Massive debt and inflated housing prices – where have we seen that before?
A report by the International Monetary Fund – issued before the Bank of Canada raised interest rates to .75% – shows how little the elites really understand what’s happening in the Canadian economy – despite their many claims of expertise.
Their key mistake is an unwillingness to connect the policies they advocate for with the risks and vulnerabilities associated with those policies.
Consider this section of the IMF report:
“While the output gap has started to close, monetary policy should stay accommodative until signs of durable growth and higher inflation emerge,” it said, adding that rate hikes should be “approached cautiously.”
So, they’re saying the economy is “improving,” but interest rates should remain low until growth is more locked in and inflation rates start going up.
A Reuters report also notes the IMF saying “financial stability risks could emerge if the housing correction is accompanied by a recession, but said stress tests have shown Canadian banks could withstand a “significant loss” on their uninsured residential mortgage portfolio, in part because of high capital position.”
Additionally, the IMF states, “The main risk on the domestic side is a sharp correction in the housing market that impairs bank balance sheets, triggers negative feedback loops in the economy, and increases contingent claims on the government.”
The report makes clear that the IMF thinks government spending should be used to grow the economy, but also say no further stimulus is needed, unless there is a recession or crisis.
You’ll note that the solution given by the economic elites is always the same: Double down on the same policies that are currently failing. More open borders, more “free trade,” more big-government, more spending, and more debt. Also, keep trusting the banks. That’s the elitist mantra, and they repeat it every time.
The problem with that way of thinking is that it has resulted in massive vulnerabilities, and those vulnerabilities can quickly destabilize an economic system.
Furthermore, the 2008 crisis showed that those in charge have zero ability to predict what will happen in the economy, and they have no idea of the risks they have created. Yet, since the 2008 crisis, take a look at what’s happened in Canada:
Housing prices are way above where they were at the crisis peak.
Wage growth in Canada is weak – meaning millions of Canadians are getting poorer every year once inflation is factored in.
Household debt in Canada is far worse than it was in the United States in 2008.
A housing market decline will have a huge impact on employment in Canada.
Our household debt to income ratio has hit insane levels.
Those charts and more can be found in a great article on ZeroHedge – which I encourage you to read (after this article of course!)
What the IMF and other elites fail to recognize is that all of these vulnerabilities and imbalances are directly linked to the policies they have advocated for. Policies that favour wealthy globalists – such as letting our housing market get bought up by foreign millionaires and billionaires – trade deals that have forced working and middle-class Canadians to compete with workers in countries that have no labour laws or safety standards – taxes, fees, and economic regulations that force people to go into debt to hold onto their standard of living, an approach that makes the big banks even richer at our expense, and globalism that has stripped tangible industries out of our country in return for ephemeral jobs – all of this has made us more vulnerable.
Those in power use statistics to tell a twisted picture, never mentioning that unless wages go up faster than inflation – which they rarely do – so-called “wage increases” mean nothing.
Any growth we have had is based upon a housing bubble and massively increasing debt levels, which means it’s not real growth at all. If someone borrows a million dollars, goes out and buys a bunch of stuff, and then can’t pay it back, that doesn’t mean they are economically successful.
The same holds true for our economy. Any economy can grow temporarily based on huge debt increases, but it is not sustainable. Even worse, for all the debt our country has taken on, our growth has still been very weak. And now, the Trudeau government is imposing new taxes and economic regulations that will further constrain our future growth.
Looking at the charts above, and using basic common-sense, we can see that the elites are leading us to a crisis. All that remains to be seen is how serious the crisis is, and how long it lasts.
The risk and vulnerability created by economic bubbles and high debt levels seem fine and even beneficial – until the moment it suddenly isn’t.
Then, people realize that danger and pressure has been building up in the system the whole time, and nobody is prepared to deal with it.
The deeper problem is that our society – and particularly those who “lead,” are not prepared to discuss difficult truths. We don’t discuss trade-offs, we don’t discuss risks, and we don’t take action to protect ourselves against danger in the future.
Instead, those who can talk the smoothest and present the best “expertise” tell us how “this time it’s different,” and how we can evade the lessons of history because we live in a new world.
But thing’s aren’t different. Growth based upon ever-expanding debt, a weakening currency, and ever-increasing complexity and centralization is not sustainable. Every bubble bursts, and an economy based upon intangibles is always exceedingly vulnerable.
The system is working great right now for the elites, so they ignore the danger, they ignore the charts, and they ignore the lessons of history. And yet – whether they accept the truth or not – time is running out.
Photo – Deutsche Bank
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