and it needs to stop if we are ever going to get a handle on health care costs. We also need to take a long hard look at physicians who order expensive uncessary tests merely to cover their ass and protect them from lawsuits. In other words, instead of blaming the government for increasing the MSP premiums, maybe we should blame ourselves for overusing and abusing the system. Just a thought.

#112 Western Canadian on 12.29.10 at 1:57 pm

64 Mr. & Mrs. Happy

Depends on if you want to hire a company who is in the business of “Listing Homes” or “Selling Homes”

I personally would choose a realtor who actually gets paid if/when the home sells not who gets paid up front for just putting it on the MLS. That is NOT what sells houses anymore, maybe in a hot market but not now.

And since when are Realtor fees not neogtiable. Maybe you just don’t know how to negotiate, did that ever occur to you? The last condo I sold I paid my realtor $2500 flat for selling it, and offered the buying agent 2.5% on the first $100,000 and 1% on the balance (vs the 3.5/1.5 most sellers were offering, and I didn’t use a crappy discount brokerage either, I used Century 21.

I just love all the people who complain that realtor fees are too high. You are AGREEING to pay it, no one forces you to. Its the same damn mentalitiy which is destroying North America, everyone wants to be handed something…

Its like Jack Nicklaus said in the intro to The Departed:

“no one gives it to you, you have to take it”

“if you want to be something than be it!”

#113 Timing is Everything on 12.29.10 at 2:07 pm

#20 Phil said – “I can’t express in everyday words how much heat I will have to endure as a result of selling the best home [almost paid off house] I have owned to date.”

Then don’t. Why would you? Given the information you have provided.

#20 Phil said – “I would love to make the right move this time, if for no other reason than to be able to say “I toljaso”.”

Not a good enough reason, given the above. Why not just get a divorce now, and then say ‘toljaso’. Less painful for you….It’s gonna leave a mark.
;)

#114 Mel Eager on 12.29.10 at 2:08 pm

Carlyle,
What stuff did you buy on the credit card?
What did you buy with the LOC?
What kind of car did you get at the 0% loan.

Blog Dogs, we should give this guy benefit of the doubt, maybe he did Energuide upgrades with the credit card, or has bought a Non Registered portfolio with the LOC?
Maybe the car is a gas saving smaller car?
Thanks, Mel

#115 canali on 12.29.10 at 2:20 pm

let’s hope prices start to drop or more sanely level off for vancouver…but according to stats just published, in many areas they’re dropping but in ”vancouver are holding steady.” (nuts man)..’best meth on earth’…limited land supply…ongoing increase in immigrants coming over here I guess (whatever).
http://www.vancouversun.com/business/Canadian+home+prices+continue+decline+October+Vancouver+prices+stay/4036647/story.html

#116 T.O. Bubble Boy on 12.29.10 at 2:35 pm

@ #106 TheBestPlaceOnEarth:

Are you really trying to make a big deal out of trying to call a +7% rise in gold over 5-6 months?

Why don’t you call of $CAD-$USD parity while you’re at it? Or, how about higher gas prices?

#117 Stevermt on 12.29.10 at 2:38 pm

The guy in Milton is so screwed. He’s not willing to take the hard medicine, buckle down and sell and get free like so many millions of our american cousins wish they had done in 05-06. poor soul.. I guess he really doesn’t believe yet that it will happen here..he’ll of course realize too late.

#118 Dorothy on 12.29.10 at 2:41 pm

#109 Western Canadian – I agree with you. Realtor fees have ALWAYS been negotiatble for those who are williing to negotiate. I was in the trade many years ago, and have friends who still sell Real Estate, and most (although not all) are more than willing to negotiate if asked. If you come across one who isn’t willing, shop around until you find one who is, it’s as simple as that.
However, that said, be prepared for your home to be at the bottom of the list of homes shown if the commission payable on yours is less than the commission payable on the others. It only stands to reason that Realtors will try harder to sell the homes that result in the biggest paycheque. They can’t sell a more expensive home to someone who can’t afford it, but they CAN choose, when dealing with similarly priced homes, to try to sell the one that results in the highest commission.

#119 Bottoms_Up on 12.29.10 at 2:43 pm

#40 The Game on 12.29.10 at 1:24 am
——————————————
Sick isn’t it?

So an average person in 2011 can expect to pay:

$400 extra income tax
$400 extra hydro
$1000 extra HST
——————
$1800 vanished into the black hole.

Where are we (as consumers) going to cut to afford these thousands of tax dollars?

#120 Stevermt on 12.29.10 at 2:44 pm

hey I’m gonna give one more try. Carlyle guy, sell your Mcmansion, get off your high imaginary horse and move down here to Hamilton. We downsized here in the summer from Burlington and its been great. We have a nice property at a fraction of the price of the GTA. Its still close to everything. great neighbourhoods, schools, etc. you can pay off all of your debts and still have a house.
Hamilton….still one of the best kept secrets..hmmmmm

#121 Steven Rowlandson on 12.29.10 at 2:50 pm

Garth Wrote:
“Days ago I described a soulless outer appendage of godless Toronto where debt stalks the burbs. Thousands of families moved into rows of big houses with little equity and insatiable house lust. For many, it was a disaster – unable to afford the lifestyle that bankers facilitated. It many ways, a microcosm of what 2011 will bring across the country.”

Don’t worry Garth soon DEBT will be a 4 letter word that will make most real estate fanatics cringe. I think it will get that bad.

Steven

#122 investQ on 12.29.10 at 2:58 pm

Garth,

Can you recommend some independent financial advisors to invest with? Some that reflect the sentiments and allocations that you’ve been talking about?

As usual, email me, [email protected]. I will try to assist you. — Garth

#123 VMT on 12.29.10 at 3:14 pm

To #109 Western Canadian

I just love all the people who complain that realtor fees are too high. You are AGREEING to pay it, no one forces you to. Its the same damn mentalitiy which is destroying North America, everyone wants to be handed something…

Oh, yeah! … by the same token, – nobody forces the kids to take drugs, they just agree to use them, because the schools and streets are full of drug dealers.

BTW, the character played by Jack Nickolson in “The Departed” (whatever he said) was a criminal.

#124 ralph on 12.29.10 at 3:15 pm

#86 Carlyle:

The way I figure it your marriage is already in trouble. Financial stress is one of the leading causes of marriage breakups.

I think your first choice is to try and sell the house. She might walk over this but then again she might thank you later, too.

I know it is a tough pill to swallow but at least you are taking ownership of your situation.

Good luck!

#125 AG Sage on 12.29.10 at 3:18 pm

Don’t put the consumer debt on the mortgage, it’s too much like a windfall. No one who has accumulated consumer debt has ever gotten out from under that debt long-term through a windfall.

You have to change your behavior to get out of debt. Period. Put the household on a strict money diet and pay the LOC that way. The higher rate should be your impetus to stick to your budget.

Beyond that, put your head down and just assume you are paying rent to the bank (you aren’t a homeowner, you are a renter with full liability and no freedom to move, but that’s just reality) and stick to a budget so you can make extra home rent payments. A decade from now, things will look a bit better.

#126 Dave in Victoria on 12.29.10 at 3:28 pm

#35 realpaul on 12.29.10 at 1:15 am

Sounds like you’ve watched Mad Max too many times.

#127 kabloona on 12.29.10 at 3:35 pm

#109: Jack Nicklaus said that…?

Oh, you mean Jack Nicholson…..heh-heh!

;-)

#128 mousey on 12.29.10 at 3:36 pm

Carlyle: I’ll be the first to admit that it is easy to make hard decisions….for other people. Having said that, your best option is to sell the house, pay off the bad debt and move forward. You will find a decent place to rent and can regroup. I am in agreement with TO Bubble Boy’s plan. That house, at this point is not an investment, it is an anchor around your neck – property taxes, maintenance, you know the rest of the song. You have a good income and if you can get close to what you think the house is worth, you will be significantly better off: more change in your pocket and way less worry.

Mall report: out yesterday and day before shopping for sales at major mall in Vancouver. I didn’t have to wait in a line up to pay for more than 5 minutes and even found the odd clerk to help out with sizes. Coach store – empty; Hugo Boss – empty; DKNY – looky loos mostly and nobody actually going to the till; the Bay – busiest, but the stuff for sale seemed to be recycled sale items from the fall sales; Browns – packed, but major sales applied to old stock and boots; Wear Else – slow; Nine West – packed and probably the best real sale going. No unbridled wild spending. More like sight seeing.

