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Guest Post: Mark Carnage

Tyler Durden's picture




 

From John Aziz of Azizonomics

Mark Carnage

The greater story behind Mark Carney’s appointment to the Bank of England may be the completion of Goldman Sachs’ multi-tentacled takeover of the European regulatory and central banking system.

GS1

But let’s take a moment to look at the mess he is leaving behind in Canada, the home of moose, maple syrup, Jean Poutine and now colossal housing bubbles.

George Osborne (who as I noted last month wants more big banks in Britain) might have recruited Carney on the basis of his “success” in Canada. But in reality he is just another Greenspan — a bubble-maker and reinflationist happy to pump the banking sector full of loose money and call it “prosperity” before the irrational exuberance runs dry, and the bubble inevitably bursts.

Two key charts. First, household debt-to-GDP.

household-debt-to-gdp-chart-canada

Deleveraging? Not in Canada.

The Huffington Post noted earlier this year:

Household debt levels have reached a new high, increasing the vulnerability of average Canadians to unexpected economic shocks just at a time when uncertainty is mounting.

 

Despite signs that Canada’s economic recovery is fizzling, data released by Statistics Canada Tuesday shows that the ratio of credit market debt to personal disposable income climbed to 148.7 per cent in the second quarter, surpassing the previous record of 147.3 per cent set in the first three months of this year.

Second, Canadian house prices:

2001-after-years-of-moving-sideways-home-prices-took-off

Famed analyst Jesse Colombo recently wrote:

Booming commodities exports and skyrocketing housing prices are encouraging Canadians to spend far beyond their means, while binging on credit, mimicking their American neighbors’ profligate behavior of six years earlier. (They’re thinking, “Canada is different!”) RBC Global Asset Management’s chief economist warns that Canada’s record household debt could “spell its undoing,” while Moody’s warns that Canadian banks face significant risk due to their exposure to overleveraged Canadian consumers. Maybe things really are different in Canada, where a group of under-21-year-olds got caught by the police for racing $2 million worth of exotic supercars, including Ferraris and Lamborghinis. Or not.

The age-old misperception that this time is different, that Chinese investors will continue to spend millions on crack shacks in Vancouver, that an industrial boom in East Asia will continue to support demand for Canadian commodities, that Canada’s subprime slush isn’t vulnerable, that hot inflows from capital rich low-interest rate environments like Japan and America will continue forever.

In the short term what is going on is that the ex-Goldmanite Carney has pumped up a huge bonanza of securitisation and quick profits for big banks and their management who are laughing all the way to the Cayman Islands (or in Carney’s case, Threadneedle Street). Once the easy money quits flowing into the Canadian financial system from abroad, defaults will begin to accumulate, cracks will quickly appear, and Canada will spiral into debt-deflation. Taxpayers in Canada (and in other similar cases like Australia) may well end up bailing out the banks profiting so handsomely now, just like their American and British and Japanese cousins.

The appointment of Carney is a disaster for Britain and a disaster for the Bank of England. Carney has already singled out Andy Haldane for criticism, an economist at the Bank of England with a solid understanding of the dynamics of complex financial systems, and a champion of simple and clear regulation. 

In a hundred years, people may be taking out zero-down mortgages against building geodesic domes on Mars or the Moon, and flipping them off to greater fools for huge profits. Because this time is different, right? And another crash and depression will follow.

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Sat, 12/01/2012 - 12:20 | 3026398 lolmao500
lolmao500's picture

And nothing will be fixed since Harper the bankster neo-con shill is in there.

And no real opposition/party is there to change things.

But the biggest danger is that people REALLY think that things are different in Canada.

Sat, 12/01/2012 - 13:13 | 3026453 jekyll island
jekyll island's picture

Zero down on geodesic moon domes? Where do I send a check?

Sat, 12/01/2012 - 16:00 | 3026611 Zer0head
Zer0head's picture

first off citing the Huffington Post borders on blasphemy why not just quote Henry Blodget or Wikipedia

the chart that shows house prices is interesting, is that median or average, is it inflation adjusted?  Regardless I think if you were to superimpose for example a chart depicting California house prices (CA is similar in size to CA and has a good mix of urban and rural)  hmmm  a chart that shows California house prices from 1980...  I wonder how it might look if superimposed on the chart you have supplied above.

