Canadians are holding onto less cash, according to the country’s central bank. Bank of Canada (BoC) numbers show M1+, a measurement of “cash,” is seeing growth plummet. The deceleration of growth is a sign that consumers are spending more to service debt. That’s the good news. The bad news is it’s also a sign of slowing economic growth, and usually accompanies an interest rate cut. But aren’t we hiking?
The M1+ in Canada is the BoC’s measure of the most liquid form of money. This includes currency outside of banks, plus chequable deposits held at chartered banks, trust and mortgage loan companies, and credit unions. In plain english, it’s anything you can spend with little notice. It’s an important number, and one of the most important indicators in the economy. Unfortunately, no one talks about it outside of the BoC.
The BoC manages the rate of money growth “indirectly,” this measure being important. When they increase rates, people borrow less and begin paying down their loans. The result is less cash is floating around, which is reflected by slowing growth of the M1+. Slowing growth is always a sign of declining economic growth. The impact is first seen in product that require large financing, like houses and cars.
Canada’s M1+ Falls To The Slowest Pace of Growth Since 2003
Growth of M1+ is decelerating at the fastest pace in over a decade. The BoC estimates annual growth at 4% in May, down from 11.6% last year. This is a huge drop from just a month ago, when the 12 month rate of change was 5.5%. We’re now at the lowest pace of growth since October 2003. The decline is almost certainly a result of higher interest rates.
Percent change in M1+, showing declining economic activity.
Source: Bank of Canada, Better Dwelling.
Higher interest rates need more cash to service existing debt. The full impact of a policy change isn’t seen until 6 to 12 months after action, according to the BoC. Since this data is less than 5 months from the most recent hike, it would be for this measure to not drop further. That’s before you consider they’re trying to move to neutral policy rate.
What Were Canadians Doing In 2003?
If you’re like me, you’re probably wondering what was happening in 2003? StatsCan noted in a 2004 report that home prices and consumer spending were growing fast. Income growth wasn’t where it needed to be, so “households had to find other means to finance their outlays. They did so by running down their savings rate and borrowing more.” Sounds familiar. The rate environment was also similar – the BoC expected to hike. Instead, they ended up cutting to prevent a recession.
Canadians are keeping less cash accessible, as rates rise and households begin deleveraging. Despite the market expecting a rate hike this week, it would be slightly odd. The most recent hike is still driving both the M1+ and consumer credit growth to multi-year lows. Hiking into this deceleration would likely drop it to levels Canada hasn’t seen in over twenty years.
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Spicy. Raise interest rates, even less cash in the economy – recession.
Keep rates low, debt inflates higher, bigger recession.
BoC needs more independence from the Canadian government. They should have been able to make this decision in 2013, and we wouldn’t experience such high debt levels. Instead, they have to feed growth, and default government debt with low interest rates.
The ole’ debt trap, in every direction we look.
The BoC IS independent of the Government of Canada.
Parliament does NOT tell the BoC what to do.
The closest the GoC has on the BoC is to define the objectives.
Justin Thyme – oh, do I have some swamp land in Florida to sell you! The Bank of Canada is no more independent than a five year-old is. Parliament might not have a direct line to the Bank of Canada (although there are probably off-record discussions), but you can be sure that the very people who control the politicians are the same people who control the Bank of Canada.
Co-dependence of entities on a common factor does not indicate dependence between the entities.
Justin Thyme – you can bet on there being dependence between the entities.
Isn’t this a rehash of a previous article?
As I said then, M1+ is quickly loosing its utility as banks respond to online banking with more and more savings products that do not show up in M1+. As consumers migrate their money to these products. it appears that M1+ is tanking, but overall the availability of money to consumers remains strong.
TFSA’s, and high interest savings accounts, neither of which have checking privileges (in some cases, you can not access your funds through terminals) but are instantly accessible through on-line banking,, for example. Cashable GIC’s (but at a much lower rate) also do not show up in M1+.
As banking evolves in response to computerized and online banking, the old indicators become less and less useful.
Yes, you’re right, the M1++ would be a better indicator as it includes non-chequable deposits
Is it really though? Fixed-term deposits aren’t an indicator of financial readiness going into the next recession. Breaking your terms are just as bad as withdrawing from RRSP, etc.
Cash flow is more important to going into a recession. If cash flow is stable, then one does not have to draw down on investments. The more diverse the sources of cash flow, the more resilient one is to a recession. Multi-income families are perhaps a greater buffer to cash flow, along with UI and personal skills, education, and training. Being high on the seniority list is greater comfort than money in a zero-interest savings account. Long-term (non-M1+) retirement accounts are more important than short-term buffers.
True, but considering TFSA’s, high-interest savings accounts, and Cashable GIC’s to be part of a household’s cash flow would negate the whole point of the M1+ index. The M1+ is there to measure the amount of liquidity in the consumer spending market. If people dip into their long-term or short-term savings in order to make everyday purchases or to make their debt payments, that indicates a massive problem in the economy. Adding those saving vehicles to the M1+ would make it extremely difficult to to predict recessions or spot where you are in economic cycles, as by the time the M1++ would begin to dip, the recession would have already started.
The M1+ metric, along with most M metrics, is already a lagging indicator. Has been since the beginning of the century. They missed predicting the 2008 recession completely. Oh, wait, they were useful for confirming that yes indeed the recession started several months ago.
The bank I deal with is pushing TFSA’s as a direct substitute for a savings account. It is paying the highest interest, and I can transfer money back into my savings/checking account with just a phone call. It is about as liquid as previously having to go into a bank to withdraw money, before debit cards became popular.
And with my qtrade account directly linked to my bank account, viewable from my bank login page, I can move money from stocks to liquid cash with just a few computer clicks. Okay, so there might be a few days’ lag. Whoopee. Some ‘liquidity impediment’.
But if I REALLY want immediate liquid cash to use online, perhaps the fastest is my paypal account. It pays out faster than using a credit card. No brief delay while the payee system checks with the bank for available credit. I can transfer money into and out of paypal to my linked bank account with just a few clicks.
