Longevitis

talk

Vancouver realtor Sam Wyatt didn’t anticipate what happened this summer. “Sales volumes peaked in May but they did not drop off as precipitately in July and August as they often have,” he says. And why? “I attribute the strong sales volumes in July and August to the interest rate increases that happened between June and August.   Buyers with held interest rates as low as 2.79% are eager to spend the banks’ money before their rates expire in September.”

Exactly. We have a new disease in Canada. It’s Mortgage Longevitis.

This is a natural extension of the Orange Guy’s Shorts Syndrome, which tore through the nation a few years ago. After the GFC people were terrified of risk when investing their money, and piled into “high-interest” savings accounts at places like ING. While the stock market gained 153% following the winter ’09 low, billions grew mold at 1.5% a year inside the shorts. What a brilliant move that was.

Now, freaked because fixed-rate mortgages have soared 1% in a few months, buyers have been stampeding into offers just to snatch a relatively low rate. That’s spawned bidding wars, popped sales in Toronto, Calgary and Vancouver, pushed prices higher and created a patina of panic. Thousands of deals were done last month at valuations which have never been higher, even amidst a sluggish economy and rising household debt. They bought high so they could borrow low. Another brilliant move.

So four months of heaving and frothing in the bond market has screwed up everybody’s head. Like Dale, in Hamilton.

I own a rental here in Hamilton that’s rented till 2015 at least and I plan to keep renting it indefinitely.  So I’ve got about 150k left on the mortgage and right now I’m locked into a 5-yr closed at 3.25 and the term ends in October of 2015.

My question:
1) do I do a blend and extend at my bank for another 5 years at about the same rate
2) do I wait for my term to end and check the lay of the land at that time? (doubtful)
3) do I just burn the house down and take the insurance and run? lol. Nah, in Hamilton that stuff happens too often to be believable anymore.

See what I mean? The guy’s got a perfect roadworthy mortgage at a competitive rate good for two more years, and he’s willing to pay a fee and cash it in for a new term at a higher rate – even though this is a rental property with a 100% tax-deductible borrowing. It’s like thinking your love handles are terminal which, trust me, is an issue.

Of course twenty-four months  is a long time and lots can happen. Bumping the rate up for the next two years to protect against the unknown for three subsequent years could end up being a dumb move. Besides, if weak job numbers on Friday signal a slowdown in American expansion, then the bond market might settle back down in coming months. Plus, we know central banks are loathe to raise their rates with deflation still lurking in the shadows. Finally, the yield curve is going nuts.

That’s the swoopy line connecting short and long-term rates on a graph spanning several decades. These days long-term yields have been pushed up in the bond market, where everyone lives on Tums and Nicorettes, while short-term rates are being kept in the dirt by central banks. So you have to ask yourself why you’d want to lock into the expensive, long stuff (five-year fixed-rate mortgages) when the short stuff (variable-rate loans) is cheap.

The difference this week between the best VRM rate and the going 5-year bank rate has swollen to 1.1%. That’s huge. And yet tons of people are scrambling into fixed-rate mortgages – about 80% of all the loans in the country are now locked in, rather than floating.

This is telling. Like the billions collecting dust in savings accounts while balanced portfolios churn out 7%, it says avoiding risk is more important than building wealth. And what a folly that is. The greatest risk is running out of money, not losing it – as millions of Boomer women are destined to learn.

Meanwhile housing numbers swell as newbies scramble to deploy their fat 2.79% mortgages buying houses whose prices will never be greater. They confuse monthly payments with debt. To them, risk is not having. It’s an even greater folly.

Back to Sam, in Van.

“In spite of good volumes of sales this summer,” he says, “I expect to see downward price pressure to resume – particularly on detached homes.”

Oops.

160 comments ↓

#1 chopper on 09.06.13 at 5:42 pm

I can’t wait to see what happens this winter to the real estate market.

#2 Babblemaster on 09.06.13 at 5:51 pm

Doesn’t matter that housing prices are based on collective insanity or insanely low interest rates or whatever. The fact is that, against all reason, predictions calling for a cooling, or bust, of housing prices have been premature for the last four years. Who knows how this upward trajectory can continue.

Not exactly true. Prices are falling in many markets. YVR/YYC/YYZ are not the whole country. — Garth

#3 Babblemaster on 09.06.13 at 6:01 pm

“Meanwhile housing numbers swell as newbies scramble to deploy their fat 2.79% mortgages buying houses whose prices will never be greater.” – Garth

——————————————

“Whose prices will never be greater.” I’ve seen this same sentiment expressed quite a number of times in the last four years. We all know that, in fact, housing prices have continued to gain. So, who knows how much higher they can go.

Or how much lower. It’s all about risk. There is far more on the downside. — Garth

#4 AnoldWrinklyCrinkly on 09.06.13 at 6:02 pm

Another excellent piece Garth.
The Sun has sunk below the Yardarm time for a G and T.
As I sit and watch the beach slowly empty here in Myrtle Beach, it was 32C today. I notice the Markets were mixed ,not an issue. Totally balanced as you have suggested.
It is times like this I glad I read your Blog.

I’ll raise a glass to you later this evening…

#5 8102 on 09.06.13 at 6:02 pm

Let’s see, if I advertise making false claims Consumer Protection Agencies will prosecute me but if I get the Media to spread the false message for me, it’s news. It seems the Real Estate industry has mastered that art forms.

#6 Rob on 09.06.13 at 6:05 pm

Mortgage rates are like gas prices, people will rush in next year thinking the rates are a good deal compared to whats coming and so on. Only problem is that they can only afford so much debt so prices will have to come down or they will be priced out and less people will be buying.

#7 Smartalox on 09.06.13 at 6:17 pm

So locking in at today’s rates means a 1.1% premium compared to current variable rates.

Who is to say that the fixed mortgage rates won’t be even higher once the variable rates catch up?

Isn’t it folly to try to time the markets?

I guess that it’s generally moot anyway, since the greatest savings in real estate come from price cuts, anyway.

#8 Ben on 09.06.13 at 6:19 pm

chopper – here is what will happen:

1. volumes will fall
2. higher end homes will still sell
3. this pushes up the avg price despite the collapse in volumes
4. the print media will print what their major advertisers (realtors) tell them

You have to break the sentiment to see significant drops. Reality will be used as secondary evidence by the masses, after what they read in the papers.

Being psycho about housing takes a long time to cure.

#9 Albert on 09.06.13 at 6:29 pm

Hi Garth,
I’m listening to your advice and renting right now, waiting for the market to correct.

In the meantime, could you please point me the direction where can I put my money in for my saving ?

I heard from people you said there are 7% return investment, can you please let me know where can I find it. (maybe the specific blog post you wrote?)

Thank you Garth !

#10 Donald Trump on 09.06.13 at 6:47 pm

No society can progress unless some facets are allowed to tell white lies, if not be outright deceitful.

Do Y-O-U want to stop progress ?

Of course not, or we wouldn’t have what we have now.

#11 John Dowin on 09.06.13 at 6:48 pm

Re: bizarre comment.

You are correct Garth, the article is bizarre:

http://www.reuters.com/article/2013/09/04/poland-pensions-idUSL6N0H02UV20130904?feedType=RSS&

News flash: this ain’t Poland. — Garth

#12 shanks on 09.06.13 at 6:54 pm

so here is an example of why were screwed…
i was browsing craigslist for fish tanks, as i am sometimes wanton to do, and found this:
<>

what caught my attention is the idea that $1200 spent on a luxury item like a fish tank is considered an “investment”.

#13 Bob Rice on 09.06.13 at 6:58 pm

If you had $100,000 sitting in the bank right now, what would you do with it? How would you invest it keeping in mind that the money would go toward a home purchase IF house prices come down appreciably… otherwise this person will continue to rent.

#14 willworkforpickles on 09.06.13 at 7:06 pm

Expect a lot of gnashing of teeth. When a homeowner goes belly up , is foreclosed on , and files for bankruptcy – The usual drop in price is around 30 percent as the lending institute holding the mortgage seeks to liquidate as quickly as possible in any falling market .
Will it affect the value of the neighbors home? ….you bet neighbors!
So act now.
Invest in some tooth whitener immediately and get ready to show teeth.

#15 The real Kip on 09.06.13 at 7:08 pm

“The greatest risk is running out of money, not losing it – as millions of Boomer women are destined to learn.”

You mentioned a couple of months back that you were going to talk about how doomed Boomer women are going to be. When?

#16 johnnny on 09.06.13 at 7:12 pm

Good photo.I remember a few years ago,a friend was taking his wife out to Boston Pizza to celebrate an anniversary.
Though they sat together,facing each other,he watched “the game”on the big TV screen,and she talked on her cell phone to (who knows).
So,yes they were together on their anniversary.But were they?

#17 Bob on 09.06.13 at 7:15 pm

10 year treasuries soon to be 7%. Garth can you comment on this:

http://www.cnbc.com/id/101014360?__source=yahoo%7Cfinance%7Cheadline%7Cheadline%7Cstory&par=yahoo&doc=101014360%7CWhoa:%20Three%20reasons%20why%207

#18 Smoking Man on 09.06.13 at 7:50 pm

Broad casting from 36000 feet, wifi on planes is so cool.
Tracking my flight with flighradar24

And playing on line poker, warming up…..

#19 John Dowin on 09.06.13 at 7:54 pm

News flash: this ain’t Poland. — Garth

I surely hope so.
————————————
# 17 Bob, 7 percents interest on bonds is like taking 40 % from the price of the bonds issued in the last 5-6 years….

#20 TurnerNation on 09.06.13 at 8:10 pm

Weekend OT: re. yesterday’s War Pigs song.
Again before my time, but the first time I heard this melodic change into acoustic guitar at 4:20 in this other Sabbath song…good stuff. He sounds a little like Rbt. Plant then. Which is why.

http://www.youtube.com/watch?v=GhZ4t7pRyjE

#21 Donald Trump on 09.06.13 at 8:25 pm

I see no reason why individuals cannot be their own Federal Reserve…

Simply buy a printer….make a reasonable facsimile… use as “Legal Tender”.

Can’t be any worse/different than what we have now.