Vancouver West side realty check up: listings appear to be way down, only 46 listings for houses at $750,000 to $1,500,000 with three bedrooms (compared to 165 plus in the summer/early fall). Lots of tear downs and the rest are way over priced. I can see that places are selling though as almost all “for sale” signs in the hood have the happy “sold” sign pasted on. There have been a couple of very bizarre listings that have actually recorded substantially increased listing prices. Each of these places have been on the market for over a year – what gives? Hubby says that the increase is in hopeful anticipation of new year buying frenzy to come. Hopeful is the key word here. Currently I see a seller’s strike and a buyer’s strike. It will be very interesting to see who breaks ranks first. I can’t see it being the buyers – why jump in at record highs at a time of economic uncertainty? I’m not so sure about the sellers either. Sure, sell if you absolutely have to, but hang on till the market turns around because you are not a doomer and we aren’t the U.S. and we have a solid banking system and it’s different here. For our part, we are going to sit back and watch the show.

#129 K on 12.29.10 at 3:38 pm

#119 Don’t forget gas prices :)

#130 Mike Turner on 12.29.10 at 3:45 pm

Stevermt

I’ve been to Hamilton it’s hardly what I’d call a best kept secret. One day you can see Toronto the next day you can’t for the smog. Not exactly what I would call Utopia but to each their own.

#131 Carlyle on 12.29.10 at 3:50 pm

#124 Ralph

I hear what you are saying but in all honesty selling the house will likely destroy the marriage. If it was up to me I’d sell, but again that’s an easy choice for me to take … sell and get out of debt that I created. Win/win for me, but I have to think about what my spouse wants too.

Financially my wife is in alot better shape than me. Money in TSFA, pension plan through work, savings, etc She has no exposure to the debt aside from the 11k on the LOC (in both our names) and the house mortgage. Everything else is under me.

I know different marriages do things differently but in our marriage most of our finances are kept separate (accounts, credit cards, etc). This creates a “that’s YOUR debt” mentality (to be fair I DID run up the debt so it’s MY debt). While we talk about our finances we don’t share aside from a joint account which household expenses run through. So long story short I’m in bad shape financially while she’s doing great.

The house is in both our names but if we sell – to her it will feel like she is being forced to sell “her share” of the house (her dream) to pay for “my share” of debt. That’s not really fair to her. I suppose we could split the profits of a home sale (20 – 25 k each round about assuming 40 -50k profit) but again it’s not really about the money … selling could potentially become a marriage breaking issue.

#132 bill on 12.29.10 at 3:51 pm

Investors take profits. Gamblers hold. — Garth.

My favorite Garthism…. and we did take a profit…felt great.
i can hardly wait for the pm mania to start in earnest.

#133 Mr. Lee on 12.29.10 at 3:55 pm

Expect F to deliver new mortgage rules in the spring budget (25 year with 10% or 30 Year with 5% ). This coupled with bond yeild increases forcing LT mortgage rates up should produce a small bounce in housing volume and an increase in price. My advise would be sell you house durring this small window of opportunity, rent, and wait.

#134 Michael on 12.29.10 at 4:02 pm

@123

Oh, yeah! … by the same token, – nobody forces the kids to take drugs, they just agree to use them, because the schools and streets are full of drug dealers.

Unless something bad comes off of it (for a large group of people) why is that a problem?

Laws are supposed to protect the majority, not made for individual cases.

By that metric most of the banksters and RE goons should be breathing filtered air.

BTW, the character played by Jack Nickolson in “The Departed” (whatever he said) was a criminal.

Decided by some arbitrary metric of some “do gooders”.

After watching this whole mess how those who are supposed to pass laws to prevent harm from society seem to be pre-occupied chasing after weed dealers instead of the ones that do real damage to society I have much more respect for the drug dealer than the mortgage loan officer. Why? Because at least the drug dealer doesn’t hide the downside of their products.

Oh, and I came across this the other day, I figured it fits:

http://www.recombinantrecords.net/docs/2009-05-Amusing-Ourselves-to-Death.html

#135 Bullion.Bunny on 12.29.10 at 4:04 pm

Looks like the PIIGS are melting down again….

http://www.businessinsider.com/the-italian-i-in-piigs-is-starting-to-show-signs-of-a-debt-crisis-2010-12

#136 Carlyle on 12.29.10 at 4:09 pm

It’s most likely we’ll do the consolidated loan route. 647 payment per month is half what I’m putting out right now, I estimate 2.5 years to pay off the debt completely if I up payments to 1200 a month.

#137 Cookie Monster on 12.29.10 at 4:20 pm

Government incentives for inflation:

1) Money loses value causing prices to rise making debt easier to repay over time. Savers are looted.

2) Tax revenues increase due to inflationary wage increases which pushes personal incomes up into higher tax brackets. Tax windfall.

3) CPI is purposely under reported by government to save money on government outlays indexed to cost of living increases. Slight of hand dishonesty.

4) Inflation is a subtle tax on all savings, not just this years wages.

5)Inflation (increase of the money supply) allows government to spend more money than it raises in taxes and debt issuance alone, it’s the third line item in government’s revenue stream.

6) Inflation drives up asset values which then generate false capital gains triggered taxes, again, adding to government revenue.

Deflation has all the opposite effects as above and since the government controls the money supply there will always be inflation, not deflation. Some assets will inflate more than others, but will deflate more sometime later, the money simply simply moves elsewhere, it doesn’t disappear. It’s not paid back.

#138 realpaul on 12.29.10 at 4:28 pm

Neanderthal socialism wants ever increasing taxes. Civil servants want more and more…the greed is never ending. BUT the fact that it makes no sense deters them not. The unions are lobbying for the destruction of the nations economy so that they can pick up the pieces at the end of the day and bring the Cuban model of radical socialism to Canada.

No ownder the debt and deficits have risen to ungodly levels……we have a culture of idiots….self concerned idiots at the helm.

http://www.theglobeandmail.com/report-on-business/commentary/neil-reynolds/how-tax-cuts-beat-out-tax-hikes-in-the-revenue-raising-game/article1851281/

And you don’t have a problem paying them for doing this to the country?

#139 Mean Gene on 12.29.10 at 4:44 pm

Just about everyone has a choice about where they work be it private or public sector.

When the economy is doing well, private sector is the way to go (Nortel et cetera), when it’s in a downturn then public sector.

The Tortoise and the Hare or The Ant and the Grasshopper fables come to mind.

82 Bullion.Bunny on 12.29.10 at 11:25 am
#39 realpaul on 12.29.10 at 1:21 am

Not to worry, the civil service will be compensated for the tax increases. Expect more strikes and work stoppages.

#140 ralph on 12.29.10 at 4:50 pm

#131 Carlyle:

Maybe, you are right. Relationships are more important than bricks and mortar.

Well, all the best to you, then.

#141 Bill Grable on 12.29.10 at 4:54 pm

Telling meeting with one of my Bank’s Credit Mgr. This kid is smart and he is NOT drinking the kool-aid.

Not to get too into detail – but the gist was – “nobody is doing anything – but either getting ready to sell the condo, for sure the rec. property and their home, and they are paying down debt. Period. He cannot give away mortgage money.
That is telling here in La La Land.
He was careful in his verbiage, but the big word was DEFLATION. Then we got into CPI tussle and that ended it.

But you get the idea.

I was SHOCKED at how DEAD it was D/T in VCR. today.

Boarded up shops have sprung up on Denman (* a main drag in the West End), like mushrooms – and – the “For Sale: sign on the condo next door has been up for 11 months. REDUCED PRICE went up, this week.

Holy Canoli.

Mr. Turner knows Vancouver well – and he speaks here and is interviewed on a fine website called howestreet.com = and in final analysis – the angst is growing, as predicted – and this Spring is going to be something to watch.

#142 Bullion.Bunny on 12.29.10 at 4:55 pm

#137 Cookie Monster on 12.29.10 at 4:20 pm

Deflation has all the opposite effects as above and since the government controls the money supply there will always be inflation, not deflation……

You fail to take into account the functioning of credit markets. In the end they will fully assert themselves and force deflation on the planet.

Dude, Where’s My Job

http://www.zerohedge.com/article/guest-post-dude-wheres-my-job

#143 brynn on 12.29.10 at 5:00 pm

Hmmmm….You think with all the ambulance chasing and the incredible garbage Foss spews out of every orficie, she would be an awful lot thinner….

