Canada

Canada Didn’t Skip The Great Recession, We Delayed It. Here’s The Chart

Canada Didn’t Skip The Great Recession, It Delayed It. Here’s The Chart That Explains It

Canadians didn’t experience the Great Recession, not to the extent that the rest of the world did. Sure, we logged a few quarters of Gross Domestic Product (GDP) declines, but there aren’t all that many heartbreaking stories of loss in Canada. This is often credited to the shrewd moves the Bank of Canada made. Rather than a recession correcting any misallocation of human and financial capital, we slashed rates and made rapid expansions to our monetary supply. Many Canadian experts say we “skipped” the recession, but that’s because they’re looking at the wrong data. Looking at the Velocity of M2 Money Stock, it can be argued that we only delayed it. Now we’re going to have a lot of catching up to do.

You’ll Need To Know These Two Things

This is actually a really complicated topic, based around very simple concepts. There’s only two things you’ll need to know to understand this – M2 money supply and capital velocity. The M2 money supply is how central banks measure the amount of money, and near money instruments available in the local economy. Just to cover all of our bases, money are those multi-colored pieces of plastic you pretend you don’t have when you see homeless people. Near money are things that are as good as money, like short term deposits and government bonds. The M2 money supply is sometimes referred to as a measure of “broad” money, because it measures more than cash.

Capital velocity is the rate at which a dollar travels through the economy. For example, let’s say you bought $10 worth of cannabis. Your government endorsed dealer takes $5 out of that, and buys a couple of seeds. The seed dealer takes $2, and gets a double-double from Tim Hortons. There were $17 worth of transactions, but only $10 traded hands. If only $10 existed, this would mean there was a capital velocity of 1.7. Each dollar in existence, traded 1.7 times. Now imagine those ten dollars is over $1.5 trillion, and that’s the Velocity of M2 Money Stock. Got it? Now you’re practically a f–king genius.

When an economy has a high rate of capital velocity, things are awesome. It means consumers are so comfortable with their financial situation, they don’t feel the need to stash away for a rainy day. Money exits their pockets, as quickly as it enters it. This is where the saying money “burnt a hole through their pocket” comes from. The capital velocity was so high it “burns” right through. Conversely, the opposite is also true. If velocity falls, it means people aren’t spending the money they earned. This generally happens because people begin hoarding cash. Well, those with cash begin hoarding, anyway. They’re either making so much and don’t think there’s a good way to use it, or they’re worried that things will go south soon. There’s some more to it, but those are the basics of it.

Canada’s Velocity of M2 Money Stock

Now that we have a broad understanding, let’s take a look at the velocity of M2 money stock, a.k.a capital velocity, in Canada. Fund managers and traders have most likely started to try to map out historic market events in their mind. For the rest of you, look for the relation of velocity around the marked recessions in the early 1980s, early 1990s, and 2008 to 2009 (the Great Recession). Shortly after a recession, we see healthy increases in velocity. It never quite gets to the point where it was before (it never will in Keynesian economics), but it should improve. Once the decline occurs in 2008, we don’t see any rise at all, and that’s not great.

Source: St. Louis Federal Reserve, Better Dwelling.

In the most recent period, we see a rapid decline in the velocity of M2 stock. From Q3 2008 to Q3 2009, we the velocity fall 20% – a lot for a 12 month period. After the recession, it continues to decline to today. Currently we’re at 1.36, which is 31.91% lower than it was before the Great Recession. If you talk to any old timers (people aged 40+), they’ll tell you that business in Canada doesn’t  feel like it did before the recession. This has to do with the declining capital velocity. People aren’t spending like they did in the good old days. It’s not necessarily a bad thing, but why velocity falls can often be an indicator of that.

Deflation, Recession, and Debt

The rate of velocity falls for three main reasons – deflation, recession, or debt. The first, deflation, is when the cost of goods start to slide. People spending less to consume the same goods, it’s pretty self explanatory. The second, recession, causes consumers and businesses to spend less. Spending less (a.k.a. cash hoarding), results in a lower velocity, and slows the rate of economic growth. The third, debt accumulation, either consumer or debt. More money that goes to debt servicing, means less money rippling through the economy and stimulating growth.

