Canada Is Spending 75% of Its Forecast Deficit To Prop Up Mortgages

If you’ve ever thought that using a payday loan to pay off a credit card was a good idea, you’re about to be all kinds of impressed. The Government of Canada (GoC) has begun buying billions in Canada Mortgage Bonds (CMBs), in a last ditch effort to stimulate more borrowing. The planned purchases are equivalent to three-quarters of the cash the Federal government is forecast to borrow this year. In addition to recklessly stimulating the market, it serves as a huge warning sign that Canada is unable to find global investment to support its credit markets. Yikes. 

Canada Plans To Simulate Housing Demand With $30B In Canada Mortgage Bonds Per Year

Just so we’re all on the same page, let’s quickly discuss Canada Mortgage Bonds (CMBs). Lenders originate mortgages, pool them, then sell the pools as mortgage backed securities (MBS) to the government. To fund the purchase, the government sells CMBs to investors to acquire funds. The cash flow from the MBS is then used to pay investors that bought the CMBs. In short, CMBs are state-backed securities to fund mortgage financing in Canada.   

Starting this year, Canada doesn’t want to just sell and guarantee CMBs. In the 2023 Fall Economic Statement, they announced they’ll also become the buyer. They’ll purchase half of the 5- and 10-year CMBs, up to $30 billion. The government is essentially borrowing money to buy the investments they guarantee, with bonds they also guarantee. It’s even dumber than it sounds. 

Canada Is Spending 75% of Its Planned Budget Deficit To Buy Mortgage Bonds

The move will inject additional liquidity into the mortgage market, similar to the way quantitative ease (QE) did. While the Bank of Canada (BoC) will be in charge of executing this policy, they want it to be crystal clear—this isn’t QE, it’s fiscal spending. QE involves balance sheet expansion and is designed to stimulate demand, and raise inflation. The GoC policy will only stimulate mortgage demand and therefore apply positive pressure to inflate home prices. 

If Canada had money, it would be arguably good news—cheaper mortgages, at the expense of stimulating even more housing demand. Unfortunately, the country’s budget deficit is forecasted at $40 billion this year. That means 75% of the cash they’re borrowing will be used to provide cheaper mortgages. In short, they’ll borrow money to stimulate demand to borrow money. Or as Xzibit would say, “yo dawg! We heard you like debt, so we put debt in your debt!” 

Canada Blew Through 25% of Its Mortgage Bond Budget In 2 Months 

To date, the BoC has participated in two auctions to administer the program. There was a $3.5 billion purchase of 10-year CMBs in February, and a $4 billion purchase of 5-year bonds that will settle on Wednesday. A quarter of the budgeted spend has already been deployed in just the first two months of the program.  

The program isn’t just a silly plan where the government is guaranteeing its own liabilities. It’s also one where the government is attempting to hide the true cost of borrowing by distributing interest across taxpayers. Since credit markets aren’t as easily tracked (or understood) by the average person, it appears this is just window dressing so people don’t have to face the true cost of borrowing.  

However, there’s a much bigger takeaway regarding Canada’s relationship with capital markets. If there was sufficient demand for loonie-based instruments, there would be no need for state-backed liquidity injections. This serves as yet  another reminder that global investment in Canada is drying up—just a few weeks ago the country saw a record outflow of investment capital. Ironically, it’s been drying up due to the lack of growth due to the economic stagnation resulting from an economy based largely on real estate

Correction (Mar 18, 2024): The rapper Xhibit was incorrectly referenced as Ludacris. We apologize for any confusion this may have caused.

59 Comments

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  • Kate 2 months ago

    I wonder when they give up and there would be a nice Kaboom.

    • Jay 2 months ago

      When the US Fed is forced to raise rates as inflation looks entrenched and 3mo. average is trending up again for core CPI down south. See Wolf Street.

      The end is near, I’m stocking cash in 6mo. GICs to buy popcorn.

    • Fraser 2 months ago

      hopefully soon….prices have been crazy for a long, long time now….

      • Zachary Curtis 2 months ago

        What comes first? Hyper inflation or deflation? Perhaps both at once?

        • Jay 2 months ago

          They (BoC) will protect the dollar to prevent hyperinflation. Crash is inevitable.

          Just my opinion.

    • Frank 2 months ago

      From the article,it sounds like a crash would happen if the gov stopped the stimulus. They’re keeping the boat afloat when it should be sinking waiting for the storm to pass. What with foreign investment pulling out, that can be attributed to the heavy hand that froze corporate bank accounts. They’ve spooked investors. With new leadership Canada will be fine. Until then, not so much.