But wait, I can now transfer borrowed money into a paypal account and use it like liquid cash. In fact, I can borrow money at really low rates, and place the money into M1+ accounts for ‘liquid’ use. I can transfer a HOLOC advance directly from my HOLOC account into my checking account, if I am shopping around for a major purchase, and want the money available on my debit card. So M1+ accounts get padded with borrowed money. Is this really liquid money? And when I transfer this money in an M1+ account back to pay off my HOLOC, is this really a ‘shrinking’ of the money supply? Returning money back from where it came? Was it ever ‘liquid’ to begin with?
Borrowed money can so easily be made to look like liquid money, that just looking at M1+ can give a very false sense of how healthy the economy really is, and is a reason why M metrics have become a lagging indicator. Only when I can’t borrow any more money to pad my M1+ accounts do these accounts actually shrink. Then, it is too late. Maybe. But how does one tell the difference between when M1+ accounts are padded with borrowed money, and are the result of actually increasing real savings through, say, a wage increase? And how do you tell in a drop in M1+ is due to them being squeezed by credit pressures, or from smart money being transferred out of them and into longer term higher interest vehicles because people are more confident of the future?
The entire concept of ‘liquid money’ and ‘cash flow’ has changed drastically over the last five years, and the indicators have not kept up.
If you are using M metrics to predict recessions, it’s too late. We are already in one. Probably. Maybe. Who knows? The system is broken.
Here is a really neat illustration of the problem. Using catastrophe theory to illustrate why things can go from good to bad instantly, with only a minor hange in the underlying metrics.
Okay, maybe the head economist at google doesn’t know what he is talking about. Right.
From the BOC: “The Bank’s economic research indicates that the growth of M1+ provides useful information about the future level of production in the economy.”
It’s actually one of the most important ones, which is why most of the BOC research depends on the M1+. It’s the most accurate at predicting the amount of ease that will be required for the economy to flow.
The M2+ is better for “wealth,” but that’s become a fairly useless term until we have neutral policy. Most of the the wealth will disappear as contraction begins, and the economy makes its margin call.
It WAS one of the most useful…
Banking has changed so radically in the last five years alone, that what WAS useful is no longer valid.
Radically? How so? I mean I did just come out of a fallout shelter…decentralized ledger system (i.e. blockchain). Nope. Mass movement to another form of storage (i.e. hamster pants, gold…). Nope. Flocking to paypal/online wallets. Nope. 18-34 year olds trying different things (crypto, off grid, etc) with their money but the vast majority of $$$ still within the archaic banking system. Yup. But young people have always been early adopter of new ideas with many just going back to the status quo when it doesn’t work out, like hamster pants as a storage of wealth. So what has radically changed? You’re bordering on subversive JT and you know what Blue thinks of smart people with an agenda…nom nom nom. BD4L.
Blue, HAVE you just come out of a fallout shelter?
When was the last time you actually went to a bank teller for a transaction? Five years ago?
My on-line bank account page allows me to link to bank accounts at other branches, my qtrade account, my paypal account, my credit cards, send and receive money by email, I have TFSA’s, RRSP’s, high interest savings accounts, GICs, all available from this one page.
I can move money from an account at one bank to an account at another. I can transfer funds between my American account and my Canadian account. I can see my American account at an American bank and my Canadian account in both US and Canadian funds on the same page.
I can deposit checks to my account simply by taking a picture of the check.
I am told that paying by check is now a premium service, and it will cost me dearly. Checking accounts are obsolete, and you have to practically beg to get checks.
No human is involved in the entire process of clearing a check, except to code the banking information, and even THAT is being done by a machine AI reading it. Company checks with all the information coded may NEVER be seen by a human. The teller? When was the last time you deposited a check through a teller? Anything deposited in an ABM machine is all processed centrally, and automatically. Even if you use the ATM at your bank, everything is collected by a pick-up service, not by personell in the branch. Checks are not returned to your branch, but kept in a central repository. You could sign it as Donald Duck and it would clear. Best you can hope for is a picture of it.
I’m 29 and I almost solely go to the teller when I have to bank.
I’m 29 and I recognize the lack of security and increased liability when using a debt card.
I’m 29 and I special order my debt card without VISA attached.
Sorry JT but all those convenience features you listed dont impact M1+ in a negative way. Infact they probably have a positive impact on M1+…
The cash available for online banking is reflected in the M1+, and cashable GICs are considered money market accounts not term deposits, so they should be in the M1+ as well (same with cash stored in your TFSA).
Cash held as a stock is also pretty easy to access, but you may have to sell at a loss in a recession to realize the cash. The point of M1+ is to see if people are prepared for a sudden economic shock, which unfortunately they aren’t. People, especially Boomers, tend to use their home as a home, retirement fund, credit card, and savings account.
If you still don’t think the M1+ slowing is a bad thing (the BoC thinks it’s a bad thing), the M2+ is also starting to hit Great Recession levels of growth. Now that’s bad, but not quite there yet. The BoC is planning on addressing this with another policy measure through another regulator, likely in November.
And the BoC really called it on the run-away housing prices, didn’t they? Boy do they ever have a good handle on the real estate sector.
Two years ago, buying an investment property was a sure-fire method of ‘saving’. Houses were essentially liquid – put it on the market, it sold in days. Your asset value was guaranteed, at far higher interest rates than a savings account.
Even bonds have become, essentially, liquid. They can be exchanged virtually instantly. Just press the right key on your computer.
And locked in term GIC’s that can be ‘bought back’ by the institution as an intact GIC, but at a lower value (like a bond) are NOT considered as ‘money market cashable GIC’s’. Yes, GICs have become the new bonds, transferable before maturity.
I can go onto qtrade, and buy and sell stock in the same day. The money stays in the qtrade account, not a banking account.
I can have a paypal account with thousands in it, if I am an on-line retailer, or just someone who uses it for online payments.
