In the spring of 2013 the boys at BeeMo got the hots and came out with a mortgage rate of slightly less than 3%. F was not amused.
“My expectation is that banks will engage in prudent lending – not the type of ‘race to the bottom’ practices that led to a mortgage crisis in the United States,” the finance minister said, with a harrumph. And by those fighting words, the elfin deity was able to back off the voracious lenders.
In the spring of 2014, BeeMo tried it again. This time the bank’s CEO called the new finance minister to tell him the race to the bottom was on once more. “I will continue to monitor the market closely,” Joe Oliver mumbled afterwards. The message was clear. The feds no longer cared about runaway consumer debt. Maybe they never did. Perhaps it was just F who felt he had an obligation to save people from themselves.
In any case, the gloves were off. Shortly afterward the opportunists at Investor’s Group shocked the media with a 1.99% mortgage – newsworthy, even though it was variable-rate and good for just a three-year term. It was the cheapest home loan ever recorded.
In the spring of 2015, the big green bank dropped its five-year, fixed-rate mortgage to just 2.74%. The other guys piled on. Mortgage brokerages, like Vancouver-based Spin, came out with even more aggressive deals, like the 2.44% fiver for those with 20% to put down. Finally, this week, the ultimate – the largest credit union in Ontario, Meridian, hit the bottom with an 18-month fixed rate of 1.49%.
Said Rob McLister, a broker and owner of the industry’s leading web site: “This is interest rate insanity.”
While the buck-forty-nine loan is only available to Meridian’s 250,000 members (you can join by paying a $25 fee), it nonetheless marks a memorable moment in the descent of Canadian borrowers. As Capital Economist egghead and housing bear David Madani said in response: “They are feeding part of the problem. They are feeding the bidding wars for these outrageously valued homes. We are painting ourselves into a corner because when rates go up, and they will, then you’re in trouble.”
Meridian, by the way, is the forth-biggest CU in the country, outside of Quebec. The largest is Vancity, already well-known to readers of this blog as one of the biggest house-pumping financial institutions in the land which gives out money to people who want to live in garages, don’t have down payments or buy a house with the swingles next door. It’s worth noting these guys are not part of the Canada Deposit Insurance Corporation, so you might want to think twice before parking your money in places that are happily turning into subprime lenders with massive exposure to a bloated property market.
Oh, and Meridian has $9.2 billion in assets under administration. In contrast, the Royal Bank has $3.54 trillion – which is $3,540 billion. Just sayin’.
Well, Madani’s right. But as you can see for yourself by reading this pathetic blog’s pulsating comments section, nobody believes him. The musty, blinking basement dwellers, house pimps, moist Millennials, panting virgins, omnivorous realtors and house-lusty Boomers just refuse to believe rates can go up again. Ever. The argument is simple: we’ve all borrowed so frigging much that more interest would destroy us, therefore the government will not allow this to happen.
Isn’t that cute? People actually believe the government cares about them. You know, the same bunch of people who deliberately dropped rates so low that citizens would pig out on debt, indenture their families and the next few decades of their lives, all to provide the economic stimulus Ottawa didn’t want to. After all, why go more into deficit creating jobs with infrastructure programs or assists to manufacturing when you can turn out 108,000 real estate agents, take household debt to epic levels and push average houses in the GTA and YVR past $1 million? What could possibly go wrong with that?
So,what’s next?
Expect more of the same in our bubbly two markets for a month or three. Meanwhile the ripples from Alberta will spread, the economy will slag and we may even have the Bank of Canada react by encouraging more debt. The finance minister will be invisible, the banks will ignore him and the depths of lender irresponsibility will be tested again.
After that, with the US Fed move to raise its rate for the first time in six years (in June, or September), the path to normalization will start to clear. Despite the bleatings of the borrowers, the years ahead will bring only a higher cost of money, not lower. Inflation, not deflation, will emerge. Global growth will inch along. Incrementally, with every mortgage renewal, expect more pressure.
Always remember this. Houses cost too much because mortgages cost too little. When rates rise – even a little – real estate falls.
This is not a new normal. It’s a trap.
298 comments ↓
So, why don’t you bankers offer me a 1.49% interest rate for 18 months on a margin trading account, so I can buy investments like REITs that pay 5%?
Long line up in Dollarama today. But its stock price is cracking…
Where is everyone?
All I want for Christmas are normalized mortgage rates please.
#AdmiralAckbarSays…. #”It’sATrap!”…
https://youtu.be/mNLuq0lW50k
Oil contributes approx 20% of Canadian GDP which is going south side, seems like on purpose the rates cuts were initiated to catch the loss from another important GDP sector which is real estate. Not only people are flipping properties like anything and paying taxes on purchase, also this has increased assessment value which in return helping govt to catch up the GDP shortfall. Certainly a TRAP….
Today, Stats Canada released the latest employment numbers
http://www.statcan.gc.ca/daily-quotidien/150410/dq150410a-eng.htm
But hidden inside is something much much worse – and no one is talking about the “elephant” in the room
“The public sector – which has led job growth over the past year – boosted headcount by 26,500 last month while the private sector created 19,300 positions.”
Who will pay for all these extra future sunshiners (with DB pensions and COLA and freedom 55-60)
Full year statistics (March 2014 / March 2015)-from cansim table 282-0011:
Canada:
public sector – 3,548,600 versus 3,617,800 now – increase of 69,200 jobs
private sector – 11,241,700 versus 11,233,900 now – loss of 7,800 jobs
Ontario:
public sector – 1,288,600 versus 1,306,300 now – increase of 17,700 jobs
private sector – 4,424,300 versus 4,407,100 now – loss of 17,200 jobs
This is the “future engine of growth” for Canada !!!
Growth in sunshiners indeed – http://www.thesunshinelist.com
Alberta:
public sector – 367,700 versus 403,200 now – increase of 35,500 jobs
private sector – 1,484,800 versus 1,501,400 – surprisingly still increase of 16,600 jobs but losing jobs with each passing month.
Quebec:
public sector – 882,500 versus 891,700 now – increase of 9,200 jobs
private sector – 2,547,200 versus 2,551,300 now – increase of 4,100 jobs
BC:
public sector – 443,300 versus 425,500 now – decrease of 17,800 jobs (good)
private sector – 1,427,700 versus 1,422,000 now – loss of 5,700 jobs.
The entire premise of your post (and this blog, really) is “Canada real estate is a tinderbox is interest rates go up”.
Makes perfect sense. All the economics I know, which isn’t much but it doesn’t take much, say that’s true.
Personally, as someone who doesn’t own I hope it’s true as I’d like to see a home buying opportunity in my lifetime where the finances are sound.
The driver for this is interests rates rising to historical norms and that this isn’t the new normal. A counter arguement could be “it was for Japan”. After a economic hit 2 decades ago they dropped rates and have never raised them. Low rates became their new normal.
Odd game shows aside, what makes us so different from Japan?
6 months from now you will see 5 yr fixed at 2 % and 10 the at 3
This is a classic debt trap
We will see rates rise within the next few yes regardless of what the govt or BofC want for they do NOT control rates
A weak and deteriorating economy will eventually result in a loss of confidence in the bond market which will drive rates in the developed world to rise sharply and eventually the U.S. And Canadstan will be in the final wave of the bond collapse
Buy RE now is suicide in To or Van
JO
Mark # 225,
“If you accept the premise that the debt cycle has peaked, then politicians and the market will be likely to do everything possible to destroy debt — and destroying debt is fundamentally excellent for the asset class that is most inversely correlated to debt.”
“Curious that you said “70 year super cycle”. Because that basically puts us back into the 1930s. Actually I’m a believer in the theory that no single generation will ever see the same economic conditions repeat exactly. Nobody is talking about deflation, high precious metals prices, and consumption collapse because nobody alive (not in diapers in a nursing home) has actually experienced such. But just remember, every asset class eventually has its day in the sun!”
——————————————-
2015 – 70 = 1945 or about the end of the second world war. Plans soon shifted to putting a fridge in every home and a car in every driveway (or something about a chicken?)
The fact we continue to see unprecedented stimulus, tells me either they have yet to diagnose the actual disease, or simply believe (far more likely) they could paper their way out of the situation with more debt (the non productive, bad kind Shawn).
I guess some economists told them they could have it all (and keep everyone happy) but of course, it’s just wishful thinking.
There are multiple moving parts not even being discussed: Technological advancements, resource depletion and billions of new labourers globally.
Yes…it’s a mess.
It may just be time for a good old fashioned global war (over there somewhere) or maybe a Debt Jubilee?
Pick one, either should do the trick.
It’s a trap!
https://www.youtube.com/watch?v=4F4qzPbcFiA
[…] Source: http://www.greaterfool.ca/2015/04/10/to-the-bottom-2/ […]
Garth, Garth, Garth…
Rates will go up, possibly, maybe, perhaps…..in June, or September of what year is the question. Our Fed chair a demonstrable dove when it comes to rate hikes will likely play the “pretend and extend game until her term expires, or I do whichever comes first.
While I would LOVE to believe that rates will ascend, or even if it is possible to do so with so many other (lesser fools) so pigged on debt, I gotta tell ya, I have my doubts.
Getting older one sees the cynicism in a lot of things once thought as real truths. Maybe it is just a rate starved old geezer who sees great growth on one side of his portfolio, and quite anemic growth on the other side. Perhaps I am in the wrong fixed income ‘stuff.’
I really don’t need debt, or a bigger house, or a newer car, or much of any other consumer crapola just now.
A better return on that 40% “fixed” money would be a refreshing change. Business seems to be doing rather well, is it because those daft consumers can’t handle a goose to their Visa and Mastercard rates that investors are gasping?
When DOES Janet blink?
“Expect more of the same in our bubbly two markets for a month or three. Meanwhile the ripples from Alberta will spread, the economy will slag and we may even have the Bank of Canada react by encouraging more debt. The finance minister will be invisible, the banks will ignore him and the depths of lender irresponsibility will be tested again.”
The Conservatives have an election to win. Joe Oliver made a Balanced Budget Bill is top priority; a gimmick design to fool the electorate into thinking a Federal Budget is supposed to be like a household budget and claim to be “fiscally responsible” , unlike the communists across the aisle.
Unfortunately, I believe it will work.
So the Swiss just sold some 300 million worth of negitive interest 10 year bonds , yet the Fed is going to raise interest rates . Whats that going to do to the Dollar that is already up some 20% ?
My money is on no rate increase for U.S. and if anything Quantitave Easing 4 is on its way .
#1 Doug in London on 04.10.15 at 5:12 pm
So, why don’t you bankers offer me a 1.49% interest rate for 18 months on a margin trading account, so I can buy investments like REITs that pay 5%?
********************************************
Because the government does not insure those.
#4 Yogi Bear on 04.10.15 at 5:19 pm
All I want for Christmas are normalized mortgage rates please.
*************************************
If you’re under 20 you might live to them one day, maybe.
First, I agree with Garth’s advice to stay diversified. It is good advice.
Garth says:
“Houses cost too much because mortgages cost too little.”
But what about:
“Stocks cost too much because debt cost too little.”
Corporations are gorging* on cheap debt to fund M&A, dividends and buy backs.
If it won’t end well for households, how can it possibly end well for corporations?
* See this article for the latest example — GE will spend $50 billion buying back its stock:
http://www.forbes.com/sites/steveschaefer/2015/04/10/ges-50-billion-buyback-continues-corporate-americas-binge-on-its-own-stock/
Stocks are a proxy for the economy, whose value is largely determined by corporate profitability. There is no direct comparison with hormonal, debt-fueled real estate purchases. — Garth
Just for your viewing pleasure for my Canadian friends who enjoy Songified American news:
https://www.youtube.com/watch?v=waEC-8GFTP4
https://www.youtube.com/watch?v=wDQTvuP1Dgs
https://www.youtube.com/watch?v=CV9xF8CjhJk
https://www.youtube.com/watch?v=Gg5SwyTvAHw&list=RDwDQTvuP1Dgs&index=18
https://www.youtube.com/watch?v=BnJyuQerx3c&list=RDwDQTvuP1Dgs&index=28
https://www.youtube.com/watch?v=mEAKsaQOCpQ
https://www.youtube.com/watch?v=wZaHOmzHKro
https://www.youtube.com/watch?v=nZcRU0Op5P4
https://www.youtube.com/watch?v=sP4NMoJcFd4
“indenture their families and the next few decades of their lives, all to provide the economic stimulus Ottawa didn’t want to. After all, why go more into deficit creating jobs with infrastructure programs or assists to manufacturing when you can create 108,000 real estate agents”
————————————————
Turner gets the Bingo today.
That one is worth Tweeting.
@#1 Doug in london
“So, why don’t you bankers offer me a 1.49% interest rate for 18 months on a margin trading account, so I can buy investments like REITs that pay 5%?”
Interactive Brokers does on their margin accounts. In some cases less than that.
Well, you’re right that rates won’t stay this low forever. And you’re also right in suggesting that’s when the bubble will burst.
It’s obvious all that’s driving this is easy credit. A sign Of what’s to come can be seen here in Mexico, where Canucks have already been squeezed out of the popular expat and snowbird markets, in places such as Puerto Vallarta, Los Cabos and Mazatlan, where my wife and I have a home. Realtor friends tell us the buying from Canucks has pretty well dried up, as a result of the decline of the Canadian dollar. Real estate is effectively priced in U.S. dollars on the coast, meaning prices have risen by more than 20 per cent for Canuck buyers in the last two or three years. Since most real estate is sold for cash, that’s akin to a mortgage rate rise in Canada of a few percentage points. I suspect the same thing has happened in the U.S. markets Canadians flock to, such as Florida and Arizona. Prices have held up here and in other coastal markets because Americans are buying, along with affluent Mexicans. But, obviously, the majority of the buyers in Canada are Canadians. Americans are too smart to pay your real estate prices, even in a declining market. Besides, it snows and rains a lot there.
1.49%? Now I’ve seen everything.
This is just piling onto what we’ll owe when it’s time to pay the piper. Not good.
Vancity deposits are covered by Credit Union Deposit Insurance Corporation of British Columbia, no?
https://www.vancity.com/AboutVancity/Membership/MemberBenefits/
We’ve had this discussion before. If you believe this protects you, go ahead. Good luck. — Garth
I don’t get why you can’t get long term mortgages at this low rates. I live in Germany and bought two investment properties a year ago 2.54% for 10 years. Now I’m getting offers for 1.5% for 10 years!!!!!!
have enough property but boy it’s tempting
“Stocks are a proxy for the economy, whose value is largely determined by corporate profitability.”
Yes, but corporate profitability is being boosted by buy backs.
Companies are spending money buying their own stock instead of investing in things (people, plants, whatever) that will return future profits.
There are two ways to increase EPS.
Increasing E is difficult but better for the long term health of the corporation.
Decreasing S is easy and better for the short term gain of the executives cashing in on stock options.
Of course companies buy back stock when it is to their advantage to do so. This is not what moves the markets, however. — Garth
Correcting e Record
Aman on 04.10.15 at 5:26 pm
Oil contributes approx 20% of Canadian GDP which is going south side, seems like on purpose the rates cuts were initiated to catch the loss from another important GDP sector which is real estate. Not only people are flipping properties like anything and paying taxes on purchase, also this has increased assessment value which in return helping govt to catch up the GDP shortfall. Certainly a TRAP….
***************************************
Actually, mining quarrying and oil/gas extraction TOGETHER account for less than 9% of Canada’s GDP.
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gdps04a-eng.htm
I am not suggesting that this is small or unimportant.
But “oil” does not count for anything close to 20% of Canadian GDP.
It is correct however, that real estate is a big part of GDP. In fact the sale and rental and management of real estate accounts for over 12% of GDP and is the largest component.
And that does NOT count the financing and construction of real estate. All told real estate is probably over 20% of GDP.
That sounds huge. Then again, look around you, real estate is everywhere. Shelter is one of the three necessities of life (the others being food and clothing). Yes we spend a lot of our work effort on real estate.
Look around at the installed infrastructure of any town, city or village. Real estate in fact is basically the definition of a town. No real estate, no town, city or village.
Real Estate is real important.
#19 The American on 04.10.15 at 5:57 pm
Just for your viewing pleasure for my Canadian friends who enjoy Songified American news:
————————————————–
That was weird.
https://postmediamontrealgazette2.files.wordpress.com/2015/04/aislinweb-041115ca.jpg?quality=55&strip=all&w=533
this is on my credit union in Vancouver (Coast Capital)….”Credit Union Deposit Insurance UpdateDon’t worry. Your deposits at Coast Capital Savings are protected.
On November 27, 2008, the Provincial legislature passed amendments to the Financial Institutions Act to provide unlimited deposit insurance protection on all deposits in BC credit unions through the Credit Union Deposit Insurance Corporation (CUDIC). CUDIC guarantees that all money on deposit and money invested in non-equity shares with a BC credit union is 100% guaranteed, including foreign currencies and accrued interest, regardless of the length of the term to maturity.”
Does this mean VanCity in BC is also covered? Perhaps just not in other Provinces?
#19 The American on 04.10.15 at 5:57 pm
Just for your viewing pleasure for my Canadian friends who enjoy Songified American news
……
Hilarious
Did “F” really fancy himself as a price fixer, an anathema to the free market? Or was it just a bunch of political theatre?
Rates have gone down ever since. Housing prices have gone down as well, peaking with the 2013 Budget where “F” himself brought in sweeping new measures at the CMHC and made it clearly the policy of the GoC not to expand CMHC’s subprime guarantee authority. Overcapacity reigns supreme, and credt exhaustion is upon us. Why “F” was trying to fight the natural forces of deflation and the lower rates thus implied, well only he will know. But history has so far proven his outsized concerns to not be well placed.
“Reading between the lines here …. in a low interest rate economy GE Capital can’t get the returns it used to so it’s being spun off. The real story is that GE doesn’t see the interest rate environment changing anytime in the foreseeable future so they’re getting out now.”
