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April 9, 2019 | The Reset

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.

Remember the shared-equity mortgage? Sure ya do. That was the fetching little cherry sitting atop the last federal budget, designed to divert moister eyes from the T2 disaster unfolding down below.

So, we have news about this.

But first the other news. The bad stuff. Trudeau’s Lavalin nightmare isn’t getting any better and, in fact, he’s made it dramatically worse. Instead of following the First Rule of Politics (deny everything and go the hell away) the prime minister is suing the Con leader for stuff he said. Dumb. Nobody cares what Andrew Scheer mutters. But the story now has new legs and any court proceedings will only remind people how sleazy it is. Worse, T2 apparently broke the law by punting JWR and her buddy Jane from the caucus and the party. Shortly after S. Harper did the same to me, MPs passed legislation to prevent a leader from overturning what voters had chosen. Only by a full vote of caucus can a member be skewered. And no vote was held. Shame.

It’s a big year for Canadian politics. Notley next week. Trudeau in October. Two for two, or zero all round? In Alberta Dipper premier Rachel has actually won a lot of admiration for dealing with the oil crisis like an oilman and, of course, not acting like tax-crazy Comrade Horgan on the left coast. But she’s still a socialist. Con leader Jason Kenney, a bully at the best of times, is tarnished by having resorted to deceit and dirty tricks to win his leadership. Voters have a heartbreaking choice.

Anyway, back to the buy-off-a-Millennial home strategy unveiled March 19th.  The kids can now suck up to $35,000 each from an RSP for a down payment (and must repay it over 15 years or be taxed) plus apply to share their mortgage with Ottawa. As stated here, this is a rad idea. The federal government takes a piece of your home loan, allowing you to escape payments on it, then demands part of any profits when the place is sold. The feds admit, yes, this will inflate the price of real estate – but not as much as a return to 30-year mortgages or gutting the stress test would have. CMHC also figures the shared mortgage plan would have added more than 2,000 extra buyers in Toronto last year and a thousand in Vancouver. That sounds like enough demand to move the price needle, no?

We now know the maximum house price for this program: $505,000. That’s based on a couple with a $120,000 household income who manage to come up with a 5% down payment (plus closing costs) and borrow another 5% from the taxpayers. Unlike the RRSP loan, there are no payments on this money. Ever. Not until a sale takes place. If the kids opt for a new-build, the government share rises to 10%.

So, it starts in September. But what if Trudeau ends in October?

      

There was a time when your folding money bore these words: “Will pay to the bearer upon demand.” Now the cash says, “This note is legal tender.” That’s because there’s nothing standing behind money but the government’s ability to tax, and the central bank’s skill at containing the money supply.

But that’s cool. The system works. These days there is relatively little inflation, historically low interest rates, wage and price stability, no recession and ample credit. But that’s not good enough for many, including the God-and-guns crowd who distrust government, hate globalism, support nationalism and tend towards being anti-vaxxers and pro-Trumpers.

No surprise then that  the rebel president would nominate a pro-gold guy to sit on the board of governors of the Fed, America’s central bank and the leading monetary influence on the planet. Herman Cain dropped out of the 2016 presidential race on sex allegations, has said he’d never hire a Muslim, and has argued the States should go back on the gold standard. Thus, although having briefly been the CEO of a pizza empire, he’s a flake.

For about a hundred years, until WW1, US money was nominally backed by gold, mostly sitting in Fort Knox. That ended after the war but the dollar was tied to gold until Nixon quashed that in 1971. Since then money has been called ‘fiat’ which means ‘decree’. Because the government decrees a piece of paper is worth twenty bucks, it is.

Gold nuts argue that having money backed by physical stuff means the government can’t turn on the printing presses, wildly inflate things and destroy the value of your savings. Besides, they have gold. Naked self-interest.

But not tying money to stuff gives central banks wide powers they could never otherwise employ, like the ability to create credit in times of recession to stimulate demand and turn the economy back on. This is exactly what happened following the 2008-9 financial crisis. With ‘quantitative easing’ the Fed was able to arbitrarily collapse the cost of money (interest rates) while creating funds to buy bonds that allowed banks to increase lending. Many people believe this stopped a recession from becoming a depression.

Of course, the gold nuts wanted a depression. They call it a ‘reset’. And, remember, they have the gold.

Herman Cain is perhaps Donald Trump’s greatest folly. Pray he isn’t confirmed. But not to Allah.

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April 9th, 2019

Posted In: The Greater Fool

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