M1+ is such an old-fashioned metric, so old school, so last year (actually, so last five years ago). There are just a plethora of new ways to keep money liquid outside of traditional bank accounts. In the last five years, there have been so many products that are ‘hidden’ from M1+, that it has lost all utility and connectedness to past trends.
Hi friend, you are definitely being a bit of a turd. I sort of thought this a few months ago but pulled back to give you the benefit of the doubt. Not sure if the strategy is lay low, gain some cred and then carpet bomb (very LL or MMr-ish) with a bunch of hyperbole when shit gets really bad. I guess you’re not attacking anyone like they were but I honestly don’t know where this is coming from. You’ve never mentioned any of this drivvle when M1+ was tanking a couple month ago yet NOW everything has changed. Tsk tsk JT. You know if you had ANY data to back this up then we would evaluate and most likely agree…what you’re doing is subversive. Live in the light. BD4L.
BOC started warning about housing back in 2013 under Carney. Repeated messaging to Canadians basically saying “If you get addicted to these rates your going to have a bad time”
Interest rates, or housing prices? They are not the same thing. Carney was talking about interest rates. Housing prices were not yet going ballistic. I don’t think that even Carney thought that the low rates would last as long as they did.
Sorry in 2011 he was warning that low interest could and were leading to financial imbalances and specifically calls out housing.
Here is the BOC write up on this.
In 2013 he did say that recent policy changes should address the issue and to expect a general cooling in prices
I agree though that no one thought the low rates would last as long as they did
From the article you cited:
‘Mr. Carney’s warning about the housing market comes a day after a report from the Certified General Accountants Association of Canada showed household debt has hit a troubling $1.5-trillion, sparking new fears that the heavy burden on Canadian consumers could crimp spending and hurt the economy.’
That was SEVEN YEARS ago. Making exactly the same predictions, for the same reasons, as today. if it has taken seven years, what good are the warnings?
And laughably (if we aren’t crying) he said that the market had gone bananas cockeyed crazy with housing prices escalating 13%!!!! I do not think that, in his fondest imagination, he could have comprehended housing going ballistic as it did from 2015-2017. But by that time, he was off to England and our problems were but a minor consideration. Could he have EVER predicted Brexit?
So the BoC most likely has as much of a handle on what is happening in the economy today as it had back then. That is to say, no handle at all. The economy is broken. Not just in some weird cycle, but broken. There is no more cycle. It is discontinuous.
Households have less cash going into a recession. What could go wrong? Good thing they have those HELOCs they think are the equivalent of a savings account.
Except, in a recession the value of your house typically goes down. What do you do when you can’t HELOC, and have no cash going into a recession? Hmm…
I have said, here and elsewhere, that it is my belief that somewhere starting around 2004, the entire world economic system switched to a new equilibrium. This is continuously showing up in the economic curves of almost every indicator. Look closely at the curve for M1+. Your history doesn’t go back far enough (one would have to look at centuries of data, instead of 20 years), but look at the long-term frequency of the curve. It is no longer the same since 2004. It changed from a fairly predictable and defined frequency into something that appears to ‘hunt’ – that is, quick jerks above and below some straight-line value, as if it is ‘hunting’ for the stable value. In medical terms, the heart beat has changed from a regular beat into fibrillation – erratic and unsynchronized.
In fact, these last two terms describe perfectly what is happening to the association between all traditional metrics since about 2004 – erratic and unsynchronized. One metric is no longer moving in any pattern with respect to any other metric. All cohesion has been lost. No smooth curves, Everything from sharp discontinuous curves (jumps to new values) to sharp inclines and falls to flat lines (interest rates over the last few years). As if there are no longer any underlying control systems. The checks and balances (no pun to the current topic intended) are no longer interconnected.
Until the new equilibrium is stabilized, and the economy falls into its new rhythm, it is impossible to predict future behavior based on past patterns. The old models just do not apply.
The economy is having a heart attack.
If the economy is having a heart attack doesn’t that leave room for the possibility of economic “death” i.e. a recession? Doesn’t lack of stability and predictability make that more likely?
I have never argued that a recession was or was not coming. In fact, I believe the 2008 recession never ended. But I also believe that calling it a recession is a misnomer, when it is the new normal, the new equilibrium. It is more akin to what the economy was like for the first several thousand years, up until about 1850, when things switched to the equilibrium we took as ‘normal’.
Now, it has switched again.
I am not even sure what a recession would even look like, or how we would tell. Employment is up, but what they do not tell you is that wages in these new jobs are way down. They are minimum wage, marginal employment. For families used to a good middle class wage, they are better than nothing, but definitely not better than before. The standard of living of the majority of Americans has dropped significantly, even though they are employed, and it is not going anywhere. Is that a recession? The old indicators, leading and lagging, are all out of whack. They just don’t work. A pin prick test for responsiveness just isn’t going to tell you anything when the patient is fibrillating.
What does a recovery look like, when the new equilibrium is slow growth, interest rates of 3-4%, and GDP growth of 2% considered very high? If one is expecting that a ‘recovery’ looks like a return to the 80’s, growth of 8-10%, and even casual investments doubling in value every 8 to ten years. and that just does not happen, can they say that there has been ‘no recovery’?
The old economy is indeed dead. This is not just part of the business cycle, not just a typical downturn, not just a routine recession, but dead. No business cycle at all, until a new one, perhaps even one that looks entirely different than the business cycle of the last 200 years, emerges.
Hmmm….JT do I need to go back and check your posts to see if you have EVER made such claims? No, I do not. You know this never happened. You’re being a revisionist which…yawn…is subversive.
I don’t think you’ve even mentioned ‘2004’ in any other post but let me check…nope.