#22 Ralph Cramdown on 09.06.13 at 8:54 pm

#22 Donald Trump — Simply buy a printer….make a reasonable facsimile…

Of Sandy McTire? I’ve heard there’s special anti-counterfeiting technology hidden in the moustache, but keep that under your kilt.

#23 johnanddagney on 09.06.13 at 9:02 pm

#9 Albert
#13 Bob Rice

See Garths blogs:
“Non Cowboy Portfolio” Oct 15 2012
“Banking” Oct 28 2012

See also:
canadiancouchpotatoe.com/model-portfolios/
“Millionaire Teacher” Andrew Hallam (gives specifics)

#24 Steve Thompson on 09.06.13 at 9:02 pm

While Canada’s real estate market has long appeared to be at unsustainable price levels, recent developments in the U.S. are suggesting that the next bubble is forming there as shown here:

http://viableopposition.blogspot.ca/2013/07/united-states-housing-setting-up-for.html

Parts of the United States are seeing annual real estate price increases that are comparable to the levels experienced as the bubble was created.

But prices remain 20 per cent below the peak. — Garth

#25 Dean Mason on 09.06.13 at 9:07 pm

The 169,000 U.S. jobs created today are well below average. They are also low wages and 63% are part-time, 106,470 jobs are part-time.

Wait another 6 months to 12 months. We will back to under 100,000 jobs being created and probably 80% part-time.

#26 East Van on 09.06.13 at 9:10 pm

Here’s an excerpt from an article in the Wall Street Journal this week titled “Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback”:

“Five years after excessive debt propelled a housing-market collapse into a financial crisis and recession, similar bets are being placed across the U.S…..Leverage is getting back to where it was precrisis,” said Christina Padgett, head of leveraged finance research at Moody’s Investors Service….

Total corporate-bond debt has grown to nearly $6 trillion, up 59% since 2007, the year before the financial crisis……Leverage by companies rated investment grade has risen 20% since 2010 … about 6% higher than in 2008, according to J.P. Morgan Chase JPM -0.48% & Co. ….

Small investors are increasingly partners in the corporate-borrowing surge. In 2008, mutual funds held, on average, 17% of the bonds and 3% of the loans made to junk-grade companies, according to Bank of America. Today, they own about 26% of the bonds and 19% of the loans….

Assets in mutual funds and exchange-traded funds that invest in junk bonds have grown to $285 billion in July from $92 billion at the end of 2008, according to Morningstar.” (“Financial Crisis Anniversary: For Corporations and Investors, Debt Makes a Comeback”, Wall Street Journal)

#27 Tony on 09.06.13 at 9:23 pm

The remnants of steel stench will rot your lungs out in Hamilton. Rent at your own peril.

#28 Bill Gable on 09.06.13 at 9:52 pm

I don’t know why, but I always find it rather telling that the customer in front of me, at the Food Store, is using a credit card to buy food.

Back in the 80’s it was not kosher to put basics in credit. I know people collect air mileage etc – but if you are using credit to buy food now…..where are you going to be in ten years?

Many woman will outlive Mr. Poutine….and they will be scraping by on OAP and still paying down debt.

It is awfully daunting.

#29 Old Man on 09.06.13 at 9:59 pm

I will once again give my humble interpretation on the above noted caption or pic if your will, as Mr. Turner loves to have all a hidden meaning. No Wi-Fi, as just talk to each other, and say this means get back to basics in life with each other over a cup of coffee, and discuss the real issues in life with debate; put the tech toys aside.

#30 Smudgekin on 09.06.13 at 10:32 pm

Say Garth I’m enjoying a young Jack Nicholson in just released “Hells Angels on Wheels.” 1967 Cali looks live in bluray. Some neat bike scenes.

#31 George P on 09.06.13 at 10:38 pm

The world is transitioning into a quite different environment. Despite desperate measure after desperate measure, a most over-extended global Bubble is convulsing erratically. The economic pie is stagnating – and on its way to contracting. This dynamic ensures an increasingly powerful pull of diverging interests, disagreement, fragmentation and confrontation.

Difficult Decisions Ahead

#32 Donald Trump on 09.06.13 at 10:43 pm

Moi’s personal CIA has very incriminating video of Sm#king man at casino…I mean this is UGLY

Only variable is if G$rth will allow it…..

#33 Chickenlittle on 09.06.13 at 10:54 pm

I read this one three times, and then decided that I didn’t know enough about how interest rates work so I googled it. All I can say is: CONFUSING!

WOW! WHAT an investment! it makes SO much sense to pay out almost $400k in interest on a $750k house. At least that’s what ratehub.ca tells me it is. So your $750,000 house ends up costing $1,130,422, and that is at the current rate of 3.79%. That’s with 5% down.

http://www.ratehub.ca/mortgage-payment-calculator

What could you do with $398,329?? I’d rather not give it to the bank.

So much for building up equity.

The interest seems to be equal to 50% (give or take) of the amount borrowed.

How does that work? Anyone?

#34 Catalyst on 09.06.13 at 11:19 pm

@#29 Bill Gable
“I don’t know why, but I always find it rather telling that the customer in front of me, at the Food Store, is using a credit card to buy food. ”

—————–
You are probably a moron if you don’t use credit cards to buy everything, especially food where you can earn 3% cashback. Pay them off immediately and put the savings into investments. The vendors I purchase goods from are all subsidizing these refunds, and the cash purchasers are all paying a premium. I highly suggest you look into a no fee cash back card.

#35 45north on 09.06.13 at 11:23 pm

They bought high so they could borrow low.

yeah they did.

T.O. Bubble Boy: yesterday you posted a chart from the Bank of Canada showing that the total mortgage debt has doubled from 2009. Just in time to see interest rates double. I mean there are lots of people who can afford their mortgages and they are not really going to be hurt when rates double but there are lots who cannot.

when rates rise and prices fall you really don’t want to be the guy who said I told you so. you want to be the coach of their kids soccer team who keeps the dues low. bigrider I’m thinking about you.

here’s the chart from yesterday:
http://www.huffingtonpost.ca/2013/09/04/mortgage-rates-2013-canada_n_3867472.html?ir=Canada+Business

#36 Catalyst on 09.06.13 at 11:24 pm

@34 Chickenlittle

You pay interest to the tune of about $400K (using your math) but you gain leverage. A 5% downpayment on a 750K house is about $37,500. If you use Garth’s oft used average of 7% in a diversified portfolio you gain $2,625 year one.

Your house which you purchased for $750K appreciates 2% in year 1 is now worth $765K. In one year with 2% appreciation you have the same gain as if you got 40% in the stock market. That is called leverage and is why you pay such a premium for it over the term in compounded interest.

#37 broadway skytrain on 09.06.13 at 11:30 pm

#29 Bill Gable on 09.06.13 at 9:52 pm
I don’t know why, but I always find it rather telling that the customer in front of me, at the Food Store, is using a credit card to buy food.
——————————-
i use cc for EVERYTHING incl 1.39coffee at mcd.

2% cash back on groceries
1% on everything else
Free rolling no interest loans 365 days a year

but most importantly, ‘big bank’ will connect and sort the data for u to track every last penny of your spending, month by month, year after year. quite enlightening w pretty pie charts and whatnot. we have ‘old hobbies’ category which we manually enter data for illicit stuff;) and costco won’t do it , but otherwise ALL spending is auto tracked/sorted any way you like.

cash is dirty too, thought its fun trying to rip a new 100.

#38 Ralph Cramdown on 09.06.13 at 11:30 pm

#34 Chickenlittle — WOW! WHAT an investment! it makes SO much sense to pay out almost $400k in interest on a $750k house.

To be fair, the dollars you pay on your mortgage in the first year are the same size as the ones you borrowed. The ones in the second year will be a little bit smaller, and the third year’s smaller still. The dollars you pay the bank in the 25th year are going to be a lot smaller than the ones the bank originally lent you.

Still, taking out a thin mortgage at high rates, then seeing the rate fall every five years is probably more fun than a big one at a low rate and seeing it rise every renewal. For the first one, you can be one of those people who shows up on blogs and says “Eh? When I bought my first house rates were at 11% and it was hard. 3.5%? The kids are lucky and they don’t even know it!”

Ten years hence, it’ll be “$500,000 at 6%? Why I spent $750,000 at 3.5% originally and I’ve still got $500,000 to go. And I live across the street from you. I’m going to go put a plastic bag over my head now.”

#39 Julia on 09.06.13 at 11:41 pm

#29 Bill Gable on 09.06.13 at 9:52 pm

I put everything on VISA. That way I get travel points and a record of what I bought, but I pay it off religiously every month. I don’t think in 30 yrs of having a credit card I’ve paid a single cent in interest.

#40 Dr. Bunsen Honeydew on 09.06.13 at 11:46 pm

#29 Bill Gable on 09.06.13 at 9:52 pm

Hi Bill. Lots of us use plastic for everything and pay it off religiously every month. The points earn us a vacation flight every year or 2. You should try it. Nothing sinister there. Cheers :)

#41 broadway skytrain on 09.06.13 at 11:56 pm

” and say this means get back to basics in life with each other over a cup of coffee, and discuss the real issues in life with debate; put the tech toys aside.”
—————————
we thank old man for a brilliant and succinct explanation of the glaringly obvious ….

and i was so SURE it meant no wings and fries. :(

#42 Donald Trump on 09.06.13 at 11:58 pm

As warned….Sm#king Man in public

Crusty old drunk gets the boot

Foul mouthed gambler is gently escorted off the premises

http://www.liveleak.com/view?i=953_1378393852

#43 Evangeline on 09.07.13 at 12:01 am

#9 “I heard from people you said there are 7% return investment, can you please let me know where can I find it. (maybe the specific blog post you wrote?)”

Garth is against buying individual stocks but as an example, BMO closed today at $67.20 and it pays a cash dividend of $2.96 per year (note: dividends usually increase yearly). At the price of $67.20 per share, BMO’s $2.96 dividend works out to 4.4%. So the share price only has to go up 2.6% to get a 7% total return on the investment.

S&P research is projecting that in 12 months BMO shares will be worth $69.73 CAD.

