Canada’s Next Great Recession

Reading time: 3,582 words, 12 pages, 8 to 14 minutes.

My ability to connect disparate dots forecasts a major Canadian economic downturn is imminent and it will be much worse than the last recession. These aren’t unforeseen ‘black swans’. The events outlined below can be foreseen and some have already begun. Moreover, the cumulative effect of these events will be catastrophic for Canada’s economy.

These events are:
a) China’s economy is slowing
b) The West is overdue for another recession
c) Canada’s economy is already slowing down
d) Canada’s oil patch boosted jobs and disguised the unemployment rate
e) House prices didn’t collapse because oil patch job commuters kept their homes
f) The global shale boom will kill Canada’s oil industry
g) Canada’s real estate market will collapse as unemployment increases
h) Governments are over-indebted and out of ammunition from the last recession
i) Social collapse
j) Black swans

That briefly sums it up. Those of you who have been following my ‘Collapse’ articles on this blog can probably connect the above dots. No single one of these events is earth-shattering. However, these events threaten to cascade into an economic avalanche (pardon the mixed metaphors). What follows are the dirty details.

a) China’s Economy is Slowing

This was covered in great detail in last week’s article. China, the world’s second largest economy, after the U.S., was (past tense) also the fastest growing. As a result of its unwinding of huge levels of debt it will either slow down or crash.

This will have dire consequences for resource producing nations like Canada, Australia, South Africa and Brazil as well as emerging economies (once called ‘third world’). Many people think Australia will be affected worse than Canada because Canada exports less to China than does Australia.

However, we mustn’t overlook the economic term ‘fungible’. Resources are fungible insofar as commodities from one part of the world can be substituted by similar commodities from other parts of the world thus prices are virtually identical for all similar commodities. For instance, light sweet crude oil from Texas is similar to light sweet crude from Saudi Arabia. The same hold true for gold because 99.9% pure gold from Canada is indistinguishable from the same purity of gold from Russia.

A slowdown in Chinese demand for commodities will reduce the price of commodities and that price drop affects ALL similar commodities world-wide. In other words, a drop in oil prices as a result of reduced exports to China will also reduce the price of Canadian oil exports to the U.S. And, oil prices in particular, will have a detrimental effect on Canada’s economy as I’ll demonstrate shortly.

The second scenario: a hard landing (crash) in China will have even more devastating effects world-wide because so many nations trade with China; because of the interconnectedness of our globalized economies and because of financial interdependences of debt, credit, bonds, etc.

Worth Ray, writing in John Mauldin’s China’s Minsky Moment? says, “China doesn’t have to experience a deep recession in order to disrupt global growth. A slowdown to 2-3% real GDP growth and a corresponding decline in China’s import demand could fire demand shocks across emerging Asian economies like India and Indonesia, commodity producers like Australia and South Africa, and even deteriorating economies in the Eurozone like France and Italy.”

In other words, whether China’s economy lands hard or soft, the pain will be felt world-wide.

b) The West is Overdue for Another Recession

Recessions tend to occur every four or five years. Canada’s last recession was in 2009. Do the math. Canada is due for another one.

The U.S. ‘supposedly’ came out of recession in 2009. Again, do the math. And, I say ‘supposedly’ because pretending isn’t the same as recovering.

Fifty million Amerikans are on food stamps. The so-called housing recovery is fuelled by Wall Street buying foreclosed homes in order to rent them to Amerikans who can no longer afford to make mortgage payments. The so-called improvement in the unemployment rate is driven by the jobless who have stopped looking for non-existent jobs and therefore they are dropped from unemployment statistics which gives a false picture of the true rate of unemployment. Furthermore, most of the ‘new’ jobs are low-wage.

Five years of unprecedented near-zero interest rates has failed to revive the Amerikan economy. Incomes are stagnant. The real inflation rate is much higher than the bogus ‘official’ rate and these manipulated statistics mask a myriad of poor economic indicators.

Egon von Greyerz, founder of Matterhorn Asset Management out of Switzerland, says “In the U.S., the latest retail sales point to a 4% decline, and housing starts are seeing a 34% decline. Existing homes sales are down 18% since 2013 — that’s the 19th drop in a row.

“The U.S. consumer is getting squeezed continuously. Real household incomes are down 10% since 2000, and consumer debt is up 20% since 2010. Also, inflation in food prices is getting out of hand…. “Coffee is up 70%, hogs are up 42%, and beef is up 5% this year alone. So the consumer is really getting squeezed.”

