Economy, up, down, maxed out?

[spirit4u]

So I have been doing a little reading and watching some you tube. Lots of talk about a housing bubble/debt ceiling. Actual numbers showing Canada/Alberta with the most sunk into houses and credit of some sort. Actually the highest it has ever been historically. I'm just looking for what you think is going to happen in the next 5 or 10 years down the road? Is everyone just going to keep chugging along? Any cracks starting to appear? Is the Bank of Canada scared/cautious about raising the rates in fear of triggering the begining of defaults in the housing market? Are we experiencing a coming into wealth from the aging population (parents passing on)? What do you see as your way out of your debt? Will the price of a new house ever just level off? In the market place most every share that went to the moon in price came back down again. Whats your 2 cents?

[79ford]

I think people are essentially maxed out on debt with the low interest rates etc. Canada has a few more rate cuts until we hit zero so debt will continue to pile up for a bit yet but it seems like the rate slide from 18% to 0 over the last year has exhausted the spend more money you dont have to keep the economy rolling idea going.

Its been all about the debt service ratio and maybe with every commodity in the dumps in present day terms people starting to lose a few jobs here and there will probably rattle the food chain a bit.

The currency war game of devauluation might be dangerous for debt holders... if countries get more than they bargained for when they look to devaue currencies it gets really hard to bring that currency back up. Lots of countries fighting currency drop right now are at 11-20% interest rates.

My prediction looks like a japan case for canada, record national debts, record provincial debts, record personal and corporate debts will probably mean rates here stay low because raising them will burst the debt bubble. Debt debt debt, low rates and no action.

[lmtada]

I agree with you on most of your comment 79ford. However I believe Yellen will increase rates this year (soon). Canada will likely not do any increases in rates this year (election). However 2016 they start ratcheting up. Then the squeeze will start. I don't know if we will see 5% in the next 5 years. Time will tell.

Originally Posted by 79ford

I think people are essentially maxed out on debt with the low interest rates etc. Canada has a few more rate cuts until we hit zero so debt will continue to pile up for a bit yet but it seems like the rate slide from 18% to 0 over the last year has exhausted the spend more money you dont have to keep the economy rolling idea going.

Its been all about the debt service ratio and maybe with every commodity in the dumps in present day terms people starting to lose a few jobs here and there will probably rattle the food chain a bit.

The currency war game of devauluation might be dangerous for debt holders... if countries get more than they bargained for when they look to devaue currencies it gets really hard to bring that currency back up. Lots of countries fighting currency drop right now are at 11-20% interest rates.

My prediction looks like a japan case for canada, record national debts, record provincial debts, record personal and corporate debts will probably mean rates here stay low because raising them will burst the debt bubble. Debt debt debt, low rates and no action.

[Arty]

Short-term/overnight rates might be set by the BoC, but long-term rates are set by the bond market. And nobody controls the international bond market, even though the U.S. government has tried.

Variable-rate mortgages will be affected by BoC rates, but as fixed ones are financed by banks through the bond market, they will be what they will be regardless what the BoC wants.

As all the debt of the U.S. QEs starts to get sopped up, and the contraction of China and other 'emerging economies' becomes more obvious, and overproduction of crude continues, we are getting deflation (i.e. less dollars chasing the same amount of product).

So we're now getting currency wars as every country tries to make it's currency cheaper than everyone else's, to stimulate growth against deflation, especially for commodities producers like Canada and Brazil. You do that by dropping your own interest rates (or pegging it higher to the US dollar, like China does).

(Drop your currency too much however, and you can forget about buying foreign machinery. -Which might be good for Canada in the long run as it has offshored way too much manufacturing (like the U.S. has) over the last 30 years, choosing to pipe dilbit to Louisiana instead and pay for everything with that. So we'll have to build more ourselves, usually a good thing.)

Bond rates will be going up (and bond prices dropping) because with less QE debt sloshing around, there'll simply be less of it. And a slightly better U.S. economy means investors will now expect better % returns from bonds, or better-quality bonds for the same return. And demand for money to finance business will increase a little, translating into higher bond yield pressure too. Not to mention near-zero interest rates are simply unsustainable bullshyt, as that causes all sorts of mis-allocation and waste like free water, free electricity and 10-cent gasoline would.

So interest rates in general, especially long-term stuff, will be going up. The BofC will have to follow along on the short-term end too, otherwise the Cdn dollar will totally croak.

That means the Canadian economy will stay lower for longer, unemployment will keep going up for anybody who has to hang around here, interest rates will go up next year, foreign goods (including U.S.) will get hellishly expensive, personal and business taxes will go up, and stupidly overpriced housing (caused by stupidly cheap debt and greedy little piggies 'buying' too much real estate) will come back down to its multi-year average.

And anybody who's now up to their eyeballs in personal debt will get crucified.

[Wild&Free]

Arty, what impact do you see with China dropping USD assets from its FEX reserve's which are on pace to amount to a trillion dollars this year(~550bil so far)?