#144 realpaul on 12.29.10 at 5:01 pm

Gold bears eating poop.

http://news.goldseek.com/GoldSeek/1293633439.php

#145 Stevermt on 12.29.10 at 5:04 pm

#130 Mike…
I’m not offended. but I didn’t say anything about Utopia..Is there one?
anyway, Hamilton is affordable by Ontario GTA standards. We didn’t have a bubble here. prices are realistic. Also there are different areas of our great gem of a city. outsiders don’t get it. Central , west,Dundas, Ancaster and the mountain have good air quality..comparable to other urban areas. Certainly we have an industrial north end that is not attractive but i see Industrial activity as a positive sign of people still producing things and working in this country.
We have the mountain, we are the waterfall capital of Canada. great biking trails all over the city. Culture…art galleries down on James st North. The Royal Botanical gardens and beautiful Cootes Paradise and the Bayfront..The great shops and cafes of the Westdale neighbourhood close to Mac.The Art Gallery of Hamilton and Hamilton Place.
All of our neighbours on our street were welcoming unlike our last moves into Oakville(snobville) and Borington. Its a walkable area, so different from suburbia where we were.
To sum it up, its great here once you realize what all the locals have known for so long and also why many Torontonians are moving here. ( now our mortgage is small, no debt and big property.he he he)

#146 Live Within Your Means on 12.29.10 at 5:05 pm

#80 doctore on 12.29.10 at 10:41 am

And here in NS our water bills are to increase by 27% in Jan. 2011 and electricity (we heat with it) by 7+%.

Maybe I am naive, or stupid, but why is it that the majority of all the gas, hydro electricity, oil resources, etc. that are produced in Canada are shipped to the us while we in Canada have to import many of these resources from the middle east or use toxic spewing resources like coal.

#147 Bullion.Bunny on 12.29.10 at 5:08 pm

#137 Cookie Monster on 12.29.10 at 4:20 pm

Inflation is about to become deflation as states can no longer afford to pay high rates.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8230413/Italys-debt-costs-approach-red-zone.html

#148 Nostradamus Le Mad Vlad on 12.29.10 at 5:08 pm


#17 Willa — “The only way banks are going to learn is to get hit with the foolishness of their lending.”

From my understanding (I may be wrong on this), the feds. are covering the banks’ backsides and passing the buck onto taxpayers.

CMHC is one example, and it is possible loopholes have been written into various govt. regulations which leave the indebted either paying off their debts in perpetuity, or being bankrupt and being trapped in a quicksand forever.

Someone with better info. will be able to set me straight on this.

#20 Phil — “They all think I’m bonkers . . .”

Welcome to the club! This is a club for the elite (us) only. Only requirements are:

Be sensible; live a simple, straightforward and frugal lifestyle; live well within one’s means and AVOID THE MASSES OF STOOPID SHEEPLES! You’re doing jes’ fine!

#28 45north — “it’s game over in Canada too”; #22 Kevin –“But the ride could be very bumpy.”; and #55 betamax — “But those burdened with debt get crushed.”

We ain’t seen nuthin’ yet, but yer right on the money.

#33 Harry Cho — “If Canadian house prices go down 20%, unemployment will go over 10% in the blink of an eye.”

Good estimate and that’s the ‘official’ figures from StatsCan. More realistic figure is around 17-21%, and the feds. know it.

Possibly why an ‘unexpected’ election is on the horizon — get themselves re-elected before TSHTF.

#37 Carlyle — “Shredding the credit cards is a given.”

Lotsa people should apply that line of thinking to their own lives, and this is a great way to shove it to the greedy banxters.

#40 The Game — Looks like the HST in BC may fail, so the govt. must use different methods to put sheeples into the poorhouse, so they can tax and spend to their hearts’ delight. Couldn’t stomach being a politico — most of them are whackjobs or meatheads.

#44 The Apocalyptic One formerly Old is Gold — Nice to see you back, OiG. Trust you and yours had a Merry Christmas and will enjoy a Happy New Year!

#62 Mr. & Mrs. Happy — “Cash is the credit of the masters.”

Agreed, so Cash Is King along with a diversified portfolio.

#69 Sand Piper — Excellent post. My sympathies to you. Your friend must have been in a hard part of his life, no way out.

#79 Bullion.Bunny — Respectfully disagree. Freedom of choice along with freedom of speech allows anyone to join / leave / say what is on one’s mind.

Where one can draw a line is excessive use of foul language. All name calling does is show the level of intelligence a poster has, IMO.

#91 dark sad person — “so-if you know of another way-sure-”

Check with Garth about giving each other’s e-mail addresses.

#101 arctodus — “It is simply a race to the bottom now…and it will never stop” — and — ” Danger surrounds us. It’s a good week to worry”

Two lines kinda go together, and there is little anyone can prevent it — has to run its course.
*
Saginaw, Mich. “If you’re wondering what China plans on doing with that $2 Trillion plus in US dollar cash reserves, then this may be part of the answer:”

Time to shore up stocks, as bear market is forecast for 2011.

Apocalyptic Pain Ain’t nuthin’ we can do ‘boud id.

#149 Sue on 12.29.10 at 5:11 pm

Carlyle,
I have to say this, it’s buggin the hell out of me. Sell the house and split the profits so your wife can take her windfall and invest it and watch it grow. That equity will soon be gone.
Your wife married you for thick and thin and changing the house she lives in is NOT that big a sacrifice…sheesh. Things could be a lot worse. Does she WANT to see you suffer just because of your past mistakes? (addiction is a lifelong illness not a weaknes of character). Seriously, she should want the best for both of you.

#150 David B on 12.29.10 at 5:20 pm

Here we go ….. CNN is reporting Jan 1st will see 10,000 per day turning age 65 …. AND …. 72% of them will have to work to survive. AND most past 55 who have lost or will loose thier job will find it very hard to find work again.

Good job y’all live in Canada where the Canadian Shield and the past savings plans by the Reform Coalition means we have nothing to worry about eh?

#151 Just a Tech on 12.29.10 at 5:24 pm

The end result of a paper money system will always be inflation. Fiat money systems are more favorable to wealthy because it is wealth transfer. Every day the debt is monetized your dollar is worth a little less. It’s a system that punishes savers and rewards reckless behaviour. The government will monetize when given an opportunity because it’s easy and it works in the short term, and thats what the government is all about. Especially in this enviroment of competitive currency devaluations. But having said that, In all of history, not once has a paper money currency ever survived. This time will be no different trust me, look at the states. A commodity based currency is the only way things will go back to normal. Theres too much moral hazard with this system especially with a central bank ready to be a lender of last resort to anyone and anything.

#152 David B on 12.29.10 at 5:30 pm

#136 Carlyle on 12.29.10 at 4:09 pm
_____________

Good luck with your plan (s) …..

Years ago when things were really tight I made a point of going out most Saturday nights with my wife to Pizza Hut … coffee and shared breadsticks, to-day we can order what we want and remember those nights as good ones.
_________

So please do not forget to date your wife … a Sunday afternoon walk and Tim’s can be priceless. Check your local trail guides.

#153 Oasis on 12.29.10 at 5:32 pm

End Game: Hyperinflation
http://blog.mises.org/3801/end-game-hyperinflation/

clearly, Austrian economists argue the hyperinflation case… sorry. no deflation. just lots and lots of inflation.

#154 pessimist on 12.29.10 at 5:55 pm

Carlysle,

I’d take option 5

Sell house, pay off everything. You have a zero net worth and an expensive house – you are begging, not asking, for trouble.

Never, ever, ever put any money on a loan again in your life. Only exception would be a house if you have a 30% down payment.

Read “The Millionaire Next Door”. It has a quick and dirty formula that states that had you been a thriftier individual, you should expect to have a net worth that is a bit over $350,000 by now.

It’s not really a time for small changes.

#155 dark sad person on 12.29.10 at 5:58 pm

#137 Cookie Monster on 12.29.10 at 4:20 pm

Deflation has all the opposite effects as above and since the government controls the money supply there will always be inflation, not deflation. Some assets will inflate more than others, but will deflate more sometime later, the money simply simply moves elsewhere, it doesn’t disappear. It’s not paid back.

*************
I agree with what you say the government/fed is trying to do-
Their biggest problem is-it just ain’t happening that way-
The spike in commodities is part china related and the other part is the giant quants trading/speculating for the banks who are frontrunning the QE which doesn’t circulate in the broad economy-but instead constrains purchasing power-

Wages are decreasing = deflationary

http://research.stlouisfed.org/fred2/series/A576RC1

http://research.stlouisfed.org/fred2/series/WASCUR

Credit (money supply) is contracting = deflation

http://research.stlouisfed.org/fred2/series/TOTBKCR

Borrowing is decreasing = deflationary

http://research.stlouisfed.org/fred2/series/TOTALNS

spending is decreasing = deflationary

http://research.stlouisfed.org/fred2/series/MULT

Employment is decreasing = deflationary

http://research.stlouisfed.org/fred2/series/UNRATE

http://research.stlouisfed.org/fred2/series/CE16OV

http://research.stlouisfed.org/fred2/series/HOABS

savings/defaults are increasing = deflationary

http://research.stlouisfed.org/fred2/series/PSAVERT

Largest held asset (RE) is tanking = deflation

http://research.stlouisfed.org/fred2/series/HOUST

http://research.stlouisfed.org/fred2/series/REABSHNO

Unless they plan on just giving money away to us-or sentiment shifts and people start borrowing and spending again–it’s looking to me like the opportunity for people to get the money/credit to increase circulating money/credit supply in order to spur inflation is diminishing rapidly-

#156 Bullion.Bunny on 12.29.10 at 6:00 pm

Yeah…….we are doing it better than Americans…..what is it….SPENDING!

http://www.businessweek.com/magazine/content/11_02/b4210017482335.htm

#157 Carlyle on 12.29.10 at 6:01 pm

#149 Sue

It’s complicated. We struggled for years (over 10) to get out of downtown Toronto from apartment living. In particular she has gone through alot. We both work very hard, ridiculous hours really, and the house is the one (the only) “tangible” thing we have after years of struggle (we went from years of living on 30k annual income to 110 in the space of 2 years … she graduated and I got big salary increases when I changed jobs. The house is the only thing we have that’s “ours”. Well it’s the bank’s but you know what I mean.