The U.S. is still Canada’s largest trade partner. The U.S. is not in recovery although the ‘establishment’ is pretending really hard with their presstitute propaganda. It’s nothing more than a “Potemkin economy”. The U.S. is in the fifth year of a twenty year Depression. Thus, the prospects for Canada’s economy are increasingly dim.

c) Canada’s Economy is Already Slowing Down

Mining is an important part of Canada’s economy accounting for more than 20% of export dollars. The recent Prospectors and Developers Association of Canada (PDAC) conference was noteworthy for its subdued tone compared to past years. Gone was the talk of multi-billion dollar projects; replaced by multi-million dollar prospects. The juniors are in the their third year of financial drought. New mine projects are being delayed or deferred. Existing mines are cutting back on capital expenditures, watching every penny, delaying payments and putting pressure on their suppliers.

In my own field of logistics, I see an economic slowdown in reduced shipments in both the domestic as well as import & export markets. I use the Baltic Dry Index as an excellent leading economic indicator of global shipments. The chart below shows the demand for world-wide shipping is not recovering. In fact, it’s bottom-bouncing.

bdi 3-21-14

Being the ‘analytic type’, I generally don’t put much stock in ‘feelings’, but according to Bloomberg, Canada’s ‘Consumer Sentiment’ fell to an eight month low in February. I’ll grudgingly admit that there is much to be said for the Wisdom of Crowds wherein ‘the many are smarter than the few’.

Ontario, once the ‘economic engine’ of Canada is in long-term decline. According to Bloomberg, “Ontario’s job market is shifting away from full-time, permanent work and towards part-time and temporary work, and middle-wage jobs are being squeezed out in the process.”

Ontaio employment

Not only is Ontario’s employment rate dropping in the chart above, but the gap between low wage and high wage jobs is increasing. The Canadian Centre for Policy Alternatives reports that “The problems can’t be blamed on a recession hangover. It goes deeper than that. Long-term manufacturing job losses, coupled with a dramatic rise in service sector jobs, is creating a seismic shift from secure, middle-income jobs to a more polarized labour market … Ontario’s well-paying manufacturing sector went from the bedrock of the economy at 18% of the labour market in 2000 to 11% by 2013 – a loss of 290,000 jobs.” Heinz and Kellog’s and Novartis have all recently shuttered Ontario plants.

Canadian housing starts fell twice as fast as economists expected in January, led by a drop in multiple-unit projects. The real estate ‘correction’, when it comes, will be particularly painful because as Pater Tenebrarum of ‘Acting Man’ says that, “according to recent data, Canada’s houses are the most overvalued in the world relative to rents – with the overvaluation clocking in at an estimated 80%.”

If the chart below doesn’t scare the crap out of you with Canada on the extreme right, then nothing will.

housingprices vs rents

The Amerikans aren’t the only ones trying to pretend their way out of trouble. Connor McDonald, economist at Toronto-Dominion Bank says, “A slower pace of construction activity to start the year is consistent with the wider theme of domestic fatigue that will inevitably put more pressure on net exports to drive the next stage of Canada’s economic recovery.” I don’t know what he’s smoking, but I wish he’d share so I might understand how ‘domestic fatigue’ is going to drive growth. Oh, that’s right; he’s an economist. I really do wish he shared so I, too, could be unburdened by reality.

d) Canada’s Oil Patch Boosted Jobs and Disguised the Unemployment Rate

Canadian manufacturing continues its downtrend and job losses. The forest industry’s lumber and pulp & paper mills continue to languish. East Coast fisheries haven’t recovered from the decline of Cod stocks and fears of radioactive West Coast salmon are adding to fears of declining salmon stocks. Mining is slowing down with reduced potash output and iron ore prices falling on China fears.

The saving grace for the Canadian economy has been the oil and gas industry. “The western Canadian oil industry is responsible for significant economic benefits in all provinces. This is one of the principal findings of an extensive study conducted by KPMG entitled Economic Benefits of the Western Canadian Oil Industry…”

“Canada’s petroleum industry generated $44 billions in economic benefits and created nearly 420,000 direct or indirect jobs in Canada in 2012.”

