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October 23, 2017 | Us & them

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.

This week (Wednesday afternoon) the feds’ economic update will crow about a lower-than-forecast budget shortfall, take credit for more jobs and growth and outline further ways to eat the rich. It will not promise to lower taxes, balance the budget or give you a pony. And it may be one of Bill Morneau’s last times on his feet as finance guy.

The multi-millionaire whose web of personal holdings shields him from the taxes he’s whacking others with is becoming a liability to Justin Trudeau. He threatens to taint the whole gee-shucks, ‘middle-class fairness’ meme the federal Libs secured power on. He reminds people the prime minister himself inherited family wealth and is a 1%er. Just like Bill. Meanwhile most citizens fret about debt and think about Sears.

On Monday a good reminder. A shocking one, actually. What a mess people have wormed themselves into. How can government ever solve what the Ipsos survey reveals?:

  • If interest rates rise 40% say they’ll be in trouble.
  • A third are already hurting, after a mere 0.5% increase
  • 42% reveal they can’t cover basic expenses over the next year without taking on more debt.
  • Four in 10 are within $200 of not being able to pay monthly bills
  • 38% of Millennials believe higher rates will bankrupt them
  • If rates swell, 70% assert they’ll be more cautious about spending.

Yikes. So the Bank of Canada’s now scared off from more rate hikes until early in 2018 – in large part because of B20, the NAFTA snafu, fading trade numbers and appalling levels of household debt. Meanwhile the Fed is 80% certain to raise the US benchmark in a few weeks, which should elevate long-term Canadian mortgage costs – just as the stress test takes effect.

So the gulf between the indebted, stressed-out, cashflow-challenged middle class and the entitled political elite yawns ever wider with each Bill Morneau revelation. (The latest is that he continues to receive over $1 million yearly in dividends and cash flow from his family biz – which excels in tax avoidance – while he serves as finance minister.) The rhetoric of increasing taxes on doctors, vets and job-creating small businesses is hard to swallow after the last few months.

In the House of Commons (which nobody care about anymore, alas) poor Bill is sliced & diced daily by the opposition. The fact he’s taken two years to put his assets into a blind trust, owns stuff (in Canada and offshore) within at least a half-dozen numbered companies, and practices aggressive tax avoidance displays stupidity or arrogance. Neither is a winning trait for a politician. Image is reality, after all. At this point Bill’s profile is of an out-of-touch monied elitist dude who’s telling the self-employed to eat cake.

It’s okay to be rich, of course. Trudeau is, having inherited millions. Morneau owns over $40 million in assets. He’s married to a billionaire family member. Lives in a mansion. So does Justin. That’s all cool. What hurts in politics is when you stop being one of ‘us.’

That’s how people get elected now. Us against them. Trump used it masterfully. It created Brexit. Catalonia. The populism that Angela Merkel fought. In Canada Justin Trudeau seized power from Stephen Harper by painting the Cons as them – the guys who forgot about your struggles, who spent more time worrying about rich buddies and their own skins than yours.

Hence the middle class theme that’s rammed through all government communications. It justifies a 53% personal tax rate for the wealthy, a 73% Hoovering of retained earnings, gutting of the TFSA limit and portraying the self-employed and professional class as serial tax cheats. Clever. Us good, them bad. And it almost worked.

But it’s not just about poor Bill, who was sabotaged by his own political staff and the weenies in the PMO. It’s more that the plan ain’t working. There’s no further proof required than that Ipsos poll referenced above.

If those numbers reflect the country as a whole, the middle class is in reverse. When four in ten families are within a few dollars each month of being insolvent, need more debt to get through the next year or would be bankrupted by a 1% rate hike, the government is failing them. Politicians have been real estate pimps. This is what you get. A home ownership rate of 70%, epic debt, and a middle class without cash.

The answer to helping the masses is not to shred the economic achievers among them. People need more incentives to save and invest, not to borrow and spend. If it’s not already too late.

It’s hard to comprehend such things when you’ve never struggled, started a business or had a mortgage. This is why Bill Morneau can’t last. He’s fake news.

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October 23rd, 2017

Posted In: The Greater Fool

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