If S&P’s projection works out, $69.73 minus the purchase price of $67.20 would equal a capital gain of $2.53, or 3.76% per share. Add the 3.76% capital gain to the dividend yield of 4.4% and the 12-month total return will be 8.16%.

DISCLAIMER: THE ABOVE WAS JUST AN EXAMPLE OF HOW TO CALCULATE INVESTING RETURNS ON DIVIDEND STOCKS. IT WAS NOT A BUY RECOMMENDATION!!!!!

#44 broadway skytrain on 09.07.13 at 12:02 am

for the first time in over a decade, i see a ‘price drop’ piece was added to a house for sale sign in a trendy east van hood. very unusual. the orig ask was beyond stupid so it’s likely not that telling.

any thoughts on the fact that in nanaimo houses are cheeeep and can rent for more than costs?

#45 Evangeline on 09.07.13 at 12:14 am

I read somewhere today that using debt to spur a sluggish economy is an abuse of Keynsian economics. The writer said that Keyne’s idea was that during the good times, huge surpluses should be built up, and in the bad times, those surpluses *not debt* should be used to get things moving again. Having not read K’s work, but often hearing his theories dissed, I thought that was interesting, alhough I’m not sure it’s a correct rendering of his theories.

#46 North Van Renter on 09.07.13 at 12:33 am

Finally, and explanation for YVR real estate prices…

http://www.theglobeandmail.com/news/british-columbia/how-a-tired-bungalow-fetches-930000/article14176298/?cmpid=rss1&utm_source=twitterfeed&utm_medium=twitter

#47 Longevitis | The Affluent Boomer™ on 09.07.13 at 12:36 am

[…] Longevitis […]

#48 MarcFromOttawa on 09.07.13 at 1:06 am

#29 Bill Gable

Don’t be so quick to assume that people who pay with credit cards are carrying credit card debt.

In fact, people who aren’t taking advantage of the credit card rewards programs are subsidizing those who do by paying the same high prices at the checkout counter.

#49 ILoveCharts on 09.07.13 at 3:31 am

Re #29 Bill Gable:
I don’t know why, but I always find it rather telling that the customer in front of me, at the Food Store, is using a credit card to buy food.

I buy absolutely everything on a credit card. Even if it is only a $2 purchase. I almost never use cash or debit.
As long as you always pay off your balance in full before the due-date, it’s a good deal.

There are a number of advantages to effectively using a credit card:
– I collect points that I can use to fly places, receive free stuff or redeem for cash.
– It helps me to build a strong credit rating.
– My credit card statement usually provides more accurate/detailed information than a debit card statement and so it allows me to review my spending habits in more detail.
– It’s more convenient to not carry around cash and credit card purchases are often faster (especially with the new tap-to-pay technology.)
– The banks don’t charge me with extra transaction fees for using my credit card many times each month (but there are fees for using your debit card too much.)
– I’d rather that a hacker gets into my credit card account than my savings account.
– Credit cards can provide additional protection if a purchase goes poorly (warranty, etc.)

I highly suggest that you review what the bank is charging you/giving you when you make purchases with cash vs debit vs credit.

If you are responsible, using a credit card is a great way to have the foolish masses provide you with a subsidy.

#50 Canuck Abroad on 09.07.13 at 3:44 am

Chickenlittle, yep that’s how interest works. When you pay it off over many years it adds up. People condemn rent as money thrown away, but forget about all the mortgage interest they have to pay (plus property taxes, insurance, maintenance, and all the other little costs of ownership that add up). Interest is a BIG number on any property purchase, and as rates go up it will get bigger.

#51 observer on 09.07.13 at 3:55 am

Are people really that dumb.

Its so silly do they think about how they will pay off the mortgage in 5 years once they are due for renewal. So they get cheap rates now but when rate double in 5 years. Bam!! I’m glad the banks will sieze your property and kick you out. You will lose your downpayment and be in debt for life with nothing to show for

http://www.cbc.ca/news/canada/story/2013/09/05/real-estate-toronto-vancouver.html

#52 Mr. BigStuff on 09.07.13 at 6:16 am

Always pay the market rate, never lock in! like never. Buy assets when they go on sale, what now? Long Bonds and Gold are cheap and nobody wants them. Do the opposite of the majority and you’ll come out ahead.

#53 Ralph Cramdown on 09.07.13 at 8:01 am

#27 East Van — Here’s an excerpt from an article in the Wall Street Journal […] “Five years after excessive debt propelled a housing-market collapse into a financial crisis and recession, similar bets are being placed across the U.S…..Leverage is getting back to where it was precrisis,”

Oh, there the WSJ goes again. Look, I know it used to be a more-than-reputable paper, but then Rupert Murdoch bought it. Since then, a lot of the content which isn’t strictly fact-based has been wonky, suspect and ideology driven.

If you stop to think about it, does it make any sense whatsoever that overall leverage in America is back to precrisis levels? I thought the story was that many consumers couldn’t get credit, banks were hoarding cash rather than lending, and corporations had balance sheets full of cash because they didn’t have confidence.

People, learn to use FRED. For all kinds of economic questions, you can ask “is that true?” and get an answer in a minute. It has a huge number of data series, even some foreign ones (e.g. Canadian).

Here, for your edification, is total credit as a fraction of GDP for the financial sector (huge decline since 2010), the nonfinancial corporate sector (slight rise) and the household and nonprofit sector (slight decline, and on the right scale since it’s much lower than the other two).

http://research.stlouisfed.org/fred2/graph/?g=mal

Time to panic, Rupert?

#54 COW MAN on 09.07.13 at 8:13 am

# 29 Bill Gamble

I used to think the same way as you about groceries on credit cards, until I started doing it and getting PC points for doing so. Pay off the balance every month and there are no charges while you get $300 worth of free groceries every year on $7,000 worth of purchases. Just saying, not everyone is making installments on groceries, who uses a credit card for the purchase.

#55 Ralph Cramdown on 09.07.13 at 8:28 am

Just for fun, I changed the chart to show, for the banks and nonfinancial corporations only, debt as a fraction of WORLD GDP, on the theory that the US money center banks have become bankers to the world rather than just the US, most of the largest US corporations operate worldwide and their debt dominates that of their smaller cap brethren, and world GDP has been growing faster than in the US.

http://research.stlouisfed.org/fred2/graph/?g=mao

It’s debatable how fair those comparisons are, but there you have it.

#56 T.O. Bubble Boy on 09.07.13 at 8:41 am

Garth, your blog is an amazing financial resource, but clearly the MSM have an entirely different audience that are all still hooked on GICs and RE… check out the Financial Facelift this week:
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/property-magnates-want-more-for-less/article14173661/

39 and 37, with 2 kids under 5

Almost $1.2M in real estate (1 residence and 2 rentals), with almost $800,000 across 3 mortgages!

Just over $100k in RRSPs/pension plan, and net ZERO in other assets ($30k in other savings, but with $30k in credit card debt and a RRSP loan).

Their question: “Would the purchase of additional real estate be advisable or possible over the next three to five years?”

ARE YOU NUTS?!?!?

Canadians are in for a rude awakening as rates keep rising. A lot of amateur landlords will be in deep trouble.

#57 tb on 09.07.13 at 8:53 am

#29 Bill Gable on 09.06.13 at 9:52 pm

“I don’t know why, but I always find it rather telling that the customer in front of me, at the Food Store, is using a credit card to buy food.[…]”

—–

Unbelievable. Gotta love the condescending tone too.
“Rather telling”? Telling what, that you’re too old and got stuck in the 80s?

Wake up and get with the 21st century. I get 4% cashback on groceries and gas with my card.
If you pay the balance every month, there’s no interest charged on any card, and I’ve never paid credit card interest in my life.

What do *you* do at the “Food Store”? Count your pennies at the cash?

#58 Nick on 09.07.13 at 9:13 am

I agree with the thrust of the blog. I live below my means in a rental apartment and don’t trust housing as an investment at this time. But is the edifice of that author’s whole argument for renting predicated on earning 7% in the stock market? Llike a lot of people, I trust the stock market even less than the housing market.

So my question is, is the author saying that renting only pays if you’re making 7% in the stock market? Even if you are making <2% guaranteed interest in a bank, is that still better than taking on a big mortgage in a market on the verge of flattening or crashing?

Where did I mention buying stocks? The point of this blog is not to diss owning or promote renting, but to underscore the wisdom of maintaining a proper balance of assets, of which a house is but one. — Garth

#59 Chickenlittle on 09.07.13 at 10:14 am

Thanks to all who responded!

#37 Catalyst:

“Your house which you purchased for $750K appreciates 2% in year 1 is now worth $765K.”

That is, IF it goes up! We will hope for the best for all those suckers, I mean “investors” or home “owners”.

#39 Ralph Cramdown:

The problem with that is no one stays put for very long anymore. Doesn’t it take a while for the interest to be paid down and then you make more significant payments towards the principal? In the mean time, rates go up and you still have lots of principal to pay off. So yes, they might need a few bags. Then they can pretend they are Michael Jackson’s kids.

#51 Canuck Abroad:

I’m with you on this one! Now that I know a bit more about the math behind the madness I agree with Garth all the more! That is a LOT of money that could be invested elsewhere, and once rates go up it’ll be even MORE money lost to the bank.

I’m probably oversimplifying all of this, but be patient with me guys. I’m learning. And renting.

#60 Big Brother on 09.07.13 at 10:21 am

Smoking Man your code is already in the NSA files now. You touted how good it was and they have it from Keysme. The Matrix is a bitch.
MKULTRA says take the blue pill.

#61 Penny Henny on 09.07.13 at 10:40 am

read the following and see why it is truly different here.
compared to the US that is.
http://www.torontorealtyblog.com/archives/condominium-financing/9775

#62 Mingeford on 09.07.13 at 10:43 am

Garth, you’re correct in stating the spread between variable rate loan and fixed loan is now worth taking advantage of. However, because the VRM borrower has to qualify at the Benchmark rate – which is currently 5.34% – it has the impact of reducing their borrowing amount significantly in order to satisfy the debt ratios, so they sadly rush headlong into a 5 year fixed.