My guess is that it would have a similar look except that there would be a giant penis like erection in and around 2006 on the California chart far exceeding the more flaccid Canadian chart. I would even speculate that current California prices are simialar to those in Canada.  I have searched Huffington Post but could find no such chart so decided to slum a bit at the stlouis feds site 

bit.ly/U8tKUw

 

then you get to thinking about various CA markets like the OC where the avg price today is $460k, Santa Clara $560k, I mean damn you try and buy a dump in La Jolla, Del Mar, Westside LA, Coronado etc etc and even a Real Estate agent from Vancouver would blush at their 7 figure current averages.  

Now as for the Household debt issue in Canada, this is what Rosie had to say a few weeks ago

1) Canadian debt/income ratio isn’t as bad as it looks. Because Canadians pay for their health care through their taxes, their disposable income is distorted relative to the U.S. In terms of personal income, the ratio is actually closer to 118%, rather the scary 165%.

2) Canadian household debt relative to assets (19%) and net worth (24%) is below prior peaks of 20% and 25%, respectively. Rosenberg estimates Canada would need to see a 20% drop in the housing market to get net worth/income ratio down to the U.S. level.

3) Canadians have more equity in their homes — 69% of the value compared with 43% in the U.S. “This equity gap is a prime reason why Canadian household net worth/income ratio (at over 500%) is some 35 percentage points above U.S. levels,” Rosenberg writes.

4) Canadians are better able to service their debts. Canadian wage growth at 4% a year is about double what it is in the U.S. — a rise that pretty much matches the average interest rate they are paying. Meanwhile, debt growth has slowed to its slowest in a decade — showing that balance sheets are improving “without the painful deleveraging that has occurred south of the border.”

“To be sure, if the Bank of Canada feels compelled to raise rates that would be a different matter, but that is a long way off,” he said.

5) The debt-servicing ratio in Canadian households is now just over 7% — a level it has only been below in the past 15% of the time. So even though Canadian interest rates are 75 basis points higher than in U.S, it is not hampering our ability to handle debt.

http://business.financialpost.com/2012/10/30/five-reasons-canadas-househ...

Sat, 12/01/2012 - 16:29 | 3026710 prains
prains's picture

The ticking time bomb is Canada's version of Fannie Mae called the CMHC, it now sits on over 500 Billion of Mortgage debt where as pre Sharter years this amount was 30 Billion. Canadians don't have 500 Billion, nor do their Banks. If that blows, the Maple Leafs will be for sale and they'll throw in Quebec for free.

Sat, 12/01/2012 - 17:06 | 3026774 CPL
CPL's picture

There have been many recalls on Maple Leaf products in the past. 

 

Any Maple Leaf products, including their fans, may be returned to a local Loblaws, Superstore or Sobey's for a full refund during the hockey strike in preperation for a team that can skate, maybe pass a little and figure out how to place a small rubber object in a net.

 

ERGO, Go Habs, Go Devils.

Sat, 12/01/2012 - 19:59 | 3027091 Matt
Matt's picture

And yet somehow, the Leafs are one of the most profitable sports franchises in the world.

http://www.forbes.com/nhl-valuations/list/#page:1_sort:6_direction:desc_...

Sun, 12/02/2012 - 09:21 | 3027791 Pinto Currency
Pinto Currency's picture

 

Canadian banks received bail-outs comparable to those in Europe and the U.S.

The Bank of Canda, Canadian banks and the Canadian government dumped Candian bank mortgage trash on the CMHC and then they all lectured the world about their rectitude:

http://www.policyalternatives.ca/publications/reports/big-banks-big-secret

The name "Carney" (a person who works at a carnival) is most appropriate.

 

Mon, 12/03/2012 - 03:14 | 3027799 TruthInSunshine
TruthInSunshine's picture

Some claim I tend to have anti-Rosy Glasses, but Canada's currently in a plateau of an Australian-like housing bubble that's as irrational as any, yet has resisted "popping" thus far because of debt-junky friendly policies of an amenable fractional reserve central bank and parliament, along with a resource-driven boom (see Alberta & Calgary) that's quite long in the tooth, bitchez (whereas Australia's largest trading partner is China, Canada's is the U.S.; Canada & Australia have incredibly similar economic structures and patterns of trade, especially on the export side of things).

