“The bubble north of the border is far more acute and will pay a deeper price for the interest-rate hikes that have already been implemented,” says economist David Rosenberg.
Today, much of the economic discussion is about the higher-than-expected jobs numbers.
The Canadian economy added over 100,000 jobs last month, far exceeding expectations.
However, due to significant net job losses over the past 3 months, Canada is still down thousands of jobs over the past quarter.
In their report on the labour force, Statistics Canada noted that increasing number of Canadians who are struggling:
“More than one in three (35.3%) Canadians aged 15 and older lived in households citing difficulty meeting financial needs in October, up from one in five in October 2020 (not seasonally adjusted).”
Also, considering that the population has increased, and the unemployment numbers don’t include those who have given up looking for work, the attention on the latest jobs figure obscures deeper problems.
One of those deeper problems is that a significant amount of Canada’s economic ‘growth’ is built upon a completely unsustainable foundation of rampant money printing, government spending, and a shocking reliance on high housing prices.
On the spending side, the Liberals have in effect been masking a disastrous situation in the private sector by rapidly expanding the ranks of government workers.
In fact, this jobs report is the only one since March that shows an increase in private sector workers:
“Most of the employment gains in October occurred among private sector employees, whose ranks increased (+74,000; +0.6%) for the first time since March 2022. As of October, the number of private sector employees was 349,000 (+2.8%) above its pre-pandemic February 2020 level.”
You’ll note of course that even a gain of 349,000 private sector workers over two and a half years is problematic, since the population is up over 1 million people in that time.
But look at these public sector numbers:
“Following an increase in September, the number of employees in the public sector was little changed in October. Compared with February 2020, the number of employees in the public sector was up by 392,000 (+10.1%).”
Considering that the public sector is so much smaller than the private sector, that is a truly massive expansion of government hiring.
Additionally, the number of self-employed people is 228,000, down 7.9% since the pandemic.
So, the Liberals are in effect borrowing massive amounts of money, spending on public sector hiring, and then pretending that all is well.
But as respected economist David Rosenberg – president, chief economist, and strategist at Rosenberg Research notes, all is not well.
In fact, Rosenberg says Canada would be worse off than the United States would be if the housing bubble burst here:
“The bubble north of the border is far more acute and will pay a deeper price for the interest-rate hikes that have already been implemented.”
Rosenberg pointed to the reality of Canadian home prices reaching far above the average income level throughout the country, especially when compared to those in the United States.
He cautioned that debt to disposable income in Canada is far greater than in the U.S. For every dollar Canadians earn, they owe $1.65 to debt, whereas Americans owe $1 to debt for every dollar they make, according to data from Havers Analytics.
“On a relative basis, Canada is extremely exposed compared to the United States,” Rosenberg stated.”
“Rosenberg is also concerned about the large amount of Canadians who have taken on variable interest rates for their home mortgages in comparison to Americans.
Slightly over one third of Canadians hold a variable rate mortgage that will be renewed within the tightened interest rate environment versus only the five per cent of U.S. homeowners who have a variable rate, according to Havers Analytics.
“That is an absolutely astonishing number. I’m talking about that 34 per cent share in mortgages that respond quickly to higher interest rates in Canada,” he stated.
The data also revealed that Canadians have tied 46 per cent of their assets to residential real estate and 55 per cent of their net worth is from housing.
This is double compared to their U.S. counterparts, the data showed.”
This is a disastrous situation for our country.
It is also likely a key factor in why the Liberals have announced further large immigration increases. They are desperate to keep housing demand high to ensure prices are artificially propped-up.
Simply put, by deciding to pursue a high-tax, high-inflation, government-driven approach to the economy, the Liberals have made it impossible for Canada to manage a significant housing decline.
Making it tougher to produce real, tangible goods, and simultaneously flooding a country with money pushes money into assets such as housing.
If Canada had low taxes and if we unleashed the energy sector, some of the pain from a declining housing market would be offset by rising productivity, lower domestic energy costs, more export revenue, and private sector job creation.
But instead, the Liberals have left our country dependent on a housing bubble that cannot be maintained indefinitely.
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