While you agree that there are problems, your narrative that there are no flag/indicators is wrong and that the current metrics for a recession are old/outdated and fundamentally incorrect. M1+ is wrong and in fact Canadians are moving their $ to better options…sure, like Uncle Tony’s pocket on the 12% loan you had to take out to keep your house afloat for another 6 months while you try to sell. Brampton Margin Calls don’t happen because everything is ok. M1+ doesn’t plummet because everything is ok. Nothing that is happening right now is ok. BD4L.
I was going to call out one of his posts last week where I think he was trying to describe what I Karl Marx’s account of how capitalism ends but I decided to hold off.
Have started reading a bit of Marx (don’t shoot me Blue), but very superficially. Thoughts so far, good for calling out some of the problems with our system. Terrible at offering solutions. Think JT is a revolutionary
Good on you, Grizzly. There is hope for you, grasshopper. Karl is rather a bit difficult to read, because all of the terms have morphed. The term proletariat, for instance. Karl never envisioned the middle class. His world was the world that America is now returning to – a polarization of the classes. In fact, it was the rise of the middle class that appeared to make many of Karl’s predictions look false.
Of course, if you are following my thoughts, I am saying that the world economic equilibrium is shifting, perhaps back to the stratification that was Karl’s world. Nevertheless, the existence of the middle class changed all of the indicators, and allowed them to be used the way they have been over the last 200 years. Yet we fail to realize exactly how dependent the predictability of these indicators is on the existence of the middle class. Wipe out the middle class, and the indicators are no longer predictive. The smart money, as I said, does not use any of the M1+ products. Eliminate the middle class, polarize the economic classes, and what predictive ability does it have any more? A drop in M1+ could just mean that much of the money is getting smarter and moving elsewhere, and what is left is transient cash flow of what is remaining of the lower middle class. That is not indicative of a recession, that is a complete resetting of the economy.
Karl was, as you said, more of a philosopher, an observer. It is true that he did not give solutions. It was Engels who super-imposed the idea of revolution as a cure onto Karl’s observations.
That is why China is calling their thinking ‘Marxism (socialism) with a Chinese perspective’. They have adopted the idea and have morphed it into their own solutions.
But make no mistake, Karl never denounced capitalism. He said it was a necessary evil. It was indeed the best way to build up the means of production, and China is using it so. But he also said that once the means of production had matured, and there was no need for further expansion, then capitalism would lead to exactly what we see today – mega-corporations with all of the capital, and hoarding it instead of using it for expansion because production has become saturated.
Yes but what continues to play out at least in my eyes, is that in any scenario where some of Marx’s principals ( or maybe Engles bastardized suggestions) play out, the suffering of the common folk ends up being a lot worse. You could argue that no world leading developed nation has rolled it out but I really wish Marx could have lived another 150 years to write a follow up to how communism has played out so far. Maybe he would have changed his mind. The Chinese example furthers this. Mass surveillance, “re education camps” for the Muslim minority. No rule of law. Huge wealth divide. Huge economic waste and special privileges for the ruling class.
A simple “contradiction” within such systems of absolute “fairness” is; who wants to be the garbage man and who wants to slave away as a doctor……….. at some point the state will always have to step in to force these jobs on people (coercion or workcamps)
Maybe robots will change the last point. We can all live like we are at an all inclusive resort, but the robots are the fun loving workers!
The China you describe is NOT a result of Marxism. There is nothing in any of Karl’s writings that would lead to that scenario.
On the other hand, China is also discovering the discontinuity between the society they HAD under Mao and the society that would lead to a socialist state as envisioned by Marx. Do not confuse the China of twenty years ago with the China of today. Just like you can not compare the America of the 1950’s (segregation, KuKluxKlan, open white supremacy, blatant sexism, ‘father knows best’ oppression of the wife) with the America of today. Okay, maybe you can.
But there is also no doubt that China has done a far better job of eliminating poverty in the last ten years than any country on earth, ever. Marx may not have understood the importance of the middle class, but China has clearly learned the lesson. But unlike America, and perhaps more like Australia, China intends to make the middle class the universal class. Equality of wealth distribution. THAT is very Marxian.
But the rest of your description of China – work camps, re-education camps, state determination of your job, forced labor – are all decades out of date. They ended with Mao.
Of course, if you are an aboriginal in Canada, you would say that these concepts did not end until the 80’s here (residential schools).
But one thing Mao DID do, he completely stripped China of any entitlement ideas. Everyone, no matter how rich, had their wealth and prestige stripped away as everyone was reduced to the same common denominator – agricultural worker on a collective farm. The intelligentsia, born of hundreds of years of entitlement, suddenly found their status obliterated. Out of the ashes of Mao’s China, has arisen a truly egalitarian society. Today, the worst capital offence one can commit is arrogantly displaying one’s wealth, and using it to oppress others. You can be wealthy, as long as you share.
Ummm China still does have re education/work camps.
They also have a mass surveillance system and a social credit score which has been rolled out in the Muslim regions. Coming soon to the rest of the country. Marx was great a calling out the flaws of capitalism and where it would lead……….. George Orwell is the one to read to understand where communism will get you. Will always lead to more and more state heavy handedness and a reduction in individual rights and freedoms. Capitalism uses the carrot and stick approach to keep people working and contributing. Communism only has the stick.
Yes China has gotten a lot of people out of poverty, but most of that happened after they started adopting some capitalist principals, and I would like to revisit their system after their crazy debt binge unwinds (which I think it is doing now).
Im a contrarian and I do agree that with the global debt situation and growing inequality that maybe the system will need some fundamental changes or a “restart” at some point in the near to mid future. (though I hope not as I have a decent nest egg built up). Marx did a good job of calling out that capitalism requires continuous growth and new efficiencies to continue, but that this cant go on forever and would eventually undermine everything that made it work. What bugs me is that because he did a great job of calling out the problems, a lot of people today therefore thing only his (or engles) solutions are the only alternative…………… plus the bulk of the Marxist I have met are grad students (alot go to York, do you?) , are under the age of 35 with little to no real world experience yet they think they are more enlightened and intelligent than everyone before them. #studentprivilege
As if the Washington Post, and its American-centric view, is any authority on the real China. As Trump ramps up the American racist bigotry against Chinese, and remember in America the Chinses race is right down there with injuns (‘the only good Chinaman is a dead Chinaman’ is still a motto proclaimed by a LOT of white racist entitled American males) .