There’s a lot of takeaways, and fun and exciting things we can take learn with our new understanding of capital velocity. Today, we’re just going to focus on two of them however – high home prices, and the creation of liquidity traps. The former we’ve talked about a few times, the latter is going to help explain why rising interest rates likely won’t be able to rise for as long as the Bank of Canada expects it to.

High Home Prices Lead To Low Velocity a.k.a Slow Growth

Let’s chart the percentage of median household income required to service the mortgage of a median home, beside velocity. Periods of rising velocity, when everyone is out spending, correlate with a low cost of home prices. Periods of declining velocity also correlate with periods of high home prices. Why? Most likely, when people are making money in the real economy, they don’t feel the need to speculate on non-productive assets. Not to knock housing, but the physical location of it doesn’t generate new income. Afterall, you ideally only move once every few years.

Source: National Bank of Canada, Better Dwelling.

The Bank of Canada Set A Liquidity Trap

Rather than facing the full brunt of the Great Recession, we took a theoretically painless route – rapid expansion of our monetary supply. In order to stimulate buying of goods, we slashed interest rates, and basically dropped bags of cash from a helicopter. Low interest rates were designed to increase the demand of goods, and it kind of worked. However, each dollar added to the supply becomes less effective at driving growth. We can see this in the velocity, when you realize how much money we added to the supply.

Source: St. Louis Federal Reserve, Better Dwelling.

In 2011, the former Bank of Canada governor noted “Cheap credit has been used to bid up the price of Canadian houses, a non-tradable good, rather than invest in expanding the productive capacity and export competitiveness of our businesses.” Nonetheless, we continued down that path, until we finally started to hike rates last year. Except we never saw an uptick in the Velocity of M2 Money Stock. After rapid expansion of the monetary supply, we still haven’t convinced businesses to go out and spend on tradable goods. Consumers are still mostly just using the excess money supply to buy houses. After 10 years of trying to avoid a recession, we still haven’t addressed the initial problem. We’ve only driven up individual household debt levels.

Now the Bank of Canada has two options, they can continue to expand the supply or start to shrink it. Continuing the expansion, i.e. keeping rates low, will cause further asset inflation with a minimal contribution to the GDP. If they raise rates, the supply will shrink, likely triggering a recession. People fear the consequences of a recession, but it actually addresses a very useful purpose. It corrects misallocation of capital, whether human or financial. Our ten year experiment of trying to avoid correcting the misallocation, has only made it worse.

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56 Comments

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  • Mike K. 9 months ago

    Absolutely. If you’re from Toronto, you don’t have to think back to far to remember when people were hanging out on Queen Street, pouring money into night clubs, etc. Now there’s about half the people during the summer, and empty storefronts in between huge chain stores.

    People have very short term memories. When you don’t see people spending, you should be worried.

  • Prof Funk 9 months ago

    Canada abandoned targeting through money supply measurements in the 1980s, because they Bank of Canada deemed it incompetent. This is when they stopped publishing measures like this, but really it’s starting to look like the BOC is incompetent.

    The only reason not to publish this is to hide how quickly things have deteriorated. You can’t just constantly issue debt to drive growth, you’re only kicking the can down the road.

  • C 9 months ago

    And gdp numbers are shit, and chinese drug dealers are using our banks and houses like washing machines, and now the Africans want to know how much stolen money is hiding in our housing market, and Xi owns millions of dollars of Canadian commercial properties, Canadians draining their RRSP’s for income, HELOC’s, rising household debt levels, Trump, NAFTA, steel tariffs….

    And on and on and on it goes.

    I just wish one person could put this all together and show how bad this shit show really is. I shudder at the adults who still believe all the fundamentals in Canada are strong.

    But not this time, right folks, this time its different. There is NOTHING that will derail our economy or housing bubble this time…???

  • Sammy 9 months ago

    Canadian tend to be overly positive about their outlook, and it allows them to be easily manipulated in a global economy.

    “Look at all of these Chinese students buying millions in real estate, it’s because we’re world class!” Wrong, they’re money laundering.

    “A house on my street sold three times. This market is really hot!” Wrong, that’s money laundering.

    “I made a ton of money buying a bunch of assignments, and flipping it to people. There’s so much demand, these prices are always going to go up.” Wrong, you’re the demand.

