Canada’s phony housing-based GDP paints a bleak picture

What can you get for $500,000 today?  You could buy one “cozy” shoe box condo in the sky in a gentrified neighbourhood in chilly Toronto, or two detached houses on huge lots beside a golf course in sunny Florida. The strange thing is that Americans think that their prices are reminiscent of 2008 and they think that they are back in a housing bubble.

That’s a scary thought.  Here’s an equally scary graphic:

Housing is by far the largest contributor to Canadian GDP, and that’s a bad thing.

 

Houses, which generally produce nothing in the long run, is the largest contributor to the government’s phony GDP numbers. Of course Canada’s economy looks great, if you base it entirely on housing, a sector propped up entirely by artificially low interest rates leading to massive speculative bets that even your risk averse grandmother takes part in.

Real economic growth comes from producing wealth from close to nothing or very little. Extraction of resources, research and development, and then production of goods is what leads to real growth. It leads to real exportable technology and products that can be traded for other goods not easily manufactured in Canada. It results in money being made, and time being saved. Houses trading for higher and higher speculative prices do none of that, and do not belong in the government’s GDP report.

Couple the phony inflation numbers with this phony GDP report and the reality is that Canada is not doing as well as the government says. Until that speculative housing money is pushed into real industry, Canada will not see a real booming economy any time soon. The more the housing bubble gets inflated, the more capital that is squandered and put into the hands of global lenders through future interest payments on giant loans, rather than to local industry.

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