We would also like to have a child although that won’t be happening any time soon with 36k in debt hanging over us.

So selling the house would feel like a big step backwards even if it’s more economically smart. I understand how she feels, and think I would be somewhat selfish to force the issue given that I’m the one that caused this issue to begin with.

#158 realpaul on 12.29.10 at 6:04 pm

US RE prices can easily fall by half from the present levels. Don’t read this if you’re already queasy on the future of your recent US real estate ‘steal’.

http://urbansurvival.com/week.htm

#159 Mr.Plow on 12.29.10 at 6:08 pm

#131 Carlyle…

That is some new information. I think a lot of us assumed your finances were joint.

Based on what you are saying about how your marital finances are set up I would consolidate the debts into one loan and pay it off aggressively.

But before I do that, I would discuss this with my wife to see if she would sell the house.

#160 Cookie Monster on 12.29.10 at 6:10 pm

You fail to take into account the functioning of credit markets. In the end they will fully assert themselves and force deflation on the planet.
————
If governments pay back their debts to foreigners honestly then it would be deflationary. Portions of debt repaid domestically is neither inflationary nor deflationary. Its neutral.

If governments do not pay back their debts and default outright, this is inflationary because the money remains spent into circulation in the domestic economy,and no contraction occurs due to repayment.

If governments pay back their debts by printing, this too is default by blatant inflation and devaluation of the money, prices will rise.

#161 Amarillo on 12.29.10 at 6:13 pm

There must be lots of us off work this week, good on ya.

IMO, RealPaul has a point about govt workers being paid too generously. No need to start calling names though, there are also lots of ethical and hard-working gov’t workers.

A 10% haircut to govt wages across the board might be a good start. I’d rather have 90% of a gov’t salary than no job, that’s for sure.

In my experience, Liberals & NDPs are typically deaf to arguments that would see govt sector wages (and benefits) aligned more closely with the private sector but this will hopefully change.

Really though, why should Johnny Six-Pack working for $20/hour plus CPP/EI have to subsidize the generous salaries, benefits and pensions of those fortunate enough to work for government? It ain’t right, brother! I have a dream!

As we go forward into the financial abyss, we’re going to need empathy and fairness to get through this together.

Both public & private labor unions (again, just my opinion) typically don’t care about anything but themselves. Union leadership is usually radicalized compared to the rank & file and will sometimes let a factory go under before they will make a deal.

Unions have done a lot of good for the working man over the past many years but now the pendulum has swung too far and must begin to swing back in the other direction.

I would love to see all public & private union leaders’ salaries (and qualifications) posted publicly, I’ll bet that would be a real eye-opener!

Just watch your friendly Grade 2 teacher morph into a flinty-eyed, Jimmy Hoffa look-a-like at contract negotiating time. Teacher unions are among the worst, quite willing to go on strike regardless of how generous their terms are already. They know that parents will quickly cave in.

Cue to Jack Layton & Chow, loudly protesting for the ‘little guy’ while running up their government expense accounts to the max and not being transparent with the details. Yep, they like unions.

We need some fairness, it’s the Canadian way.

#162 Carlyle on 12.29.10 at 6:21 pm

#131 Mr. Plow

One other thing, if we do consolidate it would have to be done jointly. My personal debt to income ratio is now too high to consolidate by myself.

#163 Cookie Monster on 12.29.10 at 6:23 pm

BB, there are surely some forces in the economy that are or will be deflationary, like saving and paying down debt, true, but we all know the BofC mandate is 2% CPI, these means in normal times an expansion of money and credit closer to 5% to offset productivity improvements just to keep prices flat.

Please explain to me how over the next 10 years we will have deflation, what are the mechanics of the money contraction explained simply in your own words?

Please show me how this trend is going to reverse for a long period of time.

US Money supply M1, M2 and currency;
http://en.wikipedia.org/wiki/File:Components_of_US_Money_supply.svg

#164 sue on 12.29.10 at 6:27 pm

Carlyle,
Wow, it’s amazing to me how making the smartest financial decision is a step “backwards”. I just dealt with that mind set in my last relationship. I am a different creature. I have no need to look or feel a certain way as long as I have the most financial security possible. (no amt of tangibles feels better than peace of mind).
ps- the house belongs to your landlord the bank. It is not yours.
just sayin…
:)

#165 Live Within Your Means on 12.29.10 at 6:45 pm

#85 Moneta on 12.29.10 at 11:48 am
My wife wants me to seek counselling for being such a downer and money ogre.
———-
It’s hard to find a juste milieu when money means different things for each person.

Early in my relationship, I found it very tough to put money aside. My husband is in the tech industry and can’t get enough toys. Unfortunately, there is nothing that depreciates faster than computers. After 1 or 2 years of monthly nagging, it dawned on me that if I did not find a win-win solution we’d either go broke or separate.

I asked him how much he needed annually for his toys. We settled on a number. Every month, there is an automatic transfer to his toy account. He is not allowed to buy his toys with any other money but the toy account.

And I have kept my end of the bargain as I have never passed any single comment on his purchases even if I disapprove of what I consider excesses.

……………..

My husband is a techie too. He works in the industry, but thankfully he is a wise buyer when that is his only option. He has access to computers that are destined to the ‘recycle centre’ which the Feds and industry send to them. He takes 2 or 3 of them and manages to put one functioning one together. He spends endless hours at home doing so, but it challenges him and he enjoys (for lack of the right word) the kudos he gets. He barters some of the computers he puts together for services. He’s also done so for kids whose families and friends could not afford to provide them with a PC or Laptops. I do get upset with all the computers that he is forever dragging home and occupy a room. I think finally, wow, I can find the ironing board. Yeah right. And that is only half of his techieness. You’d think we lived in Fort Knox with all his surveillance cameras, alarm systems & panic buttons beside the bed and front door. We all laugh about it.

#166 Carlyle on 12.29.10 at 6:47 pm

#51 TaxHaven on 12.29.10 at 2:35 am
A ZERO PERCENT car loan? Now?? Must have been a recent “purchase”. Obviously Carlyle is still delusional enough to be car-lusting in THIS sucky economy…

I see where his problem comes from.

——-

Bought in December 2008 just after the US housing market collapsed. House was bought in Jan 2009 … was actually a decent price (plus 15k in free upgrades) as builders (everyone in Canada really) took a collective shaky breath. By May 2009 it was back to business as usual and prices rebounded.

That’s the only reason we have any equity in the home at all we bought when prices fell a tiny bit.

#167 Bullion.Bunny on 12.29.10 at 6:57 pm

Now Hollywood is going meltdown…..

http://www.businessinsider.com/ashton-kutcher-doom-2011-apocalypse-2010-12

#168 Live Within Your Means on 12.29.10 at 7:07 pm

PS to my last comment. My husband doesn’t work for the recycle centre – he’s a tech supervisor. As a side note, the centre hires young tech graduates and others. Two autistic twin brothers work there. One is great w/software and the other with hardware. They are such hardworking, enthusiastic kids. They were temps, but hubby convinced the powers to be to keep them on. He’s very good & treats the ‘mentally challenged’ kids in the schools very well – so much so that when they see him after awhile they want to hug him. But, as one can imagine, he’s a bit reticent, in today’s world.

#169 Bullion.Bunny on 12.29.10 at 7:23 pm

#163 Cookie Monster on 12.29.10 at 6:23 pm

Rather than blather on please read these books.

http://www.amazon.com/King-Crook-Gambler-Greatest-Financial/dp/0007161786

http://www.amazon.com/First-Crash-Lessons-South-Bubble/dp/0691119716

#170 TaxHaven on 12.29.10 at 7:27 pm

Thanks! I think we all owe Carlyle a debt of gratitude for being upfront and forthcoming about his situation, as well as for being willing to dicuss it on this blog!

#171 groundzeropat on 12.29.10 at 7:41 pm

115% mortgage vs. house value

http://vreaa.wordpress.com/2010/12/13/a-lower-mainland-home-%E2%80%9Cowner%E2%80%9D-who-is-a-client-of-these-friends-has-five-mortgages-on-his-property-for-total-mortgage-debt-of-115-of-the-value-of-the-underlying-home/

Yeah, Candians and their banks are conservative.

#172 walter safety on 12.29.10 at 7:45 pm

Carlyle , I notice that you don’t say your screwed only Garth says that.
I think you can just work out your debt situation .You need to consider NOT giving your creditors more power over you which is what a consolidation will do . Unsecured Creditors will not push too hard when they have no security. Learn to use them, work them over ,move payments around ,push back , tell them your going bankrupt. They will do everything to keep the payments coming.Then in time you will get things back under control. When they call remember your talking to an $9 hr person, eventually they will upgrade you to someone who just wants to help who will offer a consolidation loan TO PROTECT THEM.
You can do this . Manage your cash flow by paying cash And forget about the debt counsellors they get “allowances ” from the banks to push people into consolidation loans.
You seem honest enough to admit your mistakes working your way out is the best lesson you will learn.

#173 EJ on 12.29.10 at 7:45 pm

Stoneleigh’s estimate of 90% devaluation is being viewed as happening in a vacuum by many people, which is why it seems so unbelievable. You can’t look at a 90% drop in house prices while assuming everything else has stayed the same (same income, employment levels, consumer prices, etc). When a credit bubble bursts, the entire economy will change dramatically. Never mind the removal of CMHC as a guarantor for bank lending, credit for housing will simply be unavailable. People will need to pay cash. Those that have cash won’t want to spend it on housing. Those that do will need to come to terms that it may take a generation to realize any profits on it, all the while needing to maintain it in a time where taxes are being constantly increased and levied on any people they can actually collect from. People saying “If prices drop that much, I’ll buy 10” need to look at Detroit. You can find houses there for nearly 100% off their bubble prices. Yet you don’t see people snapping them all up…

Here’s a math exercise you might find interesting:

Suppose you have a house that’s currently “worth” $100k. As far as economy, job situation, and everything else goes, it’s considered “normal times” (ie. no depression and no bubble.)

Bad times come along and the house drops to 1/3 it’s previous value. $33.3k. Ouch. Painful, but not totally unbelievable or impossible.

Or, imagine another situation where credit is granted vicariously, debts don’t matter, and everyone spends like kings. Price goes up 3x: $300k. Wow!

In situation 1, price differential is $66.6k.
In situation 2, price differential is a whopping $200k.

Yet people have no problems in dealing with situation #2 as being believable, since it’s actually happened in many places. In fact, it’s not just believable, it’s expected by many now, and expected to continue. Nobody in the mainstream would consider you a loony if you thought prices would double again over the course of the next 5-10 years.

Now consider a 3rd situation. Where situation #2 happens, is reversed back to the mean, and is then followed by situation #1.

That’s just shy of a 90% drop from peak.

#174 Just a Tech on 12.29.10 at 7:56 pm

@155 dark sad money

Yeah the real economy is deflating for sure. theres alot of liquidity in the system though. From a U.S. perspective they have had the advantage of exporting some of their infaltion through the reserve currency. Moreover, if the money velocity picks up i would say watch out. Bottom line though all the debt is going to have to be monetized some how.

#175 Just a Tech on 12.29.10 at 7:57 pm

My mistake I meant dark sad person*

money on my mind lol

#176 Junius on 12.29.10 at 7:59 pm

#106 Bestplacefordrugs,

You said, “If you think you can compete with over a billion investors coming from India, China, Europe then be aware you have been forewarned.”

Actually, I do. Of the roughly $2.7 Billion people in those places I make more in one month than more than 2 billion do in a year. But who is counting.

#177 Live Within Your Means on 12.29.10 at 8:12 pm

Last post before I go to bed tonight. Hubby was trying to do a perpetual calendar with recurring events over the years. Anywho, he came across the following site that looks interesting, but didn’t do what he wanted it to do, but the site is interesting for various financial calculations.

http://www.vertex42.com/

#178 Timing is Everything on 12.29.10 at 8:26 pm

#35 realpaul

If ya can’t beat ’em, join ’em….kinda.

Or do what we [wife and I] did/do. One in the public system and one in the private system. Diversity. If either one of us are not working (for various reasons), we can still get by fairly nicely. Also, just being married helps – pooling the resources – leads to a higher standard of living. It just works…for us.

As someone on this blog says…”Your actual mileage may vary.” – (‘very’ to Page and Jon B and other anal retentive types)

#179 Cookie Monster on 12.29.10 at 8:37 pm

BB, I’ll take your answer to mean that you have no simple explanation of how money and credit will contract in a meaningful way over the next 10 years.

This is the second time you’ve mentioned these books, last time you said they were what won you over to the deflationist side, do you not recall what the eureka moment was? What was the key? What are the mechanics of money involved?

#180 Nostradamus Le Mad Vlad on 12.29.10 at 9:00 pm


US Fed A link a while back stated the US Fed and WH would prop up Wall St. until the time was right to pull the rug from under most everyone’s feet. So, an update.

Law of The Jungle is in effect.

New Jersey “Banks are foreclosure fraud factories . . .” Plus — Inside Job Ask why banxters haven’t been prosecuted.

3:42 clip “Russia is attempting to prosecute it’s bankers. When will we jail our bankers?”

MSG “When scientists want to create obesity in rats or mice, they add MSG to their food to make them want — and eat — more than they naturally would.” wrh.com.

GD1 Is this worse?

4:22 clip Charles Manson. “At 1:10. With a sterling recommendation like that, how can we refuse?” wrh.com.

Bogus Figures from the WH and US Fed. “What is of great concern to me, reading this, is the very clear understanding that traditionally, the US has moved itself out of economic depression by going to war.” wrh.com.

Carbon Trading Fraud “Notice how they name the actual nations involved in the scam … until they get to the middle east … then the naming of actual countries suddenly stops …” wrh.com.

Monsanto “What does any would-be tyrant need in order to gain control over the lives of citizens? Three things come to mind: martial law, socialized medicine, and food dependency.”

Euro Half of Germany doesn’t want it.

Apparently, the CFR is now a part of the State Dept.

#181 Michael on 12.29.10 at 9:07 pm

The house is in both our names but if we sell – to her it will feel like she is being forced to sell “her share” of the house (her dream) to pay for “my share” of debt. That’s not really fair to her. I suppose we could split the profits of a home sale (20 – 25 k each round about assuming 40 -50k profit) but again it’s not really about the money … selling could potentially become a marriage breaking issue.

Maybe I am a bit naieve here, but how about this:

If she is better off financially she could take over, say for a year, the whole mortgage payment, during this time you could pay off the debt, then take over the payments the following year?

I understand the idea of separate accounts, this would be my set-up as well but if my partner would be in your pickle I would be open to this as long as I could be sure she’d actually be sticking to the plan.

May be worth discussion with her as option 6 maybe?

#182 dark sad person on 12.29.10 at 9:17 pm

That thing (written in 2005) has so many holes in it–only someone with the gaul of a government mule would post it-
I have no idea what deflationist he’s talking about-he never says-
I suspect he built a strawman and failed to even beat that-

************
Deflationists have claimed that debt cannot be inflated away as long as people are not willing to borrow, and that once debt reaches a certain level, the ability to borrow goes away. Whether this is true or not, the Fed has made it clear in a series of speeches that they are ready to monetize anything and everything by turning on the printing press and buying assets, gold mines, or whatever else it takes to prevent nominal prices from falling.

