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Credit bites back

NOVEMBER 30, 2011

Readers may be interested in a fascinating paper by the Federal Reserve Bank of San Francisco titled, "When Credit Bites Back: Leverage, Business Cycles, and Crises."   It's a must-read.

Some key findings:

We document a new and, in our view, important stylized fact about the modern business cycle: the credit-intensity of the expansion phase is closely associated with the severity of the recession phase. In other words, we show that a stronger increase in financial leverage, measured by the rate of growth of bank credit over GDP in the boom, tends to lead to a deeper subsequent downturn.  Or, as the title of the paper suggests|credit bites back.

...Higher leverage raises the vulnerability of economies to shocks. With more nominal debts outstanding, a procyclical behavior of prices can lead to greater debt-deflation pressures. Higher leverage can also lead to more pronounced con fidence shocks and expectational swings, as conjectured by Minsky. Financial accelerator e ffects described by Bernanke and Gertler (1990) are also likely to be stronger when balance sheets are larger and thus more vulnerable to weakening. Moreover, many of these e ffects are likely to be more pronounced when leverage explodes" in a systemic financial crisis.

It certainly is worth considering how this dynamic will play out for Canada over the next few years as the prospects of a global recession mount while Canadian debt burdens continue to push into unchartered territories:

Cheers

Ben

 

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Ben Rabidoux
By Ben Rabidoux

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49 Comments

  • Kevin said:
    • 2 years, 4 months

    This is how Canada's debt looks compared to other countries.
    http://3.bp.blogspot.com/-hDGtP6gwVkw/TsE9NuR1CuI/AAAAAAAAA3g/GSSz2FkwWA...

    This is total debt. The GDP in these 9 countries make up about 50% of the worlds GDP.
    UK 497%
    Japan 492%
    Spain 366%
    France 341%
    Italy 313%
    South Korea 306%
    US 289%
    Germany 284%
    Canada 274%

    This is total debt as % of GDP. The GDP in these 9 countries make up about 50% of the worlds GDP.

    http://saskatoonhousingbubble.blogspot.com/2011/11/saskatchewan-may-have...

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  • Ben Rabidoux said:
    • 2 years, 4 months

    Bond markets seem to have forgotten that in order for governments to pay back their debts, they must tax their citizens and businesses. The emphasis right now is on the total sovereign debt burden, but that will change once the markets correctly discount the ability of governments to raise (or sustain) revenues while their citizens and businesses are drowning in debt. That's phase 2 of this crisis...

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  • Kevin said:
    • 2 years, 4 months

    It all points to a debt-deflation spiral. I think it would be correct to say that many of these heavily indebted countries will slip in and out of recession more often and any growth will be low.

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  • Farmer said:
    • 2 years, 4 months

    Not necessarily, Kevin.

    Public debt can be rendered somewhat meaningless if governments can get deficits under control at the same time GDP is growing. I realize some of the debt/GDP ratios look pretty scary but if we compound GDP growth over a decade for example at just 3 or 4% the problem vanishes provided governments do not keep piling on fresh debt every year.

    It is the damned deficits that need to be managed. Central Banks meanwhile have long since perfected the virtues of driving inflation with monetary interventions but the problems keep popping up on the fiscal end of the equation. They can come in and mop up some of the problems by inflating away the issues that elected folk have permitted to grow into a big problem.

    But we cannot just blame elected officials. They are, after all just responding to the demands and needs of constituents. Sadly, lawmakers often seem unable to just say "no" when met with a fresh list of public spending priorities.

    So it is therefore left to our Central Banks to clean up the mess that results when ratepayers object to tax hikes designed to cover the demands the ratepayers themselves insisted on.

    Of course it is all about equity. Every citizen wants his fair share of the pie and will resist paying for the entitlements that others receive. As usual though, we spend more than we earn. Collectively, we object to actually having to pay for our excess after the fact. We want to be "eat and run" taxpayers.

    No wonder everyone is pissed at the boomer's. They had it all. And now as they age and have come to represent the strongest voting block in the country (as part of the demographic group most likely to vote), they will keep taking it out of our sorry hides until they are gone.