[schmedlap]

Originally Posted by Arty

Short-term/overnight rates might be set by the BoC, but long-term rates are set by the bond market. And nobody controls the international bond market, even though the U.S. government has tried.

Variable-rate mortgages will be affected by BoC rates, but as fixed ones are financed by banks through the bond market, they will be what they will be regardless what the BoC wants.

As all the debt of the U.S. QEs starts to get sopped up, and the contraction of China and other 'emerging economies' becomes more obvious, and overproduction of crude continues, we are getting deflation (i.e. less dollars chasing the same amount of product).

So we're now getting currency wars as every country tries to make it's currency cheaper than everyone else's, to stimulate growth against deflation, especially for commodities producers like Canada and Brazil. You do that by dropping your own interest rates (or pegging it higher to the US dollar, like China does).

(Drop your currency too much however, and you can forget about buying foreign machinery. -Which might be good for Canada in the long run as it has offshored way too much manufacturing (like the U.S. has) over the last 30 years, choosing to pipe dilbit to Louisiana instead and pay for everything with that. So we'll have to build more ourselves, usually a good thing.)

Bond rates will be going up (and bond prices dropping) because with less QE debt sloshing around, there'll simply be less of it. And a slightly better U.S. economy means investors will now expect better % returns from bonds, or better-quality bonds for the same return. And demand for money to finance business will increase a little, translating into higher bond yield pressure too. Not to mention near-zero interest rates are simply unsustainable bullshyt, as that causes all sorts of mis-allocation and waste like free water, free electricity and 10-cent gasoline would.

So interest rates in general, especially long-term stuff, will be going up. The BofC will have to follow along on the short-term end too, otherwise the Cdn dollar will totally croak.

That means the Canadian economy will stay lower for longer, unemployment will keep going up for anybody who has to hang around here, interest rates will go up next year, foreign goods (including U.S.) will get hellishly expensive, personal and business taxes will go up, and stupidly overpriced housing (caused by stupidly cheap debt and greedy little piggies 'buying' too much real estate) will come back down to its multi-year average.

And anybody who's now up to their eyeballs in personal debt will get crucified.

I've always avoided unnecessary debt (a legacy from my parents - the big difference between "want" and "need"), and have tried to instill the same mantra in my kids. I have none (except my share of whatever is on the business LOC at any time I suppose, but that is just the standard business rotating credit, and we diligently keep it down or even out, even to the extent of not paying ourselves, much to the chagrin of our bank who would prefer us all to draw, buy new motorhomes, and run it up?).
There is a big reckoning coming, particularly in terms of the huge real estate "bubble". I do feel sorry for all the sheeple who have been seduced into mortgaging everything for the dream of the "impressive house", or being multiple property owners, and are soon going to lose it all. The apparent current trend to elect more socialists to diligently make it even worse is an indicia of just how out of touch with basic self-responsibility most people are (?).

[Arty]

Originally Posted by Wild&Free

Arty, what impact do you see with China dropping USD assets from its FEX reserve's which are on pace to amount to a trillion dollars this year(~550bil so far)?

Well, the exact CAUSE of it is being speculated on by everybody in the FX business, but theories fall into 2 camps. A) The government is panicking because they need funds to support a crashing stock and real estate market, or B) they are simply profit-taking (exporting US dollars to cash in) before the U.S. treasuries fall in price because interest rates on those U.S. gov't bonds are going up.

That will flood part of the world with cashed-in IOU dollars, either by importing stuff into China or smuggling the dollars out for personal consumption or repatriating chinese yen or just exchanging USD for other kinds of currency to rebalance their accounts. Personally, I'd just stockpile commodities while they're on the cheap, in case the central-planning government feels the need to keep building empty cities and Hoover-type dams...

[spirit4u]

CMHC just red flagged Toronto, Winnipeg and Regina as over valued and high risk.

[79ford]

The commodities crash is going to squeeze money flowing around in canada.

While commodity prices arent really very low by measure of the past few decades the massive run up in price encouraged lots of companies to borrow borrow borrow and blow the budget chasing oil, metals, precious metals, etc etc.

The resulting run up in service costs gobbled up most of the increased revenues from massive increase in commodity prices. The high prices for commodities and services were considered okay, everyone was making money and money was flowing into the economy.

Companies have done some trimming and adjusting and many are still profitable.

Buuuuut, the revenue drops are astronomical and that money isnt flowing around anymore. The growth is gone and and the spending has been reversed.

I think the drop in oil accounts for a 3.5 or something contraction in gdp. Nevermind metals, mining, forestry, and the drag the low dollar will have on purchasing imports.


Housing is ridiculous, and maybe it ll go up or down who knows. I dont see where people getthe money to buy houses in many places. Alberta housing is expensive because everyone and their dog makes 100000k per year here but what about the rest of canada?

How is a house in kaslo bc worth 300k? The only job in that town is at the gas station or the grocery store.

Retirement used to be 250-500k, now thats a junk house on the east side of edmonton