If you want a true picture of China today, start reading something like China Daily. It is more unbiased than any American news outlet I have seen lately. It is pragmatic, and calls it like it is, not like dogma dictates.
For a daily paper like China Today to even exist, makes a mockery of the American anti-Chinese propaganda of China being a repressive regime.
Incidentally, do you want to know how many STUDENTS were killed in Tienanmen square itself? Zero. Not one. Zip. Notta. The violence was instigated entirely within the Chinese ruling party itself. it was an attempted coup, by party insiders, that used the student movement as a diversionary tactic. But you will never learn THIS in Western media.
But I might remind you of Trumps ‘Muslim ban’. is there a difference? Exactly what does an anti-terrorist campaign look like, when the terrorists have sought protective cover under a common religion? Some fifty years ago, it was all about Irish Catholic terrorists. So clamping down on them was portrayed as an anti-Catholic movement. Northern Ireland was Protestant, and the divide between Protestant and Catholic was just as tainted as the anti-Muslim movement is today. Oh, and the ‘rolling out across the country’ threat? Like McCarthyism and the ‘red menace’ of the 50’s? Vietnam and the domino effect? Trump’s Muslim ban extending to all non-white races? Wait, that last one IS happening. THAT is no hyperbole.
But George Orwell? That farm might just as well be any farm in America. The promise of freedom and equal rights under the constitution, while at the same time allowing the second amendment so the pigs can reign legally and freely because they control the attack dogs (the police – yes, there is a reason why police in America are called ‘pigs’, though technically it should be applied to their masters. ) All Americans are created equal, except that some Americans are more equal than others. What is NOT widely known about Orwell, is that he never publicly said what country Animal Farm was situated in. it was, arguably, his warning that America was heading in that direction. History proves that is the correct interpretation. America has become Animal Farm, but Americans obfuscate this fact by pointing at Communism as the culprit. Really, it is all about the universal trend of oligarchy, in ANY political system, to undermine social rights and substitute them for privileged rights. THAT was Orwell’s message – that it can happen in America.
But make no mistake, China is very well aware of this danger. That is why the worst capital offence in China is to use one’s wealth to intimidate and dominate others. That, basically, is the Chinese definition of corruption and that, basically, is at the root of the recent Chinese anti-corruption campaign.
Think about what you said about Marxism and Capitalism. Marx never denounced capitalism (small ‘c’) He recognized it as the most efficient way to utilize capital to build up the means of production (it takes a lot of centralized money to build large manufacturing plants). The modern Chines regime is well aware of this, They KNOW they have to concentrate capital to produce the investment money to build up production. But what they ALSO know, is that when there is too MUCH production, there is pollution, social misery, and environmental destruction. So the trick is, to use capital not just to build production, but to build a healthy society. To build a healthy environment. To build infrastructure to allow the fruits of capitalism to be shared by all, not just those who control the capital.
In the 60’s and 70’s predominantly, but for the last 200 years, ANY new production was useful production. Build plant, and the consumption will always follow. Whatever you make, in whatever quantity, in whatever plant (old or new, modern or obsolete) will be sold. The old AND the new plant remain at full capacity. Demand is infinite. And so is the demand for workers. Wages are forced up, as demand for workers outstrips supply. The middle class expands. What Marx did not realize, is how long this process would take. He could barely imagine a world of one billion people, let alone a world expanding to six billion. But that has changed in the last twenty years for everywhere BUT the developing nations. In the American market, there is no expansion demand. It is all replacement demand. The market has reached maturity. (immigration is the ONLY thing fueling expansion demand in the US market, and we all know what is happening there.) Manufacturing is being cut back. Build a new plant, and the old one has to be shut down. New plant is more efficient, so jobs are lost. Corporations are using their capital to buy market share (mergers and acquisitions) not expanded capacity. THAT is the switch in equilibrium. From expansion to maintenance. And THAT is the cusp that Marx warned about. In the switch from expansion to maintenance, new capital is no longer needed for expansion, so it just accumulates. It ends up draining the system, not growing it. Employment drops, and the middle class (to him, the proletariat class) gets wiped out. Their jobs disappear. Their expansion production is no longer needed. Wealth is no longer distributed. Their economic well being suffers horribly. Only the smart money survives.
But China has an expanding economy. Their production can no longer keep up with expansion demand. At the same time, they also realize that too MUCH production is ultimately also a bad thing. Too much dirty steel, for instance, just destroys the environment. Zombie industries MUST be shut down, even IF their is still a demand for the product, and even IF they still employ thousands of workers. Social health is far more important than profit at all costs. So, they are very honest when they say that they want to import more of the rest of the world’s excess production. Better to use existing under-utilized plant than to build new, But this plant has to be EFFICIENT plant. American plant is obsolete. Zombie plant. Americans just haven’t invested in modern plant in their own country. All the modern production, that the Chinese are interested in, is all in the countries that America exported its investment money and production to, in search of the ‘highest profit’. China is looking for import partners, just not ‘dirty polluters’ partners. And, of course, American industry is almost entirely in the ‘dirty polluters’ category. American production is now the dirtiest in the world.
So there you have it. The economy has shifted, dramatically and decisively. The graphs are discontinuous. The shape of the curves has changed, and they have moved. The old metrics no longer work as indicators.
Again, I refer you to https://opinionator.blogs.nytimes.com/2012/10/08/dangerous-intersection/?rref=world&module=ArrowsNav&contentCollection=Opinion&action=click®ion=FixedRight&pgtype=Blogs for a really good but effective illustration.
And no I do not and did not go to York. York didn’t even exist when I went to university. Well, maybe just in its infancy. It was a toddler, not even a teen.