    The point here is, that as entitlements have raged out of control and few are willing to accept responsibility for the burden then the mop-up job falls on Central Banks to inflate the problem away. Why even bother complaining about that. They are doing us a favour.

    This is why we are experiencing both a combination of asset deflation and general price inflation simultaneously. There are no other outlets available to correct the imbalances that would not result in severe economic imbalances in the system. Government policies have led us down the path where deleveraging of our debt burdens becomes an imperative while the CB's have swamped the system with liquidity thus driving up the price of...well pretty much everything except your house, your boat and your car.

    At the end of the day, it costs us our standard of living.

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  • backwardsevolution said:
    • 2 years, 4 months

    "Pritchard poses a false dichotomy: print money or impose various austerity measures like hiking taxes to bail out banks. Why do either? [...]

    Bailing out banks that take stupid risks is always wrong, in every situation. Taxpayers will suffer from higher inflation (notably in food and energy), wages will not rise, banks will pass out big bonuses once they are bailed out, and taxpayers will still be stuck with the debt.

    That by the way is exactly what happened in the US and it is one of the reasons hiring is anemic and lending is weak.

    In the US, but even more so in Europe, banks cannot lend because they are capital impaired. The solution is not austerity and higher taxes, but rather a writedown of that debt. [...]

    Printing money will not fix a single structural problem, all it will do is bail out the banks (yet again), leaving private citizens with debt they cannot pay back or inflation that punishes savers.

    Yes, Ambrose Evans-Pritchard has indeed lost his mind because printing money will not solve a damn thing. It will only provide an illusion of temporary success, requiring still more printing when the stimulus dies."

    http://globaleconomicanalysis.blogspot.com/2011/12/has-ambrose-evans-pri...

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  • Olga said:
    • 2 years, 4 months

    It is obvious that higher leverage today leads to inability of already debt loaded consumers/businesses to take on more credit tomorrow and it means that the future growth is bound to be contracting if yesterday growth was over expanded (when there were the market conditions in place that allowed the over expansions, recklessly set by the diff. levels of the authorities trying to solve today problems at the expense of the future - kick the can down the road).
    I think that this massive mortgage debt overload we have now in Canada might be the worst thing that happen to this country although it is praised as its salvation that got us trough the first phase of the current crisis. There are so many consequences that became obvious now besides the purely inability of the consumer to get on more credit when he is already deep in a mortgage debt.
    The mortgage overload stimulated by the immigration and mortgage policies changes lead to over expansion of the construction industry with the growth of salaries there, also growth of the net taxes collected in many municipalities and provinces resulted the consequent growth of the public sector wages, the gap between the public sector wages and the private one is huge now in our municipality. On the other hand all the other consumer oriented businesses are drying out as they get less money (leftovers after people pay their mortgages). Tax them more and they will crumble. The economy character changes to a more service oriented with the typically much lower salaries. Grown up kids leave the area as they are unable to find a good job here that would enable them to buy a house, the smart and healthy ones leave, with the reason to stay often said as a "free healthcare here in Canada", i.e. people that stay are often less healthy than the ones that leave. Lots of other unintended consequences of that over-expansion in the consumer (and primarily mortgage) debt that happened yesterday, it has stagnated today at its higher point reaching the saturation.
    The question is - what level of the consumer debt is healthy and when it becomes an indicator that we ruin tomorrow's economy by over consuming today?

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  • GM Peacock said:
    • 2 years, 4 months

    Olga

    Well said! Re: Your commentary on over spending today at tommorows expense.
    We all live here on this little planet, and there is only so much wealth to go around. It's just plain physics and mathematics. The great experiment by our central bankers (to leave interst rates at near 0 levels for years and years will, as the sun will rise, create conditions later, that were unexpected to say the least. The result, the build up of, "consume to your hearts content as tomorrow never comes". Well, tommorow is coming with a whole lot of new isues that no-one took seriusly today and we will have already spent the resources to deal with them!