By the time Canada's house of housing cards comes crashing down-- and it will-- Mark Carney (who David Rosenberg apparently has a ginormous man-crush on) will be on the "other side of the pond," drinking earl grey tea & eating the finest kidney pies in all of Britannia.

Vancouver has a pretty frothy real estate market that's being supported by the B.C. Bud grow house operations (soon to be killed by liberalization of mary jane laws all over the U.S.) and very intensely targeted hyping of "they aren't making more of this precious commodity 'housing' " to asians outside of Canada who are looking for places to dump their converted paper currencies into as an "investment."

Also, Toronto's real estate market is highly dependent on the banking/financial services sector, which will ultimately take a big shit when Canada's monetary mavens realize they need to thusly join the race to debase lest their manufacturing AND commodity sectors (in an era or massively declining demand ) get decimated (this has already begun in manufacturing; as just two examples, see Carlos what Ghosn & Sergio Marchionne have had to say about the "competitiveness" of Canada's automaking sector, along with global automakers' views on the "relevancy", and negotiating (non)leverage of the Canadian Auto Workers union.

Finally, for all of those who praise people like Mark Carnival Barker, such praise is quite premature. If people think that the U.S. is on an unsustainble path in terms of entitlement spending as a % of real domestic GDP (where GDP is far more relevant than broader GNP), yet who somehow believe Canada has more sensible, sustainable policy in this regard, they clearly have been eating too much gravy smothered poutine and wasted too much time at the Canadian Ballet. If one thinks the U.S. tax structure is crazy, Canada's is that multiplied by batshit (or bath salts).

 

Sat, 12/01/2012 - 17:22 | 3026795 Zer0head
Zer0head's picture

actually the number is $575b up from $250b or so back in the early 2000s they are capped by law at $600b thus the legislation earlier this year to make mortgages tougher to get (not that it was anything like  the maddness of subprime)  I've been reading for at least three years how Canada is going to implode. I would suggest that a 50% decline would put it back to where dimMish, GarthTurnip et al were calling a top.  Vancouver has had a significant correction in recent months but compare some of the areas around West LA, San Diego or the Bay area to Point Grey, Shaughnessy etc ditto for Central Toronto.

To someone looking at this from bumfuck AZ or FL or their mom's basement in some desolate housing tract in the mid-west, the prices seem outrageous but from Corona Del Mar a move to Vancouver would leave cash on the table.

Sat, 12/01/2012 - 18:10 | 3026876 bankerbackbacon
bankerbackbacon's picture

As a Canadian who lives well  in Vancouver, a lot of people don't understand the dynamics of the housing market. It is a little bit inflated but its also unique.

Toronto, Vancouver, Montreal, Calgary and Ottawa have completely different housing prices for different reasons. They are also, as far as cities go the best combination of city life and quality of life.  Joe the plumber can still get a house and a few yards of land in Ottawa and there are jobs (which is more than we can say for some American cities). 

Vancouver has no place to build, we are on the Tokyo model and we still have tons of minorities coming here to fill in for the lack of reproduction happening with white mulitgenerational Canadians (anti child government, child poverty stats not nice). All of these immigrants want to live in greater Toronto or greater Vancouver because they perceive the weather as being best and/or the economy. Vancouver is the only place in Canada where you don't get actual winter for example. It also has a lot of cache globally. The minorities (which come by the bushel yearly) bring money and we can't accommodate all of them so they inflate our housing. Toronto's housing can be explained by its climate, (relative to prairies) jobs, and wealthy immigrant influx as well.

There is no reason to think that Canada won't continue to have the best ratio of square miles per person, inbound wealthy immigrants, vast resources, quality of life, sandy oil for the Chine etc.

The inflation in relation to housing prices is a factor which I don't think is factored in well.

The debt to GDP which is a favorite stat for Canadoomers, and has started to scale back and as long as interest rate stay low (and we know central bankers are addicted to them) Canadians have the capacity to repay them.

Correction yes, apocalypse no.

Sat, 12/01/2012 - 18:13 | 3026907 prains
prains's picture

Correction yes, apocalypse no.