Read more: http://www.businessinsider.com/r-ge-close-to-selling-part-or-all-of-its-real-estate-holdings-wsj-2015-4#ixzz3WwvrSSJX
on 04.10.15 at 6:02 pm
Vancity deposits are covered by Credit Union Deposit Insurance Corporation of British Columbia, no?
—————————————————–
Isn’t this cute?
Q.– How are my deposits protected?
A.– BC credit unions are regulated by the Financial Institutions Commission (“FICOM”) in accordance with
the Financial Institutions Act. This legislation requires BC credit unions to operate in a safe and sound manner and provides FICOM the authority to ensure financial stability and prudent operations.
The Credit Union Deposit Insurance Corporations maintains a fund to guarantee 100% of credit union
deposits in the unlikely event of a credit union failure.
Full info here:
http://www.cudicbc.ca/
Basically, if FICOM does a FU then covered by the Government of British Columbia, Canada
I bet these fine financial institutions are greeting folks with a smile and a glass of purple Kool Aid as walk through the door. Bottoms up.
The problem with fear is that it paralizes your decisions. I started investing in real estate in 1999, as soon as I had two dimes to rub together, much to the dismay of my friends and family.
They all flogged the same dead horse from the 1980 recession. “Interest rates will be 20% again! Could be tomorrow!”
If I had listened to any of them I wouldn’t have made the small fortune I have in real estate, easy double-digit returns.
All my other investments in stocks and funds have given me less than 5% yearly returns, some having been complete losses.
I’ll stay with mostly real estate for now, and I’ll always keep one fully-paid modest home to live in as my back up plan.
Of course interest rates will go up…someday. But don’t count on it soon, because the last 35 years shows the opposite trend:
http://www.financialiceberg.com/uploads/APR27RATESC.jpg
“Interactive Brokers does on their margin accounts. In some cases less than that.”
Yeah or even if you don’t want to go the IB route (why someone wouldn’t want IB, is beyond me), one can achieve low implied rates of financing using call options or futures.
If it won’t end well for households, how can it possibly end well for corporations?
Corporate equity is priced at 15X earnings, and they can grow, over the long term, at the rate of GDP. Houses are priced at 35X earnings, and can only grow, at best, at the rate of inflation which is usually less than GDP. IOW, there’s a huge amount of room for leverage to grow in the corporate sector, particularly in Canada where non-financial companies have spent the past 12-15 years in the wake of the tech bust mostly building their balance sheets and taking out relatively minimal new debt. We’re actually starting to see some of this debt issuance accelerate over the past year or two as the housing market falls, credit expansion in RE slows dramatically, and the banks are keen to find other places to lend.
Heard a lady being interviewed on CBC radio on Thursday offering advice on mortgages; pay your 2.74% mortgage as if it were at a 4.74% rate to be ready for increased rates, put down 20% to avoid CMHC fees (being Vancouver, the host just laughed at this suggestion) but it was refreshing to hear someone actually thinking logically about RE financing instead of just pumping. Maybe she reads this blog.
So why doesn’t Visa join the debt party… it’s still at 19%
@#13 Retired Boomer – WI
Precisely. Nobody knows. Many claim the Fed will raise rates well before the Fed has done so, it’s like somekind of twisted irony. I hope they do raise, for the same reasons Garth, the ‘pathetic’ blog-dog states.
July, September 2015 will be here quick, comes round much faster each year, and we’ll then see. Unless you’re in somekind of tight inner circle, a good analysis will lead to a guess if you end up being correct.
Diversify, attain income, live well below your means, be happy, healthy, wealthy, and appear as boringly average. Far too much baseless status around for it to mean anything good today.
The economy is not going to crash, many poeple will.
“If I had listened to any of them I wouldn’t have made the small fortune I have in real estate, easy double-digit returns.
All my other investments in stocks and funds have given me less than 5% yearly returns, some having been complete losses.”
You shouldn’t assume that the excess returns in RE will last forever. You got lucky, in 1999, that the world was in a (tech) stock bubble, and most other assets were relatively cheap. You rode the past 10-15 years of a RE bull market/bubble. If you fail to adapt to what the future will hold, and that is likely low RE returns, then your excess returns will eventually dissipate.
Does this mean VanCity in BC is also covered? Perhaps just not in other Provinces?
It might, but the question becomes, will BC actually make good on such legislation or not? When faced with unreasonable and unsustainable promises of previous governments, there is a history of governments using legislation to limit such.
I suspect the BC Government will end up begging the big-5 national banks to take over and re-capitalize an insolvent Vancity as the RE cycle goes severely against them. They are likely to acquiesce, but there will be various quid pro quos involved which probably will mean the complete destruction of the credit union sector. Might end up getting that national securities regulator after all, especially when the earthquake of incompetence on the part of the provincial “regulators” is exposed.
US dollar and other foreign currency accounts at Canadian banks are not covered by CDIC.
And Dollarama stock is over-valued big time.
#27 Shawn Allen on 04.10.15 at 6:13 pm
“…..Shelter is one of the three necessities of life (the others being food and clothing)…….
________________________
Shelter is not the same as real estate. Never confuse the two.
BTW, you forgot to mention the most important necessity, ‘common sense’, which, as this blog has repeatedly pointed out, has become a complete rarity in this country.
#7 SolidJobGrowthCanada
But hidden inside is something much much worse – and no one is talking about the “elephant” in the room
“The public sector – which has led job growth over the past year – boosted headcount by 26,500 last month while the private sector created 19,300 positions.”
Who will pay for all these extra future sunshiners (with DB pensions and COLA and freedom 55-60)
—————————-
You must be kidding… Look at these “private jobs”
http://www.cbc.ca/news/canada/nova-scotia/dhx-media-head-criticizes-tax-credit-cut-in-nova-scotia-budget-1.3027763
One of the biggest players in the film and media sectors in Nova Scotia says his company will leave the province if the provincial government follows through on proposed changes to the film tax credit.
David Regan, the executive vice-president in charge of corporate development for DHX Media, says if the film tax credit is slashed, work associated with This Hour Has 22 Minutes — produced by DHX Media and airing on CBC Television — would be relocated to another province.
The provincial government announced Thursday that as of July 1, the film industry tax credit will only cover 25 per cent of eligible costs, allowing film companies to claim the other 75 per cent of the credit against taxes they owe to the province.
Eligible costs, including up to 65 per cent of salaries, can be fully refunded as it stands.
His comments were echoed earlier on Friday by Michael Donovan, the executive chairman of DHX Media. It now owns Family Channel as well as some Disney services in Canada. DHX employs 175 people in Nova Scotia.
“It’s terrible, destroys the industry in Nova Scotia,” he said.
“We could have done much more in Nova Scotia over the years but the Finance Department, at the bureaucratic level, has been angling to get rid of this tax credit. Basically, since it started they hated it because they’re bean counters.”
Finance Minister Diana Whalen says the industry is exaggerating the benefits the credit brings to the province.
“Even if you added in double what we think is the return on a tax dollar, you’re still a long way away from the dollar value that the industry is saying,” she said.
Finance Minister Diana Whalen says the industry is exaggerating the benefits the credit brings to the province.
“My point is really about the fact that with a compelling need to balance the budget so that we can do better with health care, with autism, with childcare, with educational needs — with that compelling argument we have to look so hard at what we’re offering to all industries.”
Donovan points out New Brunswick cancelled the tax credit in 2011, only to pledge “additional investments” in the film sector this year.
“Big vote getter, everybody being tough but dumb, hurt the province. Now they put it back. That’s the real trend,” he said.
Screen Nova Scotia says in 2013, film and television productions in Nova Scotia generated the equivalent of 2,700 full-time jobs and $139 million in spending.
The Department of Finance says 99 per cent of all productions shot in Nova Scotia pay zero tax.
#37 Harbour
Because people are still paying 19% I would assume.
Banks are trying to create demand with the mortgages which is the primary issue.
Just goes to show that greed, like sex, numbs common sense.
I often wonder if the government is just postponing the inevitable until after the election this fall.
Conservatives hang their hats on sound fiscal policy and if all of a sudden people are in trouble….they might not have as much faith in Harper & Co.
“The real story is that GE doesn’t see the interest rate environment changing anytime in the foreseeable future so they’re getting out now.””
Another reason could be that there’s just a big worldwide glut in the sort of stuff that GE finances. A good chunk of GE’s financing activity is in the aerospace sector. Every 2nd and 3rd world country imagineable has been financing airplanes through GE at cheap rates for quite a while now. Its pretty much to the point now in the industry that nobody actually buys their own aircraft engines — they just lease them from outfits like GE, because the financing is so cheap compared to other sources of capital.
What remains to be seen is just how addicted customers are to financing GE products through GE’s cheap subsidized financing. Just like with subprime car loans — a lot of demand at the margin has been created through the cheap financing, but eventually those loans will fail to perform, and it becomes a world of hurt.
#37 Harbour on 04.10.15 at 7:08 pm
So why doesn’t Visa join the debt party… it’s still at 19%
Got to love it if Visa/MC lower their rates to 2% from 19%. Lets lobby for this!!
After that lets lobby for ZERO BANK FEES
Garth,
Preferred shares ETF continue to slide, would you buy more?
You own them for yield, not capital appreciation. — Garth
The banks are going to milk every drop of equity out of the sheeple and then when it hits the fan enter Canadian QE part one.
End all grain ships from vancouver…..
http://www.theglobeandmail.com/news/british-columbia/ship-that-spilled-fuel-into-vancouvers-english-bay-was-on-maiden-voyage/article23877604/
Credit Union Deposit Insurance Corporation
Van City is a Member
I said it was not covered by the federal agency, CDIC. Nor are investors covered by the Canadian Investor Protection Fund. — Garth
This ranting against borrowers is all part of the ‘let them eat cake’ syndrome typical of people making far and above what the average Canadian pulls in .
These deified civil service types and other $400,000 p/a government spokesmen rave at the little guy for borrowing money to shelter their family…all the while the uppity wonks are bathing in cash and pensions so lucrative they have no semblance of understanding why the average guy borrows as much as they do.
“Why are people borrowing?” cries the $400,000 p/a government official with the diamond studded pension. “Why can’t they eat cake” say the $500,000 p/a wonks contracting back their civil service jobs after retirement. ….Clueless as to the situation average Canadians find themselves in after the country has been flooded with HAM money and can’t afford a house to shelter their families. OF COURSE lower monthly pmts are attractive to Canadians who less on avergae than every other jurisdiction in the G7.
I see no relationship between public service employees and monetary policy. — Garth
http://www.greaterfool.ca/2012/09/30/the-sure-thing-8/
I cracked up , this is where laughingcon takes a big shot at me.
Garth said:
“The argument is simple: we’ve all borrowed so frigging much that more interest would destroy us, therefore the government will not allow this to happen.”
******************************
The Government painted themselves into a corner now. They know what will happen if they start raising rates. We all know that rates will go up one day. So Garth what has to happen, that a delay to raise interest rates will no longer be an option?
Actually the ‘government’ does not set rates. So watch out. — Garth
Finally this blog acknowledges they will inflate their way out by devastating the loonie.
And the 2 markets still inflating (YVR and YYZ) are doing so for a reason. Maybe 30% up before a 10% correction.
Totally stunned at Vancity’s 2014 CEO compensation, $1,006,076 – https://www.vancity.com/SharedContent/documents/News/Compensation_Disclosure_2015.pdf . I mean come on, it’s a credit union, a supposed non-profit institution.
Garth, or any of the worthies here:
What type of small or medium sized business is particularly attractive to start/invest in during/after a housing bubble collapse?
I assume repossessions, towing services, maybe rental housing investment? Demolitions, renovations? What else?
There’s an argument to be made that you should buy NOW:
– the race to the bottom will pump up RE in most places in Canada. It’ll happen. Don’t fight the Fed.
– speaking of the Fed, last I checked the market was pricing in only an 18% chance of a hike by Sept. And we won’t follow right away so it’s pretty safe to say rates here will stay low for all of 2015. By the end of the year housing could be up another 5-10% or more
– at these super-low rates more principal gets paid off early, which provides you with more of an equity cushion in case of a downturn. I calculated that at 2.5% over 5 years, with 10% down, you would have a 25% equity cushion. If prices go up another 10% you’re protected against a 32% drop before you go underwater.
I think there are better places to put your money than in our housing market but it’s unlikely to be a disaster if you lock in these low rates for 5 years or more. I tend to think the banks are the dumb ones for lending this low and so it seems smart to take the other side of the trade.
What trumps all this is if you think we’re heading into a recession – then you’re smart to wait no matter what.
Just about everyone seems to be in agreement that if rates go up, there are troubles brewing.
However, the converse is not true. If rates stay low, it is not the case that there is no trouble coming.
The longer rates stay low and credit is cheap, the higher housing prices will go, and the more Canadians will maintain record levels of personal debt.
An interest rate covers three factors: inflation hedge, time value of money and risk. Low rates mean that these are discounted. On a macro-level, there are bad things that accompany such discounting. Add to that the moral hazard created by the CMHC.
Personally, I’m happy to see rates go lower for an extended period. There will be various knock on effects in terms of saving, investing, business formation, financial system stability, etc. The longer this goes on without a reset, the more severe the impact will be.
Thanks Garth
Now I don’t need to shop around for a Mortgage.
Not sure of the meaning of today’s photo. But she sure is hot!
Thanks for not putting yet another dog photo.
“I will continue to monitor the market closely,” Joe Oliver mumbled afterwards. The message was clear. The feds no longer cared about runaway consumer debt. Maybe they never did.
****************************
Nope. But isn’t that a mistake…since consumers are the economy. Our ability to spend makes the world go ’round….
I’ve been trying to get my mother to switch from banking with Meridian to banking with BMO (or anyone else for that matter).
BMO converted her Airmiles points into a TFSA contribution voucher – a brilliant move by both Mom and BMO – and we had an appointment set up with the local BMO financial advisor.
I’m going to nickname the BMO advisor ‘Tatas’, not because she had tatas but because she knew absolutely NOTHING about investments, had no client skills, couldn’t wait to go home and made that plain but then attempted to compensate for all the above by constantly thrusting her boobs forward. I nearly asked her if she thought my mother or I were lesbians.
And now my mother plans on taking the TFSA vouchers from BMO over to the vastly more competent financial advisor at Meridian.
In one giant frakked up 10 minute period BMO lost a client’s entire investment portfolio because they hired a bimbo. I may never forgive them.
Coming soon to a bank near you:
3 year Variable Rate mortgage: – 0.25% (come and get them while they last. (that’s NEGATIVE 0.25%)
#37 Harbour on 04.10.15 at 7:08 pm
So why doesn’t Visa join the debt party… it’s still at 19%
……………………………………………………………………….
No collateral I guess, the bank can take your house and Visa can take your card
#44 Nobody: “Conservatives hang their hats on sound fiscal policy and if all of a sudden people are in trouble….they might not have as much faith in Harper & Co.”
*****************
The feds don’t want the pain to be evident until AFTER the election.
#62 tkid
I’m going to nickname the BMO advisor ‘Tatas’, not because she had tatas but because she knew absolutely NOTHING about investments, had no client skills, couldn’t wait to go home and made that plain but then attempted to compensate for all the above by constantly thrusting her boobs forward
Well, don’t keep a sexpest in suspense, which BMO should I be heading to for a consultation?
#37 Harbour
Visa has no incentive to give you, or me a lower rate. Why would they? The higher the rate, the more they stand to make on those who fail to pay their balances in full.
No, you wouldn’t buy a car, or home at the Visa rates at this time, as you have no need.
Funny though, there was a time when mortgage money was higher cost than the Visa, or Mastercard rates. (sigh)
Times DO change, and they will yet change again. Hard for same to understand that WAS the reality of 1979-1982 or thereabouts.
The amount of debt in the western monetary system has been growing faster than GDP for many years. Household debt is an example, a subset of the total debt.
The deflation fears of the central banks has been caused by their own policies of too low interest rates because all debt grew too fast and left an overhang, like we will see in household budgets when rates go back up. That is easier to understand than the other private debts but it all causes the same slow future growth problem. A debt/wealth growth boom in the 1920s caused the damage.
Our wealth has become ponzi. Incomes (GDP) do not support the wealth totals. (Debt always equals wealth).
Low government debt prevents the banking system from growing system debt, leveraging it, and debasing the currency. Private debt ran wild in Canada and so did provincial … and USA of course.
Bernanke was a student of the current deputy fed chairman in USA, named Stanley Fischer. MIT economics department runs the current failed economic theories of Canada Europe USA Japan and I guess China, too.
http://www.theglobeandmail.com/life/home-and-garden/real-estate/5-kids2-adults1000-sq-ft/article23875496/
Adrian Crook has discovered life is better once you abandon the accepted wisdom that you need a house and backyard to raise happy kids.
A divorced dad, Mr. Crook lives in a 1,023-sq.-ft. high-rise rental condo with his five children and partner Sarah Zaharia. He has three boys and two girls, ages 8, 7, 6, 5 and 3 – or, as some people call them, “the countdown.”
Mr. Crook and his family might be the extreme, but they are the new model of modern Canadian life – urban, minimal and connected to their community. He doesn’t see their lifestyle as cramped, or as a temporary phase, or second best to living in a detached house. Although living small is not for everyone, Mr. Crook says he wouldn’t have it any other way. He’s so pleased with the arrangement that if someone gave him $1-million, he says he still wouldn’t buy a house. Instead, he would sock the money away.
Garth, the only precedent I know about ultra low interest rates like we have now in developed countries is JAPAN.
DECADES of near zero interest rates.
I generally trust you, but this time it’s difficult.
What are the mysterious forces that are going to push the bond rates up in USA and Canada?
Growth. It will come. — Garth
Three things:
1) U.S. Fed is raising rates within 4 months. No doubt about it. Be prepared.