It’s notable that, “The study focused exclusively on economic benefits associated with the production phase of the oil industry and did not take into account those involved in the distribution and processing phases.” Nor did it account for many industries that supply materials, logistics, equipment, repair, maintenance, finance, capital investment and numerous other support services. In other words the spin-off effect to Canada’s economy is many times greater than reported.

Canada, it seems, has put all its eggs in one basket. The importance of this cannot be overstated especially considering that Canada’s oil and gas industry is notorious for its ‘boom and bust’ history. Keep reading.

e) House prices didn’t collapse because of the oil patch

I’m no ‘social butterfly’, but I do like to talking with people; even strangers. Everyone has a story to tell. Sometimes, people will provide interesting perspectives. I recently shared a chairlift with a woman from a small town whose largest employer, a pulp and paper mill had shut down.

She said her husband was now commuting to the oil patch along with many others who had lost their jobs. She said the only reason house prices hadn’t declined is that people were commuting to the oil patch and thus continue to make their mortgage payments.

It was like a bolt out of the blue. I already knew that Canadian airlines have long ago set up regular flights to the oil patch from as far away as Newfoundland and Atlantic Canada where low-wage jobs reign. Workers from all over Canada have either moved or regularly commute to Western Canada’s oil and gas fields. The oil patch has, single-handedly, propped up employment, house prices, capital investment, government tax revenue; in fact, the entire Canadian economy.

In other words, all of Canada’s eggs are in one basket. I was thunderstruck when I realized that, as the Globe and Mail’s Eric Regully says, “Beware one-product wonders. Economies that are tilted towards a single industry are accidents waiting to happen, just like single-crop farms.”

f) The Global Shale Boom will Kill Canada’s Oil Industry

The Star.com reports that, “The ‘shale revolution,’ which releases oil and natural gas from buried shale rocks, promises a fivefold increase in the world’s known recoverable oil, according to estimates by the International Energy Agency, and double known gas reserves, according to the U.S. Energy Information Administration. The shale revolution has enormously increased the volume and dramatically slashed the price of natural gas in North America. Shale oil production is increasing almost as dramatically.”

With China slowing down and the U.S. in non-recovery, the demand for oil and gas will also decrease. A decrease in demand will also decrease petroleum prices. The only reason this hasn’t become evident yet is this past winter was long and severely cold. This increased the demand for natural gas and home heating oil.

In fact, the pump price for gasoline has actually gone up because refiners who would normally start switching from home heating oil to gasoline are still producing home heating oil. Once, (if?) spring comes, this will change and the increased supply of shale oil and gas will drop petroleum prices. The only question is how much?

There are other factors to consider as well. Again, according to the Star.com, “Increasing efficiency in energy use will continue to reduce the U.S. need for oil. So will growing alternative fuels, such as ethane and fuels that come as a by-product of natural gas production.

“As for caps on CO2 emission, if they were ‘implemented worldwide, the Canadian bitumen production (from the oilsands) becomes essentially nonviable,’ according to a study by the Massachusetts Institute of Technology.”

Yes, I know; hydraulic fracturing (fracking) of shale is over-rated. Arthur Berman, a geological consultant with thirty-four years of experience in petroleum exploration and production says, “Oil companies have to make a big deal about shale plays because that is all that is left in the world. Let’s face it: these are truly awful reservoir rocks and that is why we waited until all more attractive opportunities were exhausted before developing them.” He admits the depletion rate is far greater than conventional oil and gas; “all shale gas plays except the Marcellus are in decline or flat … Production from shale is not a revolution; it’s a retirement party … Shale plays will last years, not decades.”

However, the end of shale won’t happen overnight. By the time the over-rated shale plays have played out, the damage may already have been done to Western Canada’s oil patch and, by extension, to all of Canada’s “eggs-in-one-basket” economy. It all depends on the oil price.

So, keep your eye on the price of oil. Continued oil sands production is expensive, energy intensive and viable only at a high oil price. Once oil prices dip below $100 a barrel and especially if it falls towards $80, then Canada’s oil patch projects are in jeopardy along with jobs, housing and the economy.

g) Canada’s Real Estate Market will Collapse as Unemployment Increases

Having put all our eggs in the oil patch basket, what happens when the oil patch goes bust again? And, history tells us it’s only a matter of time so keep your eye on the price of oil. Once ‘Saudi Oilberta’ starts winding down projects and laying off workers then mortgage payments will be missed, house prices marked down for quick sale and the over-priced real estate market collapses.