…which means they cannot actually afford the homes they are buying. — Garth

#63 Ann on 09.07.13 at 10:49 am

#38 broadway skytrain on 09.06.13 at 11:30 pm

#29 Bill Gable on 09.06.13 at 9:52 pm
I don’t know why, but I always find it rather telling that the customer in front of me, at the Food Store, is using a credit card to buy food.
——————————-
i use cc for EVERYTHING incl 1.39coffee at mcd.

2% cash back on groceries
1% on everything else
Free rolling no interest loans 365 days a year

but most importantly, ‘big bank’ will connect and sort the data for u to track every last penny of your spending, month by month, year after year. quite enlightening w pretty pie charts and whatnot. we have ‘old hobbies’ category which we manually enter data for illicit stuff;) and costco won’t do it , but otherwise ALL spending is auto tracked/sorted any way you like.

cash is dirty too, thought its fun trying to rip a new 100.
*Perfect let big bother or whomever they sell your information to know what you buy, where you shop where you drive (407) and most likely who you talk and text, Not a conspiracy just none of their business

#64 Nemesis on 09.07.13 at 11:05 am

“News flash: this ain’t Poland.” — HonGarth

Indubitably.

http://youtu.be/siAcQ7p7quI?t=15s

#65 Infused with Opiates on 09.07.13 at 11:23 am

104 April from last blog – I take it you are from New Westminster. Of course VI stands for Van Isle, which you
would have known if you clicked on the originally posted
link rather than immediately discounting it. Stats from
earlier years remain unchanged, so I do not believe they
are mis-reporting sales numbers, which show a
significant drop over the years. Prices have also softened
from their peak in 2008. If you bought in 07 you have
probably gained nothing. I dont feel VI is cheap, but that
is a long time without a gain. I was suprised the number
of sales went up in every zone.

Just to clarify – these stats do not include Victoria.

http://www.vireb.com/assets/uploads/08aug_13_sales_summary_5118.pdf

#66 Ralph Cramdown on 09.07.13 at 11:42 am

#62 Penny Henny

An interesting article on presales requirements for GTA new condo construction lending. But it doesn’t mention builders’ friends and family signing up for units, many of which they intend to assign before closing. Nor does it mention builders asking their various trades to sign up for a few units each as a condition of getting the contract.

All bankers think they’re being prudent. Even though standards have tightened in the last year (how about those Trump Tower buyers who can’t get a mortgage no way no how?) bankers won’t say they were imprudent in checking the buyers for projects scheduled to complete this year and next, just that they’re being more prudent now. We’ll see.

There are a lot of people — developers, presale buyers, investment condo owners, agents, marketers and probably some financiers — in the GTA who are currently holding a paper bag and wondering whether inside they’re going to find a fat wad of banknotes or a turd. As early as last summer I noticed a couple of prime land assemblies near subways for sale on MLS together or separately.

Read ’em and weep:
http://www.bildgta.ca/media_releases_2013_detail.asp?id=925

What fraction of this city makes a livelihood building these highrises which have now stopped selling? When the building stops, what then?

#67 Catalyst on 09.07.13 at 12:16 pm

#60 Chickenlittle

“That is, IF it goes up! We will hope for the best for all those suckers, I mean “investors” or home “owners”. ”

Last I checked, the stock market going up is an IF aswell. To be clear, I am of the opinion now is not the best time to buy because there is much further downside risk to capital appreciation in housing than when interest rates were 18% and the average house was 60K.

But to imply home owners are suckers is definitely wrong. Leverage compounds your gains AND your loses. In my example, even most housing bears would agree 2% is a ‘reasonable’ expectation for price gain in a year since that is roughly in line with inflation, whereas even the most bullish investor will not say you can average 40% per year returns in stock/bond returns.

There is a reason it is true that Donald Trump has been both #1 bankrupt, and #2 obscenely wealthy. When housing is appreciating, there are very few better ways in existence to invest capital because of the leveraged gains it offers. And when it is declining, most lose their shirts because a 5% decline in value can equal 120% loss of ones capital.

If you a reader of Garth’s blog for more than a week it is easy to see he is not a housing bear as the media or some readers like to portray him as, but instead he is trying to highlight that if Real Estate is OVERWEIGHT (too high a %) in your investment portfolio, there is a chance you could lose your shirt with even a modest adjustment in values.

#68 dosouth on 09.07.13 at 1:14 pm

I was just agog! 62% increase year over year in Nanaimo and area according to the VIREB and using Cameron Muir as a Muse. I just don’t know why I haven’t bought yet….. I am going to be priced out!

Garth can you help me understand what VIREB is drinking?

62% increase…

#69 Old Man on 09.07.13 at 1:19 pm

Now, if you are all worried about mortgage rates to do a budget fix methinks you are in trouble owning Real Estate. Well we need to do this or that, so does one go this way or another, as you are the one’s that bought debt with no way out. Big mistake to take a negative and formulate a positive to buy some time as a short term fix for a longterm problem that eventually will bring you back facing a bigger problem. Hey, you should have sold out at the top with tax free capital gains; parked in a rental unit; and invested the rest wisely to pay for your rent because now you are trapped in a vicious circle of uncertainly.

#70 bigtown on 09.07.13 at 1:24 pm

A real eye opener on UNDERWATER MORTGAGES is available today in the WSJ where even the Mayor of Rockford Illinois owes MORE on the mortgage than the house is WORTH. Unemployment runs at 11%. It is a very powerful article showing how longlasting home prices can remain at low and depressed levels. The stumbling block in a home sale is an appraisal that comes in lower than the approved mortgage and forcing the buyer to come up with more cash or void the sale.

#71 Old Man on 09.07.13 at 1:49 pm

I often wonder if any one you have sat down to ascertain the expense costs of buying a home and selling it as a composite total expense figure for home ownership on that one asset. It is like buying a car somewhat as there is a strike price for a sale, but by the time the smoke clears the gross price is much higher – dah!

The time to have sold Real Estate has come and gone as if you listed for say $600K in a bidding war with multiple offers, and took the one at $800K who was the greater fool; the buyer or the seller? Before every Real Estate bubble explodes this is the pattern that has taken place in Toronto, so will history repeat itself; stay tuned as we shall see.

#72 maxx on 09.07.13 at 2:13 pm

Attention chart lovers:

http://www.scribd.com/doc/166098163/Chartbook-Incrementum-The-Gold-Bull-and-Debt-Bear

Page 47 is sobering, to say the least.

#73 lawboy on 09.07.13 at 2:21 pm

Look at this hideous little dump:

http://www.theglobeandmail.com/life/home-and-garden/real-estate/early-over-asking-bid-grabs-east-york-home/article14124281/

lol.

#74 Daisy Mae on 09.07.13 at 2:22 pm

#46 Evangeline: “The writer said that Keyne’s idea was that during the good times, huge surpluses should be built up, and in the bad times, those surpluses *not debt* should be used to get things moving again…”

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

You mean ‘save for a rainy day’? ;-)

#75 Realtor Strategy on 09.07.13 at 2:42 pm

I am looking to buy a home over the next little while. I know exactly what I want in a home and don’t need a buying agent. However, I understand I cannot represent myself in a negotiation if it is sold by a buying agent and they would automatically become a “dual agent”.

Are my options better to get a 1% realty buying agent or take my chances trying to reduce a dual agent’s buying commission from their 2.5% to below 1%?

Thanks blog dogs.

#76 Realtor Strategy on 09.07.13 at 2:44 pm

from my last post I had a typo.

… However, I understand I cannot represent myself in a negotiation if it is sold by a SELLING agent and they would automatically become a “dual agent”.

#77 Bill Gable on 09.07.13 at 2:57 pm

Wow – I sure got schooled and slammed on my post re: credit cards and groceries.
I do not appreciate being called a moron, though.
Points taken.
Thanks for the lesson.

#78 vangrrl on 09.07.13 at 3:05 pm

Interesting how many people are coming down on Bill Gable: use of credit cards for groceries. Great that none of you who responded carry a balance but for every person that is responsible and benefitting from the system, there are probaly about 50 who ARE carrying a balance, paying high interest, and drowning in credit card debt. The banks are self-serving; they are making crazy profits. As far as ‘the bank keeps track of my spending for me’ point, give me a break- easy enough to do on your own.

#79 T.O. Bubble Boy on 09.07.13 at 3:07 pm

Wow – this is pot calling the kettle black…

Will Dunning — chief economist for the Mortgage Brokers — saying that the StatsCan jobs numbers are wrong. (or, to quote him: “impossible”)

http://www.huffingtonpost.ca/2013/09/07/canadas-unemployment-numbers-questioned_n_3882419.html

“The data for Toronto suggests that employment grew by 1.5 per cent in just one month,” he said in an email to HuffPost. “If that was correct, it would be equivalent to 19 per cent per year. Employment just does not grow that quickly.”

Doug Porter from BMO also questioned the data.

Maybe the “Economic Action Plan” from F & H was actually to cut the funding for StatsCan so that these numbers can be more easily fudged???

#80 Franco on 09.07.13 at 4:16 pm

Four years ago I used to think that the housing market in Canada was going to crash. The housing market in Canada just continues to surprise.

You might think differently if you were a seller in Richmond or Halifax this weekend. – Garth

#81 TheCatFoodLady on 09.07.13 at 4:20 pm

Bill Gable – you had a valid point. One criteria for knowing you’re in debt trouble is having to pay for basics using various forms of credit & the one most easily seen is groceries on credit cards. If you HAVE to do that – you’re in big doo doo.

From the responses, it’s clear many here have figured out how to make plastic work for them – using it as a convenience card & making the card companies pay YOU for using their products. In our case, the cash back isn’t huge but between that, not having to pay bank fees & the other small savings we’ve figured out AND learned here – it’s empowering for this barely paper trained blog puppy.

#82 WhiteKat on 09.07.13 at 4:34 pm

Hey Garth,

I hear that your buddy ‘F’ has an announcement to make this Monday morning on the grounds of Ottawa Camping Trailers. That is just up the street from the trailer park where I am renting a nice 3 + 1 bedroom bungalow. I think I will pop over to hear what he has to say.

Do you have any idea what the announcement is about?