      • Jay 2 months ago

        Government QE…. Last straw in the hay stack? This is ridiculous. Is this even legal? Suppression of borrowings rates using future tax dollars that we have to pay back? Looks like the Liberals want to lose official party status like they did in Ontario.

    • Had It 2 months ago

      Sadly, ‘the idiocy can continue longer than you can wait around’ — been waiting for this housing bubble to burst for over a decade now, and while in the US their mighty financial system was unable to keep their housing from collapsing post-GFC, Canada’s corrupt politicians have not yet bankrupted this country so it could take another decade or two to reach the end of the line.

      Then we’ll be an undeveloped poor country, with economic refugees desperately taking barely floating boats from Canada across the Pacific and Atlantic to reach countries with more opportunity. (And the US will build a Northern wall, as we’ll be more of a ‘threat’ to them than Mexico 🙂

    • TJmax 2 months ago

      So borrow at a lower rate from an investor and lend it at higher rate to a borrower, while keep the margin of difference for yourself? Sounds pretty good to me.

      If Canada guarantees to give back funds it borrows, yes? Then lenders are far likely to lend to Canada at attractive rates.

      And when it uses the borrowed funds to lend it to borrowers (try developers) at a rate sweeter than any other lender (Bay/ Wall Street), yet at a rate that is still higher than what Canada owe it’s own landers (Institutional investors), then we have an alternative lender in the market (The government) breaking the Bank monopoly or “creating healthy competition” in market terms).

      Globe and Mail wrote a heavily biased piece on this about a month ago arguing against this plan

  • Ron Bruce 2 months ago

    “Economic stagnation results from an economy based largely on real estate.” This has been the case for decades, with no end in sight. Affordable homeownership relies on people working in competitive industries. It’s no wonder that influence peddlers (politicians) influence real estate, hoping to get in on the action.

    Why not investigate executives at the BoC and major accounting firms to see how much real estate they own, including their proxies, nominees and strawmen? However, no matter what you find, the taxpayers will be on the hook.

  • Chas 2 months ago

    Just when you thought they were out of tricks to prop up the massively over-inflated real estate market …

    This reeks of desperation. Just delaying the inevitable and ensuring the crash will be ever more severe.

  • S 2 months ago

    It’s Mr X to the Z Xzibit, not Ludacris. You’re forgiven due to always being right on everything else.

    • LT 2 months ago

      You got them to wire out a correction notice which was the best notice I’ve seen in a long while. haha.

  • Balter 2 months ago

    Prior to 2015 the buck was at par, even a bit above the USD very nice for renewing fleets and machinery. Today it is 35% below – despite the US spending like a drunken sailor our Trudy males them look tame.

    • Finn 2 months ago

      “Trudy”? How so mature of you. The Canadian dollar was last on par with the greenback in 2011, actually, above par. But, it quickly declined. Prior to 2011 it had been on par for another brief period but it has been below par for most of the last 45+ years.

    • Finn 2 months ago

      You may want to check your sources re our dollar on par before 2015. It has been on par twice, briefly, during the past 45+ years.

    • Finn 2 months ago

      ‘Trudy”? How old are you?

  • Racoon Girl 2 months ago

    …there are no words…

  • Duddly-Do-Right 2 months ago

    Wow – sounds like Communism. So let’s get this straight – not only does this useless government want to keep RE prices propped up and the entire Ponzi scheme from folding over, but it now wants to own YOUR mortgage debt. I would rather owe a bank at the mall my mortgage than the government because this is TOTAL control. If you can’t make payments, guess who is coming to get your house? That’s what happened in former Eastern EU Commi countries when you owed money. The gov came for what it felt was due to it. People with any form of debt lost everything to the commi governments back them – cars, land, houses, condos, gold, etc.
    The government and BOC are not even trying to hide Canada’s gradual conversion to a Commi country now. Sad.
    Folks – best advice is to clear your debts. We are heading for Agenda 2030 with this. Every step is being taken to set the ground for the implementation of the final stages of the Agenda.

  • Lynette Bondarchuk 2 months ago

    Canada is like that dog at the kitchen table saying “This is fine” while the house burns down around him. Please someone clarify: Is the first sub-heading correct, or have a typo? (It says “Canada Plans To Simulate Housing Demand With $30B In Canada Mortgage Bonds Per Year” and I’m wondering if “simulate” is supposed to say “stimulate” – ??)

  • [email protected] 2 months ago

    CANADA IS A LOSER COUNTRY. TAKE ALL YOUR MONEY TO THE USA. BUY HOUSES FOR 50K OR LESS/ SEE ZILLOW. REDFIN AND LANDSEARCH.

