You’ve completely voiced out what I have on mind. Big thumbs up!

“If you lower my costs by 5% for 5 years, but raise the cost of buying a house by hundreds of thousands of dollars, I’m not really saving money.”

LOANS CREATE DEPOSITS
The money for ‘mortgages’ is created out of thin air by the banks themselves–see Money Creation in the Modern Economy (Bank of England, 2014)–which creates asset inflation.

Economists such as Richard Werner and Steve Keen have recommended restricting the use of bank credit for asset purchases.

If you look back, the Fed did have enough firepower in 2008/2009. They could have printed much more to allow the govt to issue a much larger stimulus. Obama chose not to go there, and instead allow a crash.

There is no difference between any of the parties on this issue. No party would have put forward an austerity budget right now.

We are seeing the same thing across the Western world.

Anybody who was surprised by this budget hasn’t been paying attention.

Monetary policy is a blunt tool. Though low rates over the past 20 years have created asset price inflation, especially in real estate; otherwise, we’ve been fighting deflation and lack of growth. Governments are seeing us save too much. When we borrow, we sink that money into real estate – we’re not spending in a way that yields enough velocity. That’s why rates are low, and of course they’ll stay low, especially while unemployment is still so high. Again – that’s trite, old-school stuff. Central banks care about inflation (CPI) and unemployment. Real estate prices are not in their mandate.

Right now, governments across the western world are trying to spend their way to growth in a pandemic environment where allowing further deflation would be catastrophic. Governments are spending to push us to spend.

Yes, I agree that house prices are too high. But government decisions – at federal, provincial and municipal levels – on various issues, including taxation, immigration, and zoning – have resulted in this. If governments have an appetite to change this, they can. Central banks don’t need to get involved. But governments don’t have that appetite right now. As they’ve shown with the federal budget – real estate is the last thing on their minds. They are fighting deflation otherwise and will not risk anything right now that could open the door to another crash, and more unemplyment. This is not just a Canadian thing.

Of course some say that we won’t see growth in the Western world until we get some deflation to clear debts. But honestly – that’s a really Austrian way of looking at things…… We’re in Keynes land now, for better or for worse.

Really Smaug
Are you bringing laser eyes over to Better Dwelling. Lindy effect back over to Twitter 😂

The GoC owns the BoC, and together the are the monopoly producer of debt and currency denominated in Canadian dollars. If you’re a monopoly producer, that means you set the price of what you produce. This is the case with every sovereign floating exchange rate currency issuer. And you can see that in motion when the BoC does buys debt at *non-competitive* bids from the GoC. Look up the article ‘The “Bank” at the Bank of Canada’ by a BoC analyst. It says explicitly that the BoC can provide CAD on demand and without limit. That’s just how the system works.

Canada has no need for private bond holders. Private bond holders actually need the Canadian government, because it is absolutely risk free money (all GoC debts are private assets by definition), because Canada will always be able to make payments, as the BoC analyst notes.

Every metric used to measure housing (price/income, price/rent) is far worse in Canada today than it was in the US in 2006. Also, interest rates are much lower today than they were in 2006 America, meaning the BoC has considerably less cushion room available than did the Federal Reserve in 2006. And as history shows us, even the Fed didn’t have enough firepower to stop the carnage.

I’m not making a prediction for an imminent crash. This bubble has been growing for 20 years. It may grow for another 20. The longer something lasts, the longer something is likely to last (Google “Lindy effect”). But that doesn’t mean its sustainable.

Because Canada’s debt is viewed in totality. Some debt is owed to BoC. Some is owed to private bond holders. And Canada’s debt is traded on international markets. The only thing that makes GoC bonds worth anything is the government’s ability to raise taxes to make good on its debt. There is simply no separating the debt held by BoC and the debt held by anyone else. Were the government to come out and state that “we never have to pay this debt back because it’s held by the BoC”, the crisis in confidence in our currency would be immediate and devastating. Such an intent would indicate that the government believes there is no limit on money printing, which itself would lead to a devastating debasement of the currency. That’s why the BoC has been so clear that “we are not giving the government a blank cheque; they will pay interest on this debt and make good on repayment when it matures.” To do otherwise would be an admission that the CAD is now useless monopoly money.

This is the problem. I’ve been waiting years for some sort of correction or return to some semblance of regular market principles in Canadian Housing. Low rates for too long have distorted the market for too long. I can’t help but think that the Pandemic was the perfect screen for a wise government to allow the correction to take place while softening it with Pandemic-related initiatives. Lots of options to do this.

Instead, GoC and BoC engaged in massive QE. Some may have been needed to inject a boost during a time of need….but the level to which it occurred is unconscionable. It’s to the point where I wonder if our leaders have been secretly launching Canada toward a brave new world of MMT….

Either way, housing unaffordability will exist for millenials and Gen-Zers for awhile to come.

I’ve voted Conservative, Liberal, Green and NDP in the past. I’m not tied to a party but always try to be practical and objective. So please take this to be without bias. Justin Trudeau is the poster-boy for all of the fall-out of the market distortion we are experiencing. Every time you drive by a “SOLD $$$ Over Asking” sign and curse in bitterness at the ridiculous state of Canadian Real Estate, and wonder who is stupid enough to screw regular Canadians worse than any leader in the past, remember the guy with the nice hair.