#83 Old Man on 09.07.13 at 4:45 pm

#82 TheCatFoodLady – I see people day and night buying food with a debit card or a credit card, and they fiddle round making me wait in line, as with me pay all in cash. Some of these old women have no clue what they are doing with these cards and are making too many mistakes holding up the line and laugh at them all; they piss me off bigtime, so excuse my French.

#84 Robbie on 09.07.13 at 4:58 pm

#77 Realtor Strategy

No, you can’t represent yourself and expect a commission but you could find a Realtor to be your Buyer’s Agent and negotiate a commission split with that Realtor, which I think would be far better than trying to negotiate to reduce the Selling Agent’s commission. The Selling Realtor does not automatically become a “dual agent” but needs your consent (and the Seller’s) to also represent you as well as the Seller. In some jurisdictions “dual agency” is not permitted since when a Realtor represents both Buyer and Seller then he/she cannot advise his/her clients as completely as when he/she represents only a Buyer or Seller….plus, many Buyers and Sellers feel “dual agency” is a conflict of interest. However, if you refuse “dual agency” and have no Buyer’s Agent then the Selling Realtor will still get all of the commission as you would be deemed to have “no agency”.

I do a sharing arrangement on commissions in situations such as you describe, and I know some fellow Realtors in the Victoria/Vancouver area who do. Perhaps some Google searches for a co-operative Realtor in your area?

Also, you may know what you want but a Realtor working for you would know what price you should be paying and would be able to give you lots of “comparables” to justify your offer.

Good luck!

#85 Ralph Cramdown on 09.07.13 at 5:25 pm

64 per cent of Canadians pay their credit card balance in full each month, according to a 2011 survey. I don’t imagine a follow-up was asked as to how many wrote a cheque on the HELOC to pay, since the survey was done for the Canadian Bankers Association.

I do have some sympathy for retailers who are told that if they want to accept any of a payment network’s cards, they have to accept them all, and only find out what interchange fee they pay on any given transaction at the end of the month. But they seem unwilling and unable to organize and contract jointly, instead hoping public bleating campaigns will somehow keep the wolves at bay.

#86 Donald Trump on 09.07.13 at 5:39 pm

#84 Old Man on 09.07.13 at 4:45 pm

I agree….pisses me off to.

My record experience is some young dude buying a can of pop using a credit card…approx. $1 transaction.

Sadly….the vast majority are using a debit/credit card.

Should have a “cash only” express line…

#87 Ralph Cramdown on 09.07.13 at 5:41 pm

Old Man, It seems the same with all the old ladies at the grocery store. The cashier announces the total and they get a surprised look as if to say “Oh, you want ME to tender payment?” and start rummaging around in the bottom of the purse for card or cash. It was the same back in the day when they’d produce a chequebook and everyone in line inwardly groaned.

I think it’s your cue to gallantly jump in and ask “Madam, may I?”

Out West in BC they’ve added a twist. The oldsters only get the deal at the grocery store if they produce the member’s card. And there’s the separate Airmiles card. And then finally the credit card. By that point, the next guy in line is half expecting the turn and then the river, and hoping his pair holds up.

#88 Mr. Monday Night on 09.07.13 at 5:45 pm

tb on 09.07.13 at 8:53 am

“Unbelievable. Gotta love the condescending tone too.
“Rather telling”? Telling what, that you’re too old and got stuck in the 80s?”

—————————————————————-

I had a chuckle with all of those offended by the suggestion that there are people out there who were too overextended to pay cash for their groceries and had to resort to using a credit card. You can take your monocles out of your champagne glasses now!

What’s the percentage of Canadians who have crazy credit card debt…60%? If so, there is a 60% chance that the person standing in front of you at the lineup at Metro has money problems and has to use the old Visa to bail him or herself out a few days before payday.

tb says Bill Gable’s being condescending, but tb has never paid credit card interest (unlikely) and brags about it to us lowly debt-carrying peons…now who’s being condescending?

#89 Canadian Watchdog on 09.07.13 at 6:09 pm

Real Estate. British Columbia's New Sport.

#90 John Prine on 09.07.13 at 6:23 pm

I used to pay cash or debit and only use credit cards for trips, airlines, ferries etc….Now I use my Amex and MasterCard for everything as there is too much in the way of cash incentives to ignore anymore, this is a lot of money to let pass by without taking advantage, I am debt adverse so quite often I pay things off in the evening of the day charged, I like others here have not paid a cent of interest on my cards for over 20 years. Just have to be organized to not forget any charges. I don’t hold up anybody in the line anymore than debit card users…

#91 aprilNewwest on 09.07.13 at 6:32 pm

Greg Weldon said this morning on the Michael Campbell show regarding RE in the Lowermainland bc “… their comparing the August numbers with last August numbers which were abysmal so big deal”.

#92 ILoveCharts on 09.07.13 at 6:39 pm

Re #74 Lawboy

Look at this hideous little dump:

http://www.theglobeandmail.com/life/home-and-garden/real-estate/early-over-asking-bid-grabs-east-york-home/article14124281/

lol.

That is ridiculous. What’s worse is that when I first looked at it from my Vancouver perspective, I thought it was a great deal!

#93 Joeblo on 09.07.13 at 6:48 pm

So according to Huff Post Harpo’s Kanada has worst economic growth since some guy named Bennett.
That’s great, for someone who is an Economist we are worse than Australia, New Zealand and USA, but hey…better than Spain. Whatta country

#94 Smoking Man on 09.07.13 at 7:08 pm

How I ended up in Laughlin Nevada don’t ask, long incredible story. Holly crap, real estate here almost free.

Watching MSM in land of rattle snakes and sand these guys are on a mission.

Desperation to the power of 20 trying to turn up public opinion if favor of war.

Images and clips of gassed kids dying on prime time TV.
One little fact they omit in reporting that is on the mind of every cowboy here is, who done it.

Incredible, the same technology used and implemented by the machine to light the Arab spring now working Greek style on it.

Smoky reporting to his 22 fans from the front lines in the desert. Burp’!!!!

#95 johnnny on 09.07.13 at 7:13 pm

#29 Bill Gable-
I thought the way you did about paying with a credit card.
After I got a 1% cashback,I started using my credit card for everything.
You had some people rationally explain to you about how they used their credit cards for points.Then you had a couple of ignorant,self righteous,clowns,who are comfortable insulting peoples opinions(and the people)while they are hidden in anonymity.

#96 Personal Finance on 09.07.13 at 7:14 pm

2.79% 5 year mortgage rate engage

#97 NoName on 09.07.13 at 7:24 pm

#50 ILoveCharts on 09.07.13 at 3:31 am

what i do with all my cc or debit card is as soon as i get replacment or new card i will go to bank and tell them (bank) to disable NFC so it can not be used witlessly, and just in case fold some aluminium foil and keep it in your wallet

older videos but informative

http://youtu.be/EKks3vfiy6Q

http://youtu.be/LJEtRlmEneU

#98 Infused with Opiates on 09.07.13 at 7:41 pm

89 MMN – sorry youre a debt carrying peon.

#99 Pounding sand in Peachland on 09.07.13 at 7:49 pm

News flash: this ain’t the U.S.A.

#100 Daisy Mae on 09.07.13 at 7:50 pm

#64 Ann: “*Perfect let big brother or whomever they sell your information to know what you buy, where you shop where you drive (407) and most likely who you talk and text, Not a conspiracy just none of their business…”

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

I agree. I consider this an invasion of privacy. Banks and credit companies tracking your spending habits….weird.

#101 Marginal on 09.07.13 at 7:53 pm

“The greatest risk is running out of money, not losing it – as millions of Boomer women are destined to learn.”
——————————————————————-
What?? This is a shock.

The Boomer women I know either have dynamite careers and/or are married to Smok’n men who would ensure that they are well cared for in their old age.

#102 Daisy Mae on 09.07.13 at 8:07 pm

#75 Vangrrl: “The banks are self-serving; they are making crazy profits. As far as ‘the bank keeps track of my spending for me’ point, give me a break- easy enough to do on your own.”

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

Exactly. I’m just shaking my head. But try to get rid of RBCs tracking device? Impossible. So I just deactivate everything I can, and feel powerless.

#103 april on 09.07.13 at 8:11 pm

#66- Infused with …. Where did I mention “…mis-reporting sales numbers”? though I do believe it’s done. I don’t know the Vancouver Island RE market. You may know what VI stands for but unless you spell it out many won’t know what location your referring to. I have never seen it referred to as VI only as Van Isl.

#104 Daisy Mae on 09.07.13 at 8:23 pm

#87 Donald Trump #84 Old Man

I agree….pisses me off to.

My record experience is some young dude buying a can of pop using a credit card…approx. $1 transaction.

Sadly….the vast majority are using a debit/credit card.

Should have a “cash only” express line…

**********

Who gives a damn? Lighten up, both of you old farts.

#105 Nemesis on 09.07.13 at 8:29 pm

@Marginal/#103

“The Boomer women I know either have dynamite careers and/or are married to Smok’n men who would ensure that they are well cared for in their old age.”

In the fullness of time I was eventually ‘replaced’ by an InvestmentBanker from JPM.

I’m not a Golfer, but I smiled quietly to myself as I realized I’d just ‘scored’ an Eagle.

#CouldBeWorse

http://www.theglobeandmail.com/news/british-columbia/a-discomfiting-light-to-shine-on-aquilinis-family/article14174959/

#106 espressobob on 09.07.13 at 8:30 pm

Credit Cards? As a small business owner let me assure you there is no bargain using plastic! We get dinged! You thought it was a no brainer, getting all those little perks. Wrong!!! We factor that in. Thanks!

#107 Evangeline on 09.07.13 at 8:54 pm

#96 “Then you had a couple of ….”

I came across this song today that I had never heard before — the intro to the film the 1967 film, Poor Cow …starring Carol White & Terence Stamp.

