Canada: The Land of Delusional Thinking

By Cam Mather

For my American readers this blog post can serve as your “been there, done that” moment. Same for my Greek readers. Canada sits atop a housing bubble intertwined with a personal debt bubble inspired by a delusional thinking bubble where its citizens and politicians think that these good times can continue forever. It’s a grand illusion and it’s going to end in tears. Perhaps Canada will soon resemble the streets of Greece where people are rioting because of austerity measures and the reduction of entitlements. Or maybe we’ll behave more like our American cousins who watched the train wreck of the housing and debt bubble explode and then let the political and business elites who created it, or allowed it to happen, get off scot-free.

Michelle keeps sending me posts from a blog that shows tiny, 2-bedroom wartime bungalows in Toronto that are selling for $800,000. The average home price in Vancouver is 1 million dollars. Really. A million bucks! How anyone affords to buy a home there is beyond me. But merrily we roll along, acting as if all is well, because house prices, as you know, never go down. It’s not cyclic, it just goes up, forever. What was it that Ben Bernanke said in 2005, something like “We’ve never had a decline in house prices on a nationwide basis.”? And this is the man running the economy down there today.

In Canada our central banker, Mark Carney, is being treated like a rock star. Sound familiar? Remember when people hung on Alan Greenspan’s every utterance? Remember when he was considered the maestro of the greatest run up in the U.S. economy anyone could have dreamed of? Have you noticed that now lots of people like to call him the man who destroyed the U.S. economy by keeping interests rates too low and inflating a massive housing and stock bubble and not supervising the financial institutions that cooked up fraudulent mortgage concoctions that helped destroy the economy? Funny how that goes.

Well that’s Mark Carney today. People think he’s awesome. And now he’s in charge of an international stability fund to get other countries in shape, because we do things so well here in Canada. Except that all we really did was quietly move all the bad mortgages of Canadian banks on to the taxpayers. Per capita it was about the same as the US, but no one seemed to notice in the chaos of the US collapse. Then our Prime Minister had the audacity to start bragging about how great our system was, and other leaders started listening. He was recently in Davos to tell the world how to do it.

And how do you have such a great economy when the rest of the world is imploding? Well if you’re Germany, you keep making stuff, like cars, the rest of world wants to buy. If you’re Canada you can sell some oil and potash, but ultimately you just want to create the illusion of wealth, so you go into debt. At every level; household, municipal, provincial and federal, you just put it on the credit card. And if you’re the government, you also hire as many people as you possibly can. So it all seems just fine and dandy. For now.

Until people realize that 2 bedroom wartime bungalows on tiny lots aren’t worth $800,000. And then the people who own those houses, which had gone up in value so precipitously, and have taken out home equity loans, to consolidate their credit card debt, finally realize it was just a big house of cards, and the walls are tumbling down.

Oh Mark Carney keeps warning Canadians that they have too much debt. He scolds us, and lectures us, but what does he do? He keeps interest rates ridiculously low. A 5-year mortgage right now is 2.99%. Heck, why even charge interest at all? Just give the darn things away. What Mark and Jim Flaherty, our finance minister, should be doing is ensuring that every student who graduates from high school should not only be able to speak two languages (so they can work for the federal government, which ultimately we all do in Canada because they pay so well) but they should also understand that just because a credit card statement shows a “Minimum Payment” that’s not the amount you should pay. You should pay the whole thing off. And just because credit card companies keep sending you new cards, doesn’t mean you have to use them. And just because those credit card companies keep raising your credit limit, doesn’t mean you should just buy more crap until you hit that limit.

Mark Carney telling Canadians to get out of debt is like your mom telling you not to eat too much candy when you get home from trick or treating on Hallowe’en night. Yea right. Oh sure, I’m going to feel like a dirt bag tomorrow, but you basically gave me the candy. Did you really expect any other outcome?

When the housing bubble pops all this non-mortgage debt is going to get really ugly. This all happens at a time when governments that have hired hundreds of thousands of workers over the last few years are going to realize that their credit card companies are cutting them off too, and they have to get their house in order. Our prime minister is threatening such austerity, threatening to cut maybe 40,000 civil servant positions. Oooo, scary! But considering that they hired 30,000 civil servants in the last few years, it’s not really much of a threat. And like the Ontario government, the federal government has no stomach to really take on public service unions so it’ll have to find some other way to get its house in order… which it can’t. In the meantime, the federal government is going to spend $5 billion to make our prisons bigger, even though our crime rate is going down. Out of touch much?