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  • Olga said:
    • 2 years, 4 months

    If anyone is interested to read more about the consequences of the housing costs hike in Vancouver, there is a pretty wide description of the situation here:

    http://votesandy.ca/2011/11/28/vancouver-housing-costs-unaffordable/

    we are in a very deep a ..hole here.

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  • backwardsevolution said:
    • 2 years, 4 months

    From the first paragraph of the report:

    "It was a historical mishap that just when the largest credit boom
    in history engulfed Western economies, consideration of the influence of fi nancial factors on the
    real economy had dwindled to the point where it no longer played a central role in macroeconomic
    thinking. Standard models were therefore ill-equipped to identify the sources of growing financial
    fragility, so the warning signs of increased leverage in the run-up to the crisis of 2008 were largely
    ignored."

    "Historical mishap"? That's an understatement! A mishap? Let's try "premeditated calculation".

    Consideration had "dwindled"? I'm surprised they didn't use the word "meandered". Just where did they dig these words up from, the "How To Make it Look Like We Didn't Know What We Were Doing Thesaurus"?

    "Standard models were ill-equipped"? How about the fact that common sense was thrown out the window in favour of quick profits and fraud?

    "Growing financial fragility"? How about "armageddon"?

    This was a deliberate set-up from the get-go by some very intelligent and knowing people.

    That's my critique so far, and I've only finished the first paragraph. The only thing that rang true was the word "ignored".

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  • backwardsevolution said:
    • 2 years, 4 months

    From page 2:

    "We document a new and, in our view, important stylized fact about the modern business cycle: the
    credit-intensity of the expansion phase is closely associated with the severity of the recession phase."

    Well, duh! And they even use the word "new". This is COMMON SENSE. You learn this on the playground in elementary school.

    Pardon me, but LMAO x one trillion. Who writes this stuff? OMG, if these are the minds who are shaping opinion and creating so-called models, we ARE doomed!

    Seriously, it is as if they do not see, are unable to connect dots.

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  • mfx said:
    • 2 years, 4 months

    I've read couple pages and feel the same way.... It's common sense what we should already know from ancient wisdom.

    besides, I think no matter how many financial instruments we have / learn, if the governement doesn't know how to manage or intends to create "instability", the financial tools are just useless or sometimes even killing people.

    I thought governement should function as described in econ101 to smooth out (stabilize) the business cycle. I am surprised how "stable" housing market is.

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  • Petr said:
    • 2 years, 4 months

    Some more job losses I see last month, 15000 was the number. 15000 heads busted, they'll be able to make a couple of brain omelettes.

    Just a quick question
    Let's say if unemployment consitently rises the next 6 months, does that have any effect on the # of immigrants (or policy) that come to Canada. This is the argument I continually lose when convincing others not to put their head on the chopping block and buy a house...

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  • Greg said:
    • 2 years, 4 months

    Apparently not, as I stated on this blog many times for those who know, the government's interest is to flood the country with immigrants who will work for cheap labour and eventually take on credit. We're in the importing new FICO score business.

    http://i42.tinypic.com/nf4syg.png

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  • Greg said:
    • 2 years, 4 months

    Just adding another chart for those who remember my earlier posts about permanent residents declining while being off-set by temporary students/foreigner workers—it's all happening as predicted.

    http://i44.tinypic.com/k4gj69.png

    More chaotic traffic on the micro level Ben, that's the conservative way.

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  • Farmer said:
    • 2 years, 4 months

    If I am not mistaken there is a big shake-up in several of the immigration categories that is now underway. Family reunification is about to get a lot more stringent. Seems the mandarins at the Fed level have decided it might not be such a great idea to import fresh young taxpayers and then also allow them to bring over Mom and Dad and Gramps etcetera. We already have enough old people here (and not enough able bodied young tax payers). Applications are thus thinning out the number of eligible family members while the process itself is going to take a great deal longer for those who are deemed eligible.