“Be not too hard”

http://www.youtube.com/watch?v=Oy5vcApnby8

#108 NoName on 09.07.13 at 9:01 pm

@smoking man

end is near for smoking man cripto
bussineshttp://m.motherjones.com/kevin-drum/2013/09/snowden-disclosures-nsa-bombshell-decryption

….[In 2010, a] briefing document claims that the agency had developed “groundbreaking capabilities” against encrypted Web chats and phone calls. Its successes against Secure Sockets Layer and virtual private networks were gaining momentum…

#109 Westcdn on 09.07.13 at 9:07 pm

Larry Summers to replace Ben Bernanke as the next Fed Chairman? I have misgivings because Larry has close ties to Wall Street. To me, his appointment is a subtle acknowledgement of who really makes the Whitehouse decisions and it is not Michelle. http://blogs.reuters.com/felix-salmon/2013/08/13/obamas-dangerously-heroic-view-of-the-fed/
Obama doesn’t seem to listen to public opinion. He seems to devote most of his efforts trying to change public opinion to his ends(?). QE has successfully recapitalized the too big to fail financial companies and restored stability (liquidity) to the shadow banking system. It means QE can be tapered to zero.
The shadow banks are entities that loan money but don’t have depositors hence no government regulation or guarantees. Shadow banks depend on the quality of collateral (T-bills are a favourite) pledged to give loans. This is where derivative investing/gambling gets its juice. Mind you, shadow banking also provides consumer financing.
Larry is confirmation that the cronyism is alive and well in order to keep the status quo. http://finance.yahoo.com/blogs/the-exchange/why-wall-street-wants-larry-summers-why-rest-180751330.html Although QE looks to be ending sooner than later, I think Larry will work hard to keep the financial repression scheme going. We should continue to enjoy low interest rates, abet higher than today, and low inflation until the next great financial crisis which I suspect will be full blown in 2017.
It is only my opinion and a lot can happen in a few years. But, I see no evidence the powers to be have reformed and the debt bomb is bigger than ever. The 2017 date is derived from the published opinion of various pundits I read. These are interesting times indeed and fun to see if I can nail it.
Ps. I use my credit card as much is reasonably possible.

#110 Marginal on 09.07.13 at 9:23 pm

#84 Old Man on 09.07.13 at 4:45 pm
“I see people day and night buying food with a debit card or a credit card, and they fiddle round making me wait in line, as with me pay all in cash. Some of these old women have no clue what they are doing with these cards and are making too many mistakes holding up the line”
—————————————————————-
As others have noted, get a cash back credit card or you’re subsidizing the rest of us.

Not sure how your general comment, “I see people”, degenerated into “some of these old women”. Very disappointed in you Old Man; for some reason I saw you as the gallant knight and gentleman who would never lose patience with the fairer sex. Unless of course “these old women” were standing between you and the sweet young cashier.

Oh well, some are impatient with the “old women” in the checkout line, others are impatient with the “old men” who take forever chatting up the young cashier (who rolls her eyes).

#111 lawboy on 09.07.13 at 9:27 pm

Old man…

Yep, they either take forever (mis)using their cards, or they pay with coin – counting out about 3$ in quarters and dimes. God I hate that.

#112 Marginal on 09.07.13 at 9:43 pm

#88 Ralph Cramdown on 09.07.13 at 5:41 pm

Just be thankful that you don’t live in small town farm country where farmers stop to chat with each other and block all traffic on main street since they don’t park their pickup trucks before they start their slooooow, loooong conversation.

Really slows down the entire shopping trip ;) Not sure what they have to talk about, they all vote the same. As I got older, I realized it was just one of those Leacock/Wingfield Farms moments.

#113 Marginal on 09.07.13 at 9:52 pm

#83 WhiteKat on 09.07.13 at 4:34 pm

“Hey Garth,

I hear that your buddy ‘F’ has an announcement to make this Monday morning on the grounds of Ottawa Camping Trailers. That is just up the street from the trailer park where I am renting a nice 3 + 1 bedroom bungalow. I think I will pop over to hear what he has to say.

Do you have any idea what the announcement is about?”
—————————————————————–
Please report back….this may be the shocking news we’ve been waiting for. The mind reels at the symbolism of the location….why not the local Tim Horton’s?

Ok WhiteKat, put on your best Lois Lane outfit and report back; you’re right….should be interesting.

#114 Derek R on 09.07.13 at 9:55 pm

#46 Evangeline on 09.07.13 at 12:14 am wrote:
I read somewhere today that using debt to spur a sluggish economy is an abuse of Keynesian economics. The writer said that Keynes’ idea was that during the good times, huge surpluses should be built up, and in the bad times, those surpluses *not debt* should be used to get things moving again. Having not read K’s work, but often hearing his theories dissed, I thought that was interesting, alhough I’m not sure it’s a correct rendering of his theories.

You’re right to be dubious. Even most Keynesians don’t actually get his theories. I think that one reason is that he wasn’t a very clear writer. Another is that his ideas developed over time. So what he said in the 1940s was a bit different from what he said in the 1930s which again was a bit different from what he said in the 1920s. From what I can see, the modern economists who seem to be understand him best are the Post-Keynesians.

Getting back to your comment, you’re right about debt. Debt is the problem, not the solution. And not just (or even mainly) government debt. The problem is private debt: that means mortgage debt, consumer debt, you-name-it debt. Any solution that we come up with has to nuke that private debt. And yes, that’s where Keynes advocated the spending of government money in depressions (to pay off debt) balanced by the saving of government money in boom-times (to kill inflation).

That’s why World War 2 was so effective in ending the Great Depression. It may have hugely increased government debt but it also greatly reduced private debt, setting things up nicely for the economic revival of the 1950s.

#115 45north on 09.07.13 at 11:08 pm

Penny Henny: from your link: I’m talking about how a developer finances the entire development project, how they get their money, who they get it from, what has to happen, and basically everything that transpires before the first shovel goes into the ground…

30 Howard Park has started construction. A High-hoe and a big borer. once the bankers say go you go.

http://www.theredpin.com/toronto-condos/howard-park

#116 Evangeline on 09.07.13 at 11:20 pm

#113 “Yep, they either take forever (mis)using their cards…”

It’s not going to help that they are now replacing the older, simple, easy-to-use machines with a regressive new design that features hard plastic wingy things on the side that are supposed to keep the pin numbers safe from prying eyes, but unfortunately obscure the card owners’ visual and manual access to the typepad, thus slowing down the process even more.

#117 Chickenlittle on 09.07.13 at 11:22 pm

#68 Catalyst:
I should clarify that I do not think that ALL homeowners are suckers. Just the ones who bought a shanty with 5% down believing that prices always go up and rates always stay low.

As for 2% being a reasonable gain, I would tend to believe you, but most people would not considering how fast prices have gone up in the last ten years. That kind of quick growth is NOT normal. Even I know that!

It (interest) STILL seems like a lot of money paid to the bank no matter how you slice it!

Even if someone stayed in their house for the next 25 years and the price DID go up, any money made would in reality just be a refund of the money paid out in interest and maintenance, IMO.

Garth is right: never put all your eggs in one basket.

Thank you for your responses! I’m a book/history person, not a financial one. If you asked me about Dickens or whether the Duchess of Devonshire was an ancestor of Princess Diana, I could have a whole page for you (yes, she was). Now it’s time to learn about finances. YIPPEE!

#118 Nosty the Vlaffodil on 09.07.13 at 11:36 pm

#95 Smoking Man — “Burp’!!!!”

An admirable comment on the meaningless, irrelevant, worthless drivel in this garbage can of a planet, so Break On Through to the Other Side! Meanwhile, in a different star system — Poetry in Motion Bovine excrometer overflowing into a toilet and bidet. Throw this in for good measure, and guess what dubya’s leeches are up to?

#119 gg on 09.07.13 at 11:49 pm

US jobs data revision for May … from 160k down to 104K wow!!!! Labour participation rate lowest since 1978. WOW!!!! Great recovery!

#120 Donald Trump on 09.07.13 at 11:52 pm

#106 Daisy Mae on 09.07.13 at 8:23 pm

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

Yeah granny…..you are probably that old b#g that whips out all her coupons , rain cheques, 50 lb bag of pennies…. then realizes she is in the wrong store.

#121 Snowboid on 09.08.13 at 12:08 am

Kelowna Capital News columnist Ceinwen Morgan reports:

“Real estate agents’ phones were ringing as inventory remained low, coupling with hungry buyers eager to settle down before the sluggish school months set in, resulting in an increase of sales and stable sales prices.”

After reviewing the amazing sales in August, Ceinwen suggests:

“Perhaps with low inventory and continued whispers of mortgage rates soon to be on the move upwards, now is the time to jump into homeownership.”

Or maybe not:

“But before getting too excited, remember that the traditional slower fall and winter months for real estate activity are now before us.”

http://www.kelownacapnews.com/lifestyles/222584661.html

Who is Ceinwen? An experienced RE analyst?

Of course, she is the office manager at ReMax Kelowna!

Based on our personal experience with the pricing (reductions that tempted us a few times) of dozens of places we looked at in August, the statistics presented by this article seem to be missing something – can’t quite figure it out!

#122 Arse on 09.08.13 at 12:16 am

With oil hovering above $100, I expect slowing of economic growth.

#123 Smoking Man on 09.08.13 at 2:18 am

Vladimir her is one for you

http://www.haaretz.com/mobile/1.545661

Man I love that news organization, they say it like it is. They are not fearfull of big brother, or neo cons.
Rebels. HAARETZ AND RT News only credible MSM out there. Mind you I can only barley read the English version, wonder if the Russian and Jewish language editions are in sync with the English.

In a nut shell, Aipac to lobby congress men to push for war.

Translation by smoking man

Listen up bitches, you want funding for next election, and and keep all the goods on you we got from NSA quite , you better damn well vote for war.

Smoking man’s call, after all this settles down.
America goes libertarian.

Machine still time for me to save your ass. With every passing day my fee goes up.

Look what’s happening, your control slipping rapidly.

#124 kc on 09.08.13 at 3:02 am

116 Derek R on 09.07.13 at 9:55 pm

That’s why World War 2 was so effective in ending the Great Depression. It may have hugely increased government debt but it also greatly reduced private debt, setting things up nicely for the economic revival of the 1950s.

how could it reduce private debts when the standard of living was as poor or worse for the nation as rashions were needed for everything.

in N Anerica over 10, million men were enlisted and conditions for the nations didn’t improve, so saying the war ended the Great D is falsehoods that many uneducated people like to parrot. what was produced were arms for the war effort, not consumer goods.

in my coin collection i hold food stamps from the war where you were allowed to buy a pound of butter with the wooden coins. during the depression, if you had the coins you could buy what you wanted. see the difference in living standards?

the americans continue to think they can war themselves into prosperity, fools to make war.

