Best of the Week
Most Popular
1.UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - Nadeem_Walayat
2.UK General Election 2015 Seats Forecast - Who Will Win? - - Nadeem_Walayat
3.Gold Price Downtrend Looks Set to Continue - Clive_Maund
4.Commodity Prices Set To Plunge Below 2008 Lows - Austin_Galt
5.New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - GoldCore
6.Gold and Silver Stocks or General Stock Market Indices? - Rambus_Chartology
7.“Forgive Us Our Debts” – Only Way To Prevent Economic Meltdown - GoldCore
8.UK House Prices Trend 2015 and the May General Election - Nadeem_Walayat
9.12 Reasons Why Barry Ritholtz and Many UK Experts Are Mistaken On Gold - GoldCore
10.Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - Mike_Shedlock
Last 5 days
How to Play the Big Broker Stocks When Interest Rates Rise - 5th Mar 15
Here's What Stock Market Bulls Might Be Overlooking - 5th Mar 15
U.S. Soaring Crude Oil Stocks - Cushing and Gulf Coast Storage Filling Up Fast - 5th Mar 15
Japan's Intelligence Reform Inches Forward - 5th Mar 15
Gold Miner Index Breadth Oscillator, Forward Reckoning® - 5th Mar 15
Gold Price Set To Plunge Below $600 - 5th Mar 15
UK General Election Forecast 2015 - Immigration Crisis, SNP Insurgency and Housing Mini-Boom - 5th Mar 15
Spock, Debt and the Kingdom of Denmark - 5th Mar 15
The Psychology of a Sideways Stock Market Trend - 5th Mar 15
Freedom from America - Getting Out Of Dodge - 5th Mar 15
What Top Hedge Fund Managers Really Think About Gold - 4th Mar 15
U.S. Dollar Strategic Backfire On U.S. Government Policy - 4th Mar 15
Canada’s Central Banks Orders End to ‘Spocking’ Of Canadian Dollar - Defacing Debasing Currencies - 4th Mar 15
Chicago's Only Possible Salvation: A Detroit-Like Bankruptcy - 4th Mar 15
Gold Price and Mining Stocks Decline Together - 3rd Mar 15
Financial Slaughter - The Silence of the Lambs - 3rd Mar 15
Bondholders “Bailed In” In Austria – New Banking Crisis? - 3rd Mar 15
How to Profit from the Coming Oil Price Crunch - 3rd Mar 15
Is Japan Zimbabwe? Could Japan go Hyperinflation? - 3rd Mar 15
Bill Gross Says Fed May Raise Rates 25 Basis Points in June - 3rd Mar 15
The Secret Behind My Hedge Fund Trade on U.S. Housing Market - 3rd Mar 15
BLS CPI Lie - How's That Dsflation Working Out for You? - 3rd Mar 15
Tesla Bonfire of the Money Printers’ Vanities - 3rd Mar 15
Gold Demand in UK, Europe and U.S. – Reuters Interview GoldCore - 2nd Mar 15
Watch the Skies... for Investor Profits - 2nd Mar 15
How Investors Can Identify the Best Small-Cap Stocks - 2nd Mar 15
Gold and Silver - What If the Precious Metal Stocks Bulls are Back - 2nd Mar 15
Students Getting a PhD in Subprime Debt - U.S. Debt Breaking Bad Part 3 - 2nd Mar 15
The Stock Market is in The Process of Major Top! - 2nd Mar 15
Stock Market Weakening Trend - 2nd Mar 15
Gold Price Glimmer of Hope - 1st Mar 15
Stock Markets Are Riding High on Thin Air - 1st Mar 15
Varoufakis vs. the Troika - Showdown in Athens - 1st Mar 15
Subprime Rising - U.S. Debt Breaking Bad Part 2 - 1st Mar 15
Gold CoT Improving, But ... - 1st Mar 15
UK General Election 2015 Seats Forecast - Who Will Win? - 28th Feb 15
UK General Election 2015 - Forecasting Seats for SNP, LIb-Dems, UKIP and Others - 28th Feb 15
Stocks Bull Market Continues - 28th Feb 15
U.S. Debt Breaking Bad - 28th Feb 15
NATO Frankenstein - When Centralization Scales Beyond Our Control - 28th Feb 15
Gold And Silver Insanity Prevails; Precious Metals Without Direction - 28th Feb 15
Fed Raising U.S. Interest Rates - Shovelin’ Schmitt Against the Tide - 28th Feb 15
Don't Let This Stock Market Myth Cost You Your Gains - 28th Feb 15
Recession is On The Way; Beat The Stock Market Crowd, Panic Now! - 28th Feb 15
Stock Market Indexes Creeping Towards the Edge - 28th Feb 15
GGD Going for Mexican Gold - 27th Feb 15
Foreign Real Estate Is the New Swiss Bank Account - 27th Feb 15
10 Reasons Washington Has War Fever - 27th Feb 15
Gold and the Euro Tragedy, Iraq 3.0, Ukraine Conflict Three Ring Circus - 27th Feb 15
Deepak Chopra - New Age Genius or Bullshit Expert? - Video - 27th Feb 15 - Videos
New Greece Drachma Revealed Amid Bank Runs - Greeks Buy Gold Sovereigns - 27th Feb 15
Will Month Long Stocks Rally Continue? - 27th Feb 15
The Only Public Hedge Fund You Should Own - 27th Feb 15
UK House Prices Trend 2015 and the May General Election - 27th Feb 15
Why America is Ungovernable - The Republicans’ Civil War - 27th Feb 15
Gold vs Gold Stocks: Bullish Anomaly Developing? - 27th Feb 15
I Heart Capitalism, Nasdaq Stocks, Then And Now - 27th Feb 15
The Fed’s History of Assassination - 27th Feb 15 i
Gold Bull Market Forecast - Money Will Rotate Into These Dead Investments - 27th Feb 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The State of the Global Markets 2015

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

© 2005-2015 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

Free Report - Financial Markets 2014