    “Exports are going to grow, everyone wants to buy Canadian.” Wrong, see increasing nationalism around the world.

    • Mmr 9 months ago

      Chinese buying million dollar property only in Vancouver and some part of Toronto. Every where else it’s normal. We have housing problem only in these two city. our economic fundamentals are better then any other g7 countries.

      • Alistair McLaughlin 9 months ago

        Our economic fundamentals are better then any other g7 countries.

        You’re confusing flash-in-the-pan GDP growth from the first two quarters of 2017 – fueled by a blow-off top in the Toronto housing market – for economic fundamentals.

        • Mmr 9 months ago

          Not really. Toronto housing market represent less then 5 percent of GDP. We have real growth in many other sectors. Alberta and Quebec economic performance has nothing to do with Toronto housing market. Alberta is on way to recovery and Quebec has best economic performance in many years. Toronto is not the center of universerse.

          • Justin Thyme 9 months ago

            If a particular sector represents 5% of the GDP and that one sector doubles, then the GDP increases by 2.5%, Since this is in the ball park of Canada’s increase in the GDP, I would say that 5% can have a MAJOR effect.

          • Mmr 9 months ago

            Yes it has major impact but not full blown impact like financial meltdown to our economy….worst case we will have mild recession….again only people who will be in trouble who bought real estate in Toronto
            And Vancouver in last 5 year…rest of the country and any one in those cities who bought real estate before 5 years are doing just fine. And 5 percent was just an example gdp contribution of Toronto real estate could be even lower. Plus ontario is worst province already for economic performance even last year they did so bad compare to other provinces. Ontario did not perform well even with Toronto real estate doing so well last year.

  • Joe 9 months ago

    So, in other words…. after the GFC of 2008, central banks around the world engaged in various measures of Quantitative Easing including lowering interest rates to zero, as means to prop up the economy. Instead of people taking easily accessible and cheap money to create value and expand businesses as well as hire people; people looked for various asset classes like real estate to invest in, that produced better returns, and started piling in. Causing many of these asset classes to separate far from their intrinsic values, leading to the greater probability of crash down the road, esp. when interest rates rise.

  • Grizzly Gus 9 months ago

    Wow reading that BOC report from 2011 is a real eye opener. Seems like they were very worried about the state of the market at that time, warning households…….. Unprecedented times ahead!

    • Ruddy 9 months ago

      It’s ridiculous that we knew these things were happening, the measures weren’t working, but kept going. Keynesian economics is such a sham.

  • Justin Thyme 9 months ago

    ‘ There’s some more to it, but those are the basics of it.’

    yes, just a BIT more to it.

    If these people stuff the cash in their mattresses, yes the velocity becomes zero.

    But they put it in the banks. So the banks do something with it. The velocity continues. The banks lend it out to people who spend it.

    The velocity becomes zero only if the banks sit on it.

    Or the banks lend it for purposes other than buying stuff. Like used real estate. Now, it depends on what the sellers spend the money on. Paying off previous debt, buying more real estate, or going on vacation?

    Yes, a LOT more to it.

    The bottom line is consumer spending, not the velocity of money,

    • TJ 9 months ago

      There’s a whole lot more, but the important thing is being stated – which is they’re lending money, but businesses don’t want it. This has to do with the aggregate demand of goods than anything. Businesses don’t need more money, because consumers aren’t buying goods like they used to.

      Consumer spending fails to count the money leaving the country. The more money that leaves, the greater the drop in velocity. Yes, it gets counted in spending, but it doesn’t help expand the economy in a way.

      Expansion of M2 also caputures the import and population growth. But just because someone moves to Canada, and parks their money here, doesn’t mean there’s a net benefit to the economy.

      • Justin Thyme 9 months ago

        If the money supply is expanding at the same rate as consumer spending is increasing, you do not need velocity. You can ship the existing money out of the country, and into a foreign bank account, for instance, or spend it in a foreign country to build plant (invest offshore), or even send it out of the country to pay a profit back to foreign investors. Velocity The measure of velocity is not important, what is important is the fundamentals that are leading to the change in velocity.