2) Canada will do one of two things a) follow suit shortly thereafter, which will cause a lot of pain in the real estate world, ultimately compressing values b) not follow suit, keeping rates stupid low, watching the value of that loonie plummet even further down, down, down
3) Hillary for President! P.O.P. Hold it down!!!!
https://www.youtube.com/watch?v=wz_V4lRdtjo
You got to admit, all the cards are there for the housing market to fold like a cheap suit. Lay offs, poor quality jobs, low growth, oil is tanking, teaser rates, poor household finances. The Bears might just win the next round!
“Expect more of the same in our bubbly two markets for a month or three.”
A month or three? Expect more of the same until the federal election is over in October. Two more rate cuts coming, let er rip!
It’s a Trap is the true reality of what is happening in Canada.
Appreciate the photo too. Reminds me of another Trap to avoid. Never never never ever date single mothers. And they just love aiming at the Freedom First kind of guys. It’s like we are wearing a bulls eye.
“The longer rates stay low and credit is cheap, the higher housing prices will go, and the more Canadians will maintain record levels of personal debt.”
You’re missing the fact that an extended period of low rates against any asset class for which demand is only finite at best will stimulate over-capacity, and eventually as we now see, cause prices to fall in such a way that even lower financing costs won’t help.
“Expect more of the same until the federal election is over in October.”
More of the same? As in, prices continuing to fall? Of course. But why does anyone thing it will merely end with the election? Is there something major and big that some political party is bringing to the table that is somehow going to reverse the decline in RE prices?
Wall Street Journal :
Swiss 10 year bond @ below 0%. Mexican 100 year bond @ 4.2 % denominated in Euro.
Ya still think rates are going back up to historical norms Garth ?
http://www.wsj.com/articles/switzerland-first-with-10-year-bond-at-negative-yield-1428489209
Things change. Mortgage debt is long. Be careful. — Garth
Time to correct the equilibrium from rewarding debtors to rewarding savers. Hoping one day, but I stopped holding my breath, mainly b/c I kept laughing when MC was finger wagging + offering warnings about rate increases every 3 months.
“What are the mysterious forces that are going to push the bond rates up in USA and Canada?”
A decrease in credit quality (for the obvious reasons of declining equity and declining borrower metrics) will cause spreads/risk premia to expand significantly against residential RE and consumer credit.
At some level, I even expect high quality asset-backed business credit might even plummet to rates beneath that of sovereign (sometimes called ‘risk-free’ credit) as lenders understand that credit with recourse to assets is of a higher quality than lending to sovereigns for which default can result in a complete loss of lender funds. At the very least, I expect business credit to be a lot cheaper in the future relative to consumer/retail credit.
As for policy rates, well, it will be a long time before the consumer credit bubble is liquidated enough that inflation (and hence policy rate increases) returns. Likely a decade or more, if the USA is any model of Canada’s future.
“Time to correct the equilibrium from rewarding debtors to rewarding savers. “
What makes you think savers haven’t been handsomely rewarded in the past decade? As Garth points out, a properly balanced portfolio has delivered around 6-8%, which is in line with historic averages. What more do “savers” really want? Too many people make the claim that ‘savers’ have been oppressed by ZIRP, as though “savers” must only be putting away cash in some bank account, rather than being balanced.
If anything, the cash ‘savers’, or their representative proxies, are almost equally responsible for the housing bubble, as they are the people who have been lending to housing market actors to drive up prices. By definition, every dollar a bank lends out on mortgages is a dollar that was actually borrowed by the bank from a saver/investor in some form or another.
#27 – Shawn Allen on 04.10.15 at 6:13 pm
“Real Estate is real important”
Yes, it is. But I will add that our (residential) real estate has become TOO important. When this sector is worth 20% plus of our nation’s GDP, I see troubles straight ahead.
BTW, can we export Real Estate?
I have a feeling that even if rates rise, they’ll rise soooooooo slooooooowly that people will have ample time to adjust and it won’t make much difference. Salaries will go up to keep up, all ever so slowly. Unless of course, rates rise 1-2% per year for a few years, which is quite unlikely I would think, on account of the current global context (everyone’s nearly broke or heavily indebted).
#208 Ralph Cramdown on 04.10.15 at 12:59 pm
“There’s a great lump of boomers. They control much of the country’s wealth, and their parents control the rest. Every year, almost all of them get a year older, and they dial back portfolio risk by tilting the allocation further towards fixed income. That’s a big grey wall of bond buyers.
But calling for a rise in rates? Japan. The creditworthy (and grey) parts of Europe. And China’s one child policy, which drove up its saving rate, will lead to the same thing in ten years:”
—————————————————————
Agreed. But those same boomers can’t live off such low interest rates for decades to come. Something will have to give: rates go up due to politics, or their big pile of savings has to get spent to make up the difference.
And making the assumption that Canada is similar to Japan or Europe may not be apple-to-apples.
Japan’s bubble was wayyyyy bigger than Canada’s. And part of their lack of recovery is due to their political choice to bail out Keiretsus (big-ass conglomerates such as Mitsubishi, Mitsui, Sumitomo, etc) rather than let them go bankrupt and the economy to suffer relatively quick deflation. So it’s been drawn out for many years. Canada doesn’t have any equivalents. And in Canada, it’s the households that are deeply indebted (aka “the Walking Dead” zombies), not the corporations.
Europe is not homogenous, obviously, so it’s not apples-to-apples either. Some “creditworthy” countries are in much worse HH debt situations than Canada (e.g. Denmark, Netherlands, Ireland, Switzerland and Sweden). But the “Club Med” countries have less HH debt department compared to Canada.
Source: https://data.oecd.org/hha/household-debt.htm
#78 Mark on 04.10.15 at 9:00 pm:
What makes you think savers haven’t been handsomely rewarded in the past decade?
Because the majority puts their money in 1% “high interest” savings accounts or 1.75% – 2% GIC’s.
Pretty slim reward wouldn’t you say?
“Coming soon to a bank near you:
3 year Variable Rate mortgage: – 0.25% (come and get them while they last. (that’s NEGATIVE 0.25%)
“
Not a chance. Banks will warehouse currency in their vaults before they actually lend it out at an explicitly negative rate of interest. Hence, the paradox of low rates — actual decreased availability of credit! (which, is actually characteristic of high inflation as well!).
Same old…..
Why not talk about the GE boner sprung today? Finally, a comprehensive exit strategy of GE Capital and an announced buyback of 50b in shares.
The result – an 11 point uptick on 10 times average volume, breaking a 15-year downward trend. When was the last time you saw this happen to a large cap, blue chip stock. To think, you could have acquired this stock at 6-9 for a very brief point in time, is crazy. You will never see GE as this level again in your lifetime. And the dividend yield on top, nice.
But everyone benefited from this, right? Oh, I forgot, we are talking about buck-fifty mortgage rates on shit holes in TO and Van. My bad.
#74 Freedom First on 04.10.15 at 8:39 pm
Appreciate the photo too. Reminds me of another Trap to avoid. Never never never ever date single mothers. And they just love aiming at the Freedom First kind of guys. It’s like we are wearing a bulls eye.
________________
That would be because all the good ones are taken and only slim pickings left.
#62 – tkid
Try to get your mother to talk to someone at another bank – Scotia, Royal, TD, or CIBC rather than stay with a credit union.
A reminder to all who have their hard earned money in a credit union in Ontario. How comfortable do you feel with the Ontario provincial government protecting your money?
Eight years ago I knew a man whose job involved dealing with troubled credit unions. He said the lawyers were charging $500.00 an hour at that time.
Debt rises?
Oot der Hoos on 04.10.15 at 8:22 pm
The amount of debt in the western monetary system has been growing faster than GDP for many years.
*******************************************
Agreed, as I posted at number 229 yesterday this has been occurring for probably two thousand years.
It’s what happens as an economy moves from subsistence and crude barter to a world wide exchange of trade based on financial payments and based on specialization of labour.
You assume this is automatically bad. So far this last two millennia it’s worked out pretty well.
Your conclusion may be a non sequitur.
Most doomer conclusions are.
“I tend to think the banks are the dumb ones for lending this low and so it seems smart to take the other side of the trade.”
The banks don’t set the rates, nor do they take any meaningful amount of risk associated with rates. They just pass on whatever their costs are of borrowing in the market, plus a spread to cover their cost of capital and transactional expenses. The real ‘suckers’, if indeed you believe the interest rate environment is inappropriate, are the folks who invest in GICs, bonds, and various mutual funds and various other debt instruments that are responsible for driving banks’ funding costs so low.
I do believe that the future of the Canadian economy won’t particularly belong to the banks like it has in the past, but the banks don’t really have a lot of skin in the game here other than being relatively highly compensated middle-men.
Mark
You have interesting insights, but god damn it man. Seriously, are you a typing alogrithum that some mad programmer unleashed on us.
There is never any emotion in your posts, no references to human experiance, no soul, no life.
Where is your imagination, you take what others say, then force you text book style critique, rather that putting something out that is not a response to someone else’s creativity or passion.
Have you ever had sex? Are you so perfect that you’ve never farted. Ever been caught picking your nose.
Damn it man….talk like a human.
“I see no relationship between public service employees and monetary policy. — Garth”
Monetary policy is being designed and implemented by civil servants who have no idea how to manage a household budget. Therefore..”Let them eat cake” is a common attitude by those elite people who live so much better than the people beneath them…that the petulant wonks haven’t a clue as to the effects of their policy experiments.
Case in point is where Poloz and Oliver express shock that people might buy longer terms at lower rates having faced a push on prices from foreign buyers. The connection between civil servants and monetary policy is visceral not hypothetical.
Oliver and Poloz cautioning people to cut back when they themselves are richer than god by comparison and have no personal financial concerns ( having that sweet fat public purse to fall back on) is sickening.
“Why not talk about the GE boner sprung today?”
Big deal, its back to its price pre-financial collapse, but still roughly half of what it was when Welch was running the show.
Because the majority puts their money in 1% “high interest” savings accounts or 1.75% – 2% GIC’s.
Pretty slim reward wouldn’t you say?
Why should we be sad for those who don’t diversify, and adopt a one-asset strategy? There’s a whole universe of things other than making low-interest loans to banks to invest in. The government/central bankers should guarantee good GIC returns no more so than it should guarantee good returns on gold, RE, or any other asset class.
The rates will never go up theme looks to be over. Pricing in almost 40 % chance in September.
Rates are going up no matter what the rest of the world thinks. The US sets the tone and has warned everyone for long enough. Their stimulus has carried the global economy for a long time.
Of course markets front run everything and then we settle in. We look to be settled in.
As they raise others will have to follow or suffer the consequences. Free lunch is over. It’s not to say rates will race higher.
Europe’s bad bet on austerity resulted in zero growth, and flat interest rates. The US has been talking about raising rates, and when -or better IF- they do what is it going to be? A quarter point, a rounding error. There, rates “safe” for another year at least, right.
Where is the demand for higher interest rates, huh?
#36 Mark
It looks to me like non-financial company debt in Canada has doubled in the last 15 years.
http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122
Be kind to crotch-sniffing dogs. They are only trying to help.
http://guernseypress.com/news/uk-news/2015/04/10/dog-cancer-detection-98-reliable/
Sorry Smoking Man, I don’t speak redneck. And I am very human. If I have used big words that you don’t understand and can’t take the time to Google, then I most sincerely apologize.
“Agreed. But those same boomers can’t live off such low interest rates for decades to come. Something will have to give: rates go up due to politics, or their big pile of savings has to get spent to make up the difference. “
What would be wrong with that? Boomers’ retirement savings have been inflated dramatically through low interest rate policy (creating capital gains on their assets, especially in long-duration bonds and RE). The flip-side of the low interest rate environment is that some of those excess gains will have to be spent in order to achieve the same cash flow series as would have been created had rates remained flat (but fewer capital gains had arose).
I do think that retirees won’t be particularly well served by traditional financial industry “advice”, which has been codified into regulatory policy towards the likes of advisors such as Garth — in that, portfolios must trend more towards fixed income (bonds and REITs) in retirement, rather than equities, gold, etc. But throughout history, how many instances have really existed where the retired elderly are actually wealthier and enjoy more consumption than the working middle class? Seems to me that economic forces and the practical portfolios of most boomer retirees will eventually conspire to create a retirement for them that is more indicative of the long-term mean which tends to point more towards poverty than excess wealth. And there’s little we can do about it as a society if we want to maintain a sustainable, vibrant, and competitive economy.
“It looks to me like non-financial company debt in Canada has doubled in the last 15 years.
http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122
“
The referenced table just shows me 2012, 2013, and 2014. Is there some other source I should be looking at?
“Stocks are a proxy for the economy, whose value is largely determined by corporate profitability. – Garth”
In theory, this is what should be happening, but I suspect many people think stock prices are often manipulated through various means by insiders (M&A, buybacks, etc).
Actually the ‘government’ does not set rates. So watch out. — Garth
This needs to be a moving banner on your site…flashing lights. loud sirens or just the sound of fingernails on a chalk board…for memory purposes.
#74 Freedom First
ok Garth, enough with the misogynistic comments you allow. Shame on you. Could you please muzzle Freedom First for the anti-female sentiments he so often spits up. This isn’t a Chinese hating, immigrant hating nor a woman hating blog.
Please Garth. It’s enough.
With regard to the Credit Union Deposit Insurance Corporation of British Columbia check out the top two data tables in the following link:
British Columbia fiscal and debt summary and fiscal plan 2015/16 to 2017/18
http://www.fin.gov.bc.ca/PT/dmb/ref/debtSummary.pdf
Mark – GE
Welch almost destroyed the company, he just wasn’t around to see the ‘fruits of his labor’. At its peak, GE was generating up to 80% of its profits from financial operations. That worked out well.
Now, within 3 years, GE expects to derive 90% of its earnings from industrial operations. Big deal? Yes.
#99 Mark on 04.10.15 at 9:40 pm
Sorry Smoking Man, I don’t speak redneck. And I am very human. If I have used big words that you don’t understand and can’t take the time to Google, then I most sincerely apologize.
……
Oh my god, R2D2 wears pink shirts and works at Starbucks. If it takes me all night , I will get an emotion out of you.
I’m board.
“When rates rise – even a little – real estate falls. – Garth”
Does this not turn into a zero sum game? Lower prices and higher rates would cancel each other out when monthly payments are considered.
To the bottom, indeed.
However, without sounding “extreme” or “suicidal”, “to the bottom” (in regards to known and observed bubbles) is always under under the starting value (i.e. undershoot). I know it is not fashionable to speak of previous bubble occurrences (because it is different this time and we are individual snowflakes with all the works) but maybe this little bubble warrants a warning that it just might go back below the starting point. I know it is extreme and it scares the bejeezus out of most readers and could make one the laughing stock for going completely squirrely, but maybe, just maybe, it’s about time?
The FED will raise rates but it will follow the treasury market. The short term rates have yet to move up to match what the FED is saying. When they do we will get the rate hike. Keep watching the daily treasury yield curve as the 3 month note will move before the FED.
Smokey:
Read Philip Roth for inspiration.
Now that dude could write.
“Everybody else is working to change, persuade, tempt and control them. The best readers come to fiction to be free of all that noise.”
― Philip Roth
the human species never ceases to amaze how we gravitate to the bottom
now canines they are still evolving upward
#15 whose on first ? on 04.10.15 at 5:42 pm
“So the Swiss just sold some 300 million worth of negitive interest 10 year bonds , yet the Fed is going to raise interest rates . Whats that going to do to the Dollar that is already up some 20% ?
My money is on no rate increase for U.S. and if anything Quantitave Easing 4 is on its way .”
————————————————————-
You’re seriously comparing Switzerland’s fiscal and monetary policies to that of the United States of America?
Swiss gov’t (Central) debt to GDP: 35.4%
USA gov’t (Fed) debt to GDP: 101.5%
Swiss GDP: $650.78 Billion
USA GDP: $17,701 Billion
Swiss gov’t debt outstanding: $127.96 Billion
USA gov’t debt outstanding: $18,182.20 Billion.
Switzerland had it’s first “surprise” government deficit in 10 years. (only CHF124 million compared to CHF1.3 billion surplus in 2013)
USA has had a deficit for 15 straight years, with no end in sight, with 3 years of being at least $1,000,000 million (aka $1 trillion).
Conclusion: Swiss negative rates are partly due to the SCARCITY of tradable Swiss government securities. It’s partially due to regulations (Basil III, Solvency II). Partially due to Euro-rich people and companies worried about the effects of Grexit. Furthermore, Switzerland’s taking advantage of these people’s fear. Good for them. But it’s not comparable to the US…
http://www.tradingeconomics.com/switzerland/government-debt-to-gdp
http://www.nationaldebtclocks.org/debtclock/switzerland
http://www.tradingeconomics.com/switzerland/gdp
http://www.tradingeconomics.com/united-states/government-debt-to-gdp
http://www.thelocal.ch/20150211/swiss-government-posts-surprise-deficit-for-2014
94 Mark on 04.10.15 at 9:33 pm:
Why should we be sad for those who don’t diversify, and adopt a one-asset strategy? There’s a whole universe of things other than making low-interest loans to banks to invest in.
Granted there is little excuse for not getting financially educated – eventually. Our lower grades (K-12) education system does not put enough emphasis on financial education, and it may just be that it is well planned and wanted that way by the club of “elites” and TPTB that have every interest in keeping people dumbed down, complacent and easily influenced. Religion, politics, money, MSM propaganda – all ways to manipulate others.
Not everyone is a financial geek like you or a finance guru like Garth. People have a life and are busy with things that matter just as much if not more: family, kids, relationships, true friendship, stimulating work occupation, finding happiness and contentment with their existence by any means they can conjure up. You get the idea.