 

apocalypse yes if china crashes and burns

Sat, 12/01/2012 - 19:02 | 3026994 Global Hunter
Global Hunter's picture

125 miles northeast of Toronto and its a different world, life would continue on.  I honestly don't know what life will be like in Toronto, Montreal or Vancouver if the ATMs stopped working for a few weeks.  As the poster above noted, they are very multi-cultural and densely populated.  But in many rural areas it is cheap and there is A LOT of space.  Our major cities have been rapidly growing and changing but our rural areas amble on.

Sat, 12/01/2012 - 22:49 | 3027389 Angus McHugepenis
Angus McHugepenis's picture

I've lived in all three. Thank fuck I got away from those cities and the chaos of working in them. I'll take my chances with a random grizzly bear or cougar attack where I'm at now.

Global Hunter: I grew up spending summers near Atikokan in Quetico National Park on a lake that was so small and remote we had to portage with our small 16' boat and 6hp outboard just to bring supplies in. It took a day just to transport and get everything set up. Ah the memories...

Mon, 12/03/2012 - 04:33 | 3029056 TruthInSunshine
TruthInSunshine's picture

I've always tended to agree with you Angus (can I call you Angus? If not, I don't mind referring to you with the more formal Mr. McHugepenis. I don't want to be too presumptive).

Wed, 12/05/2012 - 22:44 | 3038038 Angus McHugepenis
Angus McHugepenis's picture

Just don't call me Shirley.

Take care Mr. TruthInSunshine.

Sun, 12/02/2012 - 08:32 | 3027745 Deliverator
Deliverator's picture

Wow. Yet another bozo trying to explain how it is somehow 'different' in Canada in general, and in Vancouver in particular.

Read carefully, SFB, the median family income in Vancouver, BC is $67,700. The median home price, not detatched single family home, mind you, no, this includes condos, townhouses, duplexes, etc., the median home price is $603,000.

It is going to end badly.

Sat, 12/01/2012 - 15:23 | 3026608 11b40
11b40's picture

Send a check?  What part of 'no money down' don't you understand?  ;-)

Sat, 12/01/2012 - 16:01 | 3026658 Matt
Matt's picture

I think he wants to be an investor in Moon Bases, not a resident.

Sat, 12/01/2012 - 17:53 | 3026865 Rogue Trooper
Rogue Trooper's picture

You listening FOOL...youse still git da Obamafone... wid da no down.... you wid me FOOL!

BTW  I just got me some real 'fly' chromes wid my EBT card as the DOWN>>>>>

/Raycist

Sat, 12/01/2012 - 13:29 | 3026474 old naughty
old naughty's picture

Canada is not America.

Things are different in looney land.

Even if hot money flows out of this in-the-ground-resource-rich 52nd State, we still have quadrillion litres of fresh water !

 

Sat, 12/01/2012 - 13:38 | 3026485 Seize Mars
Seize Mars's picture

Good point, but realize that Canada, USA and Mexico are all (very) in-the-ground resource rich.

It's politics that keep people poor.

Sat, 12/01/2012 - 15:52 | 3026649 Bindar Dundat
Bindar Dundat's picture

Just like in WW1 and WW2!  The Americans and the Brits had to send the Canadians in to do the real work.  The Wanks and the Yanks  are such fucking whiners. 

Sat, 12/01/2012 - 16:22 | 3026692 prains
prains's picture

It's actually the 1% who keep people poor using politicians as their starwmen

Sun, 12/02/2012 - 08:51 | 3027767 midtowng
midtowng's picture

It's even worse than the article indicates. Mark Carney has more history than just Canada. Consider his track record in Russia in the early 90's.

http://www.digitaljournal.com/article/314642

These policies ended in a severe economic collapse, which just happened to profit Goldman Sachs tens of millions of dollars. In spite of their involvement in a 1.25 billion dollar bail-out of the Russian government, Goldman Sachs appears to have been betting against success.

Sat, 12/01/2012 - 12:21 | 3026401 tooriskytoinvest
tooriskytoinvest's picture

Is This A Coincidence? Obama Calls For Additional $1 TRILLION Student Loan Bailout For His Bankster Buddies While Pelosi Said Congress Give Obama Power To Personally Lift Debt Limit To Infinity!
http://investmentwatchblog.com/is-this-a-coincidence-obama-calls-for-additional-1-trillion-student-loan-bailout-for-his-bankster-buddies-while-pelosi-said-congress-give-obama-power-to-personally-lift-debt-limit-to-infinity/

Sat, 12/01/2012 - 12:26 | 3026407 CheapBastard
CheapBastard's picture

Mooseless recovery.