        If, for instance, I get a substantial increase in pay, but instead of spending the money on consumer goods, I invest it in a foreign company. The velocity of my money overall has gone down, but my personal wealth is still going up. My money is still working for me, just not in this country.

        Given that over half of all greenbacks are circulating outside the borders of America, I would suggest that it also depends on where that ‘velocity’ is occurring.

  • Justin Thyme 9 months ago

    Between 1984 and 1989, the velocity of money went DOWN, yet things were great back then. Why? Because the AMOUNT of available money went off the chart. When there is a lot of NEW money, you do not have to recycle EXISTING money. Methinks there are holes in the argument.

    • Grizzly Gus 9 months ago

      Velocity of money was trending down at this time yes, but interest rates were also starting to trickle upwards and housing prices began to skyrocket. More and more money was being sunk into housing costs rather than going into something like a fancy dinner, which puts money into the business’s pocket, in turn puts money into the employee’s pockets, and then that business and those people are able to recycle the money and go out and spend it on more things.
      Remember that this period was preceded by a huge housing correction in Toronto, and a very severe recession. The build up of that housing bubble also happened to coincide with the baby boomer generation entering the housing market (Much larger than the generation and house buyers before). I believe the millennial are number 2.

      Now I can’t speak first hand to the economic conditions , I also am not very well educated on the economic history of this time, but from what I understand, this period also reflected huge capital in flows from places like Japan and Hong Kong as their countries and business went on large global shopping sprees. Large stock market corrections around the globe, and the Japan implosion at the end of the decade triggered an ugly period in Canada. ……………. I think some parallels can be drawn to today

      • Justin Thyme 9 months ago

        Your answer reads more like a rationalization than any specific explanation. I believe the term is ‘grasping at straws’.

        Two things happened during this period.

        Velocity decreased and the money supply expanded. Connecting the two does not take a lot of conjecture. Velocity is a poor indicator of the heath of an economy.

  • Justin Thyme 9 months ago

    ‘The rate of velocity falls for three main reasons – deflation, recession, or debt’

    Of course, there is a fourth reason. Substitution. People replace more expensive goods for less expensive goods. They shop at WalMart instead of Macy’s. They buy online. They buy chicken instead of steak. They buy the same AMOUNT, but not the same THING. More discretion is shown in buying patterns.

    • TJ 9 months ago

      Substitution would also drop GDP proportionally, and therefore have no impact on velocity. You’re trying pretty hard here, are you a government shill?

      • Alistair McLaughlin 9 months ago

        No need to call someone a government shill just because they don’t agree with the premise of the article. John Crow was BoC Governor from 1987 to 1994, and he didn’t believe velocity was all that important. In fact, he felt it was almost impossible to measure accurately. In the US, only the St. Louis Fed even bothers with velocity measurements anymore – you rarely hear the Fed Chair or members of the FOMC mention velocity these days.

        Velocity was a popular concept back in the days of Friedman and pure monetarism, but it fell out of favour precisely because the monetarist equation (Inflation = MS growth x Velocity) never seemed to accurately reflect or predict inflation. John Crow talked about that in his book Making Money (2002). He felt central bankers were best able to control inflation by targeting inflation directly, and perhaps more importantly, by managing expectations for future inflation. Targeting money supply or velocity or some combination thereof had a very spotty track record to that point.

        Central banks have done a better job controlling inflation since CPI targeting became a thing. However, CPI targeting also has flaws, not the least of which is the CPI is very incomplete, and does not account for housing prices. Also, it can’t account for bubbles in financial assets. If the CPI properly reflected housing prices (not the “carrying cost” of houses, which is idiotic to put in a CPI but that’s another conversation) the BoC would have done a better job controlling inflation and keeping the housing bubble from inflating as much as it had. And yes, we’d have had a much deeper recession in 2008-09, but likely would have been the better for it today.

        • Bob 9 months ago

          You got that right? 1988 salary of $50,000 and house cost of $380,000. Today, 30 years later, the same job pays $64,000 and the same house costs $4,400,000 . And our government claims there hasn’t been much inflation, keeping the salaries low.