#125 maxx on 09.08.13 at 6:58 am

#94 Joeblo on 09.07.13 at 6:48 pm

Good point.

Reminds me of a line from Glengarry Glenross as Tony Roma gives his “boss” a long overdue dose of reality:

“Your job is to help us, not to f#@k us up.”

#126 Westcdn on 09.08.13 at 7:31 am

#120: Nosty,
Thanks for the links – new information to ponder. The exposure of the Carlyle Group in the dubya’s leeches link reminded of the story of Gerald Bull. He was the Canadian working on super artillery so he would have been up against the Crusader Project. His death proves there are people you don’t say “no”.
http://www.damninteresting.com/project-babylon-gerald-bulls-downfall/
Sometimes it is easier to see the light from the darkside.

#127 Ralph Cramdown on 09.08.13 at 9:02 am

#108 espressobob — “Credit Cards? As a small business owner let me assure you there is no bargain using plastic!”

Well, as a cardholder, I pay the same price nearly everywhere whether card or cash, and the card gives me a rebate, convenience and a few weeks of credit for free.

Small businesses can either band together to negotiate better terms (why doesn’t CFIB organize that?), hang up a sign that says “In God We Trust, All The Rest Pay Cash” as some did in the old days, keep a little book by the cash register extending credit to customers as you see fit and advising your bookkeeper as to the appropriate level of bad debt allowance as others did in the old days, or stop complaining.

Some consumers use cards for the perqs and might well pay cash if cards weren’t accepted, while others are broke and won’t buy from you except on credit, and that’s your dilemma. But paying CFIB to run an ad campaign to try to convince consumers not to use cards? Good luck with that. Neither type of consumer is going to give up the ‘benefits’ they get from their cards.

#128 tb on 09.08.13 at 9:13 am

@ #78 Bill Gable

Appreciate your reply. Few people including me were perhaps a bit harsh.

@ #89 Mr. Monday Night

3 things:

1. Don’t know why you think it’s unlikely that I haven’t paid interest on my cards. Just setup an automatic monthly payment from your chequing acc and don’t spend money you don’t have.

2. I have not bashed anyone for carrying CC debt. It’s a sad situation that I would not wish on anyone.

3. Where did you get the stat that “60% of Canadians have crazy CC debt”? I call huge BS on that. 2/3 of all CC holders in Canada don’t carry a balance. And not everyone has a CC.

#129 Daisy Mae on 09.08.13 at 9:25 am

Donald Trump on 09.07.13 at 11:52 pm
#106 Daisy Mae on 09.07.13 at 8:23 pm

Yeah granny…..you are probably that old b#g that whips out all her coupons , rain cheques, 50 lb bag of pennies…. then realizes she is in the wrong store.

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

Wrong again.

#130 TnT on 09.08.13 at 9:42 am

Bitcoin ATM

http://www.citynews.ca/2013/09/08/new-atms-will-exchange-cash-for-bitcoins/#ad-image-0

Demeter says many Bitcoin startups are gravitating to Canada because the Financial Transactions and Reports Analysis Centre of Canada — also known as FINTRAC — aren’t as strict as regulators in the U.S.

“It’s a lot more open up here, that’s for sure,” says Demeter

#131 sciencemonkey on 09.08.13 at 9:57 am

Where do you guys get these good cashback deals? Best I have is the PC Mastercard with 1% of all purchases goes to the groceries.

#132 april on 09.08.13 at 10:13 am

#123 – Snowboid. Quote by Greg Welden: Since the real estate cartel are “comparing the better sales numbers for August against last August numbers which were ABYSMAL, big deal”.

#133 Ralph Cramdown on 09.08.13 at 10:25 am

#46 Evangeline — “I read somewhere today that using debt to spur a sluggish economy is an abuse of Keynesian economics. The writer said that Keynes’ idea was that during the good times, huge surpluses should be built up, and in the bad times, those surpluses *not debt* should be used to get things moving again.”

Keynes’ ideas were revolutionary, easy to understand, and represented uncontroversial, mainstream economic thought right up until the stagflation of the 1970s.

Let’s say the government’s budget is balanced. Then one day, *you* get laid off, and can’t find another job. The government is no longer getting income tax from your biweekly paycheques and, because you reduce your spending, the income of local businesses goes down a bit too, again reducing income taxes slightly. The government’s budget is now in deficit.

The government can do nothing, run a deficit for a while and hope things get better. Or it can cut back on the hours of a government employee to keep its budget in balance. That employee would also pay less tax and spend less in his community, so government revenue would go down a little bit more.

The government could instead send you an unemployment cheque or a welfare cheque. This would put it further into deficit, but not by the entire amount of the cheque, because you’d undoubtedly spend almost all of it and some would come back to the government as taxes from the places you spent it. If enough people were unemployed, the government could even decide that now might be a good time to build a bridge or a dam financed at a low interest rate over thirty years.

This is pretty uncontroversial stuff, economically speaking. But you still hear people advocating for the death spiral approach, usually with phrases like “the solution to a debt problem isn’t more debt” or “the government must tighten its belt.”

One of Keynes’ huge contributions was showing that these periodic depressions could last a long time; that the economy could reach equilibrium at a low level of production and a high level of unemployment rather than quickly adjusting to near-full employment. This is the impetus for the government to do something rather than just taking a “this too shall pass” attitude.

In response to the feeb who said we should have had a surplus going into this crisis, I’m pretty sure Keynes would have said “Regardless of what should or should not have been done prior to the current crisis, the question at hand is what is to be done now. We either act, or we stand by. Can our actions revive a moribund economy and relieve the suffering of millions? Yes. Then we should act, with all due haste.”

As to saving up surpluses in good times, governments have done this, especially those blessed with huge natural resources. Norway’s oil fund is $760bn. Alberta on the other hand, pissed away its sovereign wealth fund, stopped contributing to it while spending its earnings, is proud of having the lowest taxes in the country and runs an economy that’s overcooked on just about every level (temporary foreign workers to sling coffee, very high house prices in a city surrounded by flat, only moderately productive farmland for fifty miles in every direction, $200/hr shop rates to get an oil change in Ft. Mac…), and our own Lord Flaherty of Pop-up-Trailers-R-Us wanting to reduce the deficit with unemployment at 7.1%.

#134 AK on 09.08.13 at 10:47 am

#26 Dean Mason on 09.06.13 at 9:07 pm
“Wait another 6 months to 12 months. We will back to under 100,000 jobs being created and probably 80% part-time.”
====================================
You never cease to amaze me. How the hell do you know what is going to happen over the next 6 to 12 months.??

#135 kc on 09.08.13 at 10:54 am

135 Ralph Cramdown on 09.08.13 at 10:25 am

nice view, only problem is that many (citizens & gov.) get this feeling of false security during the boom times and consume, spend and debt slave themselves into a hole that MUST be paid back.

it becomes this perpetual loop of borrow spend rinse repeat with no-one getting a hold of the major problem… keeping up with the kardashians …

you know the mind set is screwed when Ferrari builds SUV’s and no minded people actually buy them…

#136 Infused with Opiates on 09.08.13 at 11:02 am

105 April – R U “AprilNewWest” or do I have 2 diff posters? It was “aprilnewwest” who posted @127 two blogs ago replying to post 86 (but did not reference
moniker) which was the link to the VIREB sales.

#137 Donald Trump on 09.08.13 at 11:10 am

#131 Daisy Mae on 09.08.13 at 9:25 am

Donald Trump on 09.07.13 at 11:52 pm
#106 Daisy Mae on 09.07.13 at 8:23 pm

Yeah granny…..you are probably that old b#g that whips out all her coupons , rain cheques, 50 lb bag of pennies…. then realizes she is in the wrong store.

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

Wrong again.

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

OK sorry….100 lb bag of pennies dating back to Civil War

#138 MarcFromOttawa on 09.08.13 at 11:21 am

#135 Ralph Cramdown

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

-Ludwig Von Mises

#139 Ralph Cramdown on 09.08.13 at 11:59 am

#132 TnT — Bitcoin ATM

Still with the bitcoin? It hasn’t occurred to anyone in that merry few that if it’s slipped out that No Such Agency has cracked pretty much everything (duh), there’s undoubtedly a few guys in Castle Meadenstein vying to collect them all, and that contest may have been over last year?

#140 Herb on 09.08.13 at 12:25 pm

#127 kc,

… saying the war ended the Great D is falsehoods [sic] that many uneducated people like to parrot.

you would benefit from a bit more edumacation in history yourself, buddy.

You might start with a book called Saints, Sinners and Soldiers: Canada’s Second World War by Jeffrey A. Keshen (UBC Press, 2004)

#141 TurnerNation on 09.08.13 at 12:50 pm

Yours. Just sell your Moldcouver bung.

http://www.youtube.com/watch?v=5rxw6w-Y-Qo

Most Expensive Home in Prince Edward Island Real Estate PEI

#142 Debtfree on 09.08.13 at 12:57 pm

@ 108 EB we had a chat with one of your collegues years ago who had nothing good to say about the Dicatorial way merchants were treated buy the credit card industry . We went home and started buying credit card stocks . Sweet . Not only do we get cash back on our purchases but we’ve enjoyed incredible gains in SP plus divvies . It’s a three fer . I know Garth says don’t buy individual stocks unless you are a millionaire but its way more fun than bingo for us old folks .

#143 Derek R on 09.08.13 at 12:58 pm

#126 kc on 09.08.13 at 3:02 am asked
how could it reduce private debts when the standard of living was as poor or worse for the nation as rashions were needed for everything.

How? Because it employed a whole lot of people who were unemployed. Companies which were short of work began to receive payment from the government for work so they began to employ people who weren’t receiving a wage at all. Standard of living may not have been great but companies and people could now pay down their debt because they had an income. Rationing made sure that they saved that money or paid down debt because they couldn’t buy anything with it.

in N Anerica over 10, million men were enlisted and conditions for the nations didn’t improve

10 million men were enlisted. That means 10 million wages . A lot of those guys weren’t receiving a wage at all before the war. During the war they were earning a wage and so were their wives in a lot of cases. That wasn’t happening during the depression. So conditions may not have improved but they definitely changed.