Sure, money is important but it ain’t the be-all-end-all. Or is it, nowadays… some people with much influence have slowly turned life & human environment from a “market economy” to being a “society economy”; where the primordial urge is to have more stuff and more resources than actually needed and the only valid yardstick of success is measured by material wealth. And I won’t even begin to talk about all the financial manipulation that has been going on for the last, oh, 20 years.
“Meanwhile the ripples from Alberta will spread”
If that’s true, rates are going lower.
Toronto houses are a better buy than bank stocks. Bank stocks under pressure, not houses. And this is a guy who invests 95% of his money telling you this.
#AFunLovin’CriminalsParable… #JustForMark,Cuz… #He’sSoEarnest… #SoExtraordinarilyPolite… #But,WTF!… #It’sFridayNight! #ConsiderThis… #YourOfficialIntervention,Marko… #ComeOn… #YouKnowYouWantTo… #HaveAReal… #BigNightOut.
https://youtu.be/l5oqK3HX598
2,700,000 mililitres of bunker fuel spilled in English Bay. For those living west of Main Street n Vancouver, that is about the equivalent of 540,000 teaspoons.
I expect a private member’s bill next week in Victoria to require SeaDoos to carry oil containing booms and houseboats in the Shuswap to maintain two Coast Guard Captains on board at all times.
The horror.
Generally agree with Garth’s comments. With the exception of this: “why go more into deficit creating jobs with infrastructure programs or assists to manufacturing…”. Wasteful Government spending isn’t the solution to economic stagnation, any more than interest rate manipulation and money printing will resolve problems. Government spending has to be borrowed or taxed – but either way real resources are consumed that could have been used more effectively in the private sector.
Canada, the USA, Europe, and Japan are trapped in a slow growth mode that is the product of bloated Government, never ending transfer payments that reduce work incentives, and ever increasing regulations/bureaucracy that stifle innovation. Add poor demographics (an aging population) to the mix and you have the perfect recipe for long-term stagnation. Hence the rabid attempt by Central Banks to hide this fact via monetary manipulations. Not gonna work.
#111 Steve French on 04.10.15 at 10:17 pm
Smokey:
Read Philip Roth for inspiration.
Now that dude could write.
“Everybody else is working to change, persuade, tempt and control them. The best readers come to fiction to be free of all that noise.”
― Philip Roth
…..
Stop doing this to me, I’m trying to finish the book. Every time you dogs throw me a bone I gota research it.
Then I waste days reading it.
No more please ….
Got a feeling I don’t have a shit load time left.
The Burden of Denial
http://thearchdruidreport.blogspot.ca/2015/04/the-burden-of-denial.html
Government is by the people, for the people.
They have lowered rates over the past 15 years to ensure our economy kept spinning. They are almost out of ammunition.
It is hard to believe they will just allow rates to ‘normalize’, with the consequence of putting our economy through something worse than the depression. The banks and GM got bailed out in 08/09…the consumer will be bailed out somehow.
Hit the Nail on the HEAD! Great Post!
Mark on 04.10.15 at 9:40 pm
Sorry Smoking Man, I don’t speak redneck. And I am very human. If I have used big words that you don’t understand and can’t take the time to Google, then I most sincerely apologize.
——————————————–
Mark, Mark, Mark.
You still don’t get it. Your words are not too big, they are just too plain.
Smoky was telling you to speak to “someone” not a classroom of sleepies.
You write as if you’re a professor.
Factual but very dull.
Try talking to us as people, write as if Cidi or 4am Sunrise is in the room with you. And put on some proper clothes for crying out loud!
Cheers, Russ
Not the amount of oil but rather it was the slow response of the Coast Guard that was upsetting. Is that because of the cutbacks in the Coast Guard and the closure of a station in Vancouver?
The post of statistics on public and private sector jobs is staggering. So compared to the public sector, the private sector is shrinking. Now how are taxpayers supposed to support so many public sector jobs with pensions？ I just read somewhere that three quarters, that is 75%, of people work at Hydro One are on the sunshine list. Is there a private company anywhere that is like that？ I guess the Canadian dream has turned into moving taxpayers money in my own pocket, the more the merrier. The increase in unions these years have all be in the public sectors. Why is that? What do they need unions to protect them from? Making less than 100k a year? Nobody is interested in creating anything or making anything anymore. Just keep flipping houses and in the meantime watch the sheeple to taxed to death.
#38 Harbour on 04.10.15 at 7:08 pm
“So why doesn’t Visa join the debt party… it’s still at 19%”
Visa and Mastercard are in the business of transactions and taking a small piece of that transaction. Banks are the lenders to their Visa/Mastercard clients. Why would Banks cannibalize their high rate debt with lower rate debt? They wouldn’t.
If you think 19% is high, check out British credit cards… I’ve seen as high as 33% on department store credit cards.
———————————————————–
#48 BBB on 04.10.15 at 7:32 pm
“After that lets lobby for ZERO BANK FEES”
Nothing is free in life. The loss of those stable monthly fees will lead to more nickel-and-diming by Banks and slightly higher Net Interest Income margins.
In the UK, they Banks offer no fee accounts, but if you go negative in your account by accident, you get dinged about £25 each time. This can add up if the person doesn’t know they are in the negative and take out money a second or third time before checking their balance. As a result, those fiscally irresponsible, generally, subsidize the fiscally responsible. Which isn’t inherently bad.
I asked HSBC if I could have an account that doesn’t allow me to go negative, which I was used to in Canada, and it would cost £15 per month. Perverted, isn’t it?
#8 PM
”Odd game shows aside, what makes us so different from Japan?”
Demographics.
In the spring of 2014, BeeMo tried it again. This time the bank’s CEO called the new finance minister to tell him the race to the bottom was on once more. “I will continue to monitor the market closely,” Joe Oliver mumbled afterwards. The message was clear. The feds no longer cared about runaway consumer debt. Maybe they never did.
I just sent off an e-mail to Joe Oliver. Told him to do his job. Told him nicely.
http://www.parl.gc.ca/Default.aspx?Language=E
Debt Increase Stated Differently…
LB on 04.10.15 at 9:39 pm
#36 Mark
It looks to me like non-financial company debt in Canada has doubled in the last 15 years.
http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122
****************************************
Stated differently that increase is 4.7% per year in nominal terms and maybe 2% growth in debt per year in real dollars.
Is your point that the growth in non-financial debt has been somewhat slower than one might expect given 1. The growth in real GDP, 2. Inflation and 3. The tendency noted above of debt to GDP to increase as the economy becomes more advanced and 4. the rational tendency to borrow more when rates are lower.
Yes, I agree that doubling of non-financial debt in 15 years is surprisingly low.
#RonaldoAddendums… #NipponStillKnowHowTo… #ForgeSteel…
http://youtu.be/rIr6rEndy0A
Personal Debt Rises
The population is getting older and there is inflation.
30 years ago a $100k debt for today’s 60 year old boomer was a mortgage at age 30, $10k was a hefty student loan at age 30.
Today $100k for that 60 year old boomer would be something he could grab on a line of credit.
$10k might represent the cost of a vacation charged to a credit card to be paid the next month.
For that boomer his debt might be temporarily just as high as at age 30 or higher but his net worth might be 20 times higher.
Mark # 81,
“If anything, the cash ‘savers’, or their representative proxies, are almost equally responsible for the housing bubble, as they are the people who have been lending to housing market actors to drive up prices.”
“By definition, every dollar a bank lends out on mortgages is a dollar that was actually borrowed by the bank from a saver/investor in some form or another.”
Mark # 86,
“Not a chance. Banks will warehouse currency in their vaults before they actually lend it out at an explicitly negative rate of interest. Hence, the paradox of low rates — actual decreased availability of credit!”
——————————————
“It’s OK everybody….don’t worry, the bank can create all the money you will ever want to borrow.
Lucky for Mark, I’m here correct his egregious error by providing a quote and link to the central bank, of all central Banks:
“One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.”
“In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.”
“In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in payment for goods and services.”
“Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money”
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
Your welcome Mark.
There’s a lot of bitching on here about banks and real estate agents. What about dumbass, publicly-funded schemes like this and others (options for homes, etc) that hand out free money to clueless property virgins for taking the plunge into indentured servitude:
http://ville.montreal.qc.ca/portal/page?_pageid=9437,116689570&_dad=portal&_schema=PORTAL
Pure market distortion by politicians drinking the “home ownership is an entitlement and a right” kool aid. I searched the page for means or net worth criteria. None. I could be worth a cool mil and the city of Montreal would hand me $6250 and defer my land transfer tax for three years (a la leons/brick) if I decide to buy property in the city.
Plus its advertised like crazy. What’s the budget for that?
Irresponsible or just crazy
#101 Mark
“The referenced table just shows me 2012, 2013, and 2014. Is there some other source I should be looking at?”
The start date of this Statistics Canada data table can be changed by clicking on the “add/remove data” tab at the top of the page. Go to step 3 and set the date and then go to step 5 and click “apply”
#115 Cookie on 04.10.15 at 10:26 pm
“Toronto houses are a better buy than bank stocks. Bank stocks under pressure, not houses. And this is a guy who invests 95% of his money telling you this.”
What was your net operating income for 2014? And your operating expense ratio? What was your Capex for your real estate holdings in 2014? What’s your stabilized vacancy that you use in your modeling? What’s your CAGR on rents since your acquisition? What were the closing costs? Did you treat it as a capital expense or current expense? What’s your IRR since acquisition? How often do you get an appraisal done? How high is your structural reserve? What’s your Return on Equity?
If you don’t know any of these, your return likely isn’t as high as you believe…
“Isn’t that cute? People actually believe the government cares about them. ” Spot on Garth!
#73 The American
“Phillip Mamouf-Wifarts”
Too funny!
Says it all about Politicians.
Honest to God The more I read this pathetic blog the more despondent I grow . Forget your economic theory .Wake up every morn and eat your porridge and 2 cups of coffee . Do 3 pushups Get out side and get on with the real business of life . What every the heck that may be How many angels can sit on the head of a pin? Seize the day and get a hold of yourself . Trust in life and your neighbour You are child of the ….. Come on Are we Canadians ?or are we lemmings. Anyways stay in cash and grow a garden. P.S Potatoes are easy
RE: #108 young & foolish on 04.10.15 at 10:10 pm
“When rates rise – even a little – real estate falls. – Garth”
Does this not turn into a zero sum game? Lower prices and higher rates would cancel each other out when monthly payments are considered.
Only someone who is young and foolish would look at the monthly payment alone.
With extra payments, you are going to pay off a 400K 12% mortgage much sooner than a $1M 2% mortgage even though the monthly payments are roughly the same. Realtor commissions, transfer taxes, etc are also much higher on the $1M property.
RE: #125 Chris on 04.10.15 at 10:59 pm
What do they need unions to protect them from?
Harper
People seem to think government workers are worthless on this site.
I’m a consultant.
I’ve been in private and public sectors for 20 years.
Let me tell you. I have seen hard working, motivated, experienced and get-it-done people in government.
Engineers, project managers, IT folks that work hard and ensure citizens get the service they need. Next time you are on a bridge. Think … do you feel safe?
Those people serve you and in the most part take pride in that.
Stop shitting on them. They are good people.
As a consultant, I’m amazed how they are dedicated to their work and shit pay for a pension 30 years later.
Stop doing this to me, I’m trying to finish the book. Every time you dogs throw me a bone I gota research it.
Then I waste days reading it.
No more please ….
Got a feeling I don’t have a shit load time left.
———
You can’t even think of going anywhere before getting to know Kurt Vonnegut.
Imagine if there was an other side and you missed out on his books and ice-nine for eternity.
In case if you watched Interstellar, I have this quote for your alien-ated pinkneck side:
“I really hope that Apple built the watch to keep in touch with Steve Jobs.”
Why does everyone have to have a forecast about rates, the economy or the real estate market.
Whatever happens, half of the commenters here are going to be wrong. What’s the point?
We should all start with “I don’t know what’s coming but it’s not apocalypse” and work from there on a strategy.
“Toronto houses are a better buy than bank stocks. Bank stocks under pressure, not houses. And this is a guy who invests 95% of his money telling you this.”
Are you kidding? How did that work out in the 1990s? Houses went down (as they are now). Bank stocks quadrupled. The RE-istas of the time were destroyed, while the bank stock owners were able to convert a mere down-payment into fully paid up ownership of Toronto RE.
I don’t know if anyone here has been monitoring the cash level of XIU lately, but its crazy how much cash is flowing into that thing. 31 cents/unit at last count, and there’s still 2 months of dividends to go. The June distribution is going to be monster if this continues!
“Does this not turn into a zero sum game? Lower prices and higher rates would cancel each other out when monthly payments are considered.”
In theory. However, lower rates will, at this point, lead to even lower housing prices as overcapacity reigns supreme, and the reason for low rates becomes apparent — a very weak economy that appears to be weakening even more rapidly than policy makers would even have predicted a six months ago.
Anyone can search the RFD forums with the keywords “Poloz behind the curve” and see my posts where I laid this all out a year or two ago (much to the chagrin of the various RE trolls including an “economist” working for one of Canada’s largest REITs).
#121
“Government is by the people, for the people.
They have lowered rates over the past 15 years to ensure our economy kept spinning. They are almost out of ammunition.
It is hard to believe they will just allow rates to ‘normalize’, with the consequence of putting our economy through something worse than the depression. The banks and GM got bailed out in 08/09…the consumer will be bailed out somehow.”
The above is what I believe as well, as I mentioned in my comments last night. I don’t necessarily think government really “cares” about its citizens, as Garth posits about posters like me.
I just think that they DO care about re-election. And that they will do whatever they can in their power to protect us from ourselves so they keep getting the votes they need to maintain that power.
And if that means using their influence to make low rates the new “normal” so that our real estate market and collective net worth won’t implode into the depths of some monetary black hole, then they will do it.
Garth says that rates will normalize due to “growth”. But with oil at $50 and the rippling effect of that collapse still yet to be fully felt throughout this great country, I simply cannot see how our rates will go up, at least not for a while, despite what the Fed down in the U.S. does in the near term. Why? Because our resource-driven economy will NOT grow unless oil somehow rebounds (doubtful) or we figure out a better way to diversity what we do as Canadians.
Devalued loonie? So be it. Most of those wacky people in debt to their eyeballs would rather deal with $10/head of lettuce than a 1/2 point jump in their mortgage rates.
I’m a minimalist by nature. I bought a small modest home in 2005 in Alberta, and have a small modest mortgage for my small modest family. Tiniest house on our block. I really don’t care if the real estate mortgage tanks as I’m planning on staying in our home until I’m pretty much dead. So if the market “corrects” big time, we’ll be ok.
But I’ll say it again…I cannot see the government letting all of those self-absorbed and delusional yahoos who overleveraged themselves on cheap debt to buy overvalued real estate and toys go bankrupt by “normalizing” rates. I just cannot see it.
I would have a certain degree of schadenfreude should rates go up and the rig-pig neighbours lose their three trucks, two sports cars, ATVs, boat, and house all in one felled swoop because they don’t know how to save, but surely know how to conspicuously consume. But I just doubt that will happen.
#85 John in Mtl
Savers have never been “handsomely rewarded”.
“Always remember this. Houses cost too much because mortgages cost too little. When rates rise – even a little – real estate falls.” – Garth
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Not to worry. Rates won’t ever rise significantly, but even if they did and then houses slumped significantly in prices, the Feds would probably step in. The would force the banks to “restructure” loans. This is what they did in USA and it’s likely what would happen in Canada.
#104 Hank
He doesn’t hate women,his advice is to not get attached to any woman,or to let them move in ie common law.He considers this to be his Freedom First and foremost.An opinion that he is allowed to have and I have dated women who have the same attitude,will not let the man stay over,don’t want boyfriends with baggage(kids).
The universe has been inflating since inception, and at an expanding rate. Why can’t the money supply?
In fact, we have been trying localized earth confined unbounded inflation for several hundred years now including population, food production, resource extraction, pollution, etc. No problems so far.
Look at California. The population has doubled since the 70’s and there aren’t any problems. I mean sure it’s expensive watering the almond groves with Nestle bottled water, but money is no object since it can inflate exponentially.
Have the friends of the PM in Alberta (and Sasqatcheshwanialand) entered into a whispered gentlemen’s agreement not to plague the man with too many layoff notices ahead of an election?
This Statscan jobs report is grrrrrreat! Alerta and Sasq have ADDED jobs!
go west young man
And what’s with this latest polling data showing that the Prentice party is NOT well on the road to victory?
The entire editorial board of The National Post is in hospital gettin’ treated for trauma. Some of ’em is sedated cuz they couldn’t stop screamin. Some of ’em is curled up and jes whimperin “Mama, mama” endlessly. Sad.
A Prentice minority? Forsooth.
And what’s with those spoiled stupid misguided dirty lazy immoral subversive commie goodfornothing brat students in La Belle Province? Vandals at the gates! Beat them, gas them, kettle them, shoot them, kill ’em all! Let Kent State look like a picquenicque et pourquois pas.
But the cops is wearin’ funny pants and gots stickers on their stuff, what’s with that, eh?
In the meantime: the horse-toothed premier of Ont calls in her prime aide: “Wot’s this noise I seem to be hearing?” Prime aide (played by Jayne Mansfield): “Oh, don’t worry your pretty little head about it Cath, it’s just some high school savages doing a little war dance around a strike vote.”
Jayne goes back to her desk and her aide (Tyrone Power) asks: “What did Old Mother Hubbard want this time?”
Back at Le Petit Trianon the perruqued and powdered Prime Teletubby is smilingly moving tin soldiers over a map of Mesopotamia. Enter Lazarus. “Your Colonial All Highest, I am going to meet with leading economists.” “So?”
“In theory, this is what should be happening, but I suspect many people think stock prices are often manipulated through various means by insiders (M&A, buybacks, etc).”
