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March 10, 2021 | Hopeless

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.

Well, dogs. We’re on our own. The Tiffer has left the building. Nobody’s in control.

On Wednesday the Bank of Canada dropped its latest epistle. Interest rates stay the same – we get it, and were expecting it. The bankers pointed to a ‘strong’ housing market as a key driver of economic recovery. If ‘strong’ means foaming at the gills, full-body tremors, glazed orbs and moist, restless loins, K. We get that, too. But what we don’t get is this:

While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until into 2023. To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its QE program until the recovery is well underway.  As the Governing Council continues to gain confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.

There you go. Houses in the burbs at $1 million. Two-by-fours at eight bucks. Six thousand dollar puppies. Stock markets soaring. The economy reopening. America surging. Household debt exploding. And people in Owen Sound can’t afford to live there anymore. And this is not enough for the Bank of Canada, which will not only keep its own rate low but continue spending $1 billion every business day buying bonds to suppress yields and keep five-year mortgages at 2% or less.

In Tiff Macklem’s world, inflation’s a dandy thing. Families trading their souls for debt is economically constructive. Pushing real estate valuations to the point where young people will never own is a worthy policy goal. So expectations on Bay Street that QE (quantitative easing – soaking up bonds to manipulate the market) would be ended – or at least scheduled to end – were dashed.

Any doubt the CB is inhabiting another planet is laid to rest. Our central bank forecast a contraction for the national GDP as 2021 got under way – but there’ll be growth instead. The US economy is about ready to explode higher. Our bank has been piddling billions a week to cool off yields, but it hasn’t worked. The debt market is pricing in rate increases of more than 1% going forward. Eventually this will take a toll on housing, but in the meantime the guys in charge of our monetary system are devoid of a single word of caution. Etched into stone above the Bank of Canada’s big brassy doors is this: “StimulusRUs”

Yup, on our own.

This pretty much guarantees the spring rutting season, now just morphing into full hormonal action, will be historic. Multiple bids. Held-back offers. Blind auctions. Over-list sales. Greedy, master-of-the-universe sellers. Arrogant rockstar realtors. Demand overwhelming supply. Price escalation until we hit the wall of buyer disgust and financial despair.

The burbs and hick cities have been slammed. Now urban condos are being Hoovered by investors who know what’s coming. Inflationary expectations have taken root in the countryside as well, fed by the moister myth of forever-WFH. Now, with the Tiffer  cheering’em on, the kids can borrow extra billions and propel this baby to the moon.

Cheap credit. Big leverage. Price inflation. While other countries seem vexed when bubbles puff – especially involving residential real estate – our central bank says this growth is “required”. If it enslaves an entire house-horny generation, or destroys the balance of life in hundreds of sleepy towns, well, tough.

As I detailed to a CBC journalist this week, New Zealand is  thumping speculators and investors and restricting credit. In fact that country’s central bank will be framing policy based on what borrowers earn, not how much they can afford to carry. Like the UK already did. Four years ago.

South Korea’a central bank is capping mortgage amounts while the government whacks speculators with new taxes – sucking off 70% of profits on properties held for a short period of time. Ouch. In fact everybody is subject to some form of capital gains tax on housing windfalls. France is outlawing borrowing above a certain debt service ratio (way lower than the one CMHC allows) in order to keep a lid on the cost of accommodation. And in the US capital gains on the sale of a house are tax-free only if sub-$500,000 for a couple and after at least two years of ownership. Generous but not, like Canada, infinitely so.

Well, now we know. The nation’s monetary authority has decided to go to the washroom until the scary part is over. Will politicians move in and restore sanity?

Nah, me neither. I give up.

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March 10th, 2021

Posted In: The Greater Fool

One Comment

  • Avery Roberts says:

    The Bank of Canada has only one mandate: maximizing the profits of the commercial banks. The Bank of Canada and the commercial banks have to have inflation. If they had a 0% inflation policy they wouldn’t be able to “print” money backed by thin air and lend it for interest. A 0% inflation policy would wipe out “Quantitative Easing” and “Fractional Reserve Banking”, which while bringing a refreshing “financial honesty” into the banking system, would be utter disaster for the “carefully propped up dream world” of the said system.

    My opinion.

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