Canada Flagged For Recession By BIS

Tyler Durden's picture

Authored by Caleb McMillan via Mises.ca,

As if Canadians needed more proof that the country’s real estate is in a bubble, and that this misallocation has spread to other sectors of the economy, the Bank of International Settlements released its latest quarterly confirming what any critical observer can see: binging on debt is rarely a good idea.

Canada’s debt-to-GDP gap is widening and even the central bank of central banks is concerned.

The BIS uses its credit-to-GDP analysis as an indicator and predictor of troubling economic waters. They claim successes in predicting financial crises in the United States, England and a few other economies. Generally speaking, according to the BIS, when a country’s credit-to-GDP gap is higher than 10% for more than a few years, a banking crisis emerges which is followed by a recession.

Canada entered that territory in 2015, warmly welcomed by the Chinese who’s debt-to-GDP gap has put them in the danger zone for at least the last five years.

In another parallel universe, perhaps Canadian authorities took the correct measures to counteract this high credit-to-GDP gap or to even prevent it from getting this out of control. But in our reality, we kept trudging across the tundra, mile after mile, pushing our credit-to-GDP gap up to 17.4%.

China’s “basic dictatorship” means they can turn their economy around on a dime, or so goes the thinking. Perhaps they will better absorb the economic slap in the face compared to Canada’s relatively freer market and less dictatorial government.

Still, both countries have a massive real estate bubble. In China, entire cities are centrally planned and built by government-connected contractors only to house absolutely nobody.

Wealthy Chinese families, witnessing the crony-capitalist chaos and subsequent malinvestments, have taken their hard-earned cash and moved it overseas. Enter stage-right the true north strong and free enough. Foreign speculation has helped drive up real estate prices in places like Vancouver and Toronto.

Of course, despite the pandering of Vancouver’s local politicians to angry locals that have been priced out of their home markets, foreign buyers are not the sole cause of Canada’s housing bubble and may in fact have little if anything to do with it.

Foreign speculation on Canadian real estate is to Canada’s housing bubble what subprime mortgages was to America’s infamous bubble. It’s more of an effect than a cause.

So what is the cause?

Don’t look to the BIS to own up to the disastrous and downright criminal actions of central banks around the world.

They’ve identified the disease of debt, but they’re mum on the cure as well as where all this speculative credit is coming from.

The Bank of Canada revealed that Canadians have taken on $2 trillion dollars in consumer debt. And while large numbers like these are thrown around a lot in the age of low interest rates, deficit spending and quantitive easing, it helps to have some perspective. It takes 31,709 years to count to one trillion. Now multiply that by two.

71.6% of that $2 trillion consumer debt is in mortgages. The BIS warns that large debt binges like this are almost always followed by a proportional recession. Thus, Canada has been flagged for bad times in 2018.

Of course, one doesn’t need the BIS’ empirical analysis to arrive at these conclusions. Following the sound economic logic of Mises and Rothbard not only reveals exactly what’s going on here but how we got here, what to do about it, and how to avoid it in the future.

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DogeCoin's picture

Toronto RE market still hot. Buy now or be priced out forever. Housing only goes up.

GunnerySgtHartman's picture

Ha ha ha!  Vegas can attest to that, not!

underthevolcano's picture

Yeah, sure, but people actually WANT TO LIVE IN CANADA. It isn't some kind of hit and run country.

deuce awesome's picture

Where people want to live has little bearing on economics 101.

 

Im sure lots of people thought tulips were pretty too.

asteroids's picture

It's -9C with an wind chill of -22C in Toronto this morning.
Summer lasts a whole three months before you pull out your Fall/Winter gear. What's not to love.

flicker life's picture
flicker life (not verified) asteroids Mar 15, 2017 10:57 AM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

Defiated's picture

Hey, it kills the bugs...sends the blacks/half-blacks 'packin'...(doesn't kill them...just sends them packin)

U4 eee aaa's picture

A regular paradise on wheels

http://vancouversun.com/news/crime/well-known-gangster-surreys-latest-mu...

Just don't get caught in the crossfire. And if they ask you if you saw anything just say NO MANG!

TRN's picture

Precisely how many miles from the US border?

skbull44's picture

There is a strongly held, if inaccurate, belief amongst Canadians that there is good debt and bad debt and mortgage debt is good because real estate value always increases...at least until it doesn't.