  • Bill Rice 2 months ago

    Despite an administration that has been defined by calamities like Donald Trump, Covid-19, a worldwide inflationary crisis, climate change and crop failures. Under this Liberal government Canada is the envy of the world.

  • Sharon Sommerville 2 months ago

    Didn’t the government do this a few years ago when house prices started to go through the roof in 2015, they eventually backed out around 2019, just in time for Covid? Am I remembering that correctly? And, now when an entire generation is locked out our purchasing a house, they are at it again? It is lunacy.

  • Terry Harvey 2 months ago

    The Government’s management of the Canadian economy explains why the Canadian dollar is called the “Loonie”.

  • Bob 2 months ago

    I just want to scream! How can this government be so stupid. They don’t support our resource industries and spend, spend, spend on things that just make us poorer.

  • Lenard Mitchell 2 months ago

    You know what they say, and it’s true…..
    Go WOKE, go Broke!
    And no one is more Woke than the Canadian Government.

  • Lenard Mitchell 2 months ago

    Well, easy to see this is another JT funded “news” source. They keep deleting my comments.

    • Patiently Waiting 2 months ago

      Don’t confirm your subscription when you receive an email from BD and your comments will stay. Used to happen to me all the time.

  • Dan 2 months ago

    Another great article. Love the wit and sarcasm in these articles too. Love it. Love it. Love it.

  • H. Soop 2 months ago

    Simulated housing demand, indeed.

    • Patiently Waiting 2 months ago

      I recall the Finance Minister saying, not too long ago, they wouldn’t try to stimulate housing demand. Liars.

  • Ravi 2 months ago

    Why doesn’t the BoC refuse to participate in such rampant misuse of tax payers money? Instead of bringing down the cost of living, the government is further doing the opposite.

    • Trader Jim 2 months ago

      Not the US. The BOC is under the Dept of Finance, which is why no one should make the mistake of conflating the two as a flight to safety.

  • Trevor 2 months ago

    So, with this “plan”, the Government wants to increase purchases of real estate using a convoluted mortgage scheme, which will further increase housing prices, and does nothing to address the net negative housing supply due to overwhelming numbers of population growth due to new arrivals to Canada.

    And the Bank of Canada says that inflation is still a concern due to high housing price growth and must keep rates high to slow the demand for purchasing homes.

    The people at the top are so out of touch, that it’s no wonder that investment is fleeing the Canadian economy in record amounts, leaving taxpayers to suffer an even bigger recession than anyone at the top is willing to consider.
    Disgusting.
    Time for a vote of non-confidence and a new government.

  • Neo 2 months ago

    Is further devaluation of the CAD a real possibility

  • Chris 2 months ago

    Where is the opportunity for the layman to make a profit from this poor government policy ? Is this another CDOs-type scheme ?

  • Ike 2 months ago

    How else would you keep the backbone of the nation’s economy hummimg along when it’s showing signs of a slowdown?

    What Canada is doing is a fairly standard practice

  • Sam 2 months ago

    This is ugly, when will the nightmares be over? The market is super distorted!

  • Don 2 months ago

    Seems like a vicious circle – isn’t this contradicting the BoC’s attempt to reign in inflation?

    • LT 2 months ago

      Nailed it. That’s probably why the BoC sends out notices every other week reminding journalists, this is not them—they manage the purchases on behalf of the government.

  • Stan 2 months ago

    Gov. Of Canada before you spend Billions.
    I have some debt you can buy from me for cheaper.
    I will give you a made in canada home discount too!!!
    Or you can just buy my 1$ for 2$ of yours. Don’t worry my non-existing children will pay it all up as i am sure 50 years from now they will live to 200 year old if not more!!!

  • Craig 2 months ago

    Does anyone know if by doing this they essentially would own the debt of pur homes?

    The reason I’m asking is this. Could the government buy up all our mortgages and then force us into a situation where noone can sustain a mortgage and then basically take all ours houses turning us into a society of renters?

    • Duddly-Do-Right 2 months ago

      Read my post further up – it happened in Communist times in Eastern Europe. The gov essentially owns your debt and can call the shots when SHTF.

    • Itchy Bear 2 months ago

      No.

      Buying the bonds reduces mortgage interest rates which actually should reduce inflation for the duration of this program.

      That doesn’t make it a good idea, but they can legit argue they’re tackling the cost of living crisis even if it’s in an idiotic way.

      If you’re looking to bring the WEF or any other idiotic “own nothing and be happy” conspiracy into this, your brain has already overheated and if you don’t let this go you’ll be a greater threat to this country than the dimwits already in charge.

      • Jay 2 months ago

        Hi,
        Great point.

