Since late 2016 we have entered the age of disclosures! Fasten your mental safety belt and enjoy the ride! Heretic

Sunday, June 13, 2010

Why does Canadian gov...

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... steal less?  Less than other governments! Hope you will enjoy this refreshing point of view, and appologies for straying away from the main blog topics.  (feel free to click that box on the right, it's OK.  8-:) )

This discussion begun with Gavin Hewitt's BBC article

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Stan "Dozent" P. wrote:

You were right, the British papers are much more interesting and honest then North American, BUT...

Quote:
"That is one of the key conclusions of the paper. Since adopting the euro Greece, Ireland, Italy, Portugal and Spain have become increasingly uncompetitive. That and the slowdown in productivity is the heart of the crisis in the eurozone, rather than debt. Debt is a symptom."

No, It is not, pure and simple. Uncompetitiveness is a symptom. Debt is the result of the disease. The Euro is a facilitator, not the root cause. The cause of the cancer is rooted deeper, much deeper. It is true that without the conversion to Euro the massive theft ( or misallocation of capital  8-)  ) in Greece and Ireland would not have happened.  But a similar story has happened in USA and it is hard to blame it on adopting a dollar. Iceland is in the worse situation then Greece or Ireland yet it does NOT use the Euro! One can not blame it on the Mediterranean culture either. Iceland is a country of tough, hard working people yet it is screwed up just as well.

The root cause is that western elites and governments are indolent and corrupt to the bone. Give the mouse a piece of cheese, he will ask for a glass of milk.

20 years ago Argentina and Brasil went bankrupt. Their liabilities were about 100 Billion. Their popolation 100 million Who the heck lent 120 Billion to Iceland, a country of 300,000 people? Who lent 600 billion to Ireland, the country of 3 million? Greeks did what Bernie Madoff would do if he was a state! Cheated, falsified numbers, and paid bills with new phony money. Who the heck packaged all these Alabama Ninja mortgages into "AAA" securities. Who sold this crap to Icelandic banks? Where did they got the money to pay for it? When you look at it closely, Iceland was used to launder money and they got a commission for doing it.

The establishment, the governments and their paid journalists will invent one reason after another why this crisis happened and continues.  This will change nothing Thanks God our Canadian Prime Minister took a bribe of $300,000.  He thought it is BIG MONEY.  Thanks God another Prime Minister got involved in his friend Golf Course.  It cost taxpayers 0.5 million.  Thanks to these crooks, our government was paralyzed for 20 years and missed the greatest thieving opportunity of their lives.  Thank to them, we can calmly wait until this economic bomb explodes SOMEWHERE ELSE.  Explode it will! A few hundred crooks cannot stop 6 billion people who want to live decent lives.  Someone, somewhere, sometimes will default on their "obligations" and this whole house of cards will fall apart.

Stan P.
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11 comments :

mark said...

I enjoy the economics posts.

Holding people responsible for banks screw ups is wrong. It's the banks that make the loans and are willing to take on the risk of default. The extent of the borrowers risk is a collection agency and a lowered credit score. When the borrower is a bank on a savings account, then those who take on the savings account are the lenders and they should take on the risk of default.

I thought the Iceland controversy had to do with banks which couldn't cover the accounts held by foreigners. So it was the foreign people who saved money with the bank that lost out. Not the Icelandic people. And Icelandic debt is a matter of insurance on these foreign accounts.

I don't know why the Icelandic banks went under and were unable to meet their obligations to savers. Since they were offering savings accounts to foreigners, I think they were probably making mortgage loans to people outside of Iceland. So if it was bad loans, then those would be to foreigners. So Iceland may be punished for bad loans on the parts of banks that are faulty because of foreign and not local consumer culture.

Icelandic Insurance was supposed to cover only to the extent to which their was money in the insurance fund and no more. Here in Canada it's 100,000 CAD through CDIC. In the US it varies by the institution and is covered by the broke FDIC.