Oh I’m sure that happens a fair amount of the time. But if one buys an index fund, dollar cost averages over a significant period of time, and maintains a balanced portfolio, the impact of such ‘manipulation’ is effectively zero. Actually, the perception of ‘manipulation’ and ‘excess risk’ keeps many people away from many quality stocks, thus keeping them cheap for real investors to buy for the long term.
In contrast, housing is viewed as being practically the best thing since sliced bread. And look at where that’s taken the market! To levels that practically guarantee very poor returns for decades to come, first on account of demand exhaustion and economic deflation, and eventually on account of significant inflation. Real estate is basically Gen Y’s economic albatross — much like those who loaded up on gold in the late 1970s suffered literally no positive return for almost 3 decades.
What are the mysterious forces that are going to push the bond rates up in USA and Canada?
Growth. It will come. — Garth
______________________________________
Two questions:
1. What makes you certain that growth WILL come anytime soon in a consumer driven global economy where the consumer is in debt up to his ears and threading water?
2. If growth is the principal driver for the rise in bond rates then the the fact that Japan’s rates remained low for two decades means either that a) there has been no growth or b) that factors other than growth determine bond rates. I would welcome a comment on this.
Have you ever had sex? Are you so perfect that you’ve never farted. Ever been caught picking your nose?
ROFL!
#86 Mark
“Hence, the paradox of low rates — actual decreased availability of credit! (which, is actually characteristic of high inflation as well!).”
Not quite true. Rates have nothing to do with availability of credit. The spread (between lending rate and cost of funds) is where the Banks make the money on lending, and that spread varies depending on the risk profile and type of lending.
The availability of credit is based on risk and liquidity.
In fact, as I have mentioned before, there is actually a lot of available funds in the market for lending.
Again With That Rate Thing?
The adage of when an unstoppable force hits an immovable object, proves that one is an improbability! (Interest rates hitting housing). My experience is that R.E falls, not only when interest rates rise, but more often because people lose their jobs. Harper is buying time till say July, that’s when all noise (ie: housing and oil) will be drowned out to discuss politics. After the election, job losses will kill the only two growth sectors in Canada, R.E. and Gouvernment.
Still trying to concur with the recent pivot from deflation twords inflationary expectations. Is that what the FED wants us to believe as they have shown that they know how to fight inflation? (ie: Volker in 1981) Is that like figuring out what in the world you don’t do well, and then don’t do it?
With the improving American economy and the probable recession forthcoming in Canada, will the Americans come to our rescue as we did at their behest in 2008 by lowering our rates? We lowered our rates and pigged out on debt and did irreparable damage to our economy “rescuing” the American and European economies with the rest of the producer nations of the world?
Federal bond purchases, infrastructure improvements, and make work projects are all fine tweaks to stimulate our economy in down times. Interest rate manipulation tears the cloth of Captilsm to allow speculative bubbles to form. This I believe is the real reason the FED needs to raise rates to calm U.S. real estate and stock markets, and return to market driven costs of money.
“……why go more into deficit creating jobs with infrastructure programs or assists to manufacturing when you can turn out 108,000 real estate agents…”
In the thick of the gfc, I took the realtard course. The question that really bothered me was why crank out so many of these house-pumping, price-protecting gargoyles at a time like this?
Even with the amount of fiscal sh$t hitting the fan, realtard arrogance wasn’t wavering, it was growing. It was as though the instructors knew that the industry was protected, come what may.
Government funding for the course (it was free) didn’t seem logical at a time like that. I figured (wrongly) that it must have been because the budget was already spent and it was too late to collapse the course.
Strikes me that if you need a litmus test for where government thinks it’s going, check out the course calendar at community colleges. That may tell you what the new darlings of industry are and what your new “trending friend”might be.
I’m so relieved that Joe Owe is monitoring the situation “closely”.
To #90 hawn Allen.
Your thousand year time reference is not precise and really too much exaggeration to make a point. However, you are right the economy has changed in 20 years in a way which is not for the reason you mentioned. It is financialization-leverage boom/bust, like Doug Noland describes.
But I read your #229 post of the previous day and I see you combat debt cycle predictions which works for you.
So this is not interesting to you I guess:
Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.
The “hedge borrower” can make debt payments (covering interest and principal) from current cash flows from investments. For the “speculative borrower”, the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The “Ponzi borrower” (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.
I think the Federal government of Canada will have to run huge debt increases, like USA did 2009-2014, to overcome Canada’s repeating of the USA 2004-2007 boom path.
Minsky is probably right that the debt portion that is gov’t fiscal policy might not be as fragile (USA did it, so far). That is where I might be wrong, and you right, but not because of thousand year innovation.
So thank-you for your post saying system debt growth does not matter. I admit I am not sure how many times the cycle can crank without some defaults of ponzi wealth or huge income inflation to support the debt payments.
I forgot to paste the link to my quote. Here it is:
https://en.wikipedia.org/wiki/Hyman_Minsky
#150 Nagraj on 04.11.15 at 2:07 am
“In the meantime: the horse-toothed premier of Ont calls in her prime aide: “Wot’s this noise I seem to be hearing?” Prime aide (played by Jayne Mansfield): “Oh, don’t worry your pretty little head about it Cath, it’s just some high school savages doing a little war dance around a strike vote.”
——————————————————————-
LOL! the horse-toothed premier
re “we’ve all borrowed so frigging much that more interest would destroy us, therefore the government will not allow this to happen.” I have no debt, retired and am now worrying about GIC rates of 0.85% (CIBC 2yr fixed). Has the government forgotten about the wrinklies?
2. If growth is the principal driver for the rise in bond rates then the the fact that Japan’s rates remained low for two decades means either that a) there has been no growth or b) that factors other than growth determine bond rates. I would welcome a comment on this.
Japan’s central bank did not engage in aggressive enough monetary stimulus and the banks delayed writing down bad loans leading to a banking mess. Plus the Japanese have a high domestic savings rate. Plus some policy mistakes along the way (like increasing the consumption tax when growth was still in the tank). All of which depressed growth.
#76 Freedom First
“Never never never ever date single mothers.”
Surprised you didn’t throw in Blacks, Jews or Asians too.
Oh yeah, right, you know that some bigotry is invisible here.
Smart move.
#4 Yogi Bear on 04.10.15 at 5:19 pm
All I want for Christmas are normalized mortgage rates please.
_________________________________________
You must not have a mortgage.
To all of the offended women here (that includes you “Hank”):
Choosing not to date single mothers is not “bigotry”, nor does it indicate “hatred of women” in any way. It’s cold, hard pragmatism, so take your exaggerations somewhere else.
#24 None on 04.10.15 at 6:02 pm
Vancity deposits are covered by Credit Union Deposit Insurance Corporation of British Columbia, no?
https://www.vancity.com/AboutVancity/Membership/MemberBenefits/
We’ve had this discussion before. If you believe this protects you, go ahead. Good luck. — Garth
_________________________________________
Your money is never safe. If things go south there is no way RBC will do any better than CU’s. All guarantees will be off.
Julia # 154,
Re: Mark #86,
“Not quite true. Rates have nothing to do with availability of credit. The spread (between lending rate and cost of funds) is where the Banks make the money on lending,”
———————————————————–
Could you reconcile this statement with the BOE pdf I supplied Mark in my post # 132 please.
In particular the “cost of funds” portion. I understand the commercial bank is creating new funds (via the mortgagor’s signature), but whom is the “cost” paid to for this privilege? The central bank I assume.
Thanks in advance
#162
Strange you call him a bigot (he’s not he’s prejudice ie he prejudges)because when I was a single father it was very difficult to find women who wanted to be in a relationship because of my “obligations”.Kids have all moved out,and now as a single the amount of women who want to date is incredible.Strange I guess it was just coincidence(not all those bigoted women lol).
#99 Mark on 04.10.15 at 9:40 pm
Sorry Smoking Man, I don’t speak redneck. And I am very human. If I have used big words that you don’t understand and can’t take the time to Google, then I most sincerely apologize
—————————-
Hey Mark, you lost me a long time ago. I appreciate your input, but I don’t come here to get lectured. I come here for ENERGY… for stories… Think about talking to your buddies on a coffee break. You have to be connected to people. Social skills, Mark… social skills.
Just my 2 cents. Please continue…
#76 Freedom First
I’ve been wanting to ask you this for a while: Do you have a family?
Don’t see any mischief in the question. Just curious.
Mark, Mark, Mark.
You still don’t get it. Your words are not too big, they are just too plain.
Smoky was telling you to speak to “someone” not a classroom of sleepies.
You write as if you’re a professor.
Factual but very dull.
Try talking to us as people, write as if Cidi or 4am Sunrise is in the room with you. And put on some proper clothes for crying out loud!
Cheers, Russ
__________________________________________
I’m trying to picture it. Mark in a room taking to a girl….
Nope, can’t see it
RE: #162 Carly in Cabbagetown on 04.11.15 at 9:59 am
#76 Freedom First
“Never never never ever date single mothers.”
Surprised you didn’t throw in Blacks, Jews or Asians too
What FF is missing here is that the issue isn’t about men vs women. It’s really about the government off loading it’s social responsibilities onto individuals. It is well known that the high income earning spouse gets screwed in divorce especially if there is a large disparity in the couple’s incomes. These laws were created to let the government off the hook for future welfare payments, GIS, etc, and are not about fairness at all.
#76 Freedom First on 04.10.15 at 8:39 pm
It’s a Trap is the true reality of what is happening in Canada.
Appreciate the photo too. Reminds me of another Trap to avoid. Never never never ever date single mothers. And they just love aiming at the Freedom First kind of guys. It’s like we are wearing a bulls eye.
——————————————————
Slagging single Moms now.. Wow, classy, you’re the man.
#198 DisgustMadeMePost on 04.10.15 at 11:56 am
#194 Porsche on 04.10.15 at 11:38 am
“Please explain why Vancouver prices exceed Toronto prices given a smaller population and lower incomes.”
Pacific Ocean
…..
Really? It’s been here the whole time.
*******
I believe he was suggesting that HAM floats over on the Pacific.
yesterday Mark wrote
#188 Mark on 04.10.15 at 10:51 am
“Please explain why Vancouver prices exceed Toronto prices given a smaller population and lower incomes.”
I’d suggest that the speculative environment in Vancouver historically has by far exceeded that in Toronto. Vancouver also is the administrative home, far more so than Toronto on a per capita basis, to the extremely out of favour precious metal mining sector. At some level, in Vancouver, people have bid up real estate either in refuge from severe losses in the precious metal miners, and/or in anticipation of extreme future gains in the precious metal miners which eventually will see demand being vested in Vancouver residential real estate.
The upside in downtown Toronto’s main raison d’etre, the banks, is somewhat muted in comparison. Although the banks do provide great income to their employees at the moment.
Land limitations are not meaningful in either place as density is pretty low.
Perhaps there are some differences in provincial banking regulations and/or regulatory policy that I’m not aware of as well. We know that Vancity Credit Union, one of the dominant credit unions in the lower mainland, is heavily into subprime lending and isn’t shy about promoting such publicly. Policy such as deferred property taxation for seniors with low interest rates can have some impact as well.
There may also be a cultural mix of Canadians in Vancouver that, compared to Toronto, implies a greater affinity for RE. But I haven’t seen any data on that, and you have to start making some really wild assumptions to even attempt to draw any hard conclusions from such.
******
Precious metals? Hey I give you credit for the most imaginative post explaining the differential in housing prices. You make Smokey look like a very conventional thinker.
And by trying to explain speculation by a history of speculation is somewhat circular.
Both Vancouver SFH prices and Toronto prices ( particularly in the last few years) relative to prices in other Canadian cities need to be explained. Low interest rates exist for all. Price differentials need to be explained as well.
HFT Hot Foreign money and immigration seem to be candidates explaining these differentials.
How Banks Work. And If you want to know, read this.
And why interest rates are low…
Sorry if the following comes across as a kind of lecture, but the thing is I have studied banking and know how it works.
Blacksheep has noted the true fact that banks (along with their customers) create deposits (money) and loans.
I believe he then jumps to the seemingly logical but wrong conclusion that banks can create deposits for free and not pay interest on them.
Blacksheep said:
“Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money”
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
later he asked:
I understand the commercial bank is creating new funds (via the mortgagor’s signature), but whom is the “cost” paid to for this privilege? The central bank I assume.
***************************************
If you walk into a bank and get approved for a one million dollar loan, the bank can create an asset called a loan of one million and at the same time a liability called a deposit of one million. There is no change here to the wealth of the bank or you the borrower. But one million in new money has been created because you have a brand new one million of spending power.
If this money creation some nefarious thing to panic about? No, it’s just the way the economy and banking work and have done for at least a thousand years. This money credit system is the grease of the economy and is a wonderful thing.
It took you and the bank together to do this. You can spend the million but you are obligated to pay back the loan.
Years ago you might have paid the bank 9% on the loan and the deposit earned 5% and the spread for the bank was 4%.
These days you might pay 4% on the loan and the deposit earn nothing.
Step two, you use the million dollars to buy a house. The deposit is gone from the bank that created it. It likely got deposited by the home seller to a different bank.
The first bank now needs to attract a new deposit or its own cash (which it does not create) has been depleted.
Banks still often need to pay some interest to attract a deposit. This is why GICs still pay interest.
The banks do create deposits at the push of a button. But critically, some customer owns that deposit and can spend it or move it. The banks typically pay interest on much of their deposit base.
The banks rarely borrow from the central bank (emergencies only) at most times banks have deposits with the central bank.
Banks get to pay zero on a lot of deposits such as chequing accounts because customers value the fantastic convenience and safety of having money on deposit in a bank that they can spend or access instantly.
Is there anything nefarious or to worry about in any of this? No, not if the banks are reasonably prudent and maintain healthy balance sheets and cash reserves to insure that when you go to spend your deposit you can.
Mark was correct that banks earn a spread on deposits. Yes they (together with a borrower) create deposits, but they do own those created deposits. They own the loan owed to them created at the same time.
The spread has decreased because zero cost chequing account deposits that formerly yielded a spread of 5% or 9% now may barely earn 3%.
How are interest rates determined? That is a big question. The most logical answer is it is determined in the market and that low interest rates reflect a surplus of funds on deposit (owned by the boomer hoarde) and not as many borrowers coming up. Basically supply and demand. Ultra low interest rates suggest the world is awash in savings. Strange but true. In order to get people to borrow all those savings the interest rates are pushed down. It worked. We are thus awash in equal measures of savings and borrowing as the price of borrowing came down to bring supply of money in line with the demand for it. Imagine that, Economics 101 works!
Too bad old “Chunky Woodward” is not still alive. He could have competed on $1.49 Tuesday …
#111 Steve French on 04.10.15 at 10:17 pm
Smokey:
Read Philip Roth for inspiration.
Now that dude could write.
“Everybody else is working to change, persuade, tempt and control them. The best readers come to fiction to be free of all that noise.”
― Philip Roth
……..
Steve , I hate your guts.. You destroyed my plans for the week end.
I was going to head to Salamanca tonight to Gamble, get hammers, then write.
Now because on you, Salamenca, to Gamble, get Hammerd, and watch phill Roth clips.
Read some of his stuff….amazing.
Thanks. I’ve been dialing down what I really want to say while writing. After listing to some interviews of Roth .
I’m not dialing down shit… Full blown crazy. Only way to write.
His advice..
#166 Blacksheep
Not sure exactly what you want me to reconcile? I was pointing out to Mark that it is incorrect to state that there are less funds available to lend when rates are low. Banks/lenders will lend at a margin or spread that is right to them in light of the risk they are lending into. Whether the rates are generally high or low doesn’t matter.
As a matter of fact what I see right now is that there is more money available to lend as the returns on “vanilla” products is low (lots of funds to lend and lots of competition). Lenders are looking for higher returns and expanding their risk appetite in order to get a higher spread and premium.
As far as cost of funds, there are multiple sources of funding either internally from deposits or externally from borrowing on the markets.
Left out a critical not word above
Mark was correct that banks earn a spread on deposits. Yes they (together with a borrower) create deposits, but they do NOT own those created deposits. They own the loan owed to them created at the same time.
“Isn’t that cute? People actually believe the government cares about them.” — Garth
————————————————–
Govts care about voting blocs – It’s not a conspiracy theory, it’s just politics. Unless the Govt wants to be voted out (Now that’s a cute belief).
At this time, and in this place (Canada), a significant number of voters are awash in debt, even submerged in it. The Govt can hardly go against the entire population – So yes, they “care” about the indebted.
“What about the US”, you may ask. The US Govt didn’t help when their housing imploded. The Feds couldn’t do much because the US mortgage crisis was created by investment banks. Here, our mortgages are not chopped up into little pieces, then leveraged 10:1 and sold off again and again on Bay St. Not at all. Rather than investment banks, our Govt is front-&-centre of the lending industry – via CMHC.
What does that mean to you & me? Well, it means that foreclosures or a dip in property prices won’t have a multiplicative (domino) effect as in the US. We’ll see widespread corrections ONLY if there is widespread economic malaise, over a sustained period. That might happen.. But then again, hell might freeze over first.
We are thus awash in equal measures of savings and borrowing as the price of borrowing came down to bring supply of money in line with the demand for it. Imagine that, Economics 101 works!
I should have said that the other way
We are thus awash in equal measures of savings and borrowing as the price of borrowing came down to bring DEMAND for money in line with the huge supply of it (like boomer savings). Imagine that, Economics 101 works!
#7 SolidJobGrowthCanada on 04.10.15 at 5:32 pm
Today, Stats Canada released the latest employment numbers
http://www.statcan.gc.ca/daily-quotidien/150410/dq150410a-eng.htm
But hidden inside is something much much worse – and no one is talking about the “elephant” in the room
“The public sector – which has led job growth over the past year – boosted headcount by 26,500 last month while the private sector created 19,300 positions.”
******************************************
This is how all govt destroys itself over time. You are also forgetting all the contractors which brings govt to about 35% of all working people. This is unsustainable. But I’m sure all the retired or close to retired govt workers will now state this is ridiculous and people can be taxed to infinity…….those people obviously failed miserably at history.