        Can you please explain like i’m 5 how does buying the bonds reduce inflation?
        i’m not sure to understand well what they are trying to say in the article

  • Patiently Waiting 2 months ago

    How do we get rid of this government now? Another year and a half before of this Lib/NDP reign will bankrupt us.

    • Kate 2 months ago

      I am puzzled with the same question -“How do we get rid of this government now?” Can any one comment on it?

      • Sharon Sommerville 2 months ago

        This government is in place until the next election. When is the next election? Anytime the PM calls one but it must be no later than Oct. ’25.
        Or because this is a minority government, if the NDP end the Supply and Confidence Agreement, (the NDP has agreed to support the government in return for specific legislation like pharmacare being enacted) the government would be vulnerable to a vote of non-confidence. If there is a non-confidence vote and the government looses the vote, the House would fall and an election would be called.

        Poilievre engaged in political theatre last week when he called a vote of non-confidence over the carbon rebate. Poilievre knew that the NDP would vote with the government but he got a few days of headlines.

  • pit bull 2 months ago

    that quote is xzibit, not ludacris

  • Douglas Smith 2 months ago

    Billions spent…. zero return, brilliant

  • systemBuilder 2 months ago

    I think that Bloor Street in Toronto is worth as much as the Japanese emporer’s grounds in 1990. That’s how stupid yhings have become …

  • Phil 2 months ago

    This is utterly insane. This is absolutely the last thing they should be spending money on. It obviously signals the government is worried about it. Why borrow 30 billion of public money to spend it propping up an already insanely overvalued property market. Our dollar is called the Loonie for a reason.

  • Philippe 2 months ago

    This is utterly insane. This is absolutely the last thing they should be spending money on. It obviously signals the government is worried about it. Why borrow 30 billion of public money to spend it propping up an already insanely overvalued property market. Our dollar is called the Loonie for a reason.

  • jason mclaughlin 2 months ago

    The CMB program lets banks pool eligible insured mortgages into marketable securities. The sale of these products is what allows those institutions to continue to lend more money for new mortgages. That’s how this greases the industry – by ensuring liquidity in the great housing merry-go-round so others can pay consistently more for a money-crapping box that was always worth 25% less the year before.

    CMB’s pay 4 to 6% interest according to TD website. You can buy them too. And they currently have a AAA rating from S&P. Of course, so did mortgage backed securities in the US prior to the 2008 implosion. So it’s not zero return unless the RE industry goes bust. But the private equity market is usually quite savvy to risk/reward and the important problem alluded by this article, and the reason that the BoC is purchasing so many, is that nobody else is buying them anymore. Too risky?

    If nobody buys them, the mortgages stop flowing, and the party winds down.

    Or the CMHC needs to start offering CMB’s at a substantially higher premium to attract buyers and consequently the cost of an insured mortgages goes up. Which also leads to a slow down. And probably more problems for FTHB’s in addition to an ever larger gap between them and the people that already own homes and can get mortgages for second, third and fourth homes.

    Or the BoC keeps greasing the wheels with taxpayer money.

    Lucky for the government that kids are not taught economics. I’d be furious if I were a young person. This is a terrible policy following years of terrible policy.

  • Phil 2 months ago

    This is utterly insane. This is absolutely the last thing they should be spending money on. It obviously signals the government is worried about it. Why borrow 30 billion of public money to spend it propping up an already insanely overvalued property market. Our dollar is called the Loonie for a reason.

  • Brian Graff 2 months ago

    Here’s my problem – government deficits are bizarre – it is closer to cash flow than it is to profit/loss.
    If government buys bonds – regardless of who issued them, that is really investing or capital, not operating.
    Federal government deficits are funded by bonds or from the Bank of Canada.
    But we need a new way of accounting that separates spending on things with lasting value as opposed to operations.
    Ontario sold off Highway 407 cheaply, to make the deficit lower. We need to end that sort of stupidity.

  • Zeltic 1 month ago

    The sub-prime mortgage garbage that banks profited from creating and which CMHC insured for low premiums
    has been dumped onto the backs of taxpayers.

    All this under the oversight of the (useless) OSFI.

    Bank of Canada purchased all those mortgage backed securities (i.e. junk mortgages) at 100 cents on the dollar full knowing they would be / are losing value.
    They plan to inflate it away by money printing, lying about the real rate of inflation, carbon taxation, flood of immigration to suppress workers’ wages… etc.

    Looks like the same moral hazard as was played in the US in 2008 where banks privatize profits and socialize losses.

    What an absolute fraud.

    Capitalism inevitably degenerates into Crony Capitalism and Banksterism which is to say corruption of the monetary system followed by the govt itself. Too many entities slip their tentacles into govt to rent seek and clean out the trough.

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