Best of the Week
Most Popular
1.BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - Nadeem_Walayat
7.Gold And Silver – Insanity Is World “Norm.” Keep Stacking! - Michael_Noonan
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.Gold And Silver: Security, And BREXIT - Michael_Noonan
10.BrExit Vote - "The Trend is Set" -- And What You Should Pay Attention to Next - EWI
Free Silver
Last 7 days
Stock Market Rally Runs Out of Steam - 29th June 16
Rapid Growth:The Financial Trends Of Online Gaming - 29th June 16
FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - 29th June 16
Stock Market Bounce May be Over - 28th June 16
Stock Market Meltdown Likely to Drive Gold Towards $1,500 - 28th June 16
Brexit Victory over the EU Globalists - 28th June 16
Brexit Psyop: Greenspan Falsely Blames the Brits for the Crash and Chaos to Follow - 28th June 16
Greenspan Calls Brexit a ‘Terrible Outcome’ as Euro Area Tested - 27th June 16
Stock Market SPX Below Mid-Cycle Support - 27th June 16
Best Holidays for Summer 2016 - 27th June 16
Another Stocks Bear Market? - 27th June 16
BBC EU Referendum Result Highlights - YouGov, Markets, Bookmakers, Pollsters ALL WRONG! - 26th June 16
Investors Map Post-Brexit Strategies Amid Global Market Upheaval - 26th June 16
Gold Price Weekly COT Update - 26th June 16
First the UK, then Scotland ... then Texas? - 26th June 16
Stocks Bear Market Resumes or Just More Noise - 26th June 16
Gold And Silver: Security, And BREXIT - 25th June 16
Dow, Euro & Brexit Recap - 25th June 16
Resistance Holding Gold Stocks after Brexit - 25th June 16
Venezuela vs. Ecuador (Chavismo vs. Chavismo Dollarized) - 25th June 16
Gold, Silver And PM Stocks Summer Doldrums Risk - 24th June 16
Here’s Why China “Economic Hard-Landing” Worries Are Overblown - 24th June 16
Jubilee Jolt: Markets Crash, Gold Skyrockets as Britain Takes Brexit - 24th June 16
BrExit Morning - New Dawn for Britain, Independence Day! - 24th June 16
LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - 24th June 16
Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - 24th June 16
EU Referendum Shock Results Putting BrExit LEAVE in the Lead Hitting Sterling Hard - 24th June 16
Final Opinion Poll Gives REMAIN 52% Lead, Bookmakers, Markets and Pollsters ALL Back REMAIN Win - 23rd June 16
Does BREXIT Matter? Outlook for Sterling - 23rd June 16
Keep Calm and Vote BrExit - Last Chance to Break Free of EU Superstate - 23rd June 16
Here’s the Foreign Policy Trump and Clinton Really Want - 23rd June 16
Details Behind Semiconductor Stocks Leadership - 23rd June 16
Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - 23rd June 16
BrExit Looks Set to Win EU Referendum, Final Opinion Polls Give LEAVE Lead Over REMAIN - 22nd June 16
Proof that the Gold Bears are Wrong - 22nd June 16
Here’s a Trillion-Dollar Investment Opportunity for Those Few with No Debt - 22nd June 16
BrExit to Save Europe from Climate Change Refugee Migration Apocalypse - 22nd June 16
Increase In U.S. Rig Count Will Not Cap Oil Prices - 22nd June 16
Are Copper and China Stocks Set to Rally? - 22nd June 16
SPX May Break Its Trendline - 22nd June 16
Believe it or Not: More Kids Live At Home Now than Since The Great Depression - 21st June 16
EU Referendum Latest Opinion Polls Show LEAVE Halting REMAINs Surge - 21st June 16
British Pound Outlook - BREXIT, Europe and You - Does your vote matter? - 21st June 16
Fascist Victory Behind the European Union - 21st June 16
EU Referendum Opinion Polls Analysis Shows Strong Momentum in REMAINs Favour - 21st June 16
Is It Time to Dump Gold and Buy Platinum? - 21st June 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Market Volaility

Mark Carney Abandons Canadians Sinking Ship, As Housing Market Crashes

Politics / Central Banks Dec 04, 2012 - 03:16 AM GMT

By: Fred_Sheehan

Politics

"Just when scientific progress was supposed to be ridding the world of myths and ghosts, famous people became larger than life.... Fame was found increasingly fascinating. And it seemed to happen by popular demand. The general spread of education didn't make people more resistant to fame. If anything, it made them less resistant." -Clive James, Fame in the Twentieth Century




When Lombard Street crawls hat-in-hand to Bay Street, London is in trouble. The Bank of England, having ceded its once impregnable reputation as banker to the world, has cast its line for a Canadian to reign at the Bank of England.

Bank of Canada Governor Mark Carney has been lured to the post. He is leaving the Americas in the nick of time, but you would never know it from the reaction. The Daily Telegraph felt compelled to remind readers: "Mark Carney Isn't the Messiah," but it looks as though the myth of central-banking infallibility has not suffered a jot since September 29, 1998, when the Wall Street Journal published James Grant's warning: "Alan Greenspan Isn't God."