Spungo's picture

I was in Toronto a while ago for some work stuff. I could overhear people talking about real estate and how they need to buy some. That's never a good sign.
Vancouver is completely fucked too. The rest of the country is reasonably good. 

underthevolcano's picture

Six months ago it was a supposed issue of how our banks accounted for loan losses in the oil sector. Nothing happened. Matter of fact our banks reported record profits in the last 8 quarters. Now we have some kind of chart that says our credit to GDP is too high. Well, Wall Street has been shovelling US debt into Canadian banks as fast as they can move it; why? Because Americans are deadbeats and Canadians have the best track record of paying their debts, bar none. This simply continues the absolutely typical attempts, by Americans, to diss and disrespect anything that anybody does better than them. Talking down bank shares is a great way to get in at a cheaper price, isn't it. You would think that a 35% discount on our currency would be enough for them, but oh no, nothing is ever 'enough'.

There is no crisis except the one in the authors head.

espirit's picture

Nieve.

Our Kleptocracy is just better than your kleptocracy.

deuce awesome's picture

Toronto real estate agent?

 

 

Toonces McGraw's picture

You must live out east in the land of sunshine and lollipops and transfer payments. Out west we have been in a recession going on two years.

gatorengineer's picture

Wow, you have a Prius and with a Trudeau sticker on it right?

Pareto's picture

they keep all of that exploding oil and gas debt off balance sheet.  In the 80's it was rumored that the Royal Bank was the largest oil producer in Canada.  Here's the thing.  Last January, banks recorded record profits in Canada in the face of a retreating economy and exploding debt in oil and gas.  Yet their share prices have never been higher.  There is no mark to market, and there are no provisions to report because all of that shit is off the balance sheet.

So up is down.

White is black.

DEbt is good.

Saving is bad.

And it will stay like this until........

nope-1004's picture

Let me guess:  You own 3 homes and are renting out 2 of them, were barely able to put enough down to buy them, and if rates jump 1.5% you're totally insolvent.

Am I right hoser?

 

Spungo's picture

underthevolcano, be careful when it comes to bank profits. Banks and insurance companies are very complex financial structures. They can report record profits or record losses just by changing their assumed credit losses. I personally think Canadian banks are fine, but there's a lot of guessing in my opinion. I've tried reading bank quarterly reports, and I just can't finish reading them. It's line after line of stuff I don't understand. They'll report higher earnings from insurance premiums because their mortality assumption changed. wtf? I just need to blindly trust that they know how to measure that.

I no longer invest in financial institutions. They're usually great investments, but I like to know what the hell I'm buying.

silverer's picture

Good thing the Canadian government got rid of nearly all their gold. lol

BrutusTheBomber's picture

I hope they vested in nuke backed American $s. Those things are power money, until they go radioactive.....

Defiated's picture

we 'may' just have to 'nationalize' all of the Gold & Silver mines....(terror related)

DeeZ_nutZ's picture

Fuck Canada in the pussy!  Homos and colored imports will fix it all for trudoper!

orangegeek's picture

MOAR MAPLE SYRUP AND HOCKEY PUCK EXPORTS!!!!

espirit's picture

Thanks, but I prefer to get my hockey pucks from Serbia.

deuce awesome's picture

Ive never seen a housing bubble quite like this one in southern ontario. Houses in the burbs (far burbs) selling for 200k over asking. Its unreal. The arrogance of people in the industry and recent purchasers is crazy. "Oh its foreign money......Oh there's not enough supply.......Oh better get in now or be priced out"

Fortunately my wife is onboard with me. We cashed out of our crumbling pile of 100 year old brick last summer and are now building; with me doing lots of the work to keep costs down.

Global Hunter's picture

I grew up in Burlington (far suburbs of Toronto and near suburb of Hamilton) but now live 200km northeast of Toronto.  On rare occassions I have to travel through or into that Southern Ontario bubble it is like going to another country.  I don't recognize my home town it is unrecognizable to me so I never go there other than travel through it.  It is lunacy.  My family home was 90,000 back in the 1980s.  Men with decent factory jobs could afford that house in a middle class neighbourhood.  I bet its over a million now.  No way salaries kept pace with that bullshit.

nope-1004's picture

Which is why all central banks are trying their best to keep rates at zero, pricing money at worthlessness.  If the owners of those million dollar boxes saw any rate increase back to the normal 6-8%, they'd hand the keys over to the bank.  And the banks are TERRIFIED of that reality happening (which eventually will).