I remember several decades ago, when home owners walked away from their homes, threw the house keys across the bank’s counter (“jingle mail”) and left town. It happened before ; it’ll happen again. It’s only a matter of time.

Pater Tenebrarum of the Acting Man blog writes about Carney’s Legacy: Canada’s Credit and Housing Bubble. and asks “How Long Before it Bursts?” See the chart below comparing Canadian vs U.S. house prices.

canada-vs-US-house-prices

Above, Canada is the red line (no pun intended), the U.S. is in blue. The increasing gap between the two makes this a ‘jaws of death’ chart. It also shows how far Canadian real estate will ‘correct’ once the crash starts.

Most Canadian mortgages are insured by the state-owned Canadian Mortgage and Housing Corporation (CMHC) which can provide up to $80 billion for new guarantees of market NHA MBS and up to $40 billion of new guarantees for CMB for a total of $120 billion. The limit on mortgage insurance-in-force is $600 billion.

As indicated above, Canadian real estate is 80% overvalued and ‘corrections’ always overshoot to the downside. In other words, CMHC does NOT have the reserves to cover such a correction. A bust will lead to considerable deterioration in the government’s finances and the taxpayer will end up bailing out CMHC.

For more detail, read Mish’s “Canada Housing Bubble: Far Too Late for Warnings; Rule of Predictions” or the Daily Bell’s Good Timing! Financial Times Affirms the Canadian Real-Estate Bust where Seth Daniels says, “One of the biggest concerns is the duration of Canadian mortgages because Canadians refinance [about] once every five years instead of once every 20. There is little doubt that Canadians who borrowed in the past few years of low rates will pay more at their next refinancing … At some point interest rates are going to have to rise and it’s going to be a shock to a lot of Canadians.”

According to Armstrong Economics “The impact of interest rates and attempts to artificially keep them low to stimulate the economy have routinely failed. These behind-the-scene-machinations have done far more damage to society as civil unrest rises in the wake of such failed manipulations.”

And, don’t forget the spin-offs from real estate; agents, furniture, appliances, fertilizer, granite countertops, Canadian Tire and so on, will all feel the effects of a housing collapsing.

h) Governments are over-indebted and out of ammunition from the last recession

The Canadian government is already deeply in debt and in no condition to weather such a financial storm.

And, forget all the crap about Canada’s Federal government “balancing the budget” in (insert some wishful-thinking year of your choice) because balancing the budget does NOT pay off the huge debt. It simply stops adding to it and we will still have to pay the interest on it.

Remember: ‘deficit’ is the annual shortfall; ‘debts’ are the total accumulation of all previous deficits. Canada’s debt has as much chance of being paid off as Amerika’s or Ukraine’s or any other country. Not gonna happen!

If that’s not bad enough then consider that the interest paid on that debt is at an unprecedented, near-zero rate and governments will soon lose control of the long end of the yield curve. In other words, interest rates will rise and increase the cost of servicing that debt. So, the chances of a “balanced budget” are about the same as paying off the debt or winning the lottery. That’s not gonna happen, either!

i) Social collapse

Young people are the ‘canaries’ in the coal mine. Coal miners evacuated mines when their sensitive canaries died from exposure to toxic gas. By the same token, teens’ sensitivities make them early indicators of present and coming danger.

The Canadian Press recently headlined “Canadian Hospitals Stretched as Self-Harming Teens Seek Help” with the by-line, “Emergency rooms across the country seeing spike in teens with self-inflicted injuries.”

“’We’re seeing twice as many kids as we were 10 years ago,’ said Dr. Hazen Gandy, division chief of community-based psychiatry at the Children’s Hospital of Eastern Ontario in Ottawa.”

“Doctors say they are not only seeing a distressing rise in the number of kids seeking help for self-inflicted wounds, but many specialists report that they don’t have the hallmarks of a psychiatric disorder. That is leaving doctors with no clear answers as to why they’re seeing so many more kids with these kinds of injuries.”

Let’s see. We have high youth unemployment especially in Ontario, increasingly dim job prospects, dumbed-down education systems, increasing student debt and no hope for the future. They’re either delaying moving out or moving back in and watching their middle-class parents descend into poverty while failing to cope with rising costs and stagnant incomes, increasing suicides in the military, concern about GMO frankenfood, Fukushima radiation poisoning and increasing prospects of nuclear war; all of which conflicts with government’s ass media propaganda telling us that everything is wonderful and under control.