Just because we drive cars and have Iphones does not mean the greedy corrupt people in govt do not think any differently than they did 2000 years ago.
@162 Carly
Last time I checked. This was a financial site.
Its no secret single moms are usually a financial black hole.
So men are misogynists for avoiding a financial black hole?
Wow, in the Age of Political Correctness now even my hard earned money isnt mine.
Who knew.
Don’t forget that there is also a cost to maintaining capital as required by the regulators. This capital, the quantum of which is based on risk (credit, market etc…) really has an opportunity cost as non productive capital.
#179 Shawn Allen
“Mark was correct that banks earn a spread on deposits. Yes they (together with a borrower) create deposits, but they do NOT own those created deposits. They own the loan owed to them created at the same time.”
Exactly. Customer deposits are a liability on the Banks balance sheets.
What Is Money And How Is It Created?
http://www.forbes.com/sites/stevekeen/2015/02/28/what-is-money-and-how-is-it-created/
#140 Carpe Diem on 04.11.15 at 12:14 am
People seem to think government workers are worthless on this site.I’m a consultant. I’ve been in private and public sectors for 20 years.Let me tell you. I have seen hard working, motivated, experienced and get-it-done people in government.
Engineers, project managers, IT folks that work hard and ensure citizens get the service they need. Next time you are on a bridge. Think … do you feel safe?
Those people serve you and in the most part take pride in that.
****************************************
Take pride in what? Fleecing the country?
Fast Cat ferries that don’t work
Billion dollar “software program” to register guns
5 billion dollars to “administer” the gas tax
tens of billions in the Dept of Indian affairs with most natives living in poverty…..
The list is hundreds of lines long……Govt pisses away money. And yes….the Govt Workers are very good and dedicated hard working money pissers……..
R.
If you walk into a bank and get approved for a one million dollar loan, the bank can create an asset called a loan of one million and at the same time a liability called a deposit of one million. There is no change here to the wealth of the bank or you the borrower. But one million in new money has been created because you have a brand new one million of spending power…
+1
Finally. Somebody that understands how banks work.
This is not how banks work. They do not create money. — Garth
Shawn # 175,
“Blacksheep has noted the true fact that banks (along with their customers) create deposits (money) and loans.”
“I believe he then jumps to the seemingly logical but wrong conclusion that banks can create deposits for free and not pay interest on them.”
“Blacksheep said:
” “Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money” ”
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
—————————————————–
Shawn, every word you quoted after “Blacksheep said”, was quoted from the BOE pdf you graciously also supplied, pg 2, first column, 3/4 down page.
If you disagree with the phrasing they used, take it up with them.
Ain’t no new pipelines ever going out from Oilberta- east, west, south or north….
http://act-on-climate.ca/
To #175 Shawn Allen
You were offering a good explanation of banking until you said interest rates are set by a surplus of savings.
Shawn said:
Ultra low interest rates suggest the world is awash in savings.
The creation of money as you described, creates the wealth, the savings. Those apparent savings are not always real. Sometimes they are real. Sometimes they are described as ponzi. The world is not likely awash in savings this time.
How to measure the difference between real savings and ponzi savings is difficult and debatable. It depends on where we are in the cycle per that Minsky link I left, above. For example, Bernie Madoff clients thought they were awash in savings.
More specifically, in a banking case (not Madoff), you omitted inflation. The banks created too much debt/wealth/savings which went into asset inflation (houses, for sure). You would argue consumer prices are flat therefore I am wrong. That is the great debate. Bernanke and Greenspan and Carney are on your side.
I say houses are ponzi funded. The lending creates the savings. Lending did not come from savers. If house prices were flat, I would more likely say the lending came from savers. The same is true of some other assets.
It would take too many words to better describe why the same banking transaction could be matching savings to lending or not doing such. I leave it there in a thimble sized idea.
I agreed with the rest of your explanation. I just add the true nefarious part and I do not endorse the errors you so correctly disabused.
Finally. Somebody that understands how banks work.
This is not how banks work. They do not create money. — Garth
******************************************
The definition of money includes bank deposits because they can be used to buy things. (By Debit card, cheque or withdrawal into cash)
Banks together with their customers create deposits every time a loan is made. There are limits such as equity capital requirements and a need to have some cash on hand but they create deposits all day long.
As above deposits are money.
Banks cannot increase the money supply. Ergo, they do not create money. — Garth
Julia # 178,
“As far as cost of funds, there are multiple sources of funding either internally from deposits or externally from borrowing on the markets.”
————————————
OK…lets narrow this down.
Can I assume “funding either internally from deposits” means, from newly created commercial bank deposits / funds, via the mortgagors signature mechanism as per 2014 BOE pdf quoted from and linked to, below?
“One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them.”
“In this view deposits are typically ‘created’ by the saving decisions of households, and banks then ‘lend out’ those existing deposits to borrowers, for example to companies looking to finance investment or individuals wanting to purchase houses.”
“In fact, when households choose to save more money in bank accounts, those deposits come simply at the expense of deposits that would have otherwise gone to companies in payment for goods and services.”
“Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money”
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
If my above assumption is correct, what “costs” are incurred, by the commercial bank to create the new deposit, (beyond paper work related fees) and whom receives funds associated with said “costs” ?
Thanks for the response. Just looking for truth.
Blacksheep said:
Shawn, every word you quoted after “Blacksheep said”, was quoted from the BOE pdf you graciously also supplied, pg 2, first column, 3/4 down page.
If you disagree with the phrasing they used, take it up with them.
*******************************************
Learn to take yes for an answer.
I did not disagree with anything in your quoted phrase and specifically agreed that banks create deposits (albeit they need a borrower to do it).
Where you went wrong is in concluding that the bank did not have to pay interest on the created deposit and you indicated that you did not know who the interest would be paid to thinking it might be the central bank. I explained the interest is paid to the owner of the deposit. Initially this is the borrower. Later it is another bank customer as the borrower spends the deposit and someone else re deposits it…
You’re welcome.
Also just WHAT is your main point? It always seems to be that banks are a nefarious and evil which is laughably false. They are a critical part of our wonderfully productive economic system.
“But one million in new money has been created because you have a brand new one million of spending power…”
Not exactly. Because someone who lent the money to the bank, the cash ‘saver’ (or the buyer of originally issued common stock, the buyer of the bank’s commercial paper, the buyer of bank bonds and preferreds, etc.) had to forego $1M of consumption in order to create the loan which created $1M of consumption in the hands of the borrower.
Hence, there is no money creation by the Canadian chartered, non-central banks. As their ability to lend is perfectly constrained by what they can borrow.
My point was that the people shovelling large amounts of $$ into the Canadian banks as deposits, GICs, etc., have some culpability for the RE bubble, as it was their activity, in making loans to the banks, that has facilitated the activity of the speculators.
“Don’t forget that there is also a cost to maintaining capital as required by the regulators. This capital, the quantum of which is based on risk (credit, market etc…) really has an opportunity cost as non productive capital.”
Absolutely true. Although in reality, how much actual capital in the financial system is real? Do we use more of our per capita energy or commercial real estate supply on banking than other modern economies? What about human resources?
“Here, our mortgages are not chopped up into little pieces, then leveraged 10:1 and sold off again and again on Bay St. Not at all. Rather than investment banks, our Govt is front-&-centre of the lending industry – via CMHC.
What does that mean to you & me? Well, it means that foreclosures or a dip in property prices won’t have a multiplicative (domino) effect as in the US
“
Actually the banks, to establish the quantum of losses to make a CMHC insurance claim, must effectively test the market by attempting to sell the property through a “power of sale”. This causes price discovery, and will actually push prices down faster than occurred in the USA where the term “extend and pretend” was more apt. Additionally, the fact that banks can claim CMHC insurance on most at-risk subprime mortgage loans when they default means that the liquidation process will probably be more rapid than in the USA where private sector actors had some true “skin in the game” and were keen to avoid price discovery out of fear of impairing the rest of their portfolios.
the government policies are the root cause to all debt in Canada. The policy makers are too concerned to set the stage to reelect harpo for another four years. the policies force the banks to add more debt to the stupid borrowers to provide the smoke and mirrors that the economy is doing well.
debt load will not create inflation. QE is afailure. most people have lost the trust and confidence in the policy makers and people choose to sit on cash. corporations are hoarding cash because they do not believe in the direction of the policy makers.
the stories told by my parents about life in the dirty thirties is the same path followed today.
raising interest rate will trigger trust and confidence.
Debt is BAD. Cash is KING.
“TARGET is the tell…..no surprise there. All week on the MSM the baby interns with their politically appropriate agenda carve out the same BS to the effect Target goofed in their foray into Retail Canada and should have squeezed in some Canadian talent instead of so much American nepotism…LIKE IT NEVER HAPPENS UP HERE please some one help me I am going to split my side.
So all those UNPAID interns habiting in their $500k condo on the 200th floor which measures under 450 sq. feet cannot contain their opportunity to spew their wrath at the boomer a….les for missing the point that the reason TARGET went bust was ur fault and not us industrious millinials.
Someone had to show the high and mighty the numbers and Target would not stick around and die a slow painful death NNNOOO Target pulled the plug on the big Canadian adventure after noticing Mr. and Mrs. Canada living in their $700k 2100 sq. ft. Milton semi-attached with twopointfive offspring and two leased cars and credit card debt amounting to $150k and servicing requiring $5500 per months on salaries coming in at $4,000 per month was one f…ng SPOOKY HORROR SHOW.
So there you go All the MBA programs will put that in Sept. 15 curiculi fer sur.
8:
Maybe nothing. Japan housing prices collapsed and trended lower even with low interest rates for the past 20 years. On average even with low rates RE went down by over 65% in Japan. Anyone who bought RE in Japan who thought low interest rates ‘forever’ would save them got it wrong.
Shawn # 194,
“Where you went wrong is in concluding that the bank did not have to pay interest on the created deposit”
——————————————–
OK.
Bob wants a 100K loan to buy a vintage Ferrari sports car for sale by a recluse car collector.
Bob has high cash flow and awesome credit so Bank “A” gladly creates 100K in new funds / deposits via the customers (Bob’s) signature. Bob withdraws said new deposit, all in cash, because that’s the only form of payment the old car collector will accept.
Here is the relevant part:
What did it cost bank “A” to create said new deposit for Bob?
Banks cannot increase the money supply. Ergo, they do not create money. — Garth
**************************************
Bank deposits are counted as money. Banks together with their customers create deposits all day long. Blacksheep has provided links to the bank of England demonstrating this.
Ergo, it appears that you are wrong.
There is nothing nefarious about this.
Close the commercial banks and see how much money survives. The economy would grind to a standstill.
57:
All “non-profit” means is the organization has to spend all of it’s earnings. No profits are transferred to shareholders, they are spent on salaries, meals & entertainment, or what ever suites those in charge. You will find bloated salaries and extravagant expense accounts at pretty much all non-profit organizations. When a organization is non-profit it actually justifies non prudent spending because that is what they are supposed to do with the money they earn, spend it.
#188 Leo Trollstoy on 04.11.15 at 1:24 pm
Finally. Somebody that understands how banks work.
This is not how banks work. They do not create money. — Garth
******************************************
Correct. This is done by Central Banks who increase or decrease depending on the economy and have the power of elasticity to increase or decrease the supply. Unfortunately fast fingers on the keyboard has increased it much too high and making matters worse….this money is not making its way down to most people…..its pretty messy right now.
” I have seen hard working, motivated, experienced and get-it-done people in government.”
So have I. I was once one of them. However, the big problem with government is typically the incompetents rise in the ranks, often faster than the competents. As incompetent individuals occupy management roles, their pattern of hiring and management of the organization serves to further depress productivity, even amongst the smartest/most dedicated/most productive employees. Eventually even those employees lose their willingness to work within a system that effectively punishes them for their efforts and become resigned to their fate as lowly civil servants.
I’ve read stories of extremely smart people becoming Deputy Ministers in their 30s and early 40s, in the past. Based on superior competence, not based on being a politicians’ brother-in law. Today, that just doesn’t happen! In fact, many of those people who could rise through the ranks and make huge contributions are actually screened out during the hiring process simply on account of not conforming to the mediocre civil servant “mold” that has been set through the years. Entrenchment is another huge problem — the HR people in government have set such tight rules for hiring that there is practically no labour mobility between the public and private sectors. Hence, public servants are overly protected from the reality of competition in the labour market, while people who want to move to the public sector from the private sector face completely unprofessional treatment from the HR function.
Banking Truth
Blacksheep asks:
If my above assumption is correct, what “costs” are incurred, by the commercial bank to create the new deposit, (beyond paper work related fees) and whom receives funds associated with said “costs” ?
Thanks for the response. Just looking for truth.
*****************************************
Correct, there is basically no incremental cost to set up the loan and create the deposit. (Yes there are costs to have a bank but virtually no incremental cost to create one extra loan and deposit pair).
The costs of the deposit are incurred as time passes. Interest is typically paid on the deposit as described above. On an interest-free chequing deposit there are costs associated as customers write cheques and make debtit transactions. Costs in excess of fees charged. Yes, most of the costs are fixed, but they are real.
But focus on the concept that most deposits do pay at lest some interest.
Also consider the cost of bad debt when some customers can’t pay the loan.
Imagine one loan is a total write-off. If the bank makes a 3% spread on loans, just this one bad loan can wipe out the gross profit on 33 loans and probably the net 1% profit on 100 loans.
Still want to be a lender?
Does this help you Blacksheep to understand that Banks incur costs and while they (together with a willing borrower) create deposits out of thin air they certainly cannot create profits instantly out of thin air. That takes effort and involves risk and time and the bank owners must invest in a he infrastructure to make this happen.
#193 Blacksheep
I don’t understand why you say the Banks create deposit money. Money circles around in a sense – money from loans will go and be invested or spent somewhere – but the money from the loans have to come from somewhere as well.
Banks don’t create new deposits. Bank take on liabilities (from depositors, borrowing on the markets etc…) at a cost (interest, general cost of doing business, cost of capital etc…) and lend a portion of those deposits back (a portion only in order to maintain sufficient reserves as per the regulators).
I am missing your point.
Do Deposits begat loans or is it loans that begat deposits?
Black Sheep and I agree it is loans that begat deposits. But does it really matter anyhow?
Shall we next debate whether eggs begat chickens or is it chickens that begat eggs?
One thing is for sure, none of eggs, chickens loans or deposits get created without costs.
No one has invested any perpetual profit machine.
Banks are profitable as are egg farms, but neither are golden geese.
#91 Mark
“The banks don’t set the rates, nor do they take any meaningful amount of risk associated with rates. They just pass on whatever their costs are of borrowing in the market, plus a spread to cover their cost of capital and transactional expenses. The real ‘suckers’, if indeed you believe the interest rate environment is inappropriate, are the folks who invest in GICs, bonds, and various mutual funds and various other debt instruments that are responsible for driving banks’ funding costs so low. ”
Banks borrow short and lend long. The extra carry they get for doing so is by no means locked in. If short term funding costs suddenly spike the yield pickup they’re getting on fixed-rate mortgages issued in a lower rate environment gets eroded. The only way they would be perfectly hedged in such a situation is if they financed all their fixed rate mortgages with debt instruments of the same maturity – or average life to be more precise. The same cash flow profile to be perfectly accurate. Banks don’t do that.
Now you might point out that banks use derivatives to hedge this duration mismatch but a) there’s always a cost to hedging b) derivatives carry their own set of risks and c) in practice they don’t close the gap fully. The asset-liability profile of most banks is long assets, short liabilities. That means they bear interest rate risk exposure – and not a meaningless amount, either.
Shawn #194,
“Also just WHAT is your main point?”
—————————————
For what it’s worth, commercial banking is not nefarious, it’s an awesome system once you recognize it as merely government sanctioned, privately guaranteed, IOU’s.
But for some reason certain parties, are hell bent keeping the truth about banking from public knowledge.
They assume the Cattle to be to immature to cope with realities of what modern money, really is. As a reformed gold bug and an MMT advocate, I understand the power of the sovereign in control. I understand why Garth is saying good luck to the credit union people if ever TSHF. I understand why you can’t compare debts in Greece, to debts’ in canada.
I’m just working out some finite details, and deception from suddenly silent Mark and even your self in the past Shawn, until you were both painted into a corner (you then, Mark now) by the BOE pdf and it’s details, doesn’t help.
74:
All the guys I know who are “Freedom First kind of guys” are that way because they can’t get a women. They claim they are ‘free’ by choice but everyone knows they are losers who no women would date.
re. Freedom First
I’m dismayed to read the comments vilifying FF as an anti-female bigot or mysoginist. He is one of the top commenters on this blog, expressing his opinions succinctly and to the point.
If I read him correctly, he recommends achieving financial security as a priority and at times that might require avoiding this pursuit being sidetracked by a woman. What I admire though is that he then advises sharing any good fortune with others and I bet that even includes sharing it with women. If you cannot achieve financial security you will have nothing material to share with anyone. FF’s message is akin to being told in a pre-flight briefing to don your own oxygen mask before putting one on your child. Does this make airlines and flight attendants child abusers or bigots?
Speaking of bigotry I note that there was little outcry the other night when Retired Boomer -WI lumped everyone living south of Wisconsin as intellectual inferiors, implying that the further south one went the dumber everyone became. This was surprising coming from RB-W as his comments usually come in three forms-sycophantic rehashes of Garth’s blog, faux self-loathing of anything perceived to be pro-American and patronizing agreement with presumably Canadian generated anti- American sentiment. It’s like he’s pathetically saying “I’m not one of those moronic Americans”-maybe he should add “They all live in the South”. So maybe RB-W is not the self-portrayed wise, old, kindly sage after all. Maybe he’s a bigot, but I doubt that too; more likely he is just self-deluded about his analytical skills.