***************************
Maybe that’s why gold is going up huh
The fed is buying up gold mines in order to hold the gold price up?
I do know they own some shopping malls and hotels through their maiden lane scam-

I’ll agree with the part about “they said” and they are trying to hold prices up–“especially” house prices-
The problem is they couldn’t do it-no matter how much they threw at it-so out the window goes that theory-

When China croaks and commodities crash and they will and when they do-they wont even touch the sides on the way down-
As they did on 08-

***********************

Some deflationists have said that inflation cannot occur while workers are facing competition from Asia depressing wage rates. Inflationists are not saying that real wages cannot decrease. On the contrary, real wages and real income tends to decrease for most people during high inflation and hyperinflation. The reasons for that are wages tend not to keep up with goods prices; tax brackets for business and wage earners generally are not indexed to the actual rate of prices increases, causing taxflation; it becomes more difficult for business to produce and invest during an inflation so the supply of goods decreases;

***************************

He misses the complete picture of how that in fact “did” happen-
He’s right about this-
Wages did not keep up during the inflation–but that had no effect on increasing the “supply” of goods-because-
House prices were going up and people always had an inflow of money through rising house prices-which not only masked the fact that wages were stagnate-but compensated for it- ie:
the on going credit bust because house prices stopped going up and crashed-leaving personal debt hanging in the air-
I wont even go into the derivatives that were levered to houses (CDO’s) and have never been marked to market-

He speaks mainly of government debt-which really is not that big of a problem right yet-
The problem is personal debt and it’s constraining consumer spending–
The other problem is business are cutting back and laying people off-

He speaks as if everyone still has a wage-they do not-unemployment is rising-wages are falling-
There is an oversupply of almost everything-especially houses and autos and harleys and boats and toys and granite-with no demand-
How will that lift or even hold prices?
It wont-it can’t-and proof is all around us–it isn’t–

I could have gone a lot further-but why bother-
Most of what he says is garbage-
It’s now 2010–look how wrong he was–

#183 dark sad person on 12.29.10 at 9:19 pm

That thing (written in 2005)

******
Oooops-
For my hyper-inflationist buddy Oasis

#184 OttawaDaddy on 12.29.10 at 9:20 pm

#108 David or anybody else:

” this bad news after Peter MacKay said he plans to cut 2800 jobs in the DND”
————-

Can anyone find the reference for these cuts?? I can’t find it anywhere and it is most interesting to the Ottawa market

Thx!!!

#185 Nostradamus Le Mad Vlad on 12.29.10 at 9:51 pm


Silver Derivatives and China. Plus — Gold is nice but silver is shinier.

Eurozone’s Plan to save Euro. Plus — 10% (or more) UK unemployment in 2011.

Prichard, Ala. — First town to default in the US. Retirement Funds could be seized, a la Hungary (Soros’ birthplace). Reason Why.

One Reason: Sunspots have all but vanished, and the sun is on strike. But wait! Power play — double major time!

BP — who profited? Plus — Oil “OPEC Ready To Let Oil Run Wild” — Peak oil? If there is an alternative ready, then finish with oil.

FF heads up Away from N and S Korea.

China pulls a Monsanto.

Canada This is a part of Bill C-36. No doubt Iggy, Layton and May support it so, no choice but to begin a revolution.

Four Fundamentals not so healthy.

#186 Bottoms_Up on 12.29.10 at 9:57 pm

#184 OttawaDaddy on 12.29.10 at 9:20 pm
———————————————
Go nuts (all gov departments, forcasts for spending and FTEs-full time equivalents):

http://www.tbs-sct.gc.ca/rpp/2010-2011/index-eng.asp

Keep in mind FTEs can be eliminated through attrition and deleting open boxes.

#187 Bottoms_Up on 12.29.10 at 9:59 pm

Erratum

Subsequent to the tabling of the Department of National Defence’s Report on Plans and Priorities for 2010-11, a typographical error in the table has been corrected. Civilian Full Time Equivalent (FTE) values of 6,340, 5,231, and 5,176 have been replaced with 500, 500, and 500.

http://www.tbs-sct.gc.ca/rpp/2010-2011/inst/dnd/dnd01-eng.asp

#188 Bottoms_Up on 12.29.10 at 10:00 pm

Here’s the page that cites the FTEs going forward:

http://www.tbs-sct.gc.ca/rpp/2010-2011/inst/dnd/dnd02-eng.asp

#189 Herb on 12.29.10 at 10:09 pm

Ottawa Daddy @ 184

have not heard of an MND announcement of force reductions, but National Newswatch yesterday carried a G&M article about 3,500 supernumerary civilian personnel in the CF that will have to be reduced –

http://www.theglobeandmail.com/news/politics/military-sets-out-to-trim-all-but-essential-civilian-staff/article1850565/

#190 Utopia on 12.29.10 at 10:15 pm

#176 Junius

You earn more in month that the poorest 2 billion people do in a year? Lord, you are broke then. I could always loan you a few bucks if things are that tight.

The average Canadian actually earns more in a WEEK than the bottom half of the worlds poorest. It is shocking how poor the poor really are.

Have a look at a Quikie from Wiki to see how you stack up against the rest. In fact you will see that the bottom half of the worlds population controls less that 1% of it’s total wealth.

The income disparity is shocking and should put some perspective back on the table on this site where it is widely assumed and discussed that one million is needed for retirement (that is ridiculous of course and totally out of perspective even in a rich society…sorry Garth).

For those out there who do have the million to retire on then consider yourselves blessed by the Angels themselves. You are in the top percent, the very top of the income food chain. You might as well be a billionaire from the perspecticve of someone from rural China or India, never mind Sub Saharan Africa which is destitute even by comparison to Asia.

The numbers you will see incidentally are for Purchasing Power Parity (PPP) which is not the same as nominal income. If addressed in nominal income or GDP terms the disparity is far more extreme.

Have a look for yourself.

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

http://www.nationsonline.org/oneworld/GNI_PPP_of_countries.htm

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

#191 RedDeer1 on 12.29.10 at 10:23 pm

Garth,

off topic, could you give any idea when you will have another book coming out?

Thanks in advance.

Watch the north sky. It will glow. — Garth

#192 Tkid on 12.29.10 at 10:32 pm

Carlyle, there is no way out for you in this. Your wife has taken steps to separate herself from you financially and I doubt you can talk her into selling the house. You are already working every hour God sends you. You urgently need to get your monthly debt payments lowered, which tells me any unexpected financial crisis will put you into bankruptcy court. From there you’ll head into divorce court.

#193 Marcus Aurelius on 12.29.10 at 10:40 pm

Now imagine you are the same branch banker that enabled Carlyle. You just gave him those nice (for you) consolidation options.

“Ring” “Ring”

“Hi – How’s it going over there at Head Office? Are the lawyers still trying to test the strength of the windows (dumb sods)?”

“Oh – you mean we’re not using standard charge terms anymore – on ALL mortgages? ”

“But what about the customers that put more that 25% down, and want to pay off their debt as soon as possible? Won’t these ‘collateral charge terms’ be useless for them, other than serving as additional security for our so-called ‘unsecured’ lines of credit?”

“Oh – right – I forgot, our bank ditched “those” customers a few years ago- we went after the clubland drug-dealing immigrants who loaded up on all of our credit products – the guys who are going to be in deep sh*t when price declines in our bank’s major urban markets (like Toronto, or Toronto, or even Toronto) leave them underwater on their debt.”

“Ok – I understand – you KNOW our customers are screwed, and this is just the ‘switch-over’ to the next game – customers who can’t switch mortgages away from us, and owe us so much more than their house value supports, we can keep the books easy with these ‘collateral’ charge terms underpinning more debt than house value…”

WOW – and no MSM ever did a story on the obvious thinking that our bank’s refusal to give our customers any choice on new originations last October means. Incredible. It’s as if our CEO signalled the market that his bank is ‘betting wrong’ on the Don’t Pass line — and nobody noticed! Now I know why that guy is so well paid.

Apres Ed, Le Deluge.

#194 Utopia on 12.29.10 at 10:42 pm

Dark Sad Person

Seems we have the same investment interests. Course I have also been a huge fan of Potash, Copper and Ag for a long time now.

Anyway, there was a terrific interview on “Financial Sense” radio with James Dines and Jim Puplava on Christmas day. Check it out. Uranium is a huge buy as I have long contended. The show runs for over thirty minutes if you have the time. Here it is, hope the link works out.

http://www.financialsense.com/financial-sense-newshour

#195 Herb on 12.29.10 at 10:42 pm

To add a bit of spice to the government vs. private sector/conservative vs. progressive debate –

… [C]onservatives are enthusiastic promoters of big government. They are happy to
have the government intervene into the inner workings of the economy to make sure that money flows in the direction they like – upward. It is accurate to say
that conservatives don’t like big government social programs, but not because they don’t like big government. The problem with big government social
programs is that they tend to distribute money downward, or provide benefits to large numbers of people. That is not the conservative agenda – the agenda is getting the money flowing upward, and for this, big government is just fine.

– Dean Baker, THE CONSERVATIVE NANNY STATE, Center for Economic and Policy Research, Washington, DC (2006), page 2.

The substantiation for Baker’s views is contained in 119 pages at http://www.conservativenannystate.org/

#196 RedDeer1 on 12.29.10 at 10:51 pm

>>>>>>>>>>

Garth,

off topic, could you give any idea when you will have another book coming out?

Thanks in advance.

Watch the north sky. It will glow. — Garth

>>>>>>

Seriously….?
.

#197 Bullion.Bunny on 12.29.10 at 10:52 pm

#179 Cookie Monster on 12.29.10 at 8:37 pm

BB, I’ll take your answer to mean that you have no simple explanation of how money and credit will contract in a meaningful way over the next 10 years.

Sorry, I’ve been very sick for the last three weeks. I’m not really in the mood for lots of typing, sorry. Maybe “dark sad person” can pick it up.