          So the length of time you need to work goes from 8 years to 70 years to buy the same property, but there has been no inflation …

          • Alistair McLaughlin 9 months ago

            It’s a huge problem, and almost never talked about. The National Bank released a study back in May on this very issue, but the response was so muted that I never even heard about it until last week:

            https://globalnews.ca/news/3478535/why-is-canadas-inflation-rate-so-low-when-life-is-so-expensive/

            Why this issue isn’t a burning policy question instead of a seldom-mentioned afterthought is a mystery to me. I suppose neither the government nor the BoC has any real incentive to correctly account for inflation. Fixing the CPI would have forced the BoC to keep rates higher until now, meaning slower growth. For the government, an accurate CPI would mean giving up the stealth tax increases they realize each year by indexing tax brackets and benefits to less than the real rate of inflation.

          • Andrew 9 months ago

            Your numbers sound hyperbolic and uncredible, and undermine your point. I say this because I agree with your point, and wish you’d use sources to make the point seem more valid not less.

      • Justin Thyme 9 months ago

        Except, of course, that the GDP went UP during these periods.

    • Grizzly Gus 9 months ago

      Technology advances also can impact this. As more and more middle men are eliminated between the delivery of goods and services between original producer and end consumer the less money changes had. Thinking of exomerce as an example where producers or wholesaler sell direct to consumer. Cuts out retail getting its piece before passing along the money to said wholesaler and or wholesalers piece before going to producer.

      • Mac 9 months ago

        @GrizzlyGus wouldn’t this still imply that we aren’t replacing jobs at the pace that we’re creating them?

        In that case, it sounds like the economy is flipping to a healthy economy with a large productive class, to an economy where a small productive class is required to service a majority non-productive class.

        • Grizzly Gus 9 months ago

          I just wanted to provide an example of how technological advancements can also slow down velocity. The topic of robots and automation replacing most jobs and whether that will be a good or bad thing in our current systems is way beyond me.

          • vnm 9 months ago

            Speaking of technology, the first 29 years of last century experienced an Internet-level quantum change due to electrification and motorization.
            By 1929 you’d expect the gains in productivity, the wealth generated, etc. underpinned by the growth of oil, would be ideal for a sustained period of economic growth.

    • Alistair McLaughlin 9 months ago

      Buying fried chicken instead of steak and lobster is what people do in recession. Or due to inflation. Or due to being in too much debt. So substitution is not a separate category from those mentioned above – it can occur under any of the three major reasons.

      • Mac 9 months ago

        Have we considered creating some sort of luxury fried chicken?

        • Alistair McLaughlin 9 months ago

          I believe I just had some yesterday in the cafeteria at my workplace. Best goddam fried chicken I’ve ever had.

  • JoeBlowFuckface 9 months ago

    Another good piece of information that should have been added into this picture was the secret bail out of 6 Canadian “too big to fail” banks. look it up in google.

    The other thing I cannot help to think which is the average person that is taking this route of “Spending less (a.k.a. cash hoarding)” Is also going to get fucked if the hoard of cash is still in their bank account. They already have a solution in place growing problem debt which they have called the “bail-in regime”

    go to page 223 on the link below and ask yourself the question on why would the government take the time to put this into the budget planning in the first place?

    https://www.budget.gc.ca/2016/docs/plan/budget2016-en.pdf

    take this article from better dwelling, add in the nuggets of information about bail outs that have already happened and the plans for a bail-in regime in the future. Its not hard to tell what kind of future we can expect.

    Or you can choose to live in Candyland where the houses go up and up forever and ever

    • Alistair McLaughlin 9 months ago

      There was no “secret bailout” and you might want to quit pushing that conspiracy theory; it’s gotten old these past ten years. The Insured Mortgage Purchase Program (IMPP) resulted in the CMHC offering to purchase about $125 billion in mortgages from the banks to allow them to keep lending, when fears of a credit crunch were at their highest in late 2008 and early 2009. Ultimately the banks parted with about $108 billion worth of mortgages. This was announced in Parliament, approved by Parliament, and updates of the program were announced regularly and publicly by the Department of Finance. I can give you supporting links if you like, such as the Hansard transcripts of the Parliamentary sessions where the IMPP was loudly boasted about by Cabinet Ministers. Far from secret, it was screamed from the rooftops. That’s why no Opposition party ever made it an election issue – there was no secret bailout to expose.