U.S. import prices fell in March as rising petroleum costs were offset by declining prices for other goods, a sign of muted inflation that supports the view the Federal Reserve will probably not raise interest rates in June.
http://www.reuters.com/article/2015/04/10/us-usa-economy-idUSKBN0N116A20150410
They have been saying that for 6 years!
Maybe yes…maybe no…maybe yes..maybe no…bla…bla…bla…
@Mark 100
“working middle class”
If you are working by necessity you are not middle class.
140:
Bridges are not engineered or built by government workers. They are engineered and built by private sector companies who are contracted by the government.
The questions you should be ask are was the money used to build the bridge (or other mega project) used efficiently, on budget and gets the most bang for the tax payer dollar. The answer to these questions for the vast majority of government projects is no. It is government workers along with politicians who mismanage these projects. When the private sector runs these type of projects, generally they are more efficient and provide better value. Both are engineered and built by the same companies, the difference if the people running the project (government vs private sector).
At #208: BS, BINGO! You are spot on! Government workers as a whole are a pathetic, sad, myopic bunch. Bless their hearts. The *real* work is done by the private sector companies, hired by the government. Could you imagine government workers actually building a bridge or paving a road themselves?
Wow, so much hate for Freedom First.
For those in happy, long term relationships, or those too young to know any better yet, here is how the real world works, outside your bubble.
I am getting to the age where, despite all my faults, dating is simply no longer a problem, because of my “never married no children” status. A friend of mine, a bit younger and recently divorced, cannot find a date to save his life. Even though I think he is better looking and all around +1, he will likely stay single for the next decade or so, until the kids grow up and alimony payments stop. It’s because he has external obligations and responsibilities. “Baggage”, in other words.
This is the kind of guaranteed drama and trouble that no one who is not socially or financially desperate will want to deal with. This is nothing to do with men, women, or bigotry (sic).
Welcome to real life, where few things are perfect or fair, and everyone already has their hands full looking out for their own well being.
…the HR people in government have set such tight rules for hiring that there is practically no labour mobility between the public and private sectors. Hence, public servants are overly protected from the reality of competition in the labour market, while people who want to move to the public sector from the private sector face completely unprofessional treatment from the HR function.
From experience, this is untrue.
Mark may have this problem, which may be why he’s saying it.
That was a very sanitized version of banking you give there Shawn Allen. Yeah, everything works perfect if you just have proper oversight and enforcement of law – which simply isn’t happening. Just remove fraud, corruption and coercion and we’re fine! (Also not happening).
Never mind that BOC should be issuing all the monies required for Federal and Provincial spending and the interest should go back to the public purse – which to the tune of 95% isn’t happening.
Also, let’s never mind the vast disparity between the interest rates offered to the select vs. the public (never mind record low rates for individuals). And the hedge funds that can infinitely re-hypothicate on assets of questionable value? Ahhh no big deal.
Let’s just ignore the false price signals and economic disruption all of the above produces, and there you have it! Economics 101 works!
Seriously, this is the real world and we don’t live in a theory. The institutional corruption and moral hazard that we have built into the system today is simply incredible. To ignore that is to ignore that the system exists at all. It is intrinsic.
“Banks borrow short and lend long.”
Not in Canada. In Canada, the big-5 run duration-matched portfolios, with duration of assets = duration of liabilities. With very minimal interest rate sensitivity on the portfolios themselves.
I think you are referring more to the USA model of banking where the banks did engage in large duration/term mismatch. And in doing so, reaped windfall profits over much of the past 30 years, but also became bloated, inefficient, and ultimately were destroyed when the long end of the curve blew out in 2008.
‘Now you might point out that banks use derivatives to hedge this duration mismatch but a) there’s always a cost to hedging b) derivatives carry their own set of risks and c) in practice they don’t close the gap fully”
Yes, US banks did this. Again, they were destroyed. However, the Canadian banks do this organically in their portfolios.
For instance, “Grandma” buys a $200k GIC at the ‘deposit’ window of the bank at 3%. “Grandson” takes out a $200k mortgage at the “loans” window of the bank at 5%. The bank earns the spread of 2% between their cost of funds, and their return on investment, with the provisio that a portion of that 2% must be set aside to deal with loss arising from default.
In practice, Canadian banks close the gap fully, hence their interest rate exposure is minimal.
Blacksheep on 04.11.15 at 3:28 pm
Shawn #194,
“Also just WHAT is your main point?”
—————————————
For what it’s worth, commercial banking is not nefarious, it’s an awesome system once you recognize it as merely government sanctioned, privately guaranteed, IOU’s.
************************************
Correct, awesome and you have stated before it basically replaced the older system of people simply writing “notes” that got passed around as money based on trust in the write of the note.
Awesome, yes.
So we are in agreement that banks are not nefarious and are even awesome.
Most of the criticism against banks is based on taking a truth (banks together with a borrower can create a deposit out of thin air) and then not understanding the whole picture and painting the whole thing as evil when in fact banking is the grease of the economy and nothing much would get produced without banking. (The standard of living before banking came along is not one I wish to experience).
Those who claim all debt is inherently bad are just so badly mis-guided. It’s sad.
But most people cling to their beliefs.
@#209
I call B.S. on that statement. :)-
“I’m just working out some finite details, and deception from suddenly silent Mark and even your self in the past Shawn, until you were both painted into a corner (you then, Mark now) by the BOE pdf and it’s details, doesn’t help.”
I think you’re confused between a BoE paper that describes the systemic impact of fractional reserve banking, with the practical aspects of the system as discussed. Yes, a central bank can, and is expected to create money out of “thin air”, so as to keep the system adequately liquid for chartered banks. But the chartered banks themselves do not have the power to do so, and they are always subject to the simple equation of Assets = Liabilities, and cannot conjure up assets out of thin air. Only a central bank wields that power, and if abused (either too much or too little), the consequences can be catastrophic.
RE #205 Julia on 04.11.15 at 3:03 pm
#193 Blacksheep
I don’t understand why you say the Banks create deposit money
I think Blacksheep is talking about fractional-reserve banking:
http://en.wikipedia.org/wiki/Fractional-reserve_banking
I think we have forgotten just why we are here!
It’s not about the $$$$$ or the real estate.
Enjoy this and think!!!!!
by Linda Ellis copyright 1996
I read of a man who stood to speak
at the funeral of a friend.
He referred to the dates on the tombstone
from the beginning…to the end.
He noted that first came the date of birth
and spoke the following date with tears,
but he said what mattered most of all
was the dash between those years.
For that dash represents all the time
that they spent alive on earth.
And now only those who loved them
know what that little line is worth.
For it matters not, how much we own,
the cars…the house…the cash.
What matters is how we live and love
and how we spend our dash.
So, think about this long and hard.
Are there things you’d like to change?
For you never know how much time is left
that can still be rearranged.
If we could just slow down enough
to consider what’s true and real
and always try to understand
the way other people feel.
And be less quick to anger
and show appreciation more
and love the people in our lives
like we’ve never loved before.
If we treat each other with respect
and more often wear a smile,
remembering that this special dash
might only last a little while.
So, when your eulogy is being read,
with your life’s actions to rehash…
would you be proud of the things they say
about how you spent YOUR dash?
Growth. It will come. — Garth
I guess this is the big question, isn’t it? I look at demographics and debt levels and structural employment problems (especially in the US), and I just don’t see the next 15-20 years having growth like we had in the 80s and 90s and early 00s. It’s easy to inflate financial assets (houses, equities, BONDS), not so easy to actually get the real economy going.
Only time will tell.
Banks cannot increase the money supply. Ergo, they do not create money. — Garth
But don’t banks indeed create money due to the practice of fractional lending?
#82 Lobster Man on 04.10.15 at 9:05 pm
#27 – Shawn Allen on 04.10.15 at 6:13 pm
“Real Estate is real important”
Yes, it is. But I will add that our (residential) real estate has become TOO important. When this sector is worth 20% plus of our nation’s GDP, I see troubles straight ahead.
BTW, can we export Real Estate?
********************************************
No, but we can and do import people with money willing to buy it…
Re: Vancouver “Oil Spill”
The shameful political opportunism of the Vancouver Mayor and B.C. Premier cannot be tolerated.
The Harper Government HAS prepared well for ALL contingencies just like this one, in spite of what these communist, Israel-hating whiners say.
Since cutting the Coast Guard by up to 763 positions and $100 million annually in 2012, including the closure of two B.C. communication centres, we would like you to note the following core service improvements, ordered by the PMO:
1. We have deployed 17 strategic PR consultants, under contract to the Privy Council, across Canada to deal with exactly such emergencies. NONE of them will receive any Federal pension money!!
2. These consultants are prepared to deal directly with any such environmental emergencies through a wide range of fully-prepared tools:
-calling Justin Trudeau a fag
-giving Mike Duffy (or others like him) the nudge to deliver a gotcha interview, a la Stephane Dion
-play the Vic Toews card wherever required, on less than 60 minutes notice
-ignore the requests of any Canadian premier, for one year or longer, as required
-find new enemies in the Middle East or anywhere we need them
This is Canada’s Action Plan on left wing BS!!!!
You are either with us, or with the terrorists and child pornographers, Gregor and Christy.
What will it be?
“But don’t banks indeed create money due to the practice of fractional lending?”
Nope. Assets must equal liabilities. A bank that writes cheques that cannot be honoured, like an individual, will be subject to regulatory action and loss of counterparty confidence.
“From experience, this is untrue.”
I don’t know if you’re being just overly argumentative Trollstoy, but to say that the public sector hasn’t erected many barriers to labour mobility within it and the private sector is completely out of touch with reality. But as usual, I wouldn’t put it past you to turn my statement of fact into some sort of underhanded insult.
Silent Mark speaks # 222,
“I think you’re confused between a BoE paper that describes the systemic impact of fractional reserve banking, with the practical aspects of the system as discussed.”
“Yes, a central bank can, and is expected to create money out of “thin air”, so as to keep the system adequately liquid for chartered banks.”
“But the chartered banks themselves do not have the power to do so”
“and they are always subject to the simple equation of Assets = Liabilities, and cannot conjure up assets out of thin air. Only a central bank wields that power, and if abused (either too much or too little), the consequences can be catastrophic.”
———————————————————-
Mark….buddy, based on your comments above, one of us, is definitely confused.
I’ll let Shawn straighten this out, here are some highlights from his posts today:
Shawn # 194, “I did not disagree with anything in your quoted phrase and specifically agreed that banks create deposits (albeit they need a borrower to do it).”
Shawn # 200, “Bank deposits are counted as money. Banks together with their customers create deposits all day long. Blacksheep has provided links to the bank of England demonstrating this.”
“Close the commercial banks and see how much money survives. The economy would grind to a standstill.’
Shawn # 204, “Correct, there is basically no incremental cost to set up the loan and create the deposit.”
Sorry Mark, I guess Shawn’s the new smart guy on the blog : )
@ #215 devore on 04.11.15 at 4:04 pm
Spot on.
Best,
HD
everythingisterrible # 226,
Sigh…Face to palm.
Fractional lending is a distraction.
Call it deposits, not money,
Here is the link from BOE explaining all. Read the first page and you understand what’s being discussed:
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
No offence intended, there’s just so much missinformation.
Sorry Mark, I guess Shawn’s the new smart guy on the blog : )
***************************************
My respect for Blacksheep’s intellect is definitely growing. He has debated these banking matters on this site for at least a year and he has demonstrated the ability to think and learn and to recognize truth when he sees it.
Julia # 205,
“Banks don’t create new deposits.”
———————————————–
Please don’t tell me you work in the industry.
I don’t know what your source of info is, but what ever it is, stop reading itimmediately.
Here is the famed BOE pdf link. Read the first two pages and you will be up to speed.
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
“Shawn # 204, “Correct, there is basically no incremental cost to set up the loan and create the deposit.”
Sorry Mark, I guess Shawn’s the new smart guy on the blog : )
”
Actually I’d have to slightly disagree with Shawn on that quoted sentence. A bank that borrows from its customer (ie: takes a deposit), and invests (ie: makes a loan) has to reserve equity capital in order to satisfy the market that it has sufficient capacity to cover off the statistical potential for a default on the loan. So the ‘incremental cost’ of such most certainly is not zero.
The spread, if earned, accrues the equity capital, and ultimately ends up, after taxes are paid, as the rich stream of dividends we love to receive from the banks as common share investors.
I agree with you, Garth, that this is insanity.
But you know that we now all live very deep inside the World of Stupid. Canada is merely showing off its world-class leadership ability. Maybe there’s a UN ranking for this which I haven’t heard about yet.
For example, Switzerland just issued a ten-year bond with a negative interest rate. Now I understand that the appeal there is the currency play–but even that’s an indicator that global bond markets see no early end to the relentless onslaught of ZIRPQE.
The Fed may raise, but they are in a tag-team with the BoJ and ECB, and who knows, maybe ther PBoC will jump in with some QE as well.
In a world this nuts, who’s to say that even the little runty central banks like Canada’s or Australia’s can’t get themselves a bit of QE action.
After all, Mexico found subscribers to their 100-year issue of Euro-denominated bonds.
Financial innovation’s happening so fast that you’ll need a new iWatch just to keep track of it all.
#229 Mark
http://www.positivemoney.org/how-money-works/how-banks-create-money/
So these guys are out to lunch? Or they’re basically saying even though we created +1$ we also created -1$, therefore the net increase really is 0?
“Commercial banks and other financial institutions provide most of the assets used as money through loans made to individuals and businesses. In that sense, financial institutions create, or can create money.”
http://www.bankofcanada.ca/wp-content/uploads/2010/11/canada_money_supply.pdf
Hell I don’t know.
The good life. Whom are we to thank for this gift, should we thank anyone at all? What is a good life anyway.
Hell I don’t know.
Is it money, love, good looks, a mild buzz listening to a mediocre blues band do Johnny Cash
Hell I don’t know.
Is it winning 600 bucks in a slot machine and giving it to your slot addicted wifyee poo so she can experience an orgasmic feeling while flushing it.
Hell I don’t know.
Is it being some what of a god, a fraud at the tax farm, everyone loves you, but you secretly loath them all. Not because they’re rich, but because of all the coffees they had to fetch before they made it to yellow highlighter heaven.
Hell I don’t know.
Hell I don’t know.
Perhaps the answer, the holly grail of this question can be found at the bottom of spent bottle of JD.
Hell I don’t know..
But what the hell, its going to be fun trying to find the answer Tonight.
Top that one Robot..
#201 BS
Not true about not for profit. Actually a great model for profits. Controlled by board and members.
They decide what to do with profits.
Watching discovery.
Algae is a biofuel. A super fuel. Efficient and clean.
New industry for Alberta?
Could use tgat co2 and brackish water.
End product is exactly like fuel.
Straight into the gas tank.
I used to be in a union back in germany. What can I say but union workers are more productive and efficient then any lazy non union company in Canada. I never met such a lazy group of people. In Germany we have a high union rate and a powerful economy. If we Germans had oil like Canada there is to telling where Germany would be today. I’ve worked in Canada in one of those lazy non union private sector jobs and I wonder why are all the non union workers so fat and lazy? Anyone not in a union is lazy.
#218 Mark
“For instance, “Grandma” buys a $200k GIC at the ‘deposit’ window of the bank at 3%. “Grandson” takes out a $200k mortgage at the “loans” window of the bank at 5%. The bank earns the spread of 2% between their cost of funds, and their return on investment, with the provisio that a portion of that 2% must be set aside to deal with loss arising from default.”
Two big assumptions here: one is that the GIC and mortgage are duration-matched and the other is that they are of the same dollar amount. In reality “Grandson” is borrowing far more than “Grandma” is lending. If you look at the RBC 2014 annual report for example, you can see that there are only $70mln of personal term deposits (which include GICS – page 164) vs. $219mln of residential mortgages (page 146).
As for the duration matching, I couldn’t find any total duration gap figures but I do see the gap between assets and liabilities in >1 year maturities is +$72 billion (page 186)
Here’s the link:
http://www.rbc.com/investorrelations/pdf/ar_2014_e.pdf
#169 BG
I never had kids. I was snipped as a young man. Holy sweet Mother of Mary, a man who decides for himself how to live his own life. I get treated as if I spout blasphemy by people in the real world too, not just on this Blog. For some people , “live and let live” only counts for people who agree with the way they think.
Rule #1 for me: Look after myself, Rule #2: Help others.
Thank you all who understand and support me in my decision to live my own life, and also voice your respect in my decision to think for myself.
To all others, live and let live.
Mark#203. Agree 100% with your comment. Quality people are the enemy in Government.
Test
One of your best. — Garth
#213 BS on 04.11.15 at 3:53 pm
#214 The American on 04.11.15 at 3:59 pm
“It is government workers along with politicians who mismanage these projects. When the private sector runs these type of projects, generally they are more efficient and provide better value. Both are engineered and built by the same companies, the difference if the people running the project (government vs private sector).”
———————————————————–
Agreed. Byzantine procurement bylaws within the public sector are a big cause for cost over runs.
So why do we not have a rapid expansion of 3P(Public/Private/Partnerships) at all 3 levels of govt.?
The private contractor often takes any captured savings and then adds a nice profit margin to end up costing nearly the same amount or ultimately more, plus the public sector still needs to pay its own people to administer the contractor and the infrastructure he is running.
Mark is attempting to discuss matters above his pay grade again.
Mark #235,
“A bank that borrows from its customer (ie: takes a deposit), and invests (ie: makes a loan) has to reserve equity capital in order to satisfy the market that it has sufficient capacity to cover off the statistical potential for a default on the loan. So the ‘incremental cost’ of such most certainly is not zero.”
———————————–
Sorry man…but you’ve been outed.
Your whole comment reads like a desperate attempt to confuse.
May I suggest you move on to a new topic and never mention money creation, again ?
I like your take on Gold and the depression, maybe run with that.