I remember when Greece hosted the Olympics in 2004 I had read then that they were a financial mess, and I wondered how they would manage to pay for the Olympics. Well it turned out they didn’t. It cost them billions that they didn’t have, so they just put it on their credit cards. And now the credit card companies (bond holders) want to get paid, and guess what, they’re broke. A country going broke isn’t pretty. Government worker paychecks get smaller or disappear, and they get angry. And they throw those tear gas canisters right back at the police that fired on their demonstration. But eventually, everyone has less money; the economy contracts and people reduce their expectations.

Canadians have high expectations. We expect great jobs and lots of money so we can buy tons of stuff and we expect an insanely great health care system which increases how much government money it uses by 6 or 7% a year, while the economy is growing by maybe 2%. The math doesn’t add up. And we can’t all work for the government. We’re losing our manufacturing jobs and we only have so much oil and potash we can sell and we can’t all work doing that. Which leaves us in the same spot as Greece. Next year? 3 years? 5 years? I don’t know. I just know our leaders pay lip service to this debt problem, and then they jump on jets to Switzerland and lecture the rest of the world about how great we are. What’s the expression, “Pride goes before a fall”?

So how would I correct the situation if I were in power? Well first I’d have to get elected as a member of parliament. MPs in Canada start at a base salary of $157,731 per year. If you managed to stay elected for 6 years, you retire with a pension of $46,000 per year for the rest of your life. That’s right, work 6 years and starting at the age of 55 make $46,000 a year …FOREVER! Stay a few more years and it goes up accordingly. So if I got elected I’d say and do absolutely nothing for 6 years, and once I’d passed the 6 year mark, I’d be so engrossed with thinking about how I was going to spend my pension, I wouldn’t do anything except hope the revolution doesn’t start while I’m around. Yup, it’s all going to end in tears.

Canadian flag by Djameson1983 (Own work) [CC-BY-SA-3.0 (www.creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

16 Responses to “Canada: The Land of Delusional Thinking”

  • Connie Murray:

    Since Canada is a nice place, filled with nice people, I think it really stinks that you are about to be hit by the Real Estate bubble popping. Hopefully you will get more justice than we did here in the States and PROSECUTE these Banksters and put them in jail! We have had no justice and are no longer holding our breath. Banksters own everything here — the politicians, the judges and the SEC. Hopefully Canadians were learn from our mistakes and prosecute the Banksters.

  • queen of string:

    Some points spring to mind. I lived through the 1990 Uk boom and the 15% interest rates, and was lucky to end up with minimal negative equity ( about 10%). There is a fairly hefty price readjustment there now that no one seems to be talking about. Before they hit recession this time, lending policies had, once again, relaxed to ridiculous levels. Lending people money they cant afford to borrow is always madness and always leads to pain. Here in Canada we dont seem to suffer from that same madness. With mandatory deposit levels and low multiples on income for lending, it makes it harder for people to borrow things they clearly can never afford. I think it’s a good thing.

    Canada stands a chance of survival as it is not strangled by EU regulation. As a small business owner in the UK, it was so so hard to do anything without falling foul of a slew of unnecessary regulation designed to strangle your business. Canada is not yet at this point.

    America, at some point, will need to cease its magical thinking and take the incredibly painful, life changing decision for the nation and its psyche to face up to the fact that they are not the greatest country in the world. Their whole existence depends on this fantasy which now entraps them in the mess that it has created. There is no American Dream to aspire to, the version they are trying to aspire to never did exist. Only once the USA faces that it is perpetuated on a fallacy, takes some time to recover from that realisation and then finds a way to move forward into the new reality, will it rebuild and grow.

  • Baloghsma:

    Well written, Cam!
    The Great Delusion is also specifically identified as a “global fog” that would come upon the majority by Bible writers. I believe there is a place to recognize a trend and to adjust yourself and your family’s lifestyle and Life Allegiances.

    I recommend coming to grips with your own level of commitment (or non-commitment) to the only one who can provide true guidance in this catastrophic vision of life, Jesus, the Christ of history.

    Next, watch the money-trail. I recently reported for a major union on international trends moving towards the confiscation of PRIVATE PENSION funds. Check it out. And notice the trial ballons being launched here in Canada regarding Old Age Security. This is only the beginning of the massive citizen control agendas which are being worked out. You choose: lemings march in line to the edge of the cliff; citizens take charge of all that is immediately in their reach. And speak out! Letters to the editor and townhall meetings all help. But by all means, stand for something!!