Meanwhile, the Kool-Aid drinking medical experts are stretching to explain this as maybe bullying or perhaps social media or sex abuse or lack of coping skills (as if any of these are new). In other words, they don’t know.

What could those bellwether teens be telling us that we are unwilling to admit?

Meanwhile, we’re facing another leg down in our “Stealth Depression” which for the most part is hidden from view. For more detail see last fall’s forecast Collapse Update Fall 2013 – CANADIAN OUTLOOK.

j) Black swans

And then, of course, are the ‘unknown unknowns’; the Black Swans; the inevitable surprises. You can bet they’re just hovering and waiting to blindside us as if the foreseeable events outlined above aren’t dire enough.

Conclusion: the next downturn for Canada will be either:

a) fast and painful if oil prices drop too far, or

b) slow and painful even if they don’t.

The speed remains indeterminate, but the pain, unfortunately, will be inevitable.
.

Put on your crash helmet and remember the mantra:

We cannot borrow our way out of debt.

We cannot spend our way to prosperity.

We cannot pretend our way out of trouble.

Gerold
March 23, 2014

Update March 26: no sooner do I publish then more information comes to light. Macleans latest edition has two pertinent articles.

Living beyond our means is by-lined “Extravagant, reckless, debt-ridden—Canadian consumers have maxed themselves out after a decade-long spending spree. When did we start to be like Americans?” Canadians are deeper in personal debt than Americans were before the U.S. crashed in ’07.

And, Premier Wynne’s California debt dreams is by-lined “Deficit spending failed to boost Ontario’s economy—so naturally the Liberals want to spend more.” Everyone thinks California’s government is debt-ridden, but all Canadian provinces except Alberta are worse. See the chart below. I highly recommend both articles.

Ontario debt

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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13 Responses to Canada’s Next Great Recession

  1. Bill says:

    Great article I didn’t think I would find what I was looking for but I did!! I wanted to hear someone else that felt its only a not so distant future of another recession. It’s hard to talk to people about this stuff because they are generally to busy being distracted, prefer to be optimistic and just act like everything is great. I don’t get it myself but oh we’ll I guess that’s what’s great about the internet. Anyways I was just thinking to myself today that it has been 6 years already since the last recession and we must obviously be due for another one. And as of July 13th 2014 there seems to be a mega rain cloud that is gonna burst into a thunderous storm here in Ontario once the interest rates go up. I can’t help but feel Ontario is gonna go belly up once this happens. Which led me think about getting a job in fort McMurtry for the second time around just to get ahead of the curb I mean really there is nothing here left in Ontario…And as a young person in his 30s I can’t help but feel the future is very bleak!! I was out there a year ago and I kid you not I felt like one of the only people from Ontario out there which makes me shake my head, it’s one of the only places in Canada to earn some decent money…..and like you said that May not last for much longer…

    • gerold says:

      Great comments, Bill! And you’re right, Ontario with its sky-high energy costs and dwindling manufacturing will be in a world of pain come the next recession. Fort Mac’s looking better all the time. As they say, gotta make hay while the sun shines.

      – Gerold

  2. Bob Grise says:

    I’d like to throw a monkey wrench into the gears – call me a devils advocate. Agreed we have way too much government and freeloading in the western world, And that is the crux of the problem, but if things get really bad, the oil price collapses and all of sudden we have a shot in the arm that leads to a recovery. Maybe sooner than later. The non western world wants a better life. They are not a bunch of welfare deadbeats so I think they may lead us out of this mess. One more thing…always bet against peak oil. ALWAYS!

    • gerold says:

      Devil’s advocates are always welcome.

      You’re right, there’s no such thing as Peak Oil. There’s only Peak Cheap Oil ad that’ something we are coming to grips with and will affect us in profound ways like destroying distant suburbs and changing our motoring landscape.

      As for so-called emerging economies saving our butts, one can hope so but I’m not holding my breath.

      – Gerold

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  5. Ken says:

    Hi, Gerold
    As always a great answer. I agree with you in regards to a reset coming. We see the Usury and how it works within the banking system. I myself 3 years ago discontinued all types of credit, we were lucky and paid off and cancelled all credit cards and lines of credit. I myself distrust the banking system along with the Bail-in written into law just last year.in Canada. If things were so good why write that into law?

