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Life Off-the-Grid

Canada: The Land of Delusional Thinking

By Cam Mather

For my American readers this blog post can serve as your “been there, done that” moment. Same for my Greek readers. Canada sits atop a housing bubble intertwined with a personal debt bubble inspired by a delusional thinking bubble where its citizens and politicians think that these good times can continue forever. It’s a grand illusion and it’s going to end in tears. Perhaps Canada will soon resemble the streets of Greece where people are rioting because of austerity measures and the reduction of entitlements. Or maybe we’ll behave more like our American cousins who watched the train wreck of the housing and debt bubble explode and then let the political and business elites who created it, or allowed it to happen, get off scot-free.

Michelle keeps sending me posts from a blog that shows tiny, 2-bedroom wartime bungalows in Toronto that are selling for $800,000. The average home price in Vancouver is 1 million dollars. Really. A million bucks! How anyone affords to buy a home there is beyond me. But merrily we roll along, acting as if all is well, because house prices, as you know, never go down. It’s not cyclic, it just goes up, forever. What was it that Ben Bernanke said in 2005, something like “We’ve never had a decline in house prices on a nationwide basis.”? And this is the man running the economy down there today.

In Canada our central banker, Mark Carney, is being treated like a rock star. Sound familiar? Remember when people hung on Alan Greenspan’s every utterance? Remember when he was considered the maestro of the greatest run up in the U.S. economy anyone could have dreamed of? Have you noticed that now lots of people like to call him the man who destroyed the U.S. economy by keeping interests rates too low and inflating a massive housing and stock bubble and not supervising the financial institutions that cooked up fraudulent mortgage concoctions that helped destroy the economy? Funny how that goes.

Well that’s Mark Carney today. People think he’s awesome. And now he’s in charge of an international stability fund to get other countries in shape, because we do things so well here in Canada. Except that all we really did was quietly move all the bad mortgages of Canadian banks on to the taxpayers. Per capita it was about the same as the US, but no one seemed to notice in the chaos of the US collapse. Then our Prime Minister had the audacity to start bragging about how great our system was, and other leaders started listening. He was recently in Davos to tell the world how to do it.

And how do you have such a great economy when the rest of the world is imploding? Well if you’re Germany, you keep making stuff, like cars, the rest of world wants to buy. If you’re Canada you can sell some oil and potash, but ultimately you just want to create the illusion of wealth, so you go into debt. At every level; household, municipal, provincial and federal, you just put it on the credit card. And if you’re the government, you also hire as many people as you possibly can. So it all seems just fine and dandy. For now.

Until people realize that 2 bedroom wartime bungalows on tiny lots aren’t worth $800,000. And then the people who own those houses, which had gone up in value so precipitously, and have taken out home equity loans, to consolidate their credit card debt, finally realize it was just a big house of cards, and the walls are tumbling down.

Oh Mark Carney keeps warning Canadians that they have too much debt. He scolds us, and lectures us, but what does he do? He keeps interest rates ridiculously low. A 5-year mortgage right now is 2.99%. Heck, why even charge interest at all? Just give the darn things away. What Mark and Jim Flaherty, our finance minister, should be doing is ensuring that every student who graduates from high school should not only be able to speak two languages (so they can work for the federal government, which ultimately we all do in Canada because they pay so well) but they should also understand that just because a credit card statement shows a “Minimum Payment” that’s not the amount you should pay. You should pay the whole thing off. And just because credit card companies keep sending you new cards, doesn’t mean you have to use them. And just because those credit card companies keep raising your credit limit, doesn’t mean you should just buy more crap until you hit that limit.

Mark Carney telling Canadians to get out of debt is like your mom telling you not to eat too much candy when you get home from trick or treating on Hallowe’en night. Yea right. Oh sure, I’m going to feel like a dirt bag tomorrow, but you basically gave me the candy. Did you really expect any other outcome?

When the housing bubble pops all this non-mortgage debt is going to get really ugly. This all happens at a time when governments that have hired hundreds of thousands of workers over the last few years are going to realize that their credit card companies are cutting them off too, and they have to get their house in order. Our prime minister is threatening such austerity, threatening to cut maybe 40,000 civil servant positions. Oooo, scary! But considering that they hired 30,000 civil servants in the last few years, it’s not really much of a threat. And like the Ontario government, the federal government has no stomach to really take on public service unions so it’ll have to find some other way to get its house in order… which it can’t. In the meantime, the federal government is going to spend $5 billion to make our prisons bigger, even though our crime rate is going down. Out of touch much?

I remember when Greece hosted the Olympics in 2004 I had read then that they were a financial mess, and I wondered how they would manage to pay for the Olympics. Well it turned out they didn’t. It cost them billions that they didn’t have, so they just put it on their credit cards. And now the credit card companies (bond holders) want to get paid, and guess what, they’re broke. A country going broke isn’t pretty. Government worker paychecks get smaller or disappear, and they get angry. And they throw those tear gas canisters right back at the police that fired on their demonstration. But eventually, everyone has less money; the economy contracts and people reduce their expectations.

Canadians have high expectations. We expect great jobs and lots of money so we can buy tons of stuff and we expect an insanely great health care system which increases how much government money it uses by 6 or 7% a year, while the economy is growing by maybe 2%. The math doesn’t add up. And we can’t all work for the government. We’re losing our manufacturing jobs and we only have so much oil and potash we can sell and we can’t all work doing that. Which leaves us in the same spot as Greece. Next year? 3 years? 5 years? I don’t know. I just know our leaders pay lip service to this debt problem, and then they jump on jets to Switzerland and lecture the rest of the world about how great we are. What’s the expression, “Pride goes before a fall”?

So how would I correct the situation if I were in power? Well first I’d have to get elected as a member of parliament. MPs in Canada start at a base salary of $157,731 per year. If you managed to stay elected for 6 years, you retire with a pension of $46,000 per year for the rest of your life. That’s right, work 6 years and starting at the age of 55 make $46,000 a year …FOREVER! Stay a few more years and it goes up accordingly. So if I got elected I’d say and do absolutely nothing for 6 years, and once I’d passed the 6 year mark, I’d be so engrossed with thinking about how I was going to spend my pension, I wouldn’t do anything except hope the revolution doesn’t start while I’m around. Yup, it’s all going to end in tears.

Canadian flag by Djameson1983 (Own work) [CC-BY-SA-3.0 (www.creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

 

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1 Comment

  1. Excellent post!! I couldn’t have said it better myself! …….BTW, I told ya that you should run for politcs – get to visit all the farms AND make 157K!! It’s a win-win! lol

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