Interesting Times ahead for Toronto Real Estate and The Canadian dollar: Higher and Lower Central Bank Interest Rates and Consumer Price Inflation – July 31, 2022,
Long before I was born, Austrian economics were talking about why BIG GOVERNMENTS were a bad idea. Prior to the internet, most people would have to sit through long 2-hour long lectures to comprehend what in the hell Austrian economists were talking about. This, ofcourse, turned off a lot of people who inherently wanted easy answers and didn’t want to both themselves with critical thinking.
In countries like Canada, Keynesian economics won the day DECISIVELY, MOST Canadians are PRO-EMPIRE, Pro-Big-Government and imagine the government as the answer to all economic problems, and it’s for this reason that Canadian real estate makes up for the BULK of consumer debt. What’s often ignored about residential real estate is the damage it’s causing to COMMERCIAL real estate, because the more money a person spends on their MORTGAGE, the less money they have to spend into the economy, right? Well… That’s not the entire story
The real problem with high rental and mortgage payments is what happens if the housing market remains stagnant, or becomes DEFLATIONARY? If the Canadian housing market stops going up in value for a prolonged period of time, existing homeowners might find it difficult to borrow any money. A mortgage, after all is still a DEBT, and if the selling price for my house comes down, the private sector banks will look at me as more of a risk, especially if I have my mortgage plus other debts.
How does a person CONSOLIDATE DEBTS if they’re underwater with their mortgage? A lot of debt consolidation can happen when the value of your home goes up and CONSUMER price inflation is flat. But when consumer price inflation is running rampant and asset price appreciation stalls, you will soon find yourself more dependent on the main source of income than you imagined prior.
Why this is such a problem for Canadian real estate is that consumer price inflation is the DIRECT result of Justin Trudeau’s war on fossil fuels. Yes, Tiff Macklem, bought up a lot of Justin Trudeau’s BAD debt, thereby encouraging the current Prime Minister to engage more reckless spending, but lowering interest rates will encourage Trudeau to engage in more spending and more regulations on the people who disobey his mandates.
However, on the flip side, if Tiff Macklem, who was appointed Governor of the Bank of Canada, on June 3, 2020, for a seven-year term, keeps raising interest rates, both the Federal government and the Canadian taxpayer are going to feel a lot of financial pain, and it’s not a guarantee consumer price inflation will subside.
Because of Justin Trudeau’s war on fossil fuels, consumer price inflation is heavily reliant on what OPEC+ does. I’ve been calling for a potential oil price CRASH, but this oil price downturn is more about the looming recession and not about more supply coming online. I’m arguing that the economy is slowing down. Now because consumer price inflation continues to rage on, the NUMBERS might not show a slowdown because people are spending more for less, but an inventory build of consumer goods is all the evidence I need to show me that if oil prices come down, it will have little to do with Bank of Canada policies and more to do Justin Trudeau’s regulations on the Canadian economy.
But you see how the media could frame a TEMPORARY retreat in oil prices is that Justin Trudeau and Tiff Macklem calmed inflation. It’s unlikely anyone will want to hear a 2-hour lecture as to why gas prices are coming down, and this could lead to Tiff Macklem lowering interest rates, only to see another spike in Consumer and potentially ASSET prices.
Do you see what I see coming? In my opinion, the Canadian dollar is DOOMED to inflate unless STRUCTURAL changes are made soon. We’re living in a system created by Jean-Chretiens Liberals, and that era is coming to an end, I think austerity measures are INEVITABLE at this point. But how long it will take until any government notices the obvious is not something I can not comment on.
It took until Ronald Reagan that a free market message became normalized in the United States. I don’t consider ANY period in the United States an economic boom after FDR until Reagan. People forget it was President Franklin D. Roosevelt who signed the first peacetime conscription in the United States; the act required all American men between the ages of 21 and 36 to register for the draft.
Remember, it was President Franklin D. Roosevelt(FDR) who created the NEW DEAL, and don’t assume there weren’t people like me back then trying to explain the horrors of the New Deal. A lot of people who never studied history don’t understand how tyranny works and why it gets worse and worse. You don’t have to believe me, but I could argue that Justin Trudeau and Joe Biden’s war on fossil fuels is helping to finance Russia’s war on Ukraine!
In the U.S, they have something called the Green New Deal; during the reign of FDR, they had the NEW DEAL. The New Deal was as immoral as the Green New Deal is today, but it was made into law, and the GLOBAL economy experience a historic downturn, which helped to facilitate the rise in popularity of National Socialism and Communism.
When most people look at world war 2, they ignore its economics of it. Fascism from an economic point of view is indeed NATIONAL SOCIALISM, and communism is indeed another extreme form of Socialism. The difference ECONOMICALLY between Fascism and Communism is their different methods of nationalization. Communism completely dominate the means of production where as the Fascists allowed private entities to exist as long as they obeyed and never challenged the edicts of the State.
If you read Atlas Shrugged, the story revolves around business people being too scared to stand up to the idiots in government. Ayn Rand seeing communists up close knew how the socialists operated and attempted to warn her readers of how civilizations go to hell. But I’d argue Canada is far gone; from what I see, the average Canadian Liberal and Conservative doesn’t appear to understand the systematic problems of Canadian real estate.
In a nutshell, asset prices are artificially high in Canada and if they don’t come down, expect the consumer price inflation we’re experiencing now to be PERMANENT! Making matters worse, the longer this consumer price inflation remains, the more business will restructure their business to cater to what appears to be the new normal.
What I mean by this is let’s imagine a new politician does come along and begins shrinking government; even if businesses find their costs going down, they might not be able to lower their prices; why? Because maybe their EMPLOYEES got a pay increase, and the pay increase is based on higher consumer prices. Can the employer go to the employee and say thanks for your service, but I’ll need to cut your pay? No, ofcourse not.
Furthermore, it’s not a guarantee that Trudeau’s replacement will want higher interest rates; maybe they’ll push for lower interest rates, which, as I explained before, could lead to a spike in Asset prices. Austerity measures are PAINFUL and difficult to explain to people who don’t want to sit through a 2-hour lecture about Austrian economics.
Furthermore, people can simply reject the premise of Austrian economics altogether. So how I see this thing playing out is the DEBASEMENT of the Canadian dollar. Someone will have to convince me otherwise in order for me to believe otherwise. Debasement equates to a fight via the powers that be for HIGHER PRICES for everything!
Interesting times ahead!