  • Clint:

    @LuckyInTennessee…The mistaken assumption people in America continue to do is assume the problems are drawn along party lines. That is an illusion they create for us to bicker over when the reality is they’re all pissing in the same toilet (per-say)! No one in the history created more debt for this nation than Obama when he allowed the bailouts to occur. Have you glanced at the last total of around $15 trillion? Yes, George Bush, Jr., and his neocon cronies dreamed up this mess and here we are. My point is that it has nothing to do with conservative or liberal. In less than a year, this “nation of freedom” will collapse and when it does a lot of people will be settling scores with one another while the bankers and the architects of Agenda 21 (Google “Georgia Guidestones”) sit around and have Bloody Marys safe and sound on their own islands. It will be a chaotic hell for you, me and our children’s children. Nothing will stop this now. Nothing.

  • Rick:

    Good post Cam. Canada isn’t much different then the US. So, the bubble idea is real, just ask Nicole Foss. I wish the US had national healthcare, but we’re too stupid to do so, and we’re broke.

  • Sigh, I think Cam is right in his thinking on a housing bubble here in Canada. Eight months ago, I bought in a rural town a 45 minute commute outside of Ottawa, because that’s how far out I had to go to find a house that was realistically priced. Even then the previous owners initially wanted Ottawa prices but settled for much less. I’m leaving here in two and a half years for a homesteading property. And I have one eye fixed constantly on the property market. My selfish big hope is to get out of here before the bubble pops. Alternatively I hope that when the bubble in the big cities pops, the outer bands of the cities will remain relatively stable. Cam is right though; there are so many people consumed with bubble-like thinking. But what can’t go on forever won’t. It’s just a matter of when.

  • LuckyTennessee:

    Oh my! You guys elected conservatives and this is what you get. How do I know? The US has done the same thing. Ours began with, wait for it, Nixon and expanded under Reagan. Of course, George W. Bush just took it to the moon. This is going on all around the world. Just look at the mess in India. The so called democratic government is forcing peasants off the land, to let corporations build factories, and into cities where there aren’t enough jobs. Let me tell you this: All those trade agreements destroy a country and the WTO was created by corporations for corporations and have taken away state sovereignty to replace it with corporate sovereignty, at least those who signed THAT treaty. Wake up Canada! Or you will be facing the same ongoing disaster as we in the US are facing. It ain’t over yet here.

  • Wow. Thanks everyone for the great comments. To answer Susan’s question no, Canada’s dollar is NOT backed by gold. We sold it all in the 70s and 80s when it was ludicrously cheap and will have to buy it back when the fiat currency jig is finally up and it’s outrageously expensive. And yes, timing can be everything. If was in the market for a house in Canada right now I’d be renting until the bubble bursts. Cam

  • Andy:

    I won’t pretend to be smart enough to know how economics actually works but here’s my 2c on the whole thing.

    The housing bubble will no doubt burst at some point, typically it happens a few years after banks introduce foolish lending practices. I know this because I’m from the UK and lived there through their real estate debacle that hit in the early 90’s (I think). Lenders started offering 110% mortgages so everyone could buy a house, because everyone could buy a house the house prices went up and the cost of teh property became totally unrelated to its value. When the bubble burst a lot of people were left with 150k mortgages on properties that were now only worth 100k. The media whipped everyone into a frenzy over this whole negative equity thing and the housing market stalled. People didn’t want to sell their house and be left with a mortgage and the lenders didn;t want 2 people borrowing against the same property. If you didn’t want to move it was no big deal you would just keep paying your mortgage and eventually the markets would creep up again and your equity balance would become positive. This was fine as long as there was no recession.
    The problem with recessions as I see it is that they can come out of nowhere and are much driven by public opinion as anything, so I can understand any governments desire to appear wealthy. Look at he worlds reaction to the US economy, the press whip up the idea that there is no money so people stop spending. The guy at the store doesn’t sell as much so he cuts back on his workers or their hours. His workers have less hours and less money so they spend less. Because they spend less the people they spend it with earn less and have less to pay their employees, and so the spiral goes on down and down the rabbit hole we go. Until someone tells us its over, then the whole process starts in reverse.
    Like so many of the systems modern societies run on the financial one is one that really doesn’t work, at least not without the aid of smoke and mirrors.
    Personally I would like to see a return to localised economies where I trade a lot more of my work directly for the produce and services of others but then I’m one of those strange folk that think that both the industrial revolution and sexual revolution may not have been properly thought out.