Ratings agencies gave a false sense of confidence in the housing market. Iceland, as far as I have read, never gave false promises about covering accounts fully. Canada says outright 100,000 and US banks outline their insurance levels. So it's not dishonesty. Foreigners got screwed because saving money beyond a insurance level is taking risk.

I'm happy that Stockwell Day is in charge of the budget and that him and the PM are former reform party fiscal conservatives. Canada dealt with high debt two decades ago and it'll handle it again.

Mark.

mark said...

My concern is for the local housing market.

http://www.cmhc-schl.gc.ca/odpub/esub/64163/64163_2010_M05.pdf?sid=ce93be19cf45477c94a0e6ca8dc4c422&fr=1276297633483

Page 40 has the Toronto Market. Lot of increase in listings, in the last two months, probably due to the HST. But the supply-demand side of things doesn't make sense. Same house sales (by quantity) in Jun 2009 as in April, March 2010. Housing listings are 1.5 times or so higher (by quantity) for April and March, as compared with June 2009. Average house price, however, is up 40-50 thousand. On a supply-demand scale that should make it less, not up.

Even worse, the CMHC is Canada's Freddie Fannie and their loans are at the highest now.

http://www.cmhc-schl.gc.ca/en/corp/about/anrecopl/upload/CMHC_AR2009.pdf

Page 98. In 2009, 472 million dollars of mortgages were insured by them.

http://www.bankofcanada.ca/pdf/bfs.pdf

Page s.55

Total residential mortgages out there are around 950 million. So that's about half the mortgage money out there is insured by CMHC and is less than 20% down. Goddamn scary.

Total houshold credit is at max, too, again, on page s55 of the bfs.pdf So it's all rising on debt. Income is ever so slightly increasing (http://www40.statcan.ca/l01/cst01/famil21a-eng.htm No data past 2007), but not in target with housing. And then you have the price of gas way up over the years and food and university costs so that's a lot less cash people have available to them to shove into housing. Whatever small increase in income there has been is offset by those expenses. So housing has increased in the absence of income, and is dependent upon everyone's willingness to take on debt.

Then there's the commercial real estate market which I haven't done much work into. I can't imagine business is as good now as it was in 2008, based on US private incomes now vs. then: http://www.bea.gov/newsreleases/national/pi/2010/pdf/pi0410.pdf

Table 2.

Then there is also the equities aren't as high as they used to be, so loss there. And yet housing is up.

Mark.

Stan (Heretic) said...

Hi Mark and welcome!

I am glad you enjoyed economic discussions, since it is hard to find people who are knowledgeable beyond knowing a "trusted" fund broker. Feel free to post more comments on some interesting topics if you see something.

Totally agree! Almost everyone I speak to hates the way most government, including Canadian (remember Crawford Affidavit story?) have assumed and guaranteed the banking liability way beyond the deposits' insurance. Neither the American gov nor European did not have to do that! Ostensibly for the purpose of "saving" the financial system. I think it is BS since the major world financial systems, for example in the US, Britain and Japan were already beyond repair even 2 years ago. The sooner these bankers' worthless paper assets and their confetti "currency" collapses the better, to let us clean up that mess and start anew. I can hardly wait.

Your assessment of Canadian property market is similar to mine. We also noticed (my wife was a Remax agent for 4 years) that the property valuation has already exceeded what the population can buy. Here in Kawartha region the top waterfront market has already declined and stalled, taking about 12 months on average to sell a high end.

All those optimistic prediction that cottages will be in great demand and going up in prices as soon as Baby Boomers retire, never materialized. In fact presently retiring baby boomers are probably selling their cottages not buying in order to be able to retire at all!

I work in Peterborough and most people here earn about 30k$ in the private sector. They can barely afford the lowest end of the housing market that is ~160k$ and only when two people per household work! We are witnessing the New North American Poverty drama! That's only our government that thinks we are all wealthy, that's why they just blew a billion on a diplomatic junket next week.