#245 Smoking Man on 04.11.15 at 9:06 pm
Test
One of your best. — Garth
.
Ass hole.. Obviously we need a beer together . Dorithy will only allow it under strict supervision , the problem. Bandit , my late mother in-law said , you can’t fool a dog.
Damn
Anti-pipeline rally in Quebec city…energy east pipeline- not a chance in hell….. Alberta better figure out how to save their current royalties
https://farm9.staticflickr.com/8780/17086158866_a77f207629_o.jpg
#209 BS on 04.11.15 at 3:31 pm
74:
Never never never ever date single mothers. And they just love aiming at the Freedom First kind of guys. It’s like we are wearing a bulls eye.
All the guys I know who are “Freedom First kind of guys” are that way because they can’t get a women. They claim they are ‘free’ by choice but everyone knows they are losers who no women would date.
*************************
He didn’t say he couldn’t find a date – he chooses not to live with his dates – nothing at all wrong with that.
Imagine! sex – no strings – different partners. I feel sorry for him…as would most married men. What shitty life he leads…right!
182 Van Doom on 04.11.15 at 12:51 pm
You post on here throughout the work week, during the day. I thought you were productive at work.
Don’t you have 5 children to spend time with – you did say you had 5 children right?
” In reality “Grandson” is borrowing far more than “Grandma” is lending. “
Your own link, PDF page 188 indicates assets = $940, liabilities = $940B. Not really sure where you got your numbers from. Even loans ($435B) are less than deposits ($614B).
My comments about “grandma” and “grandson” are more metaphorical than literal. “grandma”, in this case, is the depositor base, those who have savings. And “grandson” represents those who borrow. A practical bank, of course, has various ways to invest its money and various ways to raise funds — but the criterion of Assets = Liabilities must always be met. Shareholders’ equity must always exceed that of regulatory requirements and that required by the market for confidence in the institution.
“As for the duration matching, I couldn’t find any total duration gap figures but I do see the gap between assets and liabilities in >1 year maturities is +$72 billion (page 186)”
Fair enough, but that’s miniscule compared to the overall size of their balance sheet.
Contrast this with, for instance, Deutsche Bank or Citigroup who, going into the 2008 financial crisis, actually had a duration mismatch, on average in their entire portfolios of 10 years!!!
Alberta is in for a world of hurt
http://tarsandssolutions.org/actions/act-on-climate
#215 Devore
What I did to get through the alimony payments was to claim the kids as equivalent to married, sucked it up for the first year and put $10,000 into rrsp’s.After the first year I could write off the alimony on my next years taxes with rrsp and other deductions,tax refund more than enough to cover alimony for next 12 months.Best thing ever,my ex forced me to save up over $100,000 for my retirement.If your friend has custody this will work.It did for me and once the alimony stopped I added that to the monthly investment money since I was used to living at that lifestyle.I can retire at fifty if I so desire.
@#242 Balmuto on 04.11.15 at 8:43 pmIf you look at the RBC 2014 annual report for example, you can see that there are only $70mln of personal term deposits (which include GICS – page 164) vs. $219mln of residential mortgages (page 146).
____________________
Wonder if it’s not just term deposits they are drawing from. Where does the money from the RY shares and the deposits from the high interest savings accounts (paying about 1%) go?
#243 Freedom First
Thank you for replying.
Don’t take offense in the question though, I actually enjoy you posts and wanted to know more about the character.
With hyperinflation that will inflate away!
#177 Smoking Man
As one of your 50 fans, I must say that your post here is good news. I can’t wait to read the now self-uncensored Smoking Man. May lead to more DELETES from Garth, unfortunately. That is ok too, as it will certainly help your book sales. Too bad about the blackouts though.
Raven: Interest rate manipulation tears the cloth of capitalism to allow speculative bubbles to form. This I believe is the real reason the FED needs to raise rates to calm U.S. real estate and stock markets, and return to market driven costs of money.
this is the real reason the Fed will raise rates
#227 – Real Estate Economy on 04.11.15 at 6.07 pm
“No, but we can and do import people with money willing to buy it….”
Good! So you are suggesting we should look at Real Estate as being no different from our resource industry.
In that case, we should be worried about Canada’s version of the “Dutch Disease”.
#214 The American on 04.11.15 at 3:59 pm
—————————————————
You do realise that your armed forces are government employees?
inflate the debt away i mean.
Test – Smoking Man
One of your best. — Garth
ahahaha that one cracked me up ! – Drunk Actuary
Mark on 04.11.15 at 6:56 pm
“Shawn # 204, “Correct…”
The spread, if earned, accrues the equity capital, and ultimately ends up, after taxes are paid, as the rich stream of dividends we love to receive from the banks as common share investors.
————————–
So, now I can get dividends from common shares??
Where are the simple joys of maidenhood?
#254
Alberta is in trouble because of a climate rally? That’s the reason the province is having budget cuts and seeing layoffs?
Are you fucking brain dead?
At #262: Bottoms_Up, yes, I realize armed forces are a component of government employees. That would be a difficult one to overlook. Thankfully, these are not the people building bridges and roads. You do realize armed forces are not civil engineers, right? :-)
“I said it was not covered by the federal agency, CDIC. “Nor are investors covered by the Canadian Investor Protection Fund.” — Garth
Just a question Garth, what about Credential Securities, the investment broker connected, but apparently separate from VanCity? I read that this entity is covered by CIPF, but now I’m curious.
Would one be taking a larger risk by using them as compared to another online brokerage in your opinion?
Credential is a member of CIPF. — Garth
Excuse my ignorance on this conversation about lending and money creation. My understanding is that only a central bank creates money and controls the money supply, but commercial banks (or anyone really) can create credit.
Is that about right?
251:
Of course he didn’t say that. Saying you can’t get a date would be embarrassing. FF says he doesn’t date women because he puts freedom first. Ya, right. The truth is he and people like him don’t date women because they are a loser and women don’t like them. Nothing to do with freedom. The freedom BS is about saving face. Not sure why one bothers on an anonymous blog. Save it for friends and family. Although they too know they are a loser.
Mark, why you trying to correct everyone. You do not know it all.
Go have a JD with smoking man…without getting knocked out.
Heard Miami Real Estate is rocking. Thus will go there and buy a condo overlooking South Beach. Got to follow herd.
Garth, I will report from there and give you a play by play hoe buying global real estate benefits. Just like HAM is buying YVR. Yes, you can check the IP.
#252 Don on 04.11.15 at 10:43 pm
182 Van Doom on 04.11.15 at 12:51 pm
You post on here throughout the work week, during the day. I thought you were productive at work.
Don’t you have 5 children to spend time with – you did say you had 5 children right?
*******************************************
How and when I make my “tax dollars” is none of your effing business. I’m not responsible to taxpayers for pissing away billions of dollars like you Public Sector workers.
#104 Hank on 04.10.15 at 10:03 pm
———————————————
FF’s comment was not misogynistic, it was a comment on his advice to not date single mothers. His reasoning could be for many reasons, that is, he hates kids, or the women do not have time for him. So if anything, the comment reflects on his character.
@ #118 Armando on 04.10.15 at 10:32 pm
Generally agree with Garth’s comments. With the exception of this: “why go more into deficit creating jobs with infrastructure programs or assists to manufacturing…”.
——————-
This kind of spending is said to have a 1.6X multiplier so for every $1 in this kind of stimulus it will produce $1.60 into the economy. Sounds like a good investment to me.
@ #206 Shawn Allen on 04.11.15 at 3:18 pm
“Banks are profitable as are egg farms, but neither are golden geese.”
————-
LOL. I will think of that next time I walk into the egg farmer sky scraper.
One thing your bank deposit / loan discussion is missing is reserve ratios.
If that 100K is taken out in cash to pay the Ferrari owner then some loans will need to be called to bring the reserve ratio back in line.
There are many ways to use tax dollars to create private wealth.
One example is this industry:
#43 private sector “jobs”
The provincial government announced Thursday that as of July 1, the film industry tax credit will only cover 25 per cent of eligible costs, allowing film companies to claim the other 75 per cent of the credit against taxes they owe to the province.
Eligible costs, including up to 65 per cent of salaries, can be fully refunded as it stands.
His comments were echoed earlier on Friday by Michael Donovan, the executive chairman of DHX Media. It now owns Family Channel as well as some Disney services in Canada. DHX employs 175 people in Nova Scotia.
“It’s terrible, destroys the industry in Nova Scotia,” he said.
“We could have done much more in Nova Scotia over the years but the Finance Department, at the bureaucratic level, has been angling to get rid of this tax credit. Basically, since it started they hated it because they’re bean counters.”
The Department of Finance says 99 per cent of all productions shot in Nova Scotia pay zero tax.
Federal and provincial tax credits cover 30-35% of a typical DHX production (the current Nova Scotia credit
equates to ~50% of labour costs). Generally, these credits lower the amounts capitalized as investment in film and television programs, which is subsequently amortized in the P&L (translating into higher margins).
What’s interesting is how these executives demand tax payer subsidy.
@276
Reserve ratio ? Lol
Cheap condos cause frenzy.
http://www.castanet.net/edition/news-story-137364-3-.htm#137364
24 posts from Mark. Garth, can we ban him again?
Homicide by boredom is not yet a reason to ban. — Garth
#267 PM on 04.12.15 at 12:12 am
#254
Alberta is in trouble because of a climate rally? That’s the reason the province is having budget cuts and seeing layoffs?
Are you brain dead?
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The odds of any more pipelines getting built are getting very low.
After all, why go more into deficit creating jobs with infrastructure programs or assists to manufacturing when you can turn out 108,000 real estate agents, take household debt to epic levels and push average houses in the GTA and YVR past $1 million?
Problem is, they did that too. We got both increased personal debt and increased government debt. Manufacturers have gotten plenty of help, and continue to get it, with accelerated CCA being extended year after year, and with federal corporate tax rates falling from 28% in 1998 to 15% today. (I won’t mention the lower dollar, which is a product of monetary, not fiscal policy.)
Our biggest problem, it would seem, is that governments still believe they can cure economic malaise; that they can create economic growth with “the right policies”. I saw an interview with Paul Volcker recently – he of the 20% interest rates when he was Fed chairman in the early 1980s. He expressed profound dismay over the modern belief that central banks and governments can act to “fix” the business cycle. He said in his day, if the economy went into recession, the Fed did not take on the responsibility of getting the country out of it. Their job was price stability. Period. They provided a solid monetary base, and the economy would have to work itself out. Governments could do something on the fiscal side, but even then, by the early 1980s, deficits were too big to really consider that. So we toughed it out, and wouldn’t you know it, recessions always ended sooner or later. We never collapsed into depression. Compare that to the era of the Greenspan/Bernanke put, where it is now considered the responsibility of the central banks to not only push economic growth at all costs, but to backstop financial markets, and bail them out if need be.
Also, compare that to the modern belief that anything less than full employment and “strong economic growth” (whatever that is) is considered a crisis that central banks and governments need to fix, regardless of cost, regardless of the effectiveness of their actions. It’s bizarre really. I’m not some free market idealist. I do believe in a strong role for government to help people through recessions. We need governments to put a floor under our misery, to provide enough support during the bad times to prevent chaos, social disintegration, and anarchy. What we don’t need is government pretending they can fix economic growth. They can’t. Recessions are something to be toughed out, not “cured”. The first do no harm principle seems to have been lost completely.
‘#279 the Jaguar’
you can avoid the things in your life that are an energy drag – you don’t need others to do it for you
take your power back
Homicide by boredom is not yet a reason to ban. — Garth
Lol!
Mark truly has no life.
Sad.
Per GT’s consistent Interest Rate message:
http://www.businessinsider.com/federal-reserve-window-to-raise-rates-2015-4
“policy normalization”
@282
interesting post but then you added your last paragraph.
Your last paragraph concedes the philosophic issues and cannot but lead to all the things you dislike about government intervention.
Banks SURE AS HELL DO CREATE MONEY. Almost all money comes into existence as a loan that the bank creates the instant you sign for it. You are not borrowing someone else’s money. It is created and your contract to pay it back WITH interest creates the money. There was NO deposit you borrowed.
YOU PEOPLE NEED TO STUDY.
SILVER PLATTER FOR YOU-
Chris Martenson’s- CRASH COURSE
Damon Vrabel- Renaissance 2.0
Mike Maloney- Secrets of money
“Oh Canada- Money” You tube
WTFU! U financial ILLITERATES!
Van Doom – ad nauseam
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Blah blah, blah government baaad.
Blah effing blah government workers baaad.
Blah, blah, private sector gooood.
Blah, blah, private sector workers gooood.
We get it buddy.
Saying it over and over doesn’t make you right, and convinces no one.
RE: #48 BBB on 04.10.15 at 7:32 pm
Got to love it if Visa/MC lower their rates to 2% from 19%. Lets lobby for this!!
Only a fool pays credit card interest or uses a payday loan company. If you can’t afford it NOW why do you think you can pay 19% more for it later?
@#285 Rainclouds
As per the article .
Im thinking June( summer time, everyone is on holidays, no one cares) makes more sense for the rate increases than Sept.( typically the beginning of the Fall drop in the DOW, everyone is back to work….)
We’ll know in a few months.
#273 Van Doom on 04.12.15 at 6:12 am
#252 Don on 04.11.15 at 10:43 pm
182 Van Doom on 04.11.15 at 12:51 pm
You post on here throughout the work week, during the day. I thought you were productive at work.
Don’t you have 5 children to spend time with – you did say you had 5 children right?
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How and when I make my “tax dollars” is none of your effing business. I’m not responsible to taxpayers for pissing away billions of dollars like you Public Sector workers
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The assumptions you make are juvenile. Your responses as in “effing” shows the same.
With all the private sector bail outs and lucrative contracts and hey rampant IT inflation which is making outsourcing to India a viable choice.
And you want to talk about earning your keep, try working in the forest products business as an owner/operator of a saw mill. You want productivity, hard work, value for money. You sit there in your comfy chair and code or play with infrastructure and do your just build worthless video games.
If you are not happy with your current situation, then grow a pair and change it.
You wouldn’t last one week in my former work environment. But instead you hide behind a screen and shout stupidity at others. Last time I even care to respond to your rantings unless you can form an argument.
#268 The American on 04.12.15 at 12:32 am
At #262: Bottoms_Up, yes, I realize armed forces are a component of government employees. That would be a difficult one to overlook. Thankfully, these are not the people building bridges and roads. You do realize armed forces are not civil engineers, right? :-)
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Funny just went to a lecture given by a civil engineer who works for the Canadian Navy. Not a contractor.
#InOtherNewsRaceToTheBottom… #PFI’s… #&OtherTickingTimeBombs…
[Independent] – Crippling PFI deals leave Britain £222bn in debt
…”According to Jean Shaoul, professor emerita at Manchester Business School, PFIs have been “an enormous financial disaster in terms of cost”. She added: “Frankly, it’s very corrupt… no rational government, looking at the interests of the citizenry as a whole, would do this.”
Unlike government funding, PFI’s cannot be adjusted to match the economy’s fortunes. They are governed by contracts that often run to thousands of pages. In contrast to the radical cuts to public spending, less than 1 per cent has been trimmed from the total cost of PFI deals since 2012…
…Allyson Pollock, professor of public health research and policy, Queen Mary University of London, said the diversion of funds from other budgets to PFI payments make the schemes “an engine for closure of public services and further privatisation”…
http://www.independent.co.uk/money/loans-credit/crippling-pfi-deals-leave-britain-222bn-in-debt-10170214.html
#OnlyInBritainYouSay?… #Hardly…
http://www.partnershipsbc.ca/projects/
[NoteToGT: Strictly between the two of us, it would be something of an understatement to say that handing over the keys to HM nuclear arsenal to SERCO was probably not one of Westminster’s brighter moves…]
Being an investor is like playing a Monopoly game where the Central Bank changes the rules all the time, giving advantage to some players over some other players.
Banks are not evil
The discussion on banking has maybe gotten off course into technical details.
The core point is as Blacksheep said at 208:
For what it’s worth, commercial banking is not nefarious, it’s an awesome system once you recognize it as merely government sanctioned, privately guaranteed, IOU’s.
JJ Reddick at 287 correctly states that banks create money. With money here DEFINED as currency in circulation plus bank deposits. Money is defined to include bank deposits because that is exactly what we spend and transfer every time we make a purchase with a cheque or debit card. (Which seems to work rather well)
But JJ Reddick appears to be hollering out that this is a nefarious system and that people need to learn and understand the evils of banking and money creation.
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I would say banking is not nefarious and is certainly a vital and needed part of the economy. And that is true whether you understand the mechanics of money creation or not or the nature of money.
The point I was trying to make and with which Blacksheep agreed is that banking is not nefarious.
Those who point to the evils of bank money creation are misguided and don’t understand the full and complex nature of money and banking. They grab one factoid about banks and proclaim that because it is true it is also evil.
Relax, be assured banking is not evil and you do not need to understand how money is created in the system to live a full life. By all means study it if you are intellectually curious. It is no secret. It’s just not something most people particularly need to know.
So take that off your list of things to worry about and go about the business of getting more money into your bank account and more wealth onto your net worth statement and doing all the other things you wish to do to improve the life of yourself, your family the community and the country, none of which are likely to involve changes to the banking system which is operating quite nicely actually.
In summary, Banks are not evil! When it comes to money, worry not about how the system creates money. Worry about how you can earn money.
@BS- It’s ok hun, lose a few pounds and you might just get a date.
@Van Doom- Sounds like you have a problem with the policy makers. They are elected. Vote them out. The rest of us have to follow the chain of command and do what we’re told, just like in the private sector… even if the “orders” are stupid.
Instead of looking at real estate as winner verses loser, isn’t this about home ownership is a form of rental since you will never pay it off and you must look at a jump off point. I think many buyers are looking at it this way and the key is how long rates remain low. Exporting jobs, and job replacement by machinery means this can go on for many more years.