Real estate markets In Canada saw steep declines on both coasts in April, Toronto posts 41% drop in sales, Vancouver sales down 34.1% – Are Negative Interest Rates Coming To Canada? – May 15, 2022
The world is clearly addicted to cheap money and what does this mean exactly? Well, each country has its own particularities, Japan as an example, they’ve been bailing out failing companies forever, I like to remind people who imagine the Canadian housing market is headed for collapse, that in Japan they have 100-year amortization on mortgages, basically making most of their homeowner’s RENTERS.
So, in my opinion, where I think Canada is headed for is a WAVE of bankruptcies, not because of housing prices reaching a record high, instead, I see this happening because OTHER prices are on the rise and these rising prices are NOT likely to come down while Justin Trudeau is in power. The market is in an adjustment period because of the new cost of government.
A huge portion of the new cost of government is CARBON TAXES and carbon-related regulations on the Canadian economy, which basically guarantee Canada’s private sector will see increases in their operational costs. Once you understand that operational costs on businesses can not come down, based on Canada’s current regime, what is likely to happen is either businesses do more outsourcing, cut some of their staff, raise their prices, or even cease operations altogether in Canada.
Shortages, higher prices and potentially fewer taxes being collected while the cost of living soars? To be clear, I’m referring to Canada’s PRIVATE sector, Canada’s public sector which includes crown corporations, have all demanded pay increases, why this is important, is because I like to point out that the Canadian economy is DEFLATING, and to combat the ECONOMY from deflating, central banks for years now have been providing the private sector with market liquidity (Low-interest rates).
I’m not a complicated investor, some investors give all their attention to central banks, I focus on the size of the government and I’m thinking about; how long until austerity measures? Are the foreign exchange markets ready to dump the Canadian dollar? I don’t know? I assumed American dollar holders would have been able to buy Loonies at $0.60 each a while ago, I was wrong about that.
The foreign exchange market in the grand scheme of things can be a false indicator of the value of a currency. Canada’s PRIVATE sector is one of the most indebted in the world and a lot of Canada’s debts are tied to RESIDENTIAL real estate. What does this matter? Because likely the Canadian government will tank the Loonie to save the housing market, but as I pointed out above, even if interest rates do go up, the Federal government can introduce 100-year amortization, to lower mortgage payments for all Canadians.
This move alone would free up a lot of capital and potentially lower the price of MORTGAGES. This can also balloon Canada’s housing market and make it look rather comical, but I remind readers that this option is still there, but it would signal the end of Keynesian economics, because once that happens, Canada is Japan without the manufacturing base.
The history of government tends to equate to once they lower your cost of living, they’ll find a new program to waste money on. Canadians for the most part have an extremely low financial IQ. By that I mean, Crown Corporations in Canada haven’t considered costs to the public. In the U.S as an example, the United States Postal Service is a branch of the United States federal government.
In Canada, Canada Post is not considered a government expense, sure Canada’s Federal government can force Canada Post workers to work, but Canada Post as well as a lot of other Federal Crown Corporations aren’t on the Canadian government’s balance sheet, and this matters, because this is how prices get distorted and resources squandered in the marketplace.
Now, really think about this for a moment, Canada Post lost money during a period in which online shopping SKYROCKETED? How could this happen? I argue this happened INCREMENTALLY! There is NO incentive for Canada Post to be efficient, or to cut costs because its labor union, its management, its pension holders all imagine that if things go wrong, the Federal Government will bail them out.
Personally, I can’t blame them for thinking like this. People forget Canada’s Dairy Cartel is also Crown Corporation, even when the leader of the People’s Party of Canada Maxime Bernier says he would end the diary cartel he makes it clear, that he would do it GRADUALLY, why? Because Canada’s dairy cartel isn’t used to competition, most of the members of the dairy cartel have no idea how to compete in the marketplace or how to be efficient with resources because the Federal government has been protecting them for DECADES.
I bring all of this up because a market economy allows for bad ideas to be replaced with good ideas, the government gets in the way of this progress when it intervenes. technology is a deflationary force that hasn’t been allowed to lower prices, instead in Canada, there are talks of REGULATING the internet? These additional costs that digital companies will have to pay for, will be passed on to Canadian consumers and the likely outcome will be bad products as content creators in Canada will now have to adjust their creativity to adhere to the new government regulations.
If you don’t understand how this relates to the housing market? well listen up, most of the debt being created in Canada goes to RESIDENTIAL HOUSING, not commercial development RESIDENTIAL HOUSING, does that not sound like a deflating economy to you, that will require constant bailouts? Canada has headed towards being mostly a service sector economy, with a few factories here and there.
Sure right now, this may not seem like a problem, but reliance on IMPORTS equates to the government losing the battle of price controls. In Venezuela what happened when they had consumer price inflation is the government decided to enact price controls, well, when the government caps earnings, on IMPORTED goods, business people will STOP importing goods subject to price controls out of fear of what the government might do to them.
This is how shortage problems occur after the government destroys the domestic economy with regulations, it then assumes the easy fix is to create price controls, not comprehending that the private sector participants will opt out once they realize they can’t make a profit or their profits will be scrutinized. This is why for myself, I stay away from certain businesses I imagine the government might nationalize during periods of crisis.
The public will always want an easy answer, I was shocked when I read that I think 55% of Canadians who took an ONLINE survey wanted the government to regulate the internet? Now, I’m not sure how those questions were framed but do yourself a favor and look at the picture I posted of the current Prime Minister of Canada. That picture by the way may have been Prime Minister Justin Trudeau in his or near to his 30s.
Canadians want that man to regulate the internet? That’s where Canada is right now and sometimes things have to get worse before they get better. For me this is why I think negative interest rates will be a no-brainer, once something breaks! I like to remind the reader that if something breaks in Canada, because of our reliance on imports, it could be a serious problem.
In China they’re allowing their companies to default on U.S dollar-denominated debt, which may actually increase demand for U.S dollars, now the Chinese government which has control over the means of production and relatively low energy costs, because after all, it has no carbon tax, can afford to debase its currency in the way Japan debases it’s currency because they control the means of production, Canada on the flipside has no such luxury, we must import a lot of what we consume, equating to our reliance on the Forex markets.
Do you see the dangerous game we’re playing here? we’re exchanging our ability to produce things, in exchange for fiat money! The history of fiat money is that it eventually falls to zero! Invest wisely, because in some instances, owning a piece of a company will be more profitable than hoarding fiat currency, because in case you’re unaware, fiat currencies crash all the time and when they do, as long as the government doesn’t nationalize everything, your holdings in certain businesses may actually outlive a fiat currency.
Life isn’t fair, but they do it call the Greenback, King Dollar for a reason, so consider this, in your investment holdings. because without austerity measures certain things happening to Canada are inevitable at this point!
Interesting times ahead!