I think we can agree that most news sources are biased. Read from both sides and the truth probably lies somewhere in the middle. For really bad stuff the only account is probably from the other side.
I do read the China daily from time to time to get the party”s perspective on world events (you think they are truly unbiased) just like I read RT news sometimes to get the Russian perspective or propaganda on things. South China Morning post (Hong Kong paper) is another good one. FYI, Trudeau did get called out by some Chinese representatives about controlling negative media back here in Canada.
I think the Muslim ban is a travesty, I am not a trump supporter, and I think this policy long term will have the opposite effect of keeping Americans safe. Hopefully Trump gets removed from office in the 2020 and it goes away. (Thank god he and/or his party is not ruler for life). That being said, your claim comparing this to what goes on in China. What did you mean by that? Did you mean that the fact the Muslim ban happens in US that it is ok for China to be doing what they are doing? I will touch this point and say that while both are terrible, I think there is a difference between blocking new comers from hostile regions vs imprisoning people who were born and have lived in your country their entire lives. ( Of course this could be a slippery slope and maybe Trump does take these things a lot further).
In regards to Americans who still claim that the only good chinamen is a dead chinamen……… I have never heard anyone say such a thing in Canada, but I do live in Toronto and I know there are plenty of racists in this country. Although I doubt many of them would be calling for the death of someone from a different race (maybe I am naive). Also, attacking the politcial system of another country is not racist. I want to make that absolutely clear.
Where you have lost complete credibility in my eyes is a) praising the China daily as unbiased ( they are owned by the communist government) and b) talking about how China is a master of only creating productive capital – search ghost cities, and some of their OBOR projects c) containing pollution – they are the factory for the world (but have talked about the need to address this), d) how they have a shortage of workers compared to their capacity – read up on steel over capacity in China as an example.
In regards to the crack down on showing wealth. I see this anti corruption campaign as the government trying to crack down on any source of power that could begin to challenge their own, or make the poor feel jealous (civil unrest) ……… One of my biggest complaints in wester society is the influence rich lobby groups have on our policy. I want to get money out of politics but I dont think we should focus at all on creating the all powerful state.
Orwell – Animal is a good one. Could have been a warning to the US as well. 1984 is another one you should read. Big Brother is watching!
Okay, Guantanamo Bay. It sounds pretty much like the WP camps in this region of China. Water boarding, loud speakers blaring, forced nudity when nudity is abhorrent to Muslims, and this went on for YEARS, not months.
And, of course, the American indoctrination to the melting pot – loyalty to the US. Every student recites the pledge, flags are everywhere, and Trump proclaims that showing disrespect of the flag is treasonous, punishable by law, and doing so will subject you to loss of income and social isolation and intimidation. You don’t DARE kneel to the flag.
And, of course, there is the DACA problem. the dreamers. Born in the US, a contributor to the US economy, loyal to the US, with no other country, but because your parents were not American citizens, you are in limbo.
The point is, if you line up America vs China, I am not sure which one will come out ahead. Both pretend to be liberal, but both are still quite socially conservative. And both believe in social engineering to promote loyalty to the country above freedom of the individual and freedom of expression. Perhaps the US is just a bit better at token appeasement. But the average Chinese citizen considers the US just as oppressive as the average American considers China to be oppressive.
China IS a country where the rule of law is followed. They just have a different system of law. Japan has a very different legal system as well. America and Western law is based on the adversarial system. The defense lines up against the prosecution, they battle it out, and the victor is the ‘truth’. Except that the truth is never entirely what is determined in such an adversarial winner-take-all system. Japan and China are more based on the Confucian system. The defense AND the prosecution are assigned the duty of finding and revealing the truth, even if it is for or against the accused. They work cooperatively. This is often seen in the West as ‘one-sided law, where instead it is collaborative law, The facts and the reality determine guilt or innocence. That is, if you are guilty, you are found guilty. If you are innocent, you are found innocent. By the judge, prosecutor, and defense unanimously. There is no concept of ‘innocent until proven guilty’. If you are guilty, you are guilty from the time of the crime, not the time of the judgement. Yes, it is a different philosophy, but it is a consistently applied due process of law, based on tens of centuries of precedence.
And Xi is NOT President for Life. He is still subject to regular elections. Just like a Canadian Prime Minister has no term limits. Trudeau can be PM for as long as he keeps getting elected, or until he dies. Does that make him PM for life? Does that make EVERY Canadian PM for life? Potentially, but it has never happened.
When I was in high school, 1984 and Animal Farm were both required reading. The ministry dictated it.
Canada is not immune from charges of Chinese prejudices. When the railroad was extended through the Rockies, for instance, Chinese laborers were brought in from China under all-but-forced labor, and were used to place the explosives in the tunnel, because, well, if they went boom (explosives were very sensitive at the time – no stabilized C4) they were, after all, only Chinamen.
I am definitely not accusing you of prejudice against a race, but I am accusing our society of encouraging a negative attitude and negative undeserved bias towards China the country because of entrenched long-standing prejudices against Chinese the race. And China is making no bones about the fact that they believe Trump’s trade war is pure racial prejudice. ‘Them damned Chinese don’t DESERVE to be equal to white Americans.’
Not to defend America….. or Trump for that matter. But their position on China, at least how reported. Is that China steal foreign IP and they puts up huge trade barriers to any foreign company trying to sell its products in China. Cars, tech etc. I agree with that claim.
China is smart for doing so (for themselves anyway), they will have the number one market for goods and they want to make sure Chinese companies dominate all of this. America/ Trump are going after Europe and us as well. You might call that “White Europe” and “White Canada”. Is that also racism to preserve “White American” dominance?
Anyway Im done with this thread JT, now you are just race bating and trying to justify terrible things currently happening in China because white people have done bad things before. If I wasnt white then could i criticize the communist party of china?
Blue, here is my post from May 31, topic
‘Canada’s Credit Problem Is Different This Time, Just Look At The Money Supply’
‘Methinks I have read this before. Re-cycling past articles?
