Canada is NOT Included: Too-big-to-fail banks mostly a thing of the past, say regulators – June 29, 2020,
An interesting article caught my attention, it definitely wasn’t targeted towards Canadians, but if you’re living in Canada, you’d want to pay attention to the shift that has already happened in many parts of the world that skipped over Canada in 2008, primarily because Canadians do an amazing job servicing their loan agreements and also Canadian Keynesians got ahead of the housing problem before it even began.
The Canada Mortgage and Housing Corporation (CMHC) is involved in mortgage insurance, it’s a State-Run Crown Corporation of Canada, Canada also has a State-Run Central Bank. It’s in the best interests of The Bank of Canada (also a Crown Corporation) to work in coordination with the CMHC.
Now what’s important about the CMHC is that people and entities who invest in the CMHC have their investments protected by Canadian taxpayers and I’m not sure what interest investors get from CMHC now, but I know in the past it was above the inflation rate, somewhere at about 5%.
This is one of the reasons why banks being too big to fail doesn’t apply to Canada, because even during this COVID-19, case people haven’t been paying attention the CMHC already intervened.
Landlords
Housing providers have an important role to play in preserving our economy during these extraordinary times. We are all in this together. Landlords with CMHC-insured mortgages who are facing financial difficulties have access to the same tools and relief measures as homeowners, such as mortgage payment deferrals. We expect all landlords, especially those with CMHC insurance or financing, to pass their savings on to tenants and to refrain from evictions until this crisis has passed.
COVID-19: Eviction Bans and Suspensions to Support Renters | CMHC Website
Had the CMHC not been there, the Canadian banking system would have already crashed, as a matter of fact, if the CMHC hadn’t been there property values in Canada wouldn’t be as overvalued as they currently are. Making matters worse is that the inflation in real estate asset prices has really hurt Canada’s private sector, so commercial leases are also very expensive and depending on where in Canada you’re living, don’t be surprised if commercial properties have been left idle for years waiting to be turned into Condo, so COVID-19 has only worsened the problem, something CMHC has done a good job covering up.
Property owners must offer a minimum of a 75% rent reduction for the months of April, May and June 2020.
Banks are definitely too big to fail in Canada and this is just another reason why I don’t see the Canadian dollar domestically being a storer of value. Liquidity is definitely on Canada’s side, I just worry about cashflow, because inflation is guaranteed in Canada, the Canadian government is very big and if the world experiences a prolonged economic deflationary while the Canadian government is forced to pay public sector bills with fiat dollars not linked to private sector productivity, maybe it’s just me, but I see an economic problem brewing!
Lastly, Canada’s current political party in power are not only big spenders, they also added a lot of regulations to the private sector, gender equality, climate change, welfare for everybody that sort of thing. In relation to the cost of doing business, the barrier to entry to Canada’s private sector is very expensive and during a deflationary period, this will lead to a cash flow problem, which from my standpoint means REAL INFLATION is coming to Canada.
Canada, for the most part, has been the beneficiary of artificially created inflation, that easily controllable by the government and the central banks, real inflation is different, real inflation comes via a cashflow problem, my as the business owner has costs that are above my margin of profitability, furthermore deflation also means my customers aren’t spending as they used too, now because Canada already has so much debt, rising interest rates appears to be out of the question, what the likely scenario I see is rising domestic prices which might not be linked to the forex markets.
Canada isn’t the only country with financial problems, it’s just that as the article below points out in most countries too big to fail banks are a thing of the past, whereas in Canada I’m not so sure this is true!
Too-big-to-fail banks mostly a thing of the past, say regulators | reuters.com
Interesting times ahead!