This is the second time you’ve mentioned these books, last time you said they were what won you over to the deflationist side, do you not recall what the eureka moment was? What was the key? What are the mechanics of money involved?

Taken from page 202 of “The King The Crook and the Gambler”

But if the threat could be contained, there were, nonetheless, two pressing problems for the government. First, the initial official draft of the South Sea Company’s financial position showed a deficit which was almost too horrible to contemplate. The Company owed the Exchequer at least £14 million, which was nearly half the size of the national debt it had bought from the government. It had nothing in the bank, despite the promise of the fabulous wealth owed to it by its shareholders — a cold, but realistic, assessment was that its prospects of forcing the debtors to pay up was nil. So entangled were the fortunes of country and Company that the latter’s demise meant the nation’s financial future was at stake. If the Company, the holder of the much vaunted national debt, was declared bankrupt, then the state, too, was effectively in default.
On 16 February 1721 (ironically, the same day that a bill ‘to prevent the infamous practice of stock-jobbing’ was given its second reading), the Comiriittee of Secrecy presented its initial findings to the Commons. For more than two and a half hours, MPs listened in amazement as Thomas Brodrick recounted in great detail the events of the previous year. He had, declared one parliamentary commentator, uncovered ‘the deepest and largest scene of villany and fraud that ever was contrived and perpetrated’. In its report, the committee laid bare the subterfuge carried out by directors as they had scurried to hide the evidence of their wrongdoing. In some of the ledgers ‘false and fictitious’ entries had been made; in others, the space for the names of investors had been left blank. Some entries had been erased or scored through, and pages had been torn out. Worse still for the investigators, some of the Company’s books had gone missing, including the notorious green book taken by Robert Knight, and others had been destroyed before they could lay their hands upon them. Despite all the difficulties, however, the committee members told the Commons, they had been able to reveal a ‘scene

Does this not sound oh so familiar? Credit markets lead the stock markets, leads the economy. As credit expands, it ends up in the markets as speculation. From which point businesses start chasing the newly minted credit. This is the Austrian Business cycle, I won’t go into this, you already know this.

Once credit expands to the point where everyone is loaded up with debt, it rolls over. The banks stop lending until prices fall and the system resets, also Austrian school.

Deflation rears its ugly head as government bail outs fail to restart the economy. As the government continues with its program all bailing out its friends the people revolt and demand it be stopped. Once the credit expansion stops the system defaults then deflates. Its happened this way every time from the days of Rome.

Here is an interesting quote from Karl Marx. Not a fan of Karl, but interesting none the less.

Owners of capital will stimulate working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks which will have to be nationalized and State will have to take the road which will eventually lead to communism.

#198 Behavioral Finance on 12.29.10 at 10:57 pm

HouseBuster,

If hyperinflation happened in US the entire global economy would experience it. Don’t forget US economy makes up 20%+ of the world economy.

Think Commodities…

So let me spell it out for you. Even if there is hyperinflation in the US, which there won’t be, we will not experience it in Canada.

Really, so what do you think would happen to 70% of the trade that Canada does with the US.

#199 Behavioral Finance on 12.29.10 at 11:04 pm

Garth will love this.

Shortly before retirement, Greenspan, seemed more forthcoming: “We can have little doubt that the exceptionally low level of home mortgage interest rates has been a major driver of the recent surge of home building and home turnover and the steep climb in home prices.” In the same speech, he claimed that if house prices cooled , “these borrowers, and the institutions that service them, could be exposed to significant losses.” from Panderer to Power

#200 TheFirstRick on 12.29.10 at 11:06 pm

This one is for REALPAUL

http://www.vancouversun.com/story_print.html?id=4030267&sponsor=

I’m thinking this one might be the one that causes the inevitable coronary.

#201 Bullion.Bunny on 12.29.10 at 11:17 pm

#179 Cookie Monster on 12.29.10 at 8:37 pm

One last thing, as I said three days ago. Hyper-Inflation only takes hold where credit markets are non-existent. Government must have a direct mechanism into the economy such as the Wiemar Republic 1923.

The current system has a giant mature credit market that will cut-off credit and prevent any hyper-inflation. The debt levels are now unserviceable across the planet, when the defaults come only the AAA+ clients will be able to get credit and they won’t want it. This includes government itself, they will not be credit worthy, or only at very high interest rates. Remember 1980?

Where do you see the direct transfer into the economy? I only see bank bail-outs. Ben would have to drop $100 million dollar bails of money from his helicopter for hyper-inflation to take off. Maybe it will happen who knows?

Watch the north sky. It will glow. — Garth

Yes, but what colour bat man?

#202 Bullion.Bunny on 12.29.10 at 11:30 pm

#179 Cookie Monster on 12.29.10 at 8:37 pm

Not sure if that quote is from Karl Marx, but it really sounds good.

#203 Behavioral Finance on 12.29.10 at 11:30 pm

This is pretty amazing.

The bond market (also known as the debt, credit, or fixed income market) is a financial market where participants buy and sell debt securities, usually in the form of bonds. As of 2009, the size of the worldwide bond market (total debt outstanding) is an estimated $82.2 trillion,[1] of which the size of the outstanding U.S. bond market debt was $31.2 trillion according to BIS (or alternatively $34.3 trillion according to SIFMA).[1]

The foreign exchange market is the largest and most liquid financial market in the world. Traders include large banks, central banks, institutional investors, currency speculators, corporations, governments, other financial institutions, and retail investors. The average daily turnover in the global foreign exchange and related markets is continuously growing. According to the 2010 Triennial Central Bank Survey, coordinated by the Bank for International Settlements, average daily turnover was US$3.98 trillion in April 2010 (vs $1.7 trillion in 1998).[3] Of this $3.98 trillion, $1.5 trillion was spot foreign exchange transactions and $2.5 trillion was traded in outright forwards, FX swaps and other currency derivatives.

#204 Timing is Everything on 12.29.10 at 11:38 pm

#164 sue

They should sell the house, the car, rent an apartment and drive an old car…and live happily ever after….
Right Sue!? ;)

#205 Behavioral Finance on 12.29.10 at 11:39 pm

Just a Tech,

Fiat money systems are more favorable to wealthy because it is wealth transfer. Every day the debt is monetized your dollar is worth a little less.

Well it wasn’t always this way. I would say that this trend started in the 1980s with securatization of mortgages and the believe by western governments to strive for full employment no matter what the cost would be.

#206 Cookie Monster on 12.29.10 at 11:51 pm

Deflation rears its ugly head as government bail outs fail to restart the economy. As the government continues with its program all bailing out its friends the people revolt and demand it be stopped. Once the credit expansion stops the system defaults then deflates. Its happened this way every time from the days of Rome.
———–
ok, so we’re still in the inflation phase, and once credit expansion stops, that’s neutral, then savings and debt repayment/retirement must follow this for deflation or credit contraction to begin, the exact opposite of credit expansion. So this phase will in fact be a long and tedious process assuming nobody defaults. And if there are defaults the banks will go bust or another bailout will be required, either of which is neutral toward decreasing outstanding credit.

Also, I never argued for hyperinflation, I’ve only been arguing the case for inflation as opposed to deflation.

#207 Mike Turner on 12.30.10 at 12:05 am

This is for the blog dogs. All those decrepit old men who can’t get it up without a long position in viagara.

I’m 31 own nothing and owe nothing. I live by the skin of my teeth. I’m in Italy living my dream to study art and have spend the last few months standing in front of masterpieces and feeling very inadequate (I’m sure you know the feeling ;).

I find myself at a crossroads. Do I continue my hedonist ways and just live my life for my pure enjoyment (I have no kids that I know about) or do I throw away the dream of living as a free man, doing what I want to do, so I can become a financially repressed asshole that never knows when I can get it up until I am told?

I’m being very serious here I have someone in mind I would like to spend the rest of my life with, but I fear if I tell her the financial train wreck that I am she’ll run away. And so she should.

How does an artist ever live up to the financial standards of today when the greedy banks(IE Medici) that once funded the greatest artists(Leonardo, Michelangelo, Raphael, Donatello, all the ninja turtles) in the world now end up as Jamie Diamond(the biggest cocksucker with a smile I’ve ever seen)?

Lonely in Firenze…

PS. I love the blog you’re the only person that ever made me think about money. To me it was just you make it you spend it. From reading the blog I know so much more. Amazing how greedy and corrupt the world really is. It’s no wonder us hard working artists don’t stand a chance this day and age. Keep up the good fight Garth and see you on the other side. Break on Through!

#208 Cookie Monster on 12.30.10 at 12:06 am

BB, the south see bubble example probably occurred on a gold standard, so loss of hare money would be deflationary, exactly because it can’t be replaced. Loss of money out of an economy is deflationary. But we don’t have that today, we have lots of credit and government monetization of bad debts, completely different.