    We see how the banks continue in every way to possible to rob people. The difficult part is waiting for that reset so we can purchase land to become more sustainable, yet at these West Coast prices theirs just no way in my right mind I can let these parasites take my hard earned money. I don’t even trust them enough to leave funds in the bank except to pay bills.

    Honestly I ask myself everyday how is it people are affording these $500,000 homes and up along with their $70,000 trucks, This month alone in B.C we are seeing a 10% increase in Hydro, 7% Cable, 4% MSP, 7% B.C Ferries, yet don’t worry our honesty leaders say inflation is only growing at 0.5%.What idiot believes those inflation number ?

    I ask everyday how is it that people are keeping up and I only have one answer credit ie debt. your blog helps some of us realize we are not alone in seeing the corruption, yet try and tell or show people the truth and they look at you like your insane.

    Kind Regards

    Ken

    • gerold says:

      Ken, you’re one of the few who have gotten out of debt. Congratulations!

      Realize however, that you’re on a lonely road, but I think you know that. You say, “tell or show people the truth and they look at you like you’re insane.” Word of caution: don’t press people too hard. Tell, but don’t push. When the SHTF, they’ll remember ignoring your advice and resent you (few people like admitting being wrong).

      Also, when interest rates rise, mortgage renewals too expensive, banks start calling in loans and people start going broke or starving, they’ll remember that you’re flush and they’ll be pounding on your door. You won’t be able to help everybody.

      As for people realizing the truth of their predicament, they’ll have to discover that for themselves or not. Hopefully, some of them will realize their situation before the SHTF but I fear most will be too late.

      Remember the Pareto principle (aka the 80/20 rule) governs much of our behavior. 20% will get it, 80% won’t. When I first started emailing my “doom & gloom missives” (my sister’s term) in 2007, I asked recipients to advise me if they wanted future updates rather than overload their inbox with unwanted emails. Twenty-decimal-something percent answered yes. The other 80% said no. Never underestimate the power of wilful ignorance.

      I too, keep only enough in a credit union to cover monthly bills. As for Canada’s ‘Bail-in’ legislation you ask, “If things were so good why write that into law?” Good question, indeed! They’re covering their backside because the banking system knows they’re sitting on a pile of toxic so-called assets not worth the paper (or digits) they’re printed on. When their SHTF, they want to take it out of our hides.

      Ironically, I complain that governments are usually too stupid to be proactive. Typically, they wait for problems to arise before attempting to solve them. Yet, they passed proactive ‘Bail-in’ legislation. I oughta be more careful what I wish for!

      Yes, you’re right about the overpriced homes and $70,000 trucks. I remember watching the traffic in Miami Lakes in late 2008. Streets were full of Mercedes, ‘Vettes, Hummers, Maserati’s, Lambo’s, etc. I mentioned to one of the locals that, judging by the vehicles, it must be a wealthy community. He said, “no, the banks own them all.” Two months later there was a forest of “For Sale” signs outside homes and “For Lease” signs on commercial buildings and the car dealership lots were overflowing with slightly used, exotic cars. When the SHTF, it goes fast.

      Something else to consider is our slowly changing perception of home ownership. I was owned by a home once, so this is just one man’s opinion. Home ownership has been the stuff of myth and legend. Granted, for our grandparents it was an investment. However, for us, it’s really just a roof over our heads subject to ever higher taxes, increasing asewer & water rates, escalating maintenance and energy costs, etc.

      Amerika’s culture has not yet caught up with the loss of housing’s lustre (Canada’s lustre-loss awaits the housing crash). The U.S. decline in household formation is being attributed to the slack economy and high youth unemployment rather than the recognition that home ownership is a bottomless money-pit. Denial is more than a river in Egypt. Eventually, people catch on and home ownership will lose even more of its lustre.

      Also, women are ‘house-sluts’ believing that owning a home gives them a ‘feeling’ of security (emphasis on ‘feeling’). During the last Great Depression, divorce and spousal & child abandonment increased dramatically and tragically. It’s estimated a quarter of a million Amerikan children were never seen again. I shudder to imagine their fate and I see no reason it won’t happen again. In fact, today’s divorce laws being stacked against men, it may even become worse.

      The alternative to divorce and abandonment is ‘garage living’ where many of my buddies are already confined. I know one fellow who has two Atco trailers outside his rural home. One’s his office and he lives in the other. I cringe whenever I hear the term ‘man cave’. We’ve sunk to that, have we, guys? A man is no longer the king of his castle but a mere serf. I see a future of increasingly disgruntled husbands. Reminds me of a Rod Stewart line; “rather than re-marry, I’ll just find a woman who hates me and give her a house.”