      • JoeBlow 9 months ago

        Alistair McLaughlin,

        Im not spreading conspiracy theory, Im just pointing out awareness to a few things that are out in the open by your own government but its just not being “screamed from the rooftops” as you try to claim. Most people have not heard of this shit, and were all adults here that can wear our big boy pants and make our own decisions. instead of aggressively attacking ones stance.

        its obvious you do not want to face the harsh reality that is comming. Does it bring you safety to label real things on the table as consiracy theory? I’m not trying to tell you 911 was a hoax, or the government is run by reptilians here. Although I do beleive that some “conspiracy theory” should not be ignored, even if it requires retesting by beliefs or taking a honest look at some dangers of what my money is riding on.

        theres a reason why they don’t write this stuff out to you in simple english, but since we are picking it apart lets first achknowledge that its not being told by alex jones or david icke, its right on the governments website.

        secondly, When you deposit money into the bank you become a creditor. Under Canada’s fractional reserve system, the banks promise to keep some cash on hand in the event of withdrawals, but the reality is that they lend out the funds or use the funds to purchase assets or incorporate into their global trading operations. The funds on deposit are no longer the property of the depositor. Instead the depositor becomes an unsecured creditor or lender to the bank. Banks pay you interest, but their real purpose is to use your funds to earn a spread. They put your funds at risk in the global markets through lending, syndication and trading. one of them being this pump in the housing markets. This is not made up from my imagination.

        Also CDIC insurance only covers up to $100,000 in deposits. That could include individual accounts, joint accounts, trust accounts and bank savings in a registered retirement savings plan (RRSP), registered retirement income funds (RIFs) and savings to pay realty tax on mortgage payments. The rest is not covered.

        Personally I could give 2 fucks about your money, If you have optimism and trust in the banks, go for it. as for me I don’t trust them, which is why I have to connect dots on my own cause nobody from the government or the media will warn me about it. They also got brainwashed fools like yourself to label people like me as conspriacy theorists, or label the messengers as fake news so the sheep dont wake up to the future robbery on thier wealth.

        All the debt created out of thin air is not to create growth for Canadian society, This better dwelling article aleady proves that.

        <3 joeblowfuckface

        • Alistair McLaughlin 9 months ago

          1) You assume that “creditor” means “depositor”. That’s wrong. That’s not what they mean.

          Here is Investopedia’s definition of a bail-in:

          A bail-in is rescuing a financial institution on the brink of failure by making its creditors and depositors take a loss on their holdings.

          https://www.investopedia.com/terms/b/bailin.asp

          Note that the wording in the Budget – and in the legislation – specifically leaves out ‘depositors’, mentioning only ‘creditors’. You are arguing that depositors are included by virtue of them not being mentioned, which makes no sense.

          2) You said “secret bailout”. Calling something “secret” when it is not is a conspiracy theory.

          3) CDIC insurance covers $100K per deposit account, not per person. They don’t combine all your holdings into a single sum and insure you only for that.

          The rest of your post demonstrates a level of rage, irrationality and disjointedness that reinforces my belief that you are unbalanced and therefore impervious to reason, so I will stop there.

          • Alistair McLaughlin 9 months ago

            CORRECTION:

            CDIC covers each depositor of an institution up to $100K per category, not per account as I said earlier.

            http://www.cdic.ca/en/about-di/how-it-works/Pages/default.aspx

          • JoeBlow 9 months ago

            Alistair McLaughlin,

            Of course I’m raged. mainly because I hate banks, and everything I mentioned has happened (banks bailed out), and potential to happen in the near future (bank bail-ins)

            You keep pointing out the bail out as being a conspiracy theory, All you had to do was search in google. here’s a link for you.
            http://www.cbc.ca/news/business/banks-got-114b-from-governments-during-recession-1.1145997
            and some other links on this topic keep using the word “secret bail in”. why that is because most people did not know it happened, hence the word secret.

            As for CDIC, whether its per person or per account, its still only 100k, and I’m pointing it out as awareness that anything beyond that is gone. are saying its perfectly fine for them to take your money?

            So here’s a question for you, since all the confirmation you need is to define the words depositor vs creditor in that document, are you saying to do feel confident that these people would never think about doing a bail-in and use a circumstance such as the failure of the housing market as a perfect excuse to do so.