I think that as soon as mortgage rates start going up (if they will go up at all before the currency reform...) the housing market in Canada will probaly decline further. But everything else, including food and services will probably go up.

Regards,
Stan

mark said...

Hi Stan.

I've posted here before but infrequently. I've been following your blog for maybe three years now and am also a fan of Hyperlipid and Stephen's blog.

If you never studied economics in school, it is to your advantage. With the internet, "anyone can write anything" so there is a level of skepticism and accountability that is lacking in academia. Same, I don't find many people are knowledgeable beyond the usual grouptink/status quo/ their broker.

Some more odd thinking about the housing market comes from newpapers and analysts. Some say the expectation of rising interest rates has caused home buyers to shy away from the market.

But when people go boxing day shopping, they flood the malls.

They don't say, oh no, tomorrow the sale ends. Let's stay home because I'm deterred by upcoming price increases. They flood the malls and expectations of rising rates should mean people itching to buy. Personally, I think you should only buy when rates are high because of the supply demand side. Buy when rates are high and sell when they're low. But with these government interventionists in charge, they'll probably always be zero, even if there's hyperinflation lol.

The G20 stuff is going to be terrible. Waste of money and a hell of an inconvenience. The world has existed happily without this bunch of unelected servicemen for ages. The biggest drain on the economy is educated people who want these sorts respectable jobs. They do nothing and provide services no private citizen would spend their own money on or donate money to. They don't want to be janitors, even though a janitor actually provides necessary services. They would rather perform respectable, but completely useless jobs and I think one of the worst things about our culture is the respect for authority. People who get off on being in power, in the focus and attention of the media, of being highly regarded are drawn to these positions because of it.

Even the very idea of a nice home for the prime minister/president is a problem. The ultimate capitalist home provided for a president is adequate, not lavish, when funded by taxpayer dollars. At least in Canada there is hubbub about that fake lake being built for the G8. And there is criticism of renovation costs for the prime minister home. But middle class should be the aim for the perks of office.

The housing market sucks here. I'm going to live at home forever lol. The last thing I would do is spend ten years income or more on a home. It's unappealing and I value free time more than anything and there's nothing positive to me in paying off a house forever. Some people like the independence and I have a friend who just bought his own place since he has a nice paying engineering job. But I say living with your parents is more independent than living with a mortgage over your head for twenty years.

It's a shame for all the people who trusted in the government to provide for them and for the market to go up indefinitely. They were betrayed by that sentiment. I think the solution starts with providing few services and pensions to the new generations. I think you have to provide for the older ones because they have come to rely on it.

BTW, I have heard that the Canadian gov't (not sure which agency) monitors pension funds and if there is something funny by their standards, they can replace the fund managers with their own. I have also heard of similar preempting in the credit union market where credit unions are made to be bought up by others and the government facilitates the transfers. And also watches the books. I would be concerned with this in the States because the government there is inept. But the Canadian government is surprisingly not so bad. Just look at our auditor general and the MP spending. Or the Ombudsman. There is some competence there.

Mark.

Stan (Heretic) said...

Hi Mark,

Re: If you never studied economics in school, it is to your advantage. With the internet, "anyone can write anything" so there is a level of skepticism and accountability that is lacking in academia.

Totally agree! I used to be a scientist (solar system space physics) and I found that out too! People often criticize internet as the source of information and the medium of scientific exchange, pointing out that anybody can write falsehood. They forget that some people can write truth as well that cannot be said about the mainstream scienntific publication. Most often than not they seem to follow a scientific doctrine "du jour" to the exclusion of all other possibilities. The sad examples of science-gone-bad such as "cholesterol causes heart disease", "cold fusion is impossible" are but a tip of an iceberg.


Re: But middle class should be the aim for the perks of office.

Agree! Some sections of the middle class here (and in Europe, I have seen the same phenomenon) have diverged away from the old time-proven work ethics based on hard work and skills plus self-reliance oriented mindset. There is also a strong political shift left conincidental with the abandonment of the strong real work oriented focus.

They appear to see themselves as having some kind of natural "right" to government provided sinecure employment and various other priviledges associated with government jobs unrelated to the usefullness of the task they perform (I intentinally wrote "tasks" not "work"). I believe that the economy won't really turn a corner for the better until most such government synecures are eliminated through firing and department closures. Useful as a hind tit on a sow, as the Irish friend says. Incidentally the original Irish Celtic Tiger economic boom begun in 1989 when the prime minister (Haughy) fired 10,000 civil servants in one year and let 30,000 more public position to disappear thrugh early retirements over several years. Once he got all those spurious "employees" out of the way, Irish economy grew in that first year phenomenal! For every lost fake public "job" the private sector created 2 or 3 more of the real jobs! I know because I lived there and counted it myself.

[cont]

Stan (Heretic) said...

[cont]
Re: The housing market sucks here. I'm going to live at home forever lol.

Many people are opting out of that nonsensical rat race and this does not surprize me at all. We have a friend who lives with his parent, he is in his 40-ties and does free lance shoftware programming. I would proably have done the same in his shoes.

Another aspect of the Canadian situation is that vast part of the population (perhaps even the majority) have really low income and are poor! The term "working poor" is often used. I am talking about 20-30,000 CAN$ per year, that is typical in Peterborough. That may seem a lot by the third world standards but as we both know, that does not really allow them to buy a house and support a family. It is either - or.

I believe that this new Western Poverty phenomenon was engineered by the banks who rigged the currency system driving credit too cheap in the 1990-ties. Cheap credit caused industrial overinvestment (and tech bubble), which caused unprofitability which eventually forced the industrial relocation to China. At the same time the Western Banking system prevented a natural correction of that trend by preventing the Western currencies from falling against commodities and resources to the level where the decent profit margins would have been automatically restored.

Regards,
Stan

Stan (Heretic) said...

[Posted on behalf of Stan "Dozent" P.]

Dozent wrote:

...I also agree [with Mark] that Canadian government is more competent then American one but this is simply because replacement of competent specialist with patronage jobs haven't got this far.

However, to every person who envy us for "not so bad" government I would like to remind that our Prime Minister Mr. Brian Mulroney took a brown envelope with $300,000 in cash from Karl Heinz Schreiber, never paid taxes on it, denied for 15 years he ever did it, won 2 million dollars in a defamation suit against RCMP and the government then he got caught when Schreiber confessed and he admitted bribery in the Parliament.
Yet he has NEVER

- spent 1 minute in jail for corruption/bribery, perjury nor tax evasion.

- returned $2 million he had "won" in baseless libel suit by lying under oath in the court of law.

In my book this "beats" Richard Nixon and his Watergate.

Stan the Dozent

mark said...

Here is Meredith Whitney on the US banking system and housing. http://www.zerohedge.com/article/meredith-whitney-no-doubt-we-have-entered-double-dip-housing

I didn't think something so hard-science as physics could be screwy, but then cholesterol is supposed to be a hard science. Education is one of the worst places for science. Thank goodness the austerity that is now in Europe will hit and education research budgets will hopefully be slashed.

You can't have a control group in education. It's unethical. Unfortunately, because they have never done any science with a control group or any decent design, kids go to school in a system that if it was medication, you wouldn't take it because it's insufficiently tested.




lol @ tasks. I think it sums up what they do well. I would not like to go to work everyday and realize how useless my job is.


That's interesting about Ireland. To me government jobs are a problem in terms of inflation. Their employees can afford things and drive up costs, especially homes. And this goes for unions. When you have an artificially stable and overpaid job, you are more willing to take on debt knowing there will be cashflow. And you can drive up costs without debt because you have money. Unions screw the non-union man bigtime.

