If The U.S. Housing Market Crashes, Will The Same Thing Happen in Canada? The answer is YES, But… It’s Likely To Be an Inflationary Crash in CANADIAN dollars – April 11, 2023,
People tend to forget why the world allows the U.S. to have world reserve currency status. The reason is that the welfare states of many nations have been allowed to BALLOON to enormous amounts. Prior to the creation of the European Union, countries like Italy were debasing the hell out of the Lira.
Most countries, most nations, prefer to have a RULE BY FIAT currency because it allows politicians to make promises they can’t keep if the world used an HONEST monetary system.
With that said, the U.S. managed to get the entire world base ALL prices in U.S. dollars, and because of this, countries like Canada can debase their currency to finance their WELFARE STATE, which by the way also includes public and private sector employers reliant on weak Canadian dollar to make a profit in the Canadian economy.
Now, because Canadians were dumb enough to vote for a CARBON TAX, which is a tax that hitches itself to the COST OF DOING BUSINESS, which guarantees consumer prices rise as productivity rises, the cost of IMORTS into Canada will get even more expensive if the U.S. housing market crashes.
In prior years, when the U.S. housing market crashed, some lenders in Canada got spooked and withdrew, changed, and/or adjusted their lending behavior, primarily because all fiat currencies a dependent on the U.S. dollar and although housing is a large part of Canadian bank portfolios, they also have exposure to the U.S. market in which the Canadian economy is heavily reliant.
This is why for someone like myself, the conclusion is quite clear that it’s likely in Canada if a crash occurs, I expect INFLATIONARY policies from both the Bank of Canada and the overall Federal government.
I do not see austerity, I do not see a whole lot of regulation cuts; I see an attempt for MEASURED inflation, which equates to the Bank of Canada likely trying to assure the markets that they have inflation under control while inflation runs rampant.
We’ve already seen the playbook; I like to remind people that the Canadian housing market crashed during Covid-19, and what stopped it was loan deferrals and free money sent by the Federal government.
Canadians are now paying for that borrowed money is consumer price inflation and higher borrowing costs for the Federal Government they finance with their tax dollars.
Ultimately this leads to Canada being more reliant on IMPORTS as the Federal government, via regulations, continues to destroy Canada’s MANUFACTURING sectors.
In the United States, the Federal Government has more limits on how badly it can destroy the U.S. economy; yes, the U.S. federal government has done a lot of damage, but the damage the Federal Government did to Canada is actually far worse; the burden in Canada is spread out differently.
The U.S. as an example, has no DIRECT transfer payments mechanism, meaning that you can see the STARK differences between Democrat and Republican-run States and Cities; in Canada, you can barely notice the difference as both the public sectors in Quebec and Alberta are both properly financed, even though Alberta’s economy is in far better shape.
There is little reason to move from Quebec to Alberta because of transfer payments, whereas in the United States, California, the most beautiful State in the U.S., has an emigration problem because State California taxpayers have to finance the stupidity of the STATE government they’re voting for.
No matter how badly the people of Quebec vote, their public sectors via the Federal government remain adequately financed, thereby allowing the people of Quebec to have a false sense of usefulness to the Canadian Federation.
In California, even Democrat voters are leaving because they’re EXPERIENCING the effects of what they’re voting for, in Quebec, Canada, no such feeling exists, and this same policy will occur in the event the Canadian housing market collapses.
The government and the central bank, using the ignorance of the populace, can blame the inflation caused by a housing crash on anything they want, and Canadians will likely believe theme accept it.
n the U.S. a housing market crash doesn’t mean the entire housing market in the U.S. will crash, it likely means a few regions will be hit hard, primarily because certain regions in the U.S. have Left Wing policies that drastically drive up the cost to build and maintain the residential and commercial real estate and because financing might dry up, it will lead to not only shortages, but private banks ignoring entire regions altogether.
Detroit as an example, used to be a booming city, but now you’ll see a lot of abandoned and empty buildings; this is not so common in Canada, primarily because of how funds in Canada are allocated, a lot of bad ideas in Canada are SPARRED whereas in the U.S. after a bad idea comes out of favor with the people it DIES!
So, for me, I see an inflationary recession coming to Canada, whereas in the U.S. their recession looks more like stagnant growth!
Interesting times ahead!