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  • Greg said:
    • 2 years, 4 months

    Elderly Canadians make up 14% of the total population, yet they consume 40% of healthcare spending. So yes, allowing more elderly immigrants to abuse our free healthcare is a problem.

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  • Farmer said:
    • 2 years, 4 months

    I think you mean "use our system" Greg, not "abuse" our system.

    Sick people and the elderly do not abuse. They are called health care consumers. They paid into the system and have right to access services when they need them. I am sure you would not appreciate being turned away from an emergency ward after a car accident because of a statistic (like age).

    What if the administrator on duty said "Greg, sorry Sir, we can not save your arse tonight because guys in your age group have the most head-on collissions in all of Canada. We can only help those people in low risk categories from now on...so sorry Mr Greg, but we cancelled your health policy when we heard about your big car crash.....try the Salvation Army nurse down the hall....maybe they can help"

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  • Petr said:
    • 2 years, 4 months

    It wouldn't surprise me if government didn't monitor or consider the effects of immigration on employment... It seems like the system has become much more efficient at getting new immigrants here.

    I've found the site below but haven't had enough time to read through all the articles (and truly understand if it's positive or negative to increase immigration)
    http://www.immigrationwatchcanada.org/

    Thanks Watchdog

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  • Appraiser said:
    • 2 years, 4 months

    So, has this blog turned into an anti-immigrant web-site populated by blatant xenophobes, bent on blaming all of our nations's ills on "others?"

    The above referenced site (www.immigrationwatchcanada) is little more than a thinly veiled white supremicist organization.

    Shameful and pathetic.

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  • Petr said:
    • 2 years, 4 months

    I find the debate of immigration and its economic benefits interesting. For the record, I do not agree or disagree with the site I listed. It's something that I have to read further to understand, as mentioned in my post.

    You have to be kidding yourself to not include immigration in any housing market analysis as Ben has done a nice job in the past. The idea that someone supports a reduction in the number of immigrants should not completely entail that of a xenophobic view.

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  • Olga said:
    • 2 years, 4 months

    That is really shameful and pathetic to call names instead of realizing that there is a growing problem that needs to be acknowledged and addressed before it created some real tensions in the society.
    On the other hand it is still really hard to accurately include immigration in housing market analysis. May be the correlation between the net RE sales and the mortgages approved in the same period could reveal the gap between them where the cash transaction would fit.

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  • backwardsevolution said:
    • 2 years, 4 months

    Appraiser - nice try on the name-calling, but that won't work anymore.

    What lobbyist group do you work for?

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  • Petr said:
    • 2 years, 4 months

    Here's a link to the best video I've seen explaining the subprime crisis in United States. It helps simpletons like myself understand whats going on.
    http://crisisofcredit.com/

    Sorry for all the links I've posted lately

    Petr

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  • Petr said:
    • 2 years, 4 months

    Ticking timebombs is a better metaphor... dont know where I came up with brain omelettes

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  • frank said:
    • 2 years, 4 months

    You are worried about immigration? Imagine how the natives must feel. They signed treaties which allowed these newly arrived hungry poor Europeans to 'only' conduct trade and therefore not be killed.

    Next thing theNatives know, the Europeans have descended like locusts, the treaties are torn up, their lands are taken and soon their kids are taken and buggered by the respected priests of the new 'superior' culture.

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  • Greg  said:
    • 2 years, 4 months

    If you really want to know what the immigration situation is; grab a pen and paper, calculator and download this document. A little reading and math will reveal all.

    2010 Immigration Overview http://www.cic.gc.ca/english/pdf/research-stats/facts2010.pdf

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  • Grant said:
    • 2 years, 4 months

    Ben, I really appreciate the work you put into this blog. From my perspective, it's a shame it can't continue as it was. (Of course, I'm happy for you, I'm still getting what I'm paying for.)

    if you're looking for a topic, I'm dying to know what's up with natural gas. If I remember correctly, you were bullish on GAS.

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  • Farmer said:
    • 2 years, 4 months

    Good question. Natural gas is giving me a headache lately too. Anyone else notice how virtually every commodity can rise on a given day and yet Nat-Gas goes into the red. The inverse occurs on down days where gas is up and almost everything else except sugar and oats is down.