, so saying the war ended the Great D is falsehoods that many uneducated people like to parrot. what was produced were arms for the war effort, not consumer goods.

Of course. It wasn’t the war that ended the depression. It was government spending on the war. And because the production was arms, ordinary people had no way to spend money on consumer goods because hardly any were being produced. So they paid down their debt and bought war bonds instead. That was what ended the Depression.

in my coin collection i hold food stamps from the war where you were allowed to buy a pound of butter with the wooden coins. during the depression, if you had the coins you could buy what you wanted. see the difference in living standards?

Sure I see the difference. During the depression you had the goods but you didn’t have the coins, so living standards were low. During the war you had the coins but you didn’t have the goods, so living standards were low. But ending the depression was all about paying off your debts which you can only do if you have coins.

the americans continue to think they can war themselves into prosperity, fools to make war.

Agree with you there. What we should have learned from the war is that the spending, employment and forced saving ends depressions by killing debt. Killing people isn’t necessary. It’s a crying shame that the lesson has been forgotten.

#144 eddy on 09.08.13 at 1:22 pm

133 sciencemonkey on 09.08.13 at 9:57 am

Where do you guys get these good cashback deals? Best I have is the PC Mastercard with 1% of all purchases goes to the groceries.

^^^^

I’m using MBNA, even though I think the whole thing is a scam; however, I don’t use it for credit, only for convenience. BTW they give extra points for groceries. IMO it is shameful to allow credit cards for groceries, a necessity, at 20% rates. Let’s be clear- the cost of credit card fees paid by the merchant is blended into to price that ALL customers pay, and of course there is NO CASH DISCOUNT, this has been forbidden by the credit card companies- Only THEY can dispense goodies . The card user gets a little taste of the skim via cash back or points, but the person who pays for it all is the one with cash. If we had a government it would be illegal

#145 Donald Trump on 09.08.13 at 1:31 pm

#143 TurnerNation on 09.08.13 at 12:50 pm

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

PEI…what?

The whole dam Island isn’t worth that much.

Time to shed these unproductive assets…suggest unreserved auction.

#146 Ralph Cramdown on 09.08.13 at 1:44 pm

#140 MarcFromOttawa

I think the majority are of the view that we’ve already seen the collapse at the end of the credit boom, coining the term “Global Financial Crisis” for it. I realize that there are a certain number of doomers who think this boom was so big that the slump ain’t over until we’re back to a gold, lead and dried beans economy, and that many of them are naturally drawn to the Austerian school of economics. Not me, though.

#147 timmy on 09.08.13 at 1:54 pm

More proof the US economy is turning around… Or not.

http://m.washingtonpost.com/business/economy/economy-added-169k-jobs-in-august-as-the-recovery-grinds-along/2013/09/06/696820dc-16ef-11e3-a2ec-b47e45e6f8ef_story.html

#148 Old Man on 09.08.13 at 1:55 pm

#112 Marginal – I am indebted to you as the thought never crossed my mind to flirt with an attractive young woman, so tried it today. She works part-time at Shoppers Drugmart taking a Masters Degree, and has been given an assignment for an essay on Plato’s parable of the cave. Said know it from A to Z, so guess what? She is cooking me a dinner in a few days at her apartment to take down some notes. Once again thank you ever so much for this advice.

#149 Old Man on 09.08.13 at 2:15 pm

I guarantee that this young beautiful woman getting her masters degree will get an A on her assignment, as there is a fine line between a parable and an allegory which will document for her in spades; no made no mistake about Plato’s allegory of the cave. Hey, see not one but two dinners – thanks again #112 Marginal, as you just made my week with your advice. Cheers!

#150 Retired Boomer - WI on 09.08.13 at 2:33 pm

#29 Bill Gamble….and others….

What you say is quite correct, collecting cash, or miles if one pays their credit card in full each month -no interest paid- smart use.

What is NOT said, is any store that “accepts” a credit card as payment has to have built into it’s prices a bit of extra margin to accommodate the cost of credit.

My favorite local grocery store does not accept a credit card, but they do take a debit card, or personal check.
Their prices are as low, or lower than Wallmart, or Target
since groceries are by nature vended on a local, or regional basis generally prices DO vary considerable.

While I use credit for most other everyday purchases we just have not used it for groceries as that vendor doesn’t accept them, but in turn has lower prices overall.

Bill, not using a credit card does not make you a “moron,” as an earlier poster accused. I apologize to you for that other poster’s inconsiderate post. Some people, eh?

# 135 Ralph Cramdown

Governments have run mostly deficits since I can remember, generally 3-4%. They neither wish to, nor have the fortitude to live within their means. The people WANT more, there is always a war, natural disaster, and re-elections to deal with.

Any elected rep wants to be re-elected., and you do NOT get re-elected by running a free country the way one should be operated. Perhaps, a dictator could be more efficient, or we could someday elect the politician who says, “I’ll cut spending, social benefits, and raise your taxes until we get this place running in a sustainable manner.”

I have NEVER heard a campaign promise, or legislation proposed that would accomplish such an end.

Hope springs eternal, but in the US with two parties, Asses, and Elephants good luck, both are corporately owned today. I don’t think Canada is very much different.

#151 Kaganovich on 09.08.13 at 2:59 pm

Derek and others, Dean Baker has done some work on discussing military Keynesianism.

http://mondediplo.com/2008/02/05military

#152 Ralph Cramdown on 09.08.13 at 3:27 pm

#152 Retired Boomer – WI

If the CEO of a REIT or a pipeline, a railroad or a large manufacturer stood up at the shareholders’ meeting and announced that he was implementing a ten year plan to pay off all the debt, they’d run him out of the room on a rail. Likewise, a government SHOULD have a certain level of debt — why should today’s citizens pay cash for assets that will last 50 years and benefit the unborn, while denying themselves useful and productive long lived assets that they don’t yet have the cash to pay for?

Politicians are weak and prone to spending too much and not taxing enough in good times, it’s true. In fact, that’s one reason for (relatively) independent central banks; the realization that direct government access to the printing press (monetary policy) is often disastrous. We’ve implemented a certain number of automatic stabilizers in fiscal policy over the years as well, e.g. welfare, food stamps, unemployment insurance. There’s room to do more.

#153 Canadian Watchdog on 09.08.13 at 4:46 pm

#135 Ralph Cramdown

One of Keynes’ huge contributions was showing that these periodic depressions could last a long time; that the economy could reach equilibrium at a low level of production and a high level of unemployment rather than quickly adjusting to near-full employment. This is the impetus for the government to do something rather than just taking a “this too shall pass” attitude.

This assumption was based on a fixed exchange rate system, which we don't have today. Not even Keynes himself would be stupid enough to suggest that governments could spend their way back to growth with central banks debauching their floating currencies in tandem — some more then others. This profligate policy by way of math alone will eventually lead to a disaster. All central bankers acknowledge that and will never deny it. Read their papers.

What's really broken here is the mechanism of how monetary policy is being delivered into the economy; more notably measures taken over the last five years by boosting asset prices and turning stocks into the world's largest free ATM machine; an attempt to lift fundamentals (employment and wages) back to real growth. So far we've seen the rise in asset prices (RE) and stocks, while real fundaments are stuck where they've been since 2008. In short, central banks have failed to deliver for mainstreet. It's obvious.

Why It Doesn't Work.

Remember all that pipedream talk from Obama and Harper to create jobs by boosting exports (by devaluing) to Europe and emerging markets? See here and here how that's working out.

How is India going to buy more Canadian goods when the rupee just lost 29% of its value in the last five years? And why wouldn't Canadian companies hire abroad when Indian wages are now 29% cheaper? Anybody notice an increase in telemarketing calls (from India) at dinner time?

Alas, the Keynesian theorists are quickly learning what really impedes economic growth: it's not much how you print, rather how much the other guy is willing to print in retaliation. But then again, if stocks and RE are the only measure of economic growth while the rest of our economy goes to hell, then all is working out well. At least for Wall Street it is.

#154 Derek R on 09.08.13 at 4:57 pm

#153 Kaganovich on 09.08.13 at 2:59 pm wrote
Derek and others, Dean Baker has done some work on discussing military Keynesianism.

Thanks, Kaganovich. That’s an interesting article (as you would expect from Dean Baker). I scanned it quickly just now and it goes into a lot more detail than I have seen before. I will read it again and think about what it has to say over the next few days.

#155 Marginal on 09.08.13 at 6:06 pm

#154 Ralph Cramdown on 09.08.13 at 3:27 pm

Excellent point on why government debt is not the same as personal debt.

FWIW….enjoy your posts.

#156 Marginal on 09.08.13 at 6:15 pm

#150 Old Man on 09.08.13 at 1:55 pm

Awwwww…someone who has read Plato? You’d be welcome for dinner in our home and you wouldn’t have to stand in line at SDM. Although DH is more an Aristotelian……

Great response Old Man ;-)

#157 Patient in Richmond on 09.08.13 at 9:27 pm

Slow go on the open houses in Richmond this sunday . Walked through a few million $ listings, no traffic . Realtors are desperate it seems. Before there was a certain attitude . Not anymore ……….Desperation setting in ?

great video here about the imploding chinese economy
http://bcove.me/s83lnqz5

#158 bill on 09.09.13 at 12:59 am

#43 Donald Trump on 09.06.13 at 11:58 pm
smoking man? looked kind of like frank cullotta to me….

#159 Vince on 09.09.13 at 11:06 am

what about rate reset cumulative preferreds that have a policy of something like 5-yr govt bond + 175 bps? These can be had cheaply now in some sectors where the preferred share value has dropped because of the recent repeated increases in government interest rates.

Any thoughts on whether these issues are ‘fools gold’ or not?

#160 spaceman on 09.09.13 at 12:45 pm

Not exactly true. Prices are falling in many markets. YVR/YYC/YYZ are not the whole country. — Garth

Thats right, these are airports, and who wants to live at the airport?