Sun, 12/02/2012 - 06:22 | 3027710 Spitzer
Spitzer's picture

^^^Funny all the comments above are more or less saying "this time it is diffrent" hahaha

 

Guess what morons, this time is not diffrent and real estate will crater in real terms.

 

I am Canadian BTW

Sat, 12/01/2012 - 12:30 | 3026414 woggie
woggie's picture

the beast is on the gobble
and all that matters is we're all headed for it's belly
http://youtu.be/ntmthFyaYzY

Sat, 12/01/2012 - 12:59 | 3026437 imbrbing
imbrbing's picture

And he is going to start with you. Why this same post on every article here? Do you have any of your own thoughts you would like to express?

I ignored the first 50 of these I have seen, but sheesh.

Sat, 12/01/2012 - 13:26 | 3026470 StandardDeviant
StandardDeviant's picture

Yeah, really.  If the conspiracy theorists are correct, and GS is so all-powerful and on such a roll, I have to wonder why the same people don't quit wasting their time in futile Internet rants and just buy themselves a big pile of GS shares already.

Sat, 12/01/2012 - 15:21 | 3026604 Aziz
Aziz's picture

Hahahahaahahahaha!

Shareholders?

You mean muppets...

Sat, 12/01/2012 - 12:46 | 3026425 Atomizer
Atomizer's picture

Will Taxing the Rich Fix the Deficit?

EAT THE RICH!

 

Will the American taxpayer's be seduced by another round of Central planners looting strategy?

Big Black - Ready Man

Sat, 12/01/2012 - 13:41 | 3026490 Seize Mars
Seize Mars's picture

If we are all tired of being robbed, for us to say that it would be "more fair" to rob the "rich guy down the street" doesn't have any moral force. Why don't we outlaw robbery altogether, instead of arguing over who "ought to" be robbed?

Sat, 12/01/2012 - 14:17 | 3026530 mkhs
mkhs's picture

Actually, I believe there are laws against robbery; yet, here we are.

Sat, 12/01/2012 - 15:51 | 3026648 Seize Mars
Seize Mars's picture

Yes. And when I look at glaring things like Article 1, Section 10 of the US Constitution, it says "...No State shall ...make any Thing but gold and silver Coin a Tender in Payment of Debts..."

...and yet, here we are with an illegal banking system. You don't need to be a lawyer to understand. It's illegal. How does it stand? How can we get the Federal government to actually obey the law?

Sun, 12/02/2012 - 13:03 | 3028130 mkhs
mkhs's picture

Perhaps it is time for a new magna carta.

Mon, 12/03/2012 - 08:30 | 3029202 Seize Mars
Seize Mars's picture

Well I don't hink a new Constitution is going to work. They won't obey the one we have, obviously.

Look at the world we live in: we frantically try to pass laws to protect the constitutional rights we have? Like little "clauses" on top of NDAA so that we have a functional sixth amendment. WTF? Since when do laws supercede the Constitution?

Sat, 12/01/2012 - 12:41 | 3026426 Canucklehead
Canucklehead's picture

The Americans can't change their banking laws and make them tougher as the global banks would move loose banking practises to London or Middle Eastern jurisdictions. Nothing would change.  With Mark Carney in London, he will be coordinating efforts to clean up the zig-zagging of banking regulation between the jurisdictions.

Haldane is carrying water for the TBTF (ex. JPM Chase).  There will be winners and losers in London.  Haldane will be a loser.  He will either tuck in his horns and be a team player or he will step aside and go on gardening leave...

Sat, 12/01/2012 - 12:47 | 3026430 Rainman
Rainman's picture

It will be interesting to see what transpires with the loonie when the next BoC head is named.