I think that without government/union employees you wouldn't have the current housing bubble in Canada. At least not in degree. You still have the Freddie/CMHC dynamic lending half of all residential mortgage dollars with less than 20% down.



20-30 k per year is not a living wage. Minimum wage is no higher in Toronto, but the living costs I suspect are more expensive. I don't know how people have families on these incomes. I surely couldn't manage in their shoes.

Stan wrote: I believe that this new Western Poverty phenomenon was engineered by the banks who rigged the currency system driving credit too cheap in the 1990-ties. Cheap credit caused industrial overinvestment (and tech bubble), which caused unprofitability which eventually forced the industrial relocation to China. At the same time the Western Banking system prevented a natural correction of that trend by preventing the Western currencies from falling against commodities and resources to the level where the decent profit margins would have been automatically restored.

How did they prevent the currencies from depreciating? Currency swaps and bond purchases?

If you took out an ever expanding money supply, I think the trade imbalances would have sorted themselves out. If we export all our money for imported goods, then we have no more money with which to import. China has to buy. You'd always have money growth anyway, but there was ridiculous growth heading into 2008.

But like you said in a post a long ago, if you want to help the domestic economy, then buy foreign.

Mark.

mark said...

Dozent wrote:
However, to every person who envy us for "not so bad" government I would like to remind that our Prime Minister Mr. Brian Mulroney took a brown envelope with $300,000 in cash from Karl Heinz Schreiber, never paid taxes on it, denied for 15 years he ever did it, won 2 million dollars in a defamation suit against RCMP and the government then he got caught when Schreiber confessed and he admitted bribery in the Parliament.
Yet he has NEVER

- spent 1 minute in jail for corruption/bribery, perjury nor tax evasion.

- returned $2 million he had "won" in baseless libel suit by lying under oath in the court of law.

In my book this "beats" Richard Nixon and his Watergate.






I don't know how he could get away with it. I'm planning on going to law school (waiting for the LSAT results next Monday) and maybe I'll learn there since I want to do criminal law later. But I'll probably find I learn little in law school and more about law on the internet.

I don't know what's to stop a prosecutor from taking up the case. It's a criminal matter. Even Martha Stewart got jail time for lying to police. And I think all you need is one prosecutor to decide to take it to court.

But they are hired through the government and could easily lose their jobs, (I imagine), with the right connections for dubious reasons.

I think the "our banking system is not so bad" helped lead to the current housing bubble in Canada. It was in this confident environment that the US 2008 bubble burst. It was under this confidence that the tech bubble burst. And it was under this environment that this recent May flash crash occurred. It's like confidence is a catalyst for this stuff. If everyone started believing our government is competent, then some of the skepticism and accountability vanishes and then the government is no longer competent.

Mark.

Stan (Heretic) said...

Re: "Education is one of the worst places for science."

True, because "progress in science rests entirely on a disagreement" (I think this is from K.Popper), while the education system, academia, politics and religion gravitates towards either consensus or authority. Both are detrimental for the progress and thus human survival. They probably do not teach at school that a scientific theory cannot be proven, only disproven!


Re: "How did they prevent the currencies from depreciating? Currency swaps and bond purchases?"

By several measures:

1) Keeping a separate virtual currency system to use by large institutions, banks and government, consisting of treasury bills (gov bonds in Europe) or similar papers. Those papers played the same role as normal bank notes for the individual peaople and small businesses. The amount of those paper quasi-money was allowed to expand and grow much larger than the normal bank notes (M1) fueling a huge production-less (and profit-less) corporate expansion without causing consumer inflation. It only fuelled high paper assets inflation which did not count for consumer inflation. Clever wasn't it?

