Thursday, October 22, 2009

The Perfect Storm

They are showing the Perfect Storm on TV.

Are we setting up for the Perfect Storm in Canada?

Maybe.

Exhibit one...exploding deficits like this one:

http://ca.news.yahoo.com/s/capress/091022/national/ont_economy


Exhibit two...completely oblivious to the foolish errors that took place south of the border, we are marching to exactly the same drum:

'The federal government has quietly given Canada Mortgage and Housing Corp. more financial muscle, raising concerns the multibillion-dollar agency is expanding at an unprecedented pace with little oversight.

For the second time since the beginning of 2008, Ottawa has raised the amount of mortgage insurance CMHC can have outstanding. The increase moves the cap to $600-billion, up from $450-billion and nearly double the $350-billion limit in place at the end of 2007.
' Globe and Mail October 21st.


Insanity: doing the same thing over and over again and expecting different results. Albert Einstein


Wave one. The crisis hits. Governments and policy makers did nothing to prevent the onset, but now throw everything at it, everything they have.

We go deep into deficit.

The crisis is averted, for now.

Asset bubbles reignite..RE here, Gold and Oil worldwide.

Wave two hits. They have nothing to fight the fire with. How can a Provincial Government which has a $25 Billion deficit pay for it's regular programs, never mind expand??

We hit the Perfect Storm.

Is this scenario likely? Maybe. Not many economists are even mentioning it as a possibility. Yet it is very possible. All governments are facing increasing expenditure and declining revenue...and add to that the baby-boomer entitlement programs and it is hard for me to see how this can end well.

3 comments:

  1. wizardofozziejurockOctober 22, 2009 at 11:04 PM

    If you had told me last year that Canada's response to the financial debacle precipitated by bad mortgage lending in the U.S. would be to encourage more bad lending here...I wouldn't have believed it. It's complete madness.

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  2. BNN just reported Canadians are buying homes on average 7 X their income, where Americans are at at 3.5X.

    3.5 X is the rational amount.

    7 seems unsustainable.

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  3. When you consider that Americans can deduct mortgage interest and they have lower taxes, that comparison becomes even more amazing.

    The funny thing is that maybe this is all rational: someone in Vancouver Condos explained you might as well bet with someone else's money on prices going up. If prices go up for a while, you are a millionaire. If you are wrong, you go bankrupt. Not bad, if starting from (next to) nothing.

    CMHC has got to undergo some major policy changes to deflate this bubble. Even if they act now, the money tied up in mortgages is going to give society one wicked hangover.

    ReplyDelete