    I am sure only a small handful of people know the answers. I suspect this is actually an outcome of the similarity of algorithms of high frequency trading programs the various companies are using.

    What I really worry about though is that such matching of computer driven activity could send us into another flash-crash scenario. Worst case situation is the markets could be closed for up to 48 hours.........what was my point?

    Oh yeah, what the hell is up with gas! This is winter for god sakes.

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  • Roadie said:
    • 2 years, 4 months

    I also appreciate the work you put into this blog Ben. Im just wondering if we'll see 2012 predictions. Your 2011 predictions for the most part look to be fairly accurate except for your first 2011 where you expected Canadian real estate to begin a protracted period of falling valuations.

    I also expected the same. Personally I dont expect the world to end in 2012 but will it be the start of the end of the Great Canadian Housing Bubble?

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  • george said:
    • 2 years, 4 months
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  • Guy Smiley said:
    • 2 years, 4 months

    Great article George.

    Ben, i'd love to hear you weigh in on the stability of Canadian banks. In particular regarding the stink that was raised by the Zerohedge post several months ago regarding the low tangible asset ratios and now more recently with the concept of rampant re-hypothecation at canadian banks.

    I generally read all the posts here but i sometimes miss them. If you've already touched on this just a link would be great.

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  • Farmer said:
    • 2 years, 4 months

    Mark Carney has been sounding the alarm bells for two years now on the risk to Canadians of carrying high levels of debt. His worries are being amplified aloud lately in the MSM and becoming much more stark. Time is running out if Europe does not act and we enter a new global recession. I think we need to start listening. From the Globe and Mail of December 8th...

    "....damage from Europe’s sovereign-debt woes on Canada’s domestic economy and financial system could increase dramatically if euro-zone policy makers fail to contain the crisis" say the Bank of Canada.

    Please take note of the term "dramatically". This is not usual banker-talk. Accountants and economists tend to couch their words in conservative terms, avoiding extremes or language that might create unnecessary alarm.

    The bank goes on to say....

    "Risks to the financial system have “increased markedly” since June, Bank of Canada Governor Mark Carney and his policy team said"

    “The global retrenchment of risk associated with the European crisis has indeed resulted in a "significant correction" in the prices of equities and other risky assets, as well as a widening of credit spreads in Canada,”

    “Should the crisis deepen and spread further to the larger European economies, transmission to Canada could become more severe.”

    "Canadian banks’ indirect exposure to some of the most vulnerable nations could become a bigger issue"

    "The Bank of Canada report came two days after Mr. Carney kept his main interest rate at 1 per cent for a 10th straight decision, citing "extreme uncertainty" about Europe and the global outlook. .”

    "On Canadian household debt, the bank said credit growth has started to slow but is still outpacing income growth, so the debt-to-income ratio – already at a record 149 per cent – is likely to rise further, putting more families at risk if deteriorating conditions cause more job losses or a big drop in real-estate prices".

    "....the bank said the supply of finished but unoccupied condominiums in some cities “suggests a heightened risk of a correction.”

    "He’s (Mr. Carney) stuck in the middle,” said an economist with Toronto-Dominion Bank. “You’ve got what’s going on internationally, which could create a huge shock to the Canadian economy, and households have become more vulnerable to such shocks since the last financial crisis".
    ----------------------------------------------------------------------

    Like I was saying..the language itself should be catching your attention now. Let us review what was said as it does not get more blunt than this:

    * risks the the financial system "could increase dramatically"
    * transmission to Canada could become more "severe"
    * financial system risks have “increased markedly”
    * "significant correction" in equities prices and other risky assets
    * "widening of credit spreads" in Canada
    * Mr Carney cites "extreme uncertainty" about Europe and the global outlook"
    * Furthermore, there is now a "heightened risk of a [real estate] correction".
    * Then he added, "debt-to-income ratios.....are putting more families at risk"
    * Then TD offers we might see "a huge shock to the Canadian economy".

