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July 5, 2019 | The Fade

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.

So much for lower rates. Stocks fell. Bond yields rose. The US dollar gained. Ours lost. Gold crashed thirty bucks an ounce. All because of jobs.

The Trumpian economy turned out 224,000 new hires last month. Yuge. Economists had expected 160,000, after a lacklustre May. But even with 335,000 new people streaming into the labour force, the unemployment rate stayed solidly in the 3% range.

Equity markets had been counting on a rate cut and more economic stimulus from the Fed. Not so certain now. Why should the central bank drop the cost of money when there’s no recession on the horizon? When so many new people are working? Meanwhile in Canada, we lost some jobs in June. Two thousand of them. Unemployment is 5.5% – still a good number for us. And so far in 2019 it’s been a boffo six months for creating work. There are 247,500 more working now than at the end of last year, most of them in full-time jobs. Wages are up. And look – we have a trade surplus with the States. First time in 10 months.

So the Bank of Canada won’t be cutting its rate this month. Maybe not this year. Bond yields have swelled again. And those cheapo mortgages now available may be gone in a month or two. A new survey finds 93% of economists think the central bank will not take action, even if the Fed chops in the US. Says RBC’s analyst: “…The BoC’s policy rate is already slightly more accommodative than the Fed’s, Canadian inflation is closer to target, and the BoC faces less political and market pressure ease…I don’t think financial conditions will tighten enough for the BoC to need to offset that with rate cuts of their own.”

The inevitable conclusions: if you want mortgage money, lock it up now. If you’re shopping for a house, take your time. If you’re selling, be aggressive. And I hope you dumped your gold and bitcoins.

Two days ago I invited Blog Dogs to share thoughts with us in the form of guest posts. The response has been epic. Even if your momma and your spouse think you’re a tedious blowhard, you have a home here. Let’s bark together.

First, a dude named Jeff posting as Sunshowers. “Your resident socialist,” he says. Great. Just what we need.

I read the blog every day, but try not to be too much of a pest, so I typically don’t comment unless there’s a succinct point to be made. With this, I’m hoping to give a simple and easily digestible explanation as to why capitalism is doomed to fail. Ready?

I’m sure you’re all familiar with the profit motive that underpins capitalism. So how does one go about maximizing profit? You raise prices or lower costs. Easy. We’ll come back to prices, but as far as costs go, they can be (crudely) broken up into fixed costs, material costs, and labor costs. By far, the easiest of the 3 to control are labor costs.

So you pay your workers a little bit less. Maybe you lay some people off and replace them with machines. So what? You make more money now. Capitalism, baby! But there’s a problem. To quote penitent billionaire Nick Hanauer: “The thing about us businesspeople is that we love our customers rich and our employees poor.” The problem is: They’re the same people.

This is supposed to be easily digestible, so the only required reading I’m assigning is Game Theory, and The Tragedy of the Commons. I bet you all know those already anyhow! If you’re the only employer cutting pay and/or automating, you’re the equivalent of the guy “cheating” in Game Theory while your competitors play by the rules, or the only farmer with cattle grazing in the commons. You win big, everyone else loses.

But what happens when others do the same? Then we move to the lower right Game Theory quadrant (both players cheat, both players lose), and a barren commons with no more grass. If every employer underpays their workers, those workers no longer have money to spend at OTHER employers’ businesses, forcing THOSE businesses to lower prices (by cutting labor costs!), resulting in a race to the bottom that ends with the engine of consumption that drives capitalism grinding to a halt. Maggie said the problem with socialism is that eventually you run out of other people’s money. That’s actually the problem with capitalism. (This is also why raising prices to boost profit is a non-starter).

It would be less scary if it wasn’t already happening. Nearly all wealth generated since the 80s has gone to the rich, real wages have barely risen since the Reagan administration, we’ve gone from 1 income households to 2 income households and nobody batted an eye, and we STILL need to use debt to make up the difference! This is an internal, irreconcilable contradiction within the very nature of capitalism.

There ARE viable alternatives to capitalism, and I’d be happy to explain, but I’m coming up to the 500 word limit, it’s 11:00, and the wife and dog want to go to sleep, so it will need to wait for another day (should Garth entertain this notion once more.) Thank you and goodnight, blog dogs!

Now here’s Jake. With Sasha, six years old, who was was runt of the litter so, J says, “she tries to be alpha of the pack. The world needs more dogs and less people.” And, apparently, more biz taxes.

   I’m a big fan of your blog; been reading it for little over a year now and it’s part of my daily routine. I can honestly say that I feel much wiser because of it. Anyways, you asked for “What’s right or wrong with the world” in 500 words or less, so here’s my opinion.

I think that businesses are what is wrong with the world. All of them. At least here in Canada. I’m no expert on tax law, GDP, or anything like that, but I think that corporations have bullied their way into making it extremely difficult for citizens to get by. Here’s why: In Ontario, a person making a decent wage can expect to pay 9 – 11% in taxes to the province (depending on how much they’re making), and between 20 – 26% in taxes to the feds. If we lowball on both ends, that’s roughly 29% in taxes (I know, I know, it’s laddered so it’s not really that, but bear with me). Now if a corporation exists in Ontario, they only pay somewhere between 38% to the feds (not including all the reductions/rebates they can get), and 3.5% to 11.5% to the province. If they’re a small business, the feds chop that to 9%, effectively making it less than the average person would pay. I understand that businesses give people jobs, grow the GDP, and are generally the reason we have a functioning economy, but I don’t agree with hw companies pay less in taxes than people do (Yes, I’m assuming the average person doesn’t have kids or get any tax breaks and actually pays their full share, so a little one-sided here).

Instead of big tax breaks to companies, I think it should be the other way around; if you’re going to tax one party higher than the other, the business should get the short straw while the person gets a break. Now tax rates aside, most large companies have lawyers that find loopholes so they don’t pay anything anyways. Remember hearing about how Netflix, Google, and Amazon paid 0 in taxes? That’s literally billions of dollars that could/should be going back to the people. Is it wrong to think that there should be a flat rate that no matter how you maneuver your company, no matter what loopholes you find, you still pay at minimum a set amount? Just think of what useless things the government could do if they received 1% of Netflix’s revenue in Canada. Or Google. Or Amazon. Now I know that those are giants, and what about the little mom and pop shop?

Well, to be honest, tough love as far as I’m concerned. I get that this would likely tank several small stores, but in my opinion, people shouldn’t need to prop up businesses by giving them tax breaks; businesses should be supporting the people via paying more in taxes. I’d love to hear your take on this, as I’m not educated on this content whatsoever and would like to hear someone with more experience/knowledge/wit than I have weigh in on it.


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July 5th, 2019

Posted In: The Greater Fool

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