      Bottom line: what emerges from the crash may be a completely different perception about home ownership; the realization that it’s greatly over-rated. Just something to consider.

      Have patience. Enjoy the calm before the inevitable storm.

      – Gerold

    • krobin01 says:

      You are absolutely correct. I lived in Canada most of my life, recently moved to the UK but large family in Toronto and Vancouver. My nieces and nephews in Vancouver are totally in debt for their homes, cars and clothes. If the interest rates go up, they are in serious trouble. The UK is very similar, in fact we have Carney, the previous governor of the B of C now doing the same things here, with very low interest rates. If they ever go up, the UK is in a world of pain. We also have widespread poverty, foodbanks, unemployment, low paid workers along with corrupt politicians, lies about the true cost of living, bankers with the collusion of government ripping off the taxpayer and finally, the trillions of QE just announced in Europe, will artificially boost stock prices, but lead to horrendous inflation in a year or two. Europe is in trouble and heading for huge troubles, sounds a bit like Canada. In the UK, most people would love to emigrate, as I recall, in Canada, many would like to head south. The UK is swamped with Indians, Jamaicans and Africans, many living on benefits, with third world birthrates and using up the free medical resources. I can only guess Canada is again, the same. The West has really shot itself in the foot/head.

      • gerold says:

        Sorry about foisting Carney upon the UK. Yes he’s setting up the UK the way he did Canada. After all, he’s a Goldman Sachs alumni just doing his masters’ bidding.

        – Gerold

      • Ken says:

        Hi, Krobin01
        You are correct Krobin I am here on the West Coast on Vancouver Island and home prices and rental prices are insane. Now we have a slump in Oil prices and the Canadian economy starting to crumble and just two days ago you have the premier of B.C on the news telling all the oil workers in Alberta to come to B.C for construction jobs!! Who in their right mind would consider buying a home in this environment (The Sheep) The BOC just lowered interest rates again. So those in debt can go further in debt. Now I just read B.C forestry is struggling through hard times, yet people are still purchasing $500,000 homes on the Island likes theirs no tomorrow. Below I have enclosed an article out of Calgary on home sales. To me this sounds like the beginning of a price collapse. How can Canadians continue to purchase homes when their debt level is going through the roof, yet that is exactly what the Bank of Canada says will happen by lowering rates it will continue to stimulate the housing market. Its pure insanity

        House Report From Calgary, Alberta, Jan 22 2015
        According to the Calgary Real Estate Board website, January MLS sales are down 34.8 per cent from the same period a year ago (from 842 to 549), while new listings have risen by 42.8 per cent to 2,262 and active listings are up by 75.2 per cent to 4,311.

        That dynamic has affected the average sale price, which is down by 0.6 per cent to $457,853. The median price has dropped slightly as well by 0.3 per cent to $412,500.

        Pending sales of 87 are down by 62.7 per cent.

  6. Ken says:

    Hi, Gerald
    As always another great article. I wish I understood economics like you do, yet I do have a question for you, why did BMO lower their mortgage rates to 2.99 % today? I do not understand this stuff, yet it seems to be the opposite to what they really should be doing. Will this not create more debt? We would like to buy a house, yet we believe the housing prices are insane, yet trying to find a rental where we live is next to impossible, Thanks for any information.

    • gerold says:

      Good questions, Ken. Your concern is understandable. BMO lowered mortgage rates because:

      A)their cost of borrowing is next to zero – i.e. how much interest do you get in a savings account (?) and the Bank of Canada lends to them at next to zero in a continuing desperate attempt to ‘stimulate’ the economy.

      B) for the same reason financial institutions keep trying to increase the credit limit on my credit cards and get me to sign up for new cards – because Canadians are maxed out and cutting back on their spending so the banksters are not raking in the profits.

      You’re right, real estate prices are insane. A lot of people realize that so they rent and that increases demand for rentals making rentals hard to find. It’s also tough to rent when everyone’s telling you to buy because they haven’t yet discovered that home ownership is a hoax at today’s prices. Hang in there.

      Jim Sinclair and other seasoned analysts are forecasting the “Great Levelling” (big bust) about 2016 and the “Great Reset” (new currency and financial system) in 2020.

      It’ll be here before you know it. Have patience.

      – Gerold

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