    I cannot recall an article that was so blunt with regards to our situation here at home as it may be affected by the combination of low rates, high debt and European/global distress. Not one from a serious publication anyway. So the next time one of your in-laws insists that taking out a big fat low-rate mortgage is the way to get ahead in life you can do more than just point them to the blogosphere where we have worried all along. Now you can send them direct to the Bank of Canada website for a real eye opener.

    The mother-in-law might not listen to you. But how she she argue with Mark? And hey, he is appointed as the new Sheriff for the global banking network. His words must carry SOME weight in the discussion.

    http://www.theglobeandmail.com/report-on-business/economy/bank-of-canada...

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  • Olga said:
    • 2 years, 4 months

    ...and despite this profound warning from the Bank of Canada Governor Mark Carney and his policy team, Housing starts in British Columbia are forecast to increase in 2012, CMHC produced this piece of the non-science fiction:

    "according to Canada Mortgage and Housing Corporation’s (CMHC) Housing Market Outlook British Columbia Highlights Report. “Population growth, stronger employment growth and favourable mortgage interest rates are expected to support demand for new homes in 2012,” explained Carol Frketich, CMHC’s BC Regional Economist."
    http://www.hellovancity.com/2011/12/07/cmhc-british-columbia-2012-housin...

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  • Farmer said:
    • 2 years, 4 months

    Thanks Olga,

    It really is incredible is it not? The huge disconnect between those in charge of fiscal policy (and agencies like the CMHC) and the worries of those whose job it is to manage our countries monetary backbone.

    Who should you listen too?

    The concerns of the Bank of Canada are actually at complete odds with the agendas of some of our Federal agencies, Crown Corps, Big Banking interests and policy wonks. They even seem to compete. Nobody knows which court the ball is in anymore and so blame cannot ever be assigned. When the shit hits the fan (it will), there will be plenty of recriminations but nobody to pin the shit on.

    I will not candy coat the message. I am getting worried and it seems it is indeed time for our mandarins to deliver a little medicine to the banks and also to CMHC before their actions bring this entire sorry country to complete ruin.

    Do they actually bet we will never de-lever debt here?

    Anyone else recall Lehman's big leveraged financial bets (by any chance)?

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  • Alexcanuck said:
    • 2 years, 4 months

    One minor quibble with the G&M article. The risks to the banks, financial system, housing and equity markets have not "increased dramatically". The risk was taken on when the bubbles were blown, the stupid loans made to people/other banks/governments etc who can't possibly pay them back without even greater loans being made.
    It's a case of the chickens coming home, that's all. The loss is made when the loan is granted, it's only a question of when the loss is recognized.

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  • Darryl said:
    • 2 years, 4 months

    Carney's been making more sense lately in my opinion. His latest and greatest

    "A sustained process of relative wage adjustment will be necessary, implying large declines in living standards for a period in up to one-third of the euro area,"

    For Canada, the biggest challenge is "reducing our economy's reliance on debt-fueled household expenditures," Carney said, noting that Canadian households are now more indebted than American and British households.

    http://ca.reuters.com/article/businessNews/idCATRE7BB1FM20111212

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  • Farmer said:
    • 2 years, 4 months

    Thanks Darryl. Just read the article. Seems Mr Carney has finally put a torch to the smouldering wreckage that we call Canadian household debt. He is not mincing words is he? Let us all hope the message finally starts sinking in. God, Canadians are a bunch of ignorant fools when it comes to borrowing. Herd animals all headed off the cliff together. Damn fools won't listen to anyone either. So cocksure of themselves and the future. It was time that their egoistic, arrogant little bubble got pricked a little.

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  • Dave said:
    • 2 years, 4 months

    Though you guys would find this interesting, or horrifying...

    http://attainablehomescalgary.ca/about

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  • Wayne Masters said:
    • 2 years, 4 months

    Alberta not that kind to the Interior of BC so who would want to live with there?
    Alberta, we're not a labour holding tank for your tar ball jobs.

