Pyramid Scheme Economics, Fighting Deflation with Cheap Money and Expensive Regulations: How Canada’s Federal Government Destroyed The Canadian Housing Market – June 10, 2021,
Just so I’m clear when the virus pandemic of 2020 hit and Canada’s response was to shut down the economy, the end result was a housing crash. This housing crash was avoided because of debt deferrals and Canada’s Federal government’s decision to pay people to stay home.
As everyone is aware, Sweden never shut down their economy, so again, this move by the Canadian government was a form of welfare for the mortgagor who clearly failed the stress test. Furthermore, central bank liquidity and Canada’s federal government’s decision to rewards retail banks was a form of corporate welfare.
The virus of 2020 should have qualified as unforeseen events in the economy, unexpected events happen all the time, the difference in the modern era is that Canada and the world have become far more socialist, primarily because the current financial system is based on confidence.
Now, had the housing market, not been nationalized, it would have crashed, which means that prices would have come down. Now, a housing market crash, doesn’t mean that people are forced to sell at fire-sale prices, but if they’re overleveraged, in Canada we do have a power of sale process in most Canadian provinces, which in many ways still gives the retail banks, Canada’s federal mortgage insurer CHMC and even the homeowner some leverage.
Most banks don’t want to get into the real estate business, banks are in this game for the cash flow. So the banks and the mortgagor could work this out on their own and the people who don’t belong in the housing market namely the real estate speculators who are the major contributions to higher prices would have to hammer out a deal with their lender r walk away from the property.
But you see, Canada’s federal government made it rain on the economy, the speculators got a bailout and most wage earners, gig economy workers, and businesses all got a bailout. By the way, this included wealthy people by the way because in case people don’t know, a business is a separate entity and could also benefit from a Trudeau bailout.
A bailout like the one Trudeau gave the market also propped up asset prices, which meant it was a good time to raise the selling price of your property. I could go on and on as to why and how the WORKING middle class and the Working poor got screwed in all of this, but stimulus in a regulated environment only benefits the rich, because regulations create a barrier to entry, that the WORKING poor can’t penetrate because government asset inflation is devaluing their labor in Canadian fiat dollars.
Because Canada’s government workforce has paychecks that keep up with inflation and I don’t see austerity measures or any mechanism that will force government shrinkage in Canada’s future, the reality is that Canada’s federal government has destroyed Canada’s housing market.
It’s now a nationalized housing market, everyone should know by now that the housing market for the foreseeable future will be bailed out by the government, the Bank of Canada, and CMHC. So if there are any price deflations and there are no calls to shrink government, expect that these price deflations will be short-lived.
My property tax bill keeps going up, even though the teachers are teaching from home, but you know why there are no complaints? Because most of the people who live where I live have mortgages and when you have a mortgage, your property tax bill is blended into your mortgage. People in debt are also usually agreeable because they feel fortunate to be debtors.
So the way I see this hasn’t changed, I see the Canadian economy eventually coming to a grinding halt when all of the parts of the Canadian economy get rusty. What does this mean exactly? Well, you should consider not viewing the Canadian dollar as an asset with saving, in countries where fiat denominated price inflation is apparent, the smart citizens get rid of their government-fiat currency has soon as they can and by assets they believe will either hold their value or appreciate.
Now, although people may imagine real estate to be a good investment, I brought up property taxes for a reason. When inflation really starts to take off, in some countries, the lenders will stop covering property taxes. Or some lenders will begin adding new fees, raise interest rates or create their own additional regulations.
Banks prefer passing costs to their clients and mortgage clients in Canada especially tend to be the most willing to pay any fees levied on them. When you monitor the behaviors of the rich, they have no problem abandoning mansions. The problem with Canada’s housing market is that even the smallest of condos in the worst of areas are overvalued.
Most people do not understand how economic deflation occurs. Because the Federal Government blinked first, it wouldn’t surprise me if mortgage deferrals become a new normal until another sucker buys a distressed property. In America when their housing market crashed in 2007-2008, the retail banks often didn’t report when a mansion was in foreclosure. Meaning when the housing market crashed in America the retail banks instituted their own mortgage deferral program.
Now, you might ask why would the banks do this? The answer: preventing fire sales. Now, to put this in perspective, some of these mansions in America had a sticker price lower than some 2000 square foot homes in Canada. This gives you a glimpse into why the government should stay out of mortgages.
The private sector behaves in the manner it does for a reason, when the government gets involved it makes the situation worse. Justin Trudeau as an example is TRUST FUND BABY, most people don’t even know that a Trust helps families to AVOID PAYING TAXES! Trudeau’s dad was a socialist.
Pierre Trudeau wanted to raise taxes for you and me, but you see he made sure his own family didn’t have to pay those taxes. Unlike American Trusts, Canadian Trusts have more regulations which means there’s a much higher barrier to entry to get a trust in Canada, which makes it out of reach for Canada’s WORKING POOR and WORKING MIDDLE CLASS!
As I like to point out, I expect Canada to have negative interest rates in the future #LateStageSocialism
Posthaste: Home ownership to become distant dream for more Canadians as policy measures fall short, warns RBC | financialpost.com
Interesting times ahead