‘M1+ is an ancient, out-dated, useless statistic.
‘‘Free’ and ‘available’ money is moving out of chequable accounts (no interest) and into TFSA’s, short-term GIC’s. and other ‘locked in’ products., none of which are included in M1+.
‘So the more money that consumers move from non-interest accounts into all of the accounts that banks are now pushing, that deliver higher interest rates, gives the illusion of a shrinking money supply. Without looking at these products, nothing can be said about the available money supply.
‘In fact, earning 3% on a short-term GIC is actually INCREASING your money supply by 3%, while keeping it in a checking account at 0% ain’t puting ANY new money in your pocket.
‘Really, when you first started, you actually put some thought and research into your articles. Now, ho-hum.’
BD first few paragraphs of the article
‘The M1+ Is An Important Measure Of Money
‘The M1+ is one of the measurements of monetary aggregates, this one being the most liquid form of money. The BoC counts the currency outside of banks, plus chequable deposits held at chartered banks, trust and mortgage loan companies, and credit unions. Basically, it’s the most readily available forms of cash. The extremely important indicator is rarely discussed outside of the BoC.’
‘This measure is essential to the BoC for managing the rate of money growth “indirectly.” When interest rates increase, people borrow less and use more money to service debt. The result is less “cash” floating around, which is reflected in the growth of M1+. Slowing growth is almost always a sign of declining economic growth. The impact is more immediate in industries that use large amounts of financing, like home or car sales. Starting to see why the Consumer Price Index (CPI) isn’t the only reason the BoC moves interest rates? Great, let’s see how slow the growth is these days.’
Here is the May 14, 2018 article
‘What Is The M1+?
‘The M1+ is a measurement of the most liquid form of money. The BoC counts the currency outside of banks, plus chequable deposits held at chartered banks, trust and mortgage loan companies, and credit unions. Basically, it’s physical currency, and readily available forms of cash. Yeah, it’s kind of an important number. Although it’s rarely discussed outside of the walls of the BoC.
‘The BoC manages the rate of money growth “indirectly,” this measure being very important. When they raise rates, people and businesses borrow less and begin paying down loans. This results in less “cash” kicking around, which is often reflected as a slower growth of M1+. Slowing growth is almost always a sign of declining economic growth. The impact will be more clear to industries that need financing of large price tags, like cars and houses.’
And my post
‘In today’s economy, with the proliferation of credit cards, does M1+ really have any relevance anymore? Liquid money is SO last century.’
When interest rates in traditional M1+ accounts are essentially zero (and below zero when inflation is considered) I am not surprised that Canadians are taking their savings OUT of M1+ accounts and puting it elsewhere. It is really the SMART thing to do.
So your hypothesis is that Canadians, in doing the smart thing, are generating the conditions that predict a recession?
Think about that for an instant.
Perhaps these statistics indicate less that a recession is coming, and more that Canadians are becoming investment savvy in a world of low interest on savings accounts.
The really important metric is that savings rates are LOWER than the rate of inflation, so money left in traditional M1+ accounts is actually losing value the longer it sits in these accounts. Really, only stupid money is left in these accounts. Your analysis only indicates that there is much less stupid money around, and perhaps a lot more smart money siting elsewhere.
ROFL…I just…ROFL…got to this. You’re right, we’re not in dire straits in fact we’re sooo smart we’ve actually just removed our money from the system to put in more profitable ventures? Vs the reality that debt levels are crushing almost everyone and thus limiting the liquid cash in the system. JT, you’re now on my shit list. I will keep it civil so BD overlords don’t cut yall off some Bluey but I’ll leave it like this: see you tomorrow. BD4L.
‘ in fact we’re sooo smart we’ve actually just removed our money from the system to put in more profitable ventures?’
You are putting words into my mouth.
SMART money is doing that. And there is a lot more smart money around than you may think.
The middle class in Canada is not like the middle class in America. In America, the middle class is polarizing. Those in the mid-to upper sectors are moving UP, those in the bottom middle class are going down. This LOOKS like the middle class is disappearing, and indeed it is. But it is because the upper segments are moving up to the lower upper class. This is the smart money. The gap is widening, polarizing into two statistical populations.
In Canada, there is still quite a viable middle class. Especially when you combine two middle class incomes in one household. Many households in Toronto, for instance, and central Vancouver are dual professional income households, pushing a quarter of a million in combined income every year. They may COMPLAIN about losing ground, when in fact what they mean is that they are just not getting richer as fast as they are used to. Unlimited Freedom 55, which they were promised a decade ago, has turned into Manageable Coasting 65.
But those in the lower economic classes are very unlikely to have had bank accounts in the past. However, with the government, welfare, and most employers going to direct deposit payment, they have been forced to open accounts. And guess what – they report no savings. Surprise surprise. Money in, money out. When averaged into M1+ statistics, there are far more marginal bank accounts than there were even a decade ago, all thanks to the necessity of direct deposit.
Ya think this might skew the figures?
Always has to be called “growth,” even in a crash scenario. Folks, there is and has not been true growth in anything since 2008. They say everything is growing because that supports the “financial recovery” narrative.
For many, and I mean MANY, there was no recovery, and now even the facade of a recovery is dying.
good comment. The last 10 years have been on borrowed time. If you look at the forthy RE in the US, the prices in these markets are worse than 2008…unless incomes have basically doubled in the US since then, they are in for a fucking epic correction. Again, the middle class is gutted. Rich guys with liquid cash will be distressed assets. Live in the light. BD4L.
Depends on what you call ‘growth’,
Shoot a dinosaur in the head, it will lumber on for days before it actually drops dead. It’s systems just go into pure reflex. And yes, the skin keeps growing. It doesn’t yet know that the dinosaur is dead.
That is what the American economy has been since 2004, perhaps earlier. Pure reflex. In 2008, the economy finally caught up to the fact that there was no control. It was a free-for-all. Like a classroom of kids that suddenly realized that teacher was gone and not coming back.But did the recession start in 2008, or in 2004, but it took until 2008 for it to become evident?