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  • Greg said:
    • 2 years, 4 months

    Carey isn't going to budge rates—if he does, he'll wipe out CMHC and trigger billions in credit default swaps on mortgage backed securities.

    What's happening is much bigger then most can comprehend as no economy has reached this amount of credit before...

    $707 trillion dollars in derivatives as of June 2011. http://www.economonitor.com/analysts/files/2011/12/Nowakowski-12-13-11.jpg

    Good luck world.

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  • roadrunner12 said:
    • 2 years, 4 months

    "Carey isn't going to budge rates—if he does, he'll wipe out CMHC and trigger billions in credit default swaps on mortgage backed securities."

    If he isnt going to budge rates, then any idea on what he believes should be implemented. He states that action should be taken now that we are supposedly in a "position of strength". He doesnt offer any suggestions in his speech, all talk and no action?

    http://www.bankofcanada.ca/2011/12/speeches/growth-in-the-age-of-delever...

    " We might appear to prosper for a while by consuming beyond our means.
    Markets may let us do so for longer than we should. But if we yield to this
    temptation, eventually we, too, will face painful adjustments.

    It is better to rebalance now from a position of strength; to build the
    competitiveness and prosperity worthy of our nation."

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  • Greg said:
    • 2 years, 4 months

    Carney is warning Ottawa that if they don't act, he will devalue the Canadian dollar. The BoC's job is to maintain price stability (currency), not lift rates based on household debt.

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  • Petr said:
    • 2 years, 4 months

    I think Ed Clark from TD has it right when he says there should be more focus on making mortgage rules stricter like reducing amortization periods from 30 to 25 years or increasing the minimum down-payment amount. Eventually, I agree that interest rates should rise but if they really wanted to focus on lowering household debt, then target the root of the problem (and lower the amount of risk in the system). Better late than never, it's going to implode anyhow...

    http://www.theglobeandmail.com/globe-investor/mortgage-rules-should-be-s...

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  • Greg said:
    • 2 years, 4 months

    Far far too late to tackle the problem by adjusting rates—it's suicide at this point . Only solution is austerity and major asset depreciation.

    When you read words like 'major transfer of wealth' and 'social unrest' in Carney's report the other day, that should be taken as a hint.

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  • Farmer said:
    • 2 years, 4 months

    You mean like closing the barn door after the horses already escaped? Ed Clark is only two years late. I want to think that some of our bank economists are just too stupid to figure this housing situation out in real time. I can forgive stupidity. But I cannot accept they did not know. I know better. They had the data, the charts, the estimates and the graphs all along.

    They had the inside edge.

    What Ed Clark is doing now is covering his own ass before the actual correction happens. He can point back to the arrticle in the Globe or wherever and say "see, I warned you all". It is a really cynical suggestion on his part to want to reduce amortization periods at this late stage and in fact that action would be enough to precipitate a serious R/E correction in this country.

    I don't respect his call for one second.

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  • landlord said:
    • 2 years, 4 months

    Many renters are asking for breaks, lower rents due to jobs, no bonus, etc. I think we are going to see this condo sucker implode in 6months as rent breaks are always very costly (very hard to raise) after. Still see no stop in bids for housing (very low supply, demand is mega) , condo's are feeling scary.

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  • Greg said:
    • 2 years, 4 months

    @landlord

    No breaks for renters when Ontario rent guidelines are going up 3.1% in two weeks.

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  • Greg said:
    • 2 years, 4 months

    PROVINCE OF ONTARIO OUTLOOK REVISED TO NEGATIVE BY MOODY'S -- Bloomberg

    But this is Canada, it can never happen here...

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  • Potato said:
    • 2 years, 4 months

    Hey Ben, you still around? If so, do you have an answer as to why vacancies are not a leading indicator of a housing downturn? Vacancies were flat in Toronto until 1990, and flat in Miami until 2007, and I think I saw a few more examples (haven't gone after Vancouver's past data yet). But you would think that if there was oversupply as part of a boom, that vacancies would go up before the crash in prices hit.

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