Until this modern take of Keynesian economics is no longer pushed as the standard of financial “wisdom”, debt-fueled economies will continue to relive these progressively worse economic cycles, with every bubble burst being much worse than the last.
On the heels of the quarter percent rake hike freak-out, Canada is on track to its Groundhog Day: a replay of the 2008 U.S. housing crisis and every other financial crisis of the 20th century. Only this time, barring no excessive intervention to delay the inevitable, it will be the worst on record.
Meaningful production has been decreasing decade after decade as artificially low interest rates and debt-fueled speculation begets more and more frivolous spending. It explains why Canada’s reported GDP has to devote more than one-half to housing than real goods and industries that actually grow a nation’s wealth, as it gives the illusion of growth and rationalizes their Keynesian policies. The speculative growth of assets deincentivizes meaningful work, as more people incorrectly evaluate their financial wealth, spending more rather than seeing the need to produce more with the intent of saving for retirement and investing in real, long-term growing enterprises.
With that simple observation, we can easily understand why we have moved from being able to support an entire family with one parent retiring at a reasonable age in the past, to now requiring both parents working until death to support that same family. Pile on the related disturbing trends of negative birth rates and smaller families, increased dependence on welfare programs, and reliance on other Ponzi schemes like social security and government-managed pension funds, and it is clear that the financial health of Canada is exponentially getting worse.
A report from the Financial Consumer Agency of Canada makes the surprising admission, without ever identifying the root problem, that Canada is on pace to replicate the U.S. housing crisis of 2008. It correctly points out Canadians’ over-reliance on HELOCs (Home Equity Lines of Credit), i.e. debt derived from debt-driven speculative valuations on one’s house. It demonstrates how much ill-assumed future wealth is being spent now in the unrealistic hope that the debt-fueled bubble will go on forever and house prices keep going up.
Take a look at this graph depicting the growth of debt versus the ability to grow savings (disposable income):
Canadians are not being more productive. The GDP is completely phony particularly if it comprised primarily by rising speculative prices in the housing sector. If Canada had real economic growth and Canadians were truly generating more personal wealth, that debt-to-savings ratio would be falling, and there would not be a proportional reliance on HELOCs to stay afloat. The majority of Canadians are only capable of paying interest and not the principal on mortgages, a concrete indicator of rising housing valuations based purely on speculative value and not backed at all by real economic growth.
“HELOC” was the curse word that brought down the U.S. and all the world markets in 2008. All fingers pointed at HELOCs for pumping the air that eventually burst the bubble. The derivatives that traded the toxic debt took it a step further, upping the ante and spreading the risk among the world’s financial markets and institutions.
I’m afraid Canada is on that same HELOC train, ready to relive the U.S. 2008 crash, completely incapable of learning from history as recent as a decade ago. Mark Carney, former Bank of Canada Governor, didn’t do anything to stop the root cause back then, yet was given credit for Canada supposedly “dodging a bullet”. Turns out that bullet is just one out of the machine gun fire coming from the modern Keynesian policies of artificially suppressed interest-rates and inflationary “stimulus”. Carney just delayed the inevitable and made it so that Canadians have no idea how painful getting struck by a bullet will be. The next wave of bullets is coming, and Canada will not dodge them all.
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