 

 http://www.dailyfx.com/forex/fundamental/forecast/weekly/cad/2012/12/01/Dissuaded_by_Carney_Departure_and_Soft_GDP_Loonie_Looks_Uncertain.html

Sat, 12/01/2012 - 12:46 | 3026431 topspinslicer
topspinslicer's picture

it's not what you know it's who you know

Sat, 12/01/2012 - 15:32 | 3026523 Pseudo Anonym
Pseudo Anonym's picture

maybe:

it's not what you know it's who you know

but more likely what you know about and have on them

Sat, 12/01/2012 - 12:46 | 3026432 zen0
zen0's picture

The Bank of Canada has warned about household debt for 2 or 3 years. Maybe they aren't in control of everybody and everything.

Sat, 12/01/2012 - 12:59 | 3026439 apberusdisvet
apberusdisvet's picture

Fuck the Canuck Schmuck

(my apologies to French Canadians)

Sat, 12/01/2012 - 13:04 | 3026441 hairball48
hairball48's picture

I live in a small town near the Canadian border. Canadians have been coming here to shop during the last few "boom" years. On some weekends there is(or was) a steady stream of cars and trucks with Alberta plates headed north on US 93...loaded up with stuff from the Home Depot, our Super Walmart, etc.

Personally, I'll be interested to see how  this new(ish) mall does when the Canadian economy crashes and that flow of Canadian dollars dries up. Some of us thought that the huge retail buildup in this area was stupid during the "go-go" years earlier in the decade. Questions were asked:

"Who's going to shop at all these new stores when the "old mall" was already dying with lots of empty retail space and few customers?."

Us "new mall skeptics" are about to be proved right. Now  we'll have two empty malls. Terrific planning!!

Sat, 12/01/2012 - 14:22 | 3026533 W74
W74's picture

Do you live around Kalispell?  I've been thinking of heading out that way and setting up camp.  Would be a nice change from living here in liberalville.

Sat, 12/01/2012 - 16:43 | 3026733 hairball48
hairball48's picture

Yeah, but keep in mind that neither MT nor Kalispell are all that "conservative" or "libertarian" anymore. Look who we have in the Senate and the Govenor's office. There is some libertarian presence but it's weak and has too many "whackjob libertarians" with whom I have little patience.

The main advantage of living here is a smaller population relative to most areas and we aren't near any major metro areas...a huge plus imo. You people living near large metro areas, especially back eastand the West coast,  are fucked when the final crackup-boom happens. And it'll be too late to move then. And you would not likely be welcome here after the crackup-boom. People here do like their weapons regardless of politics.

Many of you in large metro areas will become victims of roving gangs of the "baggy-ass/cockeyed hat", 12-30 year olds. Morons with no job, no skills, no education, nor morals, no nothing....except they still like to eat and sleep in a warm place. I can't wait :)

Hopefully, I'll be dead or a "mindless drooler", medicated to the hilt in a  VA hospital, before this area is overrun by newer folks :)

 No offense :)

Sat, 12/01/2012 - 15:51 | 3026643 imbrbing
imbrbing's picture

Consumers love new shiny things, until they don't, then they will build a newer shinier thing. Vicious circle. Nothing but goldfish swimming around

in circles in a bowl. By the time they get around the bowl again they forget and start the circle over again. One of these times the trip around the bowl

is going to leave them with no more new shiny things and they will be wondering ..... oh geez, what happened?

 

BTW: I have a shiny thing I like too, guilty myself, it weighs about 1 troy ounce

Sat, 12/01/2012 - 16:05 | 3026665 geminiRX
geminiRX's picture

Ohhh those Canadians......they take all the good parking spots and deplete our milk supplies....

Who knows but I think the money stream from other provinces may shrink (like BC where >70% of a family's income goes to the monthly morgage payment), but Alberta should remain pretty steadfast. I have a hard time fathoming oil going bearish with the middle east the way it is. If the middle east were to stabalize AND the world econonmy go into recession.....then sub 50 oil could be in the cards (then Alberta in big trouble).

 

 

Sat, 12/01/2012 - 18:27 | 3026925 bankerbackbacon
bankerbackbacon's picture

"Personally, I'll be interested to see how this new(ish) mall does when the Canadian economy crashes and that flow of Canadian dollars dries up."

If the laws for cross border shopping get tightened, or there is a crash, or the CAD goes back to 60 cents US, you will see those malls turn into food kitchens for the homeless along the US side of the border.

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