            I guess if you asked people in Spain, Italy, or Cyprus, they would absolutely have no confidence in the banks. But they probably would have never imagined it before hand. To me, It’s just an example of what is potential to happen in Canada. If I was to not ignore that is a possibility, would I still be demonstrating a level of “Irrationality”?

            I’m not going to argue my point anymore, You can have all the faith you want in this system, at least from my experiences I learned very early to trust nobody. especially with anything to do with the banks being involved.

          • C 9 months ago

            Im no economic genious, but i think joe is correct. Once you deposit your money into the bank, you become the creditor.
            A bail in policy is pretty scary. I suggest reading up on it. You do seem quite knowlegeable about economics, but i wonder as well why the change in policy without informing voters? As far as i understand, the government will not offer bail-outs and forced banks to come up with bail in policies, and in the event of an economic downturn, or china dumping real estate, that most certainly puts anyone with money in banks in jeopardy. Those with money in credit unions are in even more precarious situations.

          • Alistair McLaughlin 9 months ago

            JoeBlow, that CBC article is too full of inaccuracies to even get into here. You crap all over the MSM, then cite a single MSM article as evidence of some “secret” bailout? Never ascribe to conspiracy what can be explained by simple incompetence.

            For you to assume I have “faith in the system” is a giant leap of non-logic on your part. The reason I come here is to discuss problems in the system with other like-minded individuals. Problems which have culminated in a giant credit bubble that is about to double-dick (credit: Bluetheimpala) a large part of the population. Right now, I have short positions on two major banks (put options on both CIBC and TD). Does that sound like someone who has faith in the current system?

            As for CDIC, what did you think was going to happen? You make it sound like it’s a travesty of justice that we aren’t covered beyond $100K. We’ve NEVER been covered beyond $100K, and the logical expectation for anyone is that if they have more than $100K in a single account category and the bank goes tits up, that anything over that amount is GONE. That’s not a bug, it’s a feature. No evil government or bail-in conspiracy required – you were NEVER 100% covered.

            Yet you rage about this big government “secret” that you could lose money if a bank goes under? What the hell did you think happens when a bank goes under?

          • Sam 9 months ago

            In regards to bail-ins, not sure if theres much point to debate over various terms of depositor and creditor because if whether a bail-in happens or if its a run on the bank of all the depositors pulling out thier money, The Cash vs Deposit Ratio is extremely low across all banks ranging 2-3% all the way down to some being only 0.13%.

            CDIC insurance or even the Manitoba 100% deposit guarantee sounds like a bunch of BS if you ask me. They cannot Insure you if there is no money there to pay you back during a time of an unfortunate event. this should bring some concern if you think your money is safe under CDIC

            https://steemit.com/money/@theeconomictruth/canada-s-credit-unions-are-bankrupt-what-you-need-to-know-about-your-credit-union

            https://steemit.com/money/@theeconomictruth/is-your-bank-insolvent-bankrupt-will-you-get-your-money-in-a-crisis

        • MH 9 months ago

          CDIC: “We insure eligible deposits at each member institution up to a maximum of $100,000 (principal and interest combined) per depositor per insured category. [] The Government of Canada has proposed changes in Budget 2018 to modernize and enhance CDIC deposit protection.”

          More importantly investment accounts are covered by CIPF to a much larger extent:

          “For an individual holding an account or accounts with a member firm, the limits on CIPF protection are generally as follows: $1 million for all general accounts combined (such as cash accounts, margin accounts and TFSAs), plus $1 million for all registered retirement accounts combined (such as RRSPs, RRIFs and LIFs), plus $1 million for all registered education savings plans (RESPs) combined where the client is the subscriber of the plan.”

      • SAL 9 months ago

        However, in contrast to the official story Canada’s banks received $114 billion in cash and loan support between September 2008 and August 2010.

        https://www.zerohedge.com/news/quantifying-big-five-canadian-banks-114-billion-bailout

        • Alistair McLaughlin 9 months ago

          That is not in contrast to the official story. That is the official story. That $114 billion was the Insured Mortgage Purchase Program. There was nothing secretive or unofficial about it.