To start (and end) with, the Carney-led Bank of Canada has encumbered the country with a housing bubble that is starting to tumble. On April 29, 2012, Barrie McKenna anticipated just such a timely exit in the Toronto Globe and Mail. The "intensely image-conscious Mr. Carney" was already known to be "a candidate to head the Bank of England." McKenna was writing after Carney had publicly worried that "Canadian households as a whole are being overstretched, which creates risk for the economy." (Carney's hokum was addressed here before, on December, 16, 2010: See: "A Vote for Gold.")

"Oh, no you don't," McKenna as much as said when he wrote: "Mr. Carney has kept the pedal to the metal for years now with ultra-low interest rates, flooding the financial system with easy money. That has kept Canadians buying homes while markets elsewhere in the world faltered." In 2005, Federal Reserve Chairman Alan Greenspan engaged in a similar legacy-building exercise when he noticed there was some "froth" in the housing market.

A point of debate with Mr. McKenna is the word "falter." There may be exceptions (none come to mind), over the past few years, where a competent central bank stymied a budding housing bubble before it unleashed its horrors upon a population. (In which case, "falter" would fit.) Central banks have caused excesses in housing finance across six continents. Whether through incompetence or cowardliness they did nothing when the problems were manageable. Sometimes, they rooted for devastation when froth turned to bubble, after which, there is no return. The media's childish discussion of the heroics to be performed by Mark Carney at the Bank of England demonstrates a lack of integrity, responsibility, and intelligence

Housing excesses in Berlin, Oslo, Stockholm, Hong Kong, Hanoi, Iceland (again!), Melbourne, Nanning, Toronto, and Vancouver are in stages of bubble bursting. To see what Carney is leaving behind, some comparisons are made to the United States. These are meant to show that Canada is heading into a housing catastrophe. The numbers are calculated differently in each country so are only vaguely useful to judge the severity of Canadian indulgence.

The home ownership rate in Canada has risen from 64% to 70% over the past decade. In the United States, the ownership rate peaked at 68%. Remembering the skullduggery required to grasp the American Dream, Canadians are in for some shocking disclosures.

Canadian household-debt-to-household-income is 163%. The ratio peaked in the U.S. at 160%.

Construction jobs in Canada have grown to a larger proportion of employment than was true of the United States at its peak (which was 6%). According to Statistics Canada (statcan.gc.ca): "Construction... employ[s] more than 1.2 million men and women. In 2010, 7.1% of employed Canadians aged 15 and older worked in the construction industry, an increase of 50.8% since 2000, when 806,900 people worked in construction." (The population of Canada is close to 35 million, about 1/9th the 314 million living in the United States.)

Adding construction to the financial sector (FIRE: finance, insurance, and real estate), Canada is more leveraged into mortgages and related paraphernalia than was the United States at its housing peak. Over one-quarter of Canadian GDP is housing and financial-service related. Loonie holders (Canadian dollars) might hope the housing fever settled in the oil sands that surround Fort McMurray, but those who have been buying Canadian bonds are not simply betting on commodities.

Canadian housing starts have averaged roughly 200,000 a year since 2007. Multiply that by nine and Canada approaches the peak, U.S. building figures (2004: 1.9 million starts, 2005: 2.0 million, 2006: 1.8 million, 2007: 1.4 million).

The signs of collapse are manifest: new housing supply is booming; housing demand is waning. Prices are too high for the average buyer (the average Canadian house now costing $350,000). Without the average buyer, house markets tumble. Home equity withdrawal rose from 2% to 8% of disposable income, which spurred spending, and mortgage debt has more than doubled over the past decade.

How are those bullet-proof Canadian banks doing? Since 2000, they have expanded lines-of-credit by 700% when disposable incomes rose 70%. The five largest Canadian banks hold $400 billion of uninsured consumer credit. The Canadian Mortgage and Housing Corporation (CMHC), which insures mortgage loans, got giddy (increasing insurance to 100% of loans and to 40-year amortization periods in 2006). The government lifted the limit on CMHC insurance from $450 billion to $600 billion in 2009. The $600 billion limit is close to capacity, which may not excite a U.S audience, but Canada's GDP is around 10% of its southern neighbor, so the liability (in comparative terms) is around $6 trillion.

On November 27, 2012, an "observer" at VancouverPriceDrop.com described an early indicator that the CMHC will drag Canada's credit rating down a few notches: "43 listings dropped to a cumulative total of 20%+ this week, 12 [fell] 25% and 6 [fell] 30% this week."

The opinions of Carney's effervescence come from the same sources that never saw, nor understand today, how the central banks blew up the world. What is it, exactly, that Carney, or anyone else, is going to do at the Bank of England that will matter at all? Finally, since Goldman Sachs gave us Robert Rubin and Jon Corzine, who could be anything but horrified with another alum at the top?

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife