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.

24 thoughts on “Mark Carnage

  1. John, keep in mind that the U.S. is running deficits of $1.3T that is mostly added to GDP. Without this fabrication, I do not believe there is so much de-leveraging going on.

    And, as a matter of pure speculation, much of the lending going on right now [credit cards, autos, student loans] is sub-prime again. On the radio, all the “nothing-down” car loans are once again the rage [at least here in SoCal].

    Bankers will keep this same model until they can’t.

  2. I’m surprised that housing prices are sky rocketing in Canada. Last time I spoke with a Canadian banker I was told that 25% down-payments on homes were the rule and more was in the offing. They simply didn’t have all the froth in the housing market whereas we insisted on loaning money to people we knew couldn’t pay it back.

    • In Vancouver the banks were loaning enormous sums to mainland Chinese as long as they had 35% down. No proof of income was required. This recently stopped as the price of a tear down on the westside hit $1.8 mill; it’s since dropped to $1.4 as the banks shut the spigot and the number of fools have decreased. Those housea are having trouble attracting renters at $300 per month and the the lst year’s worth of “investors” are sure to be underwater for some time to come.

      • 300 a month is that for a flat of one room with cooking area and living are or a multi room detached house, In Melbourne Australia one bedroom flat rents at 270 a week and would sell for 350k. Welfare recipients have no chance of living with a weekly payment of 250.

        Even houses out in regional Australia rent out at 350 a week, so families have to live together and share houses and rooms.

        But we have to house all the foreign students to keep the education and real estate ponzi going.

  3. The following information is from a Statistics Canada credit market summary data table as of the end of June 2012: (The debt statistics for Canada up to the end of September 2012 will be released in about 2 weeks by Statistics Canada).

    Total debt in Canada as of the end of June 2012 (bottom line of the data table) was 5.1 Trillion $

    From the end of June 2011 to the end of June 2012 the total debt in Canada increased by 209 Billion $.

    For that 12 month period the total debt in Canada increased at a rate of 572 Million $ per day.

    http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122

  4. I give you credit for the witty heading, too true, but the fact is the BoE has been a disaster for generations. The fact that the Pound still trades ‘money good’ is merely testament to the collective ignorance & stupidity of the human race.

    It matters not one iota who sits in the chairman’s seat.

  5. Over the past several decades, pilfering from other people was made perfectly legal as well as perfectly acceptable [be it through governments’ taxing authority or monopoly capitalism’s price fixing/inflating]. As a matter of fact, the most accomplished thieves were/are still held-up in great esteem [as they always are]; viz., Michael Douglas in, “Wall Street.”

    If you accept this premise, why would it surprise anybody that the penultimate scam artists, the financial community, would not take advantage of this situation and elevate their art to its absolute limit? And why would anybody expect these sub-humans to cease this pathological behavior until they absolutely had to?

  6. Profound, funny and also tragic, this presentation about disintegration and global trade “in the system” is fairly fascinating, if only for the questions that it raises…namely, the scholar asks…

    “Who is really governing what?”
    “Is there any kind of government involved here at all?”

  7. Could the West deliver a serious monetary competition to the Eastern elites if they simply and in co-ordination de-pegged all the Western States from their respective legal tender laws? This, arguably, would prove more effective in this environment than any other top down arrangement connected to a “gold standard”, no?

  8. You know, Jim Willie, who without a single doubt is an absolutely genius, speculates that “the East” will produce some type of competing monopoly, if you will, albeit one that is “based on” or “anchored to” a “gold standard” – however defined…but in his famous documentary (“Trader – The Documentary”; https://thepiratebay.se/torrent/6381648/) billionaire businessman Paul Tudor Jones…. while speaking about bets he was placing on an upcoming Opec meeting…says something along the lines of…

    “given me a chance to bet on 8 people agreeing on something anyday and I’ll bet against them all agreeing with each other”

    So of like expecting however many EU States there are to go join liability with each other is kinda loony considering most people wouldn’t commit to doing this their own family members….

    Well…as the East sets up a new monopoly…why not just accept that monopolies are not sustainable? Do you want a free market in money? It’s common logic, of course, that one of the main consumer products that should be completely controlled by practically every government on Earth is…the one product that’s so ubiquitous…it’s used by almost everyone in the world on a daily or even hourly basis: money.

    So should this conventional policy that’s existed for over 100 years now be continued, considering these are unconventional times with the East planning it’s own monopoly?

    To be sure, I hold no expectation that private money would lead to a perfect world where there are no crises or problems, just a better world. Better not just in a strictly utilitarian sense but also in a moral sense, as people could store the fruits of their labor however they see fit and not be forced to submit to a tax (inflation) that is not explicitly levied and voted on.

    • The problem isn’t money, it’s the fact that people feel they are entitled to other people’s labor-value earned.

      Until this minor “glitch” is overcome, human beings will spend a great deal of their time and energy attempting to figure out new and improved methods of stealing from other people.

      • How do you compensate people with capital, who demand compensation from other people who want to use that capital, rather than earn and accumulate capital over their lifetime or over multiple family generations?

        Do you tax the top 1% of Capital owners 100%, thereby redistributing wealth that may have been accumulated historically by unethical or violent means?

        Is it just that this wealth may have been the result of land ownership granted after “successful” Roman conquest, i.e. The Soldier earned his land by carrying out orders. He performed his job and labour value?

        After 2000 years