 

skbull44's picture

Heard an interview on CBC (the penultimate shill for status quo narratives in Canada) radio last week that harped again and again on Canada's real estate issues being born and sustained due to supply/demand fundamentals because, you know, for Canada this time is different.

general ambivalent's picture

If there are 70,000 vacant mansions in Vancouver how many vacant apartment houses are there in Toronto? 280,000? And is this a sign to buy?

Official numbers are just 100,000, so that should be good for another 20% rise in the next few years. Better buy, I guess.

JohnGaltUk's picture

Check out Oz and New Zealand. It's like 2007/8 never happened.

I live in the UK and when I saw people lining up down the street to withdraw their money from Northern Rock...... it made me stop and reflect.

Got off the grid back in 2013, have no debt, food stocked in the garage and no ongoing contracts.

Tad early but when the herd head for the exits they will get very small.

robertocarlos's picture

My rent went up 10 percent! I can't understand my Mom doing this to me. She says market rates for basements is up big time and she does do my laundry.

Killdo's picture

My brother is a director for one of the biggest banks in Canada - he can't afford to buy a nice house in a reaasonably nice area. His wife also works

WTFUD's picture

I always pay attention to what the BANKSTERS INSTITUTE of SKULDUGGERY says!

Justin Case's picture

"what any critical observer can see: binging on debt is rarely a good idea."

Only good idea for Gov't? They should practice the concept as well. Lead by example.

spanish inquisition's picture

When it crashes in Canada, there is no out for the consumer. You owe the bank on anything upside down.

If rates climb, you are still stuck. Every 5 years your interest is reset.

Herdee's picture

Carney did the same thing in Real Estate for England as he did in Canada, " BubbleMagic". But isn't this what it's all down to now? Creating these Bubbles before the big bust.

TheVoicesInYourHead's picture

Chinadastan needs QE eh.

skbull44's picture

Bubble? What bubble? The 1560 sq foot two-storey we bought just north of Toronto for $210,000 in 1995 could probably fetch close to $1 Million currently...it's all just fundamentals;)

gatorengineer's picture

totaly get the SARC, but unless its foreign money and it may be.  Where the hell are the Canadians with 300K plus K a year to pull get that?  Is it all gimmick mortgages?

skbull44's picture

Anecdotally-speaking, the vast majority of new owners in our area are of Asian persuasion.

Defiated's picture

Bought my 'semi-detached house' from my parents estate in 2010...2000 sq ft

4 bdrm, 3 bthrm, in West End Toronto near the airport...$330,000 (cdn)

Neighbours sold 'sister house' in December for $642,000..(house not as nice)

Is it a 'Bubble'?.....likely...still.... gives me a 'semi'...

chickadee's picture

Canadian central banker Stephen Poloz is so obsessed with currency wars that he has lost sight of the largest sector of the Canadian economy, which is real estate. The only cure is if they get rid of him.

The Real Tony's picture

The Chinese and Poloz were the entire cause of the real estate bubble in Canada.

Davidduke2000's picture

Canada has been in a recession since before baby justin, of course he will bring a much steeper recession on the brink of depression and will empty the coffers on muslim refugees, while he stays in his castle and let Rome burn.

Davidduke2000's picture

I am well hedged with gold and silver as well as Russian Roubles. 

Batman11's picture

 

The BIS tells its director Stephen Poloz he has done a crap job.

 Why didn't they tell him earlier?

This outfit is a joke.


The BIS Board of Directors1

Chairman: Jens Weidmann, Frankfurt am Main

Mark Carney, London
Agustín Carstens, Mexico City
Andreas Dombret, Frankfurt am Main
Mario Draghi, Frankfurt am Main
William C Dudley, New York
Ilan Goldfajn, Brasília
Stefan Ingves, Stockholm
Thomas Jordan, Zurich
Klaas Knot, Amsterdam
Haruhiko Kuroda, Tokyo
Anne Le Lorier, Paris
Fabio Panetta, Rome
Urijt R Patel, Mumbai
Stephen S Poloz, Ottawa - Dickhead
Jan Smets, Brussels
François Villeroy de Galhau, Paris
Ignazio Visco, Rome
Pierre Wunsch, Brussels
Janet L Yellen, Washington
Zhou Xiaochuan, Beijing

bustdrs's picture

Lol!
Singling out one of that list, in bold, as a dickhead, is funny,