          • SAL 9 months ago

            Under the IMPP, the government proposes to purchase these mortgages from financial institutions. More specifically, through CMHC, the government intends to buy National Housing Act Mortgage-Backed Securities (NHA MBS), a kind of bond for which the underlying asset is a pool of mortgage loans guaranteed by CMHC. In exchange, financial institutions will receive a cash payment that they may use to make new loans to consumers and businesses.

            To put IMPP activities into perspective, consider that at the end of November 2008, the estimated value of outstanding residential mortgages in Canada was $900 billion. (2) Through the IMPP, the Canadian government proposes to purchase up to $125 billion worth of these mortgages, which would result in its holding nearly 15% of all outstanding mortgages in the country.

            You right was not secret because is part of the Canada Mortgage and Housing Corporation to protect the banks and the financial stability (CMHC) but and this is my opinion I do not think the banks should be receive financial help from the government but instead risk only the own money to do business with no bail out but I agree with the bail in. Also the purchase program left the banks inflate the market and be cause of the mess in the real estate today.

    • carlton 9 months ago

      You make excellent points! show yourself some love, you are not a
      Joe blowFface. I appreciate the Useful comments, Good stuff!

    • Alistair McLaughlin 9 months ago

      And there’s the reference to bail-in from JoeBlowFuckFace’s link:

      To protect Canadian taxpayers in the unlikely event of a large bank failure, the
      Government is proposing to implement a bail-in regime that would reinforce
      that bank shareholders and creditors are responsible for the bank’s risks—not
      taxpayers. This would allow authorities to convert eligible long-term debt of a
      failing systemically important bank into common shares to recapitalize the
      bank and allow it to remain open and operating. Such a measure is in line with
      international efforts to address the potential risks to the financial system and
      broader economy of institutions perceived as “too-big-to-fail”.

      Do they say a single word about using depositors’ money to bail out a bank? No. The bail-in refers to the bank’s creditors and shareholders, not depositors. That’s clearly stated when they say this:

      This would allow authorities to convert eligible long-term debt of a
      failing systemically important bank into common shares to recapitalize the
      bank and allow it to remain open and operating.

      See that? The bank owes its creditors a bunch of money. Instead of allowing said creditors to foreclose on the bank and liquidate its assets, thereby forcing the Canadian Deposit Insurance Corporation to make the depositors whole again, the government would force the creditors to convert their debt into equity (i.e. shares in the bank), leaving depositors’ money alone. Ultimately both creditors and shareholders would pay for the bail-in, not depositors. Creditors because they would have to settle for shares in a crappy bank instead of liquidating its remaining assets, shareholders because such an action would certainly dilute the share capital and devalue their shares. There is no mention of depositors’ money being used to bail in. You imagined that. Your screen name is well chosen.

      • EO 9 months ago

        This is correct. I confronted someone at private banking/wealth management at one of the big banks about this. They told me that only bank creditors (bond holders and preferred share holders etc.) are exposed to the bail in. Depositors, GICs, etc are not used for bail in. The government says that those investors that are agreeing to lend the bank money are complicit in the banks inability to continue to fund itself and therefore should be on the hook for bailing them out, not the tax payers who had nothing to do with it.

  • vnm 9 months ago

    Very interesting posts!

    The spending of aging boomers is another factor. Studies estimate that it could fall by more than 20% over the next 10 years. And that’s in a less worried, less credit burdened population.

  • Adore 9 months ago

    No politician would want to see a recession or housing bust on his watch. So why cant the central bank continue to kick the can down with more money supply, low interest rates supported by government stimulus aka deficit spending in infrastructure and other social programs. I mean to just buy a few more years? the answer to this question might reveal when the economy and housing will really tank.

    • Functioning Brain 9 months ago

      Cause they don’t give two fucks.

    • RM 9 months ago

      Adore – I’m not an expert on this but my understanding is that our interest rate is somewhat tied to the US, so if the US raises rates as expected, we have to follow suit or risk devaluing the Canadian dollar. The BoC’s fiscal policy is concerned with much more than just our housing market, if it’s even concerned about it at all. I certainly think the can has been kicked for too long, and the quantitative easing didn’t quite work out as planned, but there are more factors at play and I don’t see how interest rates can’t continue to rise now.

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