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!

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. 

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,

Be_Optimistic's picture

I don't get it. 
First they lower rates so that every one can stock up on debt and spend lots to stimulate the economy.
Now they bitch that everyone has too much debt.  

Huh Reeeally's picture

But in our reality, we kept trudging across the tundra, mile after mile,

Really Mises? Seen any tundra in Vancouver or outside your Toronto office lately? WTF, most Canadians have never even seen tundra because we live so close to the 49th parallel.

And guess what? We don't have dog sleds or live in igloos either ya dumb F*ks. Writing stupid stereotypical bullsh*t like that suggests that the rest of the article is simply drivel.

Most homeowners know that houses are over-priced and due for a correction when rates go up, that's why people who doubled up in the last few years are selling and downsizing while others are locking in their fixed rate mortgage now. Much of the rise in prices is caused by poor political leadership - no surprise there - with height restrictions and so-called green zones and other policies that restrict development. People live where the jobs are, and what happens when population increases faster than new housing development? Price increases. D'uh! Immigration and low interest rates just amplify the effect.

bluskyes's picture

I don't know. I had a conversation yesterday with a former colleague of mine, and he's diving deep into real estate. He says it's only going up, and is scared to miss out.

There are real-estate investment bus tours that run to Brantford from Mississauga. Full of Chinese, and brown people ogling the $350K bargains - houses that could be had for $50K less than 20 years ago.

The Real Tony's picture

Suffice it to say Brampton, Ontario is the biggest bubble in Canada and the entire world maybe even the entire universe. The residents of Brampton are 98 percent punjab and indian heritage. You think the NINJA loans were bad many, many of the Bramptonites came here penniless and pool eight welfare cheques together, pay off someone to lie about all their credentials to obtain a mortgage and presto the biggest bubble in modern history of any type. Then they rent out the basement to illegal pakis or punjabs. Thus the world famous saying "The basements of Brampton".

Of course the root cause of everything related to residential real estate is the Chinese who would pay in excess of one trillion dollars for a detached house if the housing market didn't crash first. The non-Chinese morons in southern Ontario have adopted a "Chinky see, Chinky do" attitude but don't realize they're buying into a 100 percent pure ponzi scheme perpetrated by the Chinese just like back home in China. Everything the Chinese touch becomes a ponzi as they all do the exact same thing at the same time. They all buy at the same time and they all sell at the same time. When Justin Trudeau brings in the budget this March 22nd Canada will be as good as toast, everyone with money will pack up and leave in droves. Hint short the Canadian dollar before budget day.

robertocarlos's picture

Miss S. Cooper said the CDN would hit 50 cents. She is like me on predictions, she just got the timing wrong.

bluskyes's picture

"China’s “basic dictatorship” means they can turn their economy around on a dime"

Bullshit. Every number out of China is a lie. It only by chance, or circumstance that an official number would ever match reality. Just like in Kanadastan.

Killdo's picture

good name for the Country - when I got my citizenship about 10 years ago - at the ceremony (out of probably 120 people) I was the only white person apart from a Russian girl. Everyone else was from China or India/Pakistan

robertocarlos's picture

Pish 2018. That's like years from now.

Batman11's picture

"The BIS uses its credit-to-GDP analysis as an indicator and predictor of troubling economic waters."

Let's try it with the US before 2008.

This is the build up to 2008 that can be seen in the money supply (money = debt):

http://www.whichwayhome.com/skin/frontend/default/wwgcomcatalogarticles/images/articles/whichwayhomes/US-money-supply.jpg

Everything is reflected in the money supply.

The money supply is flat in the recession of the early 1990s.

Then it really starts to take off as the dot.com boom gets going which rapidly morphs into the US housing boom, courtesy of Alan Greenspan’s loose monetary policy.

When M3 gets closer to the vertical, the black swan is coming and you have an out of control credit bubble on your hands (money = debt).

The theory, which relies on understanding money and debt.

Irving Fisher produced the theory of debt deflation in the 1930s.

Hyman Minsky carried on with his work and came up with the “Financial instability Hypothesis” in 1974.

Steve Keen carried on with their work and spotted 2008 coming in 2005.

You can see what Steve Keen saw in the graph above, it’s impossible to miss when you know what you are looking for.

What were the BIS doing before 2008?

They were all off their nuts on Class A drugs

Batman11's picture

“…banks make their profits by taking in deposits and lending the funds out at a higher rate of interest” Paul Krugman, 2015.

No wonder you didn't see 2008 coming, you moron.

This is how it works.

The hidden secret of money.

Money = Debt

Money is created from loans and destroyed by the repayment of those loans.

https://goldsilver.com/hidden-secrets/episode-4/ 

From the BoE if you don’t believe it:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

If you paid off all the debt there would be no money.

Money and debt are opposite side of the same coin, matter and anti-matter.

The money supply reflects debt/credit bubbles.

We're sailing in a ship of fools.

 

 

ptemple's picture

SO ……
The BIS has come out and said Canada is the first country that’s going to head into a recession (“r” should be a “d”, of course).

But what’s so ludicrous, is that the BIS is the central bankster group that, since 1974, creates Canada’s money (out of nothing) and charges us compound interest for the privilege, thereby creating the problem. 80% of Canada’s debt is due to interest payments to these folks. (They could just "forgive" the debt—like that's going to happen ...)

And you can’t repay the debt (or interest at this point), because the money would disappear out of the economy, thereby creating instant depression through deflation. So, one way or the other, they've "got us."

It’s an amazing world we live in. As DT would say, “SAD!”

joe90's picture

BIS central bank of central banks "warns" that binging on credit is a bad idea. Credit created out of thin air by the banking system and deliberately pushed out to consumers. Lindberg warned of this. Crashes will be scientifically created.

shovelhead's picture

I learned about borrowing excessive amounts to purchase overpiced assets as an 11 year old paperboy, only I didn't know the correct words to describe it. This new kid was going to borrow from his Dad to buy this assholes way overpriced route. We all told him that the guy is making nowhere what he claimed he was and he'd be getting hosed. His Dad said he'd have to pay back $10 a week come hell or high water if he loaned him the money. Buyers hear what they want to hear.

The kid finally made more than tips in the last 2 weeks of the year he owned the route and sold it at a loss.

My brother wanted to sell me his route at a decent price but he wanted 5% interest. I asked my Dad how that worked and he laughed and said my brother was a lot smarter than he looked. He then showed me about compound interest and how it worked. I'm not sure I got it all except the bottom line...Fuck That.

Turns out my brother wasn't that smart. Charlie the mechanic who owned the garage down the street told him to do that. That guy turned every nickle he owned into a quarter, one way or another.

I waited and got a route for practically nothing from a guy who got on the baseball team and didn't want to be bothered by a route.

Value investing at it's finest.

Soph's picture

"But in our reality, we kept trudging across the tundra, mile after mile, pushing our credit-to-GDP gap up to 17.4%."

 

...anything borrowing Frank Zappa lyrics is worth the read. Thumbs up to the author!