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December 7, 2015 | Cause & Effect

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

A day after this blog told you to even more wary of maple assets, oil and the Canuckistan economy, we got a fan full of misery. A barrel of crude hit thirty-seven bucks on Monday thanks to the OPECers and all their pumping. So the dollar crashed to an 11-year low of 73 cents and change, while the energy-heavy TSX was hammered for 300 points.

Meanwhile more experts came forth to say T2 must be already on the legalized weed if he thinks reaming the 1% with more tax will pay for a modest tax cut for the ‘middle class.’ This news landed just a week after Parliament’s indie budget guy said Liberal budgets will probably be twice what voters were told, which is more reason to accelerate widespread national toking.

It was all too much for finance minister Bill Morneau, who made a hasty appearance before reporters five minutes after the stock market closed. “We have inherited a situation that is more challenging than what was foreseen in the budget,” the poor guy said.

So how do you like government so far? As everyone learns, it’s one thing to run for elected office and do the hope-change thing. It’s another to stand in the real world and be a leader. The coming months and years will certainly be a time to test the new guy’s mettle.

Morneau now confirms what this pathetic blog told you days ago. There’s no way taxing 264,000 wealthy people – a third of them doctors operating through professional corps and all of them with smart accountants – will raise the $3 billion needed to offset giving six million others an average $8-per-week tax cut. The move will actually have a net annual cost of at least $1.2 billion. The CD Howe Institute goes further in its estimate. Trying to push the top tax rate over 50% will simply lead to more legal tax avoidance among these people, it says, who almost always have the means to do so.

And remember John Manley? He was a minister in the Chretien administration, and a lifelong Liberal heavy. In a letter to the Hot One he writes: “Higher marginal rates may bring in revenue in the short term, but ultimately they encourage tax avoidance and undermine Canada’s international competitiveness.” Milking the successful to sprinkle faerie dust on the middle is just a bad idea. Besides, of 17 million taxpayers, eleven million make too little to benefit from any tax cut – but don’t know that yet.

Some estimate that jacking taxes will actually decrease the tax base by 5%, or more than $7 billion, resulting in the Libs collecting 70% less than they promised. This is one big momma of a problem, since T2 was elected by the masses on the expectation they would get “the tax cut they deserve”. Now he has to deliver. But can’t – without costing extra billions.

Meanwhile the oil crash will boost unemployment and tank export revenues. The dollar’s decline will feed inflation and squeeze households already servicing record debt. Alberta looks completely hooped at the moment, plus we lost 36,000 more jobs last month. And the odds of a Fed rate rise later this month are still running at 76%. Meanwhile most Canadian investors have 100% of their net worth in domestic assets, with the TSX now negative for the year. Add to that the ideological mistake of peeling back TFSA contributions (Morneau has confirmed that, effective January 1), and Ottawa’s overt commitment to run up deficits for years to come which will further depress the currency.

So with more inflation, a weak dollar, the Fed’s move and the government’s need to float billions in new bond issues, how can the Bank of Canada avoid taking action in the next year? Or do we all just move to East Van, buy a house and wait?

It’s not a crisis by any stretch, unless you borrowed a big pile of money to purchase real estate at a stupid price unsupported by your income or economic fundamentals. Or put all your money into Enbridge, Suncor or Crescent Point stock. Or got a Calgary condo with 5% down. Or think CPP and OAS will support you. In these instances, prayer might help. Plus scotch.

For the rest, be careful as you thread your way through dangerous times with untested leaders and unrealistic neighbours. Practical advice has been ample here lately. But only you can act.

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December 7th, 2015

Posted In: The Greater Fool

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