What I can’t understand is you and DSP are both into gold and seem to understand sound money, we all know every country in the world has a roughly 2% stated inflation target objective. I’ve explained that default is not deflation.

The only way we can get deflation is if people stop spending and start saving, and it’s a long slow process, one in which government will be trying to prevent to get their 2% CPI.

#209 Ms Curious on 12.30.10 at 1:03 am

Carlyle,

I didn’t examine options 1-3, but how is rolling all your debts into the mortgage fair to your wife?

I would resent you if I were your wife for consolidating your mess of debt into one seemingly more manageable debt. Aren’t you basically asking your wife to ultimately be responsible for your debt for the duration of the mortgage term?

You underestimate your wife’s intelligence by avoiding to consider all alternatives and discussing them with her even if it would hurt your ego at first.

I am just saying…

#210 Agio on 12.30.10 at 1:46 am

I’ll give Carlyle credit (okay I wouldn’t as he’s a typical trainwreck)t but hey at least the guy is honest about his situation. On here, that’s refreshing.

#211 Aussie Roy on 12.30.10 at 3:05 am

Hi Cookie, FWIW here are my thoughts regarding what is deflationary.

I think it might help if you look at the bigger picture. I did read your defaults doesn’t cause deflation which I don’t agree with if defaults are wide spread enough.

Think about it from a bankers perspective and counter party risk. You are the banker your defaults are on the rise the next person that comes in for a loan, will you be more or less likely to loan them the same as before or will you build in a risk premium, whether that is less actual money up front or in terms of a higher risk premium on the interest rate charged. Both have the same affect (slowing or negative credit growth), to reduce the amount of the loan given if you assume you have a percentage limit for payments from the customers wages/ salary.

I would argue that just like an expansion in credit causes prices to rise (and GDP to grow) any contraction in credit cause prices to fall (GDP to fall). I don’t think you have a handle on the mind set of the credit providers when defaults are rising and what their reaction to this risk would be (think current US banks).

As such I think this statement is false.
“The only way we can get deflation is if people stop spending and start saving, and it’s a long slow process, one in which government will be trying to prevent to get their 2% CPI.”

IMHO it should read. The way we can get deflation is if people stop increasing the demand for debt (current additional spending above their income) and start deleveraging or saving, and it’s a long slow process, one in which government will be trying to prevent to get their 2% CPI. In such circumstances the govt will attempt to fill the falling private debt demand with govt debt demand (as per the US during great depression).

“Loss of money out of an economy is deflationary”. I would suggest negative (a contraction) credit growth (the speed at which new money enters the economy) is also deflationary.

The point here is any reduction in the demand for debt contracts GDP. Total demand in the economy is the sum of GDP plus the change in debt.

Steve Keen covers this subject well in the following articles.

http://www.debtdeflation.com/blogs/2010/08/29/what-bernanke-doesn%E2%80%99t-understand-about-deflation/

http://www.debtdeflation.com/blogs/2010/11/15/why-credit-money-fails/

http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

I hate predictions and I’m not smart enough to know whether we can inflate our way out of the mess or whether deflation is the final end game (or some combination – stagflation or whatever), I will leave that to the crystal ballers. But it seems to me when credit growth (which adds to GDP) turns to contraction GDP must fall. Its the old positive feed back loop turned on its head.

Please have a read of Steves stuff even if you don’t agree it may help strengthen your position.

As always I have an open mind and would be happy to debate.

#212 Deciding when to sell on 12.30.10 at 4:30 am

Carlyle,

I understand how you and your wife are handling your family finances, since I have done it that way in the past.

In your situation, since you have high-interest debts while your wife has savings, why not get your consolidation loan from her instead of the bank? Put it in writing and offer her a higher rate of return than she is currently getting, which will still be way lower than you are now paying.

#213 Cookie Monster on 12.30.10 at 7:02 am

Correction, my mistake, I did mention hyperinflation a few days ago, I was calling it an avalanche, when the bond market chokes and all the foreign US$ come sliding back to the USA, that’s when gold hits $10k!

#214 Dude in the Orange Thong with a Semi on 12.30.10 at 3:16 pm

Garth – love your work…I am a daily reader of your provocative prose. I won`t bore you with numbers, but suffice it to say my girlfriend and I paid cash for a semi in the GTA a couple of years ago. The house has appreciated about 20 percent, and larger increases have occurred in RichHill and Vaughan, where italasians are drooling over 38 ft lots, black granite coarse grained bidets, 88 quart stainless woks, and smooth leather floors with built-ins.
Our family income is north of 170, but we will not pursue the American dream until the Canadian nightmare happens and we wet dream our way into an orange diaper.
We recently returned from sunny Orlando, and I have a couple of observations. Firstly, give or take a few points, the price of food, clothing, electronics etc is the same in Canada and the US. In fact, many of our boxing day specials were better than American prices. Secondly, our dollar just dry humped the greenback and par is here to stay just like your fav STI. But I can buy a beautiful custom home on a tiny 1 acre lot near Orlando for the low twos!!! Somethin aint right.
It is totally possible to see a 15-20 percent correction in the next year or so. But that is still only a minor correction – a further slide will be necessary to bring house prices in line with incomes. Is there really any difference for a young couple carrying a 400000 or 300000 mortgage? Not really…Big declines are coming.
So I am filling the pouch of my orange thong until the day when I can blow my wad in a more sensible real estate market.
I do disagree with you on one point – I don`t think we should be putting so much emphasis on retirement savings – a significant percentage of us will run out of racetrack before F signs the pension cheque….and besides, the life of a 68 year old just aint that fun. So live for today, diversify, be responsible, save, and don`t support the current real estate bubble!!

#215 GregW, Oakville on 12.30.10 at 7:32 pm

Hi Garth, What are you drinking? Now any ‘new’ babies?

Article
Do We Really Need Fluoride In Water?

“The October 2010 issue of the journal of the American Dental Association has confirmed that infants fed with formula milk prepared from fluoridated water run a greater risk of fluorosis (mottling and discolouration of teeth enamel).

On the same subject, another book published in September this year – The Case Against Fluoride by Paul Connett, James Beck and HS Micklem argues forcefully against the practice of adding fluoride to drinking water supplies…”
http://www2.fluoridealert.org/Alert/International/Do-We-Really-Need-Fluoride-In-Water

And there are the studies showing IQ reduction if infants are given fluoride! See ‘Home’ page at link above, and other TOXIC effects on the human body.

Remaining uninformed is not in your and your families best interest anymore!

I know you are all smart enough to understand the information, but are your smart enough to even look?
FYI: ‘Brital’ water filters DO NOT Remove the added fluoride from the water!
Brital are carbon filters and are able to remove other chemicals but not fluoride.
Boiling water makes the fluoride even more concentrated!

Can Canada even take that gamble with our futures, People having lower IQ’s?
What about your families health?

Go to link above and there ‘home page’.
Scroll down to see info. video

‘Featuring a Nobel Laureate in Medicine, three scientists from the National Research Council’s landmark review on fluoride, as well as dentists, medical doctors, and leading researchers in the field, this professionally-produced 28-minute DVD presents a powerful indictment of the fluoridation program.’

Read the science your self. (It’s not rocket science or nuclear science.)
Just right of info. video link you can find;

2006 NRC report:
Fluoride in Drinking Water:
A Scientific Review of EPA’s Standards
Free to read or search online

Still not sure, make copies of the info video and ask your Medical Doctor to watch it and ask if there is anything in it you should be concerned about? I bet your Medical Doctor and Dentist are just not as well informed as you might first think. There are only human and have been told the same rhetoric we all have been told. Remember being told smoking and second hand smoke was good for you/safe? (Even worse still, if your Dentist happens to read the science is able to think for themselves and speaks up, they run the risk of losing there means of making a living!)

Don’t believe me read the science for yourself!

Link above is a good starting place, and there is ‘the fluoride journal’ that you can find on line. Tell your local council what you want them to do,
Give them the information, since they are the ones still forcing your family to drink this toxic fluoride by adding it to the drinking water.
They can stop adding it to your water supply and there own families supply. (Are they truly informed?)
The so-called does you get is not controlled. How much water do you drink each day? Are you taking any medication, foods or drinks that contains fluoride???

A pea size amount of tooth past has about the same amount of fluoride as a large 250ml glass of water. The tooth past tells you DO NOT SWALLOW, can poison control if you swallow more than a pea size amount!

Why is fluoride still being added to your families drinking water supply??? Isn’t the Governmnet able to read and undersatnd the basic science of good health anymore and how to keep people from getting sick and act in our best interests? It doesn’t look like they can to me. I’d like to be made wrong, but…

Greg. You’re cute. But that was the last damn killer fluoride post. — Garth