  • Cathy:

    DeNile is not a river in Africa. It is in the hearts and minds of every consumer on this planet. From AAA batteries to Zip Lock bags we are consuming natural resources at an alarming rate like there is no tomorrow. That is because we do not think about tomorrow anymore. We live in a -glutonous gratification now- mentality. We have lost the ability to defer gratification (save, conserve, re-use, restore). “I want it and I want it now!” with a new model on the market every 90 days and 2013 models out in July. “M”ortgages just have more zero’s. And it is all about the zero’s. Who has the most – spends. It is all a pyrimid scheme.

    FYI: My mortgage banker, the one who gave me a loan on a house that has since gone thru forclousure, is now in jail for fraud. He was #10 in the nation for mortgage loan origination, the bank he worked for was seized by the feds. When I think back to the day I sat in his office applying for the loan, he was in a hurry to leave on a trip to Auruba to spend a month at his new home. His newest home is a cell.

  • Sheila S.:

    Reading your post was like reading a rundown on the fall of the USA. Canada is doing all the same things plus healthcare (Of course Obama is working on that!). You would think that your leaders could look across the border and see that what they are doing is not going to work in the long run. Actually, I think they know that and don’t care as long as they can keep the good times rolling, get the votes and stay in office. It seems like politics is the same throughout the world. Socialism rules! The elected are there for themselves and big business,and the rest of us are collateral for the debt and to pay the taxes that help to keep it rolling.

    All us “little people” can really do is try to keep faith with the Lord, do the best we can to survive the crash when it comes, and help others to survive if we can.

  • Reyn:

    Cam, I generally enjoy your posts – but in this case I have to disagree with some of your givens.

    Let me note that I’m an American. From beginning to end here the problem was a subset of financial elites. I (colleagues can verify this, easily) predicted the oncoming mess before it occurred or even started to occur and warned friends to dump high cost properties two years before it began(several did). The government didn’t cause the problem here, and you are right, those who did not only walked away from their companies, they did so with golden parachutes or at least silver handshakes.

    The real problem here (and there I suspect) is not the bubble however, that is a convenient target, but not the ultimate cause of the problem. The problem is the NEED for the bubble.

    What do I mean? Well, after every contraction in the US in my lifetime the new jobs that emerged afterwards were not as good as the old jobs that were lost. Not as much compensation, not as many benefits, not as much stability. Right wing economists declared this to be the new normal and said that it would help the workers in the long run – if I searched my file cabinets I still have copies of some of their articles.

    But, it didn’t.

    This contraction, more severe, is no different – new jobs are finally emerging at higher than maintenance rates, and again, they offer less compensation, fewer benefits, less stability. According to Richard Reich this morning, entry level manufacturing jobs now pay half of what they did just 6 years ago. According to the recently released statistics on poverty, the rate of people living in poverty has now soared to a fifty year high.

    And back to the housing bubble — when I was a child, more than 50% of mothers were still stay at home moms, now its less than 25%. One job supported a home even 40 years ago when I was small, then by the time I was a teenager it really took 2 jobs unless you were very lucky, now its 3 jobs if you are lucky.

    In order to maintain the lifestyles that their parents had, and that they had initially, people began to use their houses like atms. The housing bubble emerged, at least here and I suspect there, out of a combination – yes there were predatory lenders and there were frauds — but mostly that combination consisted of necessity and its cousin availability. Housing prices went up, easy mortgages went out (mostly from private companies btw – Fannie Mae has been rapped, housing regulations have been rapped, but in fact less than 10% of the bad mortgages were made due to housing regulations.)and people who could no longer live on their salaries stretched out the distance to failure by borrowing.

    The problem is far more the system than it is the borrowers.

    According to Northeastern Universities recently released study – over a third of children now live in poverty in the US.

    The problem is the system.

    Pure Capitalism, like pure Communism looks great on paper. When applied to real people and real situations both fail abysmally. That does not keep the partisans on either side from insisting that their paradigms are perfect. “Those people injured and dying on the side of the road???? Those starving children???? Just ignore them, they didn’t fit.”

    No. I won’t ignore them, and neither should anyone. Neither should anyone fall into the trap of blaming government for failures that cannot be controlled in the existing system. Taking credit for things that don’t really work, sure, but not for things beyond their control.

    Here in America, 5 years ago I put a sticker on the file cabinet next to my desk in my office that says “1% of the U.S. owns 40% of the wealth, what’s your share?” Today I look at it and realize that 25 years before that sticker was printed the same 1% held only 33%. I also realize, courtesy of Joseph Stiglitz, the Nobel Laureate, that the bottom 80% own just 7% of the nation’s wealth. The rest, the 53% of wealth left over is held by the 19% of us between the bottom 80% and the top 1%.

