Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14
Bullish Silver Stealth Buying - 24th Oct 14
Blood in the Streets to Create the Gold Stocks Investor Opportunity of the Decade - 24th Oct 14
Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern - 24th Oct 14
War And The Law Of Unintended Consequences - 24th Oct 14
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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

© 2005-2014 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