But ya, I agree. is there even such a thing as ‘negative growth’? Does ANYTHING grow smaller?
aaaaaaaaaand on that note we’re now seeing 28% of Canadians nearing financial disaster and looking into bankruptcy options.
No wonder there is no money supply.
“Twenty-seven per cent of respondents to the survey said they have no wiggle room after covering their monthly obligations; meanwhile, 44 per cent say they’re within $200 of insolvency every month.”
nope… no credit bubble… nope…
You missed something.
That percentage is going DOWN, not UP.
And please note, 1% of Canadians is 350.000 people, so a 1% shift lower is not small potatoes.
Am I blocked?
Who did you insult?
ONE of us is being a bit of a turd.
But it seems that, with the advent of the emoticon, poopsie is getting some pretty good press and an image make-over.
But if you go back to the last time BD had an article on M1+, I gave exactly the same criticism. And perhaps you gave exactly the same attack.
But, well, support for my position, as requested, and as I always have available to back up what I say:
‘Until the mid-1980s, real M2 performed well as a leading indicator. It was procyclical and anticipated turning points in general economic
activity. The leading relationship and usefulness of broad monetary aggregates were documented by Victor Zarnowitz and Charlotte Boschan in the 1970s.1’
‘However, this relationship broke down during the past two decades as a result of structural changes in the U.S. economy and the banking and financial sectors (Chart 1). The 10- year correlation between the six-month growth rates of real
M2 and The Conference Board Coincident Economic Index® (CEI) for the United States, a measure of current economic activity, was fairly stable and high (0.8) during the 1960s and 1970s. However, this relationship deteriorated in the following decades, and it eventually became negative during the past decade. Furthermore, the growth of real M2 began to lag that of The Conference Board CEI for the United States in the mid-1990s.’
But of course, the Conference Board really isn’t an authority on the issue, is it?
But alas, this analysis is all about M2, not M1 or M1+, so of course it would not apply.
Also, Blue, see
‘Money supply. The money supply is often considered a leading indicator. Fall in money supply and an indicator of economic activity. However, in last recession, the money supply (both broad and narrow) was a lagging indicator.
‘After 2008 recession, the money supply didn’t fall immediately. It took until the start of 2009 for M4 growth to decline and the second half for M0 to fall.’
from https://www.economicshelp.org/blog/21587/concepts/lagging-and-leading-indicators/, complete with charts.
Like I posted, the entire world economy has shifted to a new equilibrium since 2004, and the old standard indicators no longer apply. It is NOT business as usual, it is business as very UNusual. Only when the new equilibrium settles down will indicators be useful for prediction.
Catastrophe Theory. Look into it.
Gimme a break. To understand Catastrophe Theory would require a background in topology as applied to the study of complex dynamic systems (e.g. weather, species ecology).
It’s an arcane branch of mathematics which emerged in the 60s, and created a short-lived stir due to suggestions it could predict everything from prison riots and stock market collapses, to the end of the world.
Not that it isn’t of scientific and educational interest, but it hasn’t helped predict economic anything.
It’s evident from your posts you aren’t a topologist or physicist and your recommendation to “look into it” is pretentious and absurd, and suggests you really have no idea what you are talking about.
Tensor Calculus, look into it! Swahili, check it out!
And enough with the repeated “isn’t this a rehash” putdowns, it’s really tiresome.
As intelligence goes, economists are pretty low on the totem pole. Harper couldn’t get a degree in anything else, so he got one in economics.
The fact is, don’t pretend to be some economic expert, some great predictor of economic trends, unless you DO understand at least the main thrust of catastrophe theory.
It’s like saying you are an expert in understanding how the physical world works, without understanding quantum physics. Like, wow. Antimatter, for instance. Yet antimatter is produced in thunderstorms. A natural phenomena. And quantum tunneling is the only credible explanation for photosynthesis. Electrons are here, and then they are there, without going through the in-between.
Want a scholarly article on your ‘catastrophe theory has been abandoned’ theme?
‘Based on mathematical topology, a newly developed theory called catastrophe theory provides interesting explanations of why apparently stable relations display sudden jumps—discontinuities called catastrophes. This theory readily lends itself to applications in economics where problems of unstable relationships occur. This paper is an introduction to the concepts and terminology of catastrophe theory as used in economics and explains its application in providing deeper insights into the theory of the firm in the intermediate microeconomic theory course.’
Abstract from a 2014 paper. really, really obsolete, huh?
from a 2007 abstract
‘This paper discusses the mathematical origins of catastrophe theory, the various applications of it in economics, the controversy over its use, and the criticism of it as a fad, with the subsequent general disappearance of its use in economics. It presents a criticism of the criticism of the most famous application and a discussion of its current relevance and available alternatives. It concludes that indeed the baby was largely thrown out with the bathwater, and that catastrophe theory should be openly and properly used again in economics. ‘
‘The rise and fall of catastrophe theory applications in economics: Was the baby thrown out with the bathwater? | Request PDF. Available from: https://www.researchgate.net/publication/222054508_The_rise_and_fall_of_catastrophe_theory_applications_in_economics_Was_the_baby_thrown_out_with_the_bathwater ‘
But, really,perhaps you need a really, really simple discussion on catastrophe theory and economics. So, here is an animated illustration at the level of, well, perhaps an economist.
The illustration is quite humorous, but it gets the point across. Catastrophe theory is alive and well in economics, for those who take the time to understand it. And just like that electron in quantum tunneling, it describes perfectly how an economy can flip from one state to another, without really going through any interim steps. it just jumps from one to the other.
” it describes perfectly how an economy can flip from one state to another, without really going through any interim steps. it just jumps from one to the other.”
LOL. So do bunny rabbits.
I was really just testing to see if you have NPD.
It’s what Trump has. Congrats, you passed with flailing colours.
What’s next, your solution for world peace?
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