    Also due to Mr. Stiglitz I realize that the top 1% take home 24% of all national income each year, while in 1976 they took home 9%. more than at any time since the roaring 20s – and possibly more than even then according to the Center for Budget and Policy, since our latest figures for comparison are 2007.

    These things cannot stand. Either the US will become a third world country with massive inequity and the use of brutal force to suppress the malcontents, or a new paradigm must be reached. Afterall, there are multiple forces pushes this retrenchment — outsourcing is one, but the major one is technology. A good understanding of that can be reached by looking at select companies. One I examined during my post-graduate work was United States Steel. US Steel produced the same metric tons of steel in the years 1980 and 2000. In 1980 they did it with 200,000 workers; in 2000 with 20,000 workers and some robots.

    That wasn’t the fault of easy money, and this crisis wasn’t really the fault of easy money either. Ancient Greece had a version of the Steam
    engine and declined to use it industrially, since slave labor and horses were cheaper and more efficient and also since they believed that it would deprive men of useful labor.

    We need a new paradigm, but that means facing the problem. Jobs will continue to disappear, and the number going overseas will continue to be dwarfed by the number being eliminated. Technology eliminates three jobs for every one created. We need a new definition of work and a new standard of value if we are to continue our society.

    This deserved pages more – but this is what I have time for.

    Regards,

    Reyn

  • Mike the carpenter:

    I’m one of your neighbors to the South. My chosen profession was hit really hard when the financial Armageddon hit. I have friendly competitors who are honest hard-working family men. Two of them had home equity mortgages in place on houses whose values were extremely inflated because the politicians knew that over-inflating the value of those houses created the impression of wealth while increasing tax revenue for local government. These guys weren’t using the loan proceeds for vacations in Bermuda; they used it for newer work vehicles and more tools because they believed the housing boom would go on forever. These guys weren’t living high off the hog; but they believed Greenspan’s rhetoric. They fell victim to his fairy tale forecasts. Sadly they have both lost everything. One’s family is now living in a broken down mobile home.My heart goes out to them and their families.
    My fervent hope is that your Mr Carney takes a long hard look at the devastation caused here in America when the house of cards collapsed; at the ruined lives that accompanied those shattered dreams.

  • P.S-Is Canada on the fiat currency thing or backed by some precious metal?

  • Neil B. Orleans:

    Good one Cam!!

    I have had a major argument with my financial adviser on Canada’s housing bubble. I get it that he deals with a lot of people in the financial markets and has some insight. Below were his comments;
    – I won’t argue that Vancouver is getting crazy
    – US real estate bubble was caused by massive overbuilding, coupled with excessive leverage and outright fraud
    – not one of those things exist in the Canadian housing market
    – Try getting a mortgage in Canada these days – our banks our excessively cautious
    – A real estate bubble in Canada might mean housing prices pull back 10%
    – In the US, prices have fallen 40%, mainly due to the massive oversupply, coupled with 8M job losses
    – There is simply no comparison between the two and whoever suggested there is really needs to get a grip on reality

    So Cam, I felt somewhat better after talking to him on this issue. However, that is until I talked to brother last week who works for one of the major banks in Canada. My brother stated that their bank thinks real estate prices in Canada will drop by 10% to 25%. Their only concern is how fast. Will it be a hard landing (fast decline) or a soft landing (gradual decline). (Cam, I thought the bank had stolen the words from your course :-).

    So I am not sure who has a “grip on reality” but I believe Canada will have a housing bubble. Just a matter of when and how steep.

  • I have been reading that Canada is so much in the same situation as the US was/is. So I asked my american girl friend who is engaged to a Canadian about it and the answer I got was exactly what you said. It wont/can’t ever happen. I was sooooooo surprised that he could be so out of touch that I didn’t even know what to say. He is the CEO of a software company and sold his tiny little house in B.C. for over $500 K (I think) then came down here and bought a huge McMansion for his and her families for almost 600K and thought it was a screaming deal although I was trying to tell them they were being foolish. It is like a recurring nightmare that I am watching in slow motion. My guy and I both got lucky, sold our homes just before the crash and 2 years later bought a bank owned home for cash. Not many people got that lucky.

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Cam Mather and his wife Michelle live independently off the electricity grid using the sun and wind to power their home and their CSA. Cam is working towards the goal of making his home “zero-carbon” and with his extensive garden he aims to grow as much of his own food as possible. He is available to speak at conferences and other events and has motivated many people to integrate renewable energy into their lives, reduce their footprint on the planet and get started on the path to personal food, fuel and financial independence.
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