2) By selling government, corporate bonds, and stock on the open market, and giving mortgages to everybody who breathed (may be even those who didn't), governments and their bankers were able to soak up excessive cash out of the hands of the population, reducing velocity of money. The theory of home refinancing causing consumer boom does not add up because the net result of mortgage is negative, it has to be. You either buy a house or buy something else mortgane notwidthstanding. The refi boom was only a local fluctuation. The fact that the consumption in the US declined in real term over the last 30-ty years can be seen on the charts

3) By raising taxes, the effect was taking money M1 out of circulation, redusing velocity of money on the market.

Factors 2 and 3 had in my opinion (this not a hard science nor proof) a major effect to mask inflationary trends, while factor 1 had a major effect in keeping the exchange rate too high for the US dollar. In order to participate in the lucrative paper assetts bubbles, foreign speculators had to sell their currency and buy dollar notes (M1) on the oper market, driving dollar up, and depressing their own currencies. That was a similar mechanism that kept British pound perpetually overvalued since early 1900-s. It didn't have a happy ending.

Stan

mark said...

Thanks Stan. Lot of connections I didn't put together and a history I need to become more familiar with. Definitely something I need to study more.

In education, not only do they do not teach that a theory can only be disproven, they never reference primary studies either. It's all third hand. And when they do a primary study, it's often surveys and questionnaires. One asked students who like a certain system of mathematics and of course, the results were positive. Those people who like Lucky Charms, have good things to say about it. Amazing they get grant money.

With regard to the inflation/deflation debate, I don't know what to think for the future. Merkel is verbally in favour of austerity at the moment. No one is happy with the former bailouts and that's helped given rise to the tea party people and anti-incumbent sentiment. Bernanke had the lowest number of senate votes ever for reconfirmation and if he finds the former Senate crowd has been replaced with the new crowd, he will face even harder times on his next confirmation. But everyone still wants a bailout for themselves and if you bail everyone out, then they can out stimulus that way and get away with it politically. Europe directly sees national debt problems and the effects of socialism to the point anyone can retire in their early 50s in Greece. So they are going to be less in favour of bailouts than here. Greece's problems are a European thing, in people's eyes, more than an American. Merkel's party also lost it's majority so she's treading lightly.

I think the problem for the Fed/Treasury/Obama axis is popular support isn't behind stimulus for the time being. At least when it's someone else (bankers) and not me (average joe) who is getting it. If housing sours, unemployment rises, and markets fall, then free money for all, man woman and child (no, not them because they don't vote lol) may be a viable option. It will kill the currency in the end, but the axis can do it. Have you gotten your HST credit? Something like that can be done in the States on a much grander scale.

The historical perspective on Britain as reserve currency at least offers a parallel to approach the current US problem. I don't have the timelines down, but since Bernanke is a student of the great depression, and the loss of British currency dominance was probably around the same time, and since he isn't a good student, he may imitate Britain's approach to destroying its currency, presuming since it was involved in America's emergence as the reserve, this time if America does what Britain did, it will have the same effect and even strengthen USD as reserve currency. lol.

Too bad I didn't get into economics sooner. I did my undergrad in Literature and a teaching degree and I didn't get too much out of either.

If Europe gets its finances in order, even with default, the Euro could replace the USD as reserve currency if they are seen to have discipline. Despite all the bullishness some people have on China, it's psychologically a lot different than going from the Pound to the dollar. I don't think it can be done with the current generations working. But then, Arnold got rid of all hard textbooks in schools and many people thought it was outrageous (not me). Maybe China can become a world currency despite shock, but I don't think it will happen in my lifetime since it's trust that makes fiat operate in the first place. I don't see that trust forming on any Chinese market performance from a psychological perspective. But changes happen fast.

But then, reserve currency will depend on corporations willingness to take on that currency. The general populace will always use its local currency and its the international market that needs to deal with exchange and a reserve. So it could happen. And then, I guess all you need is central banks buying Chinese treasuries and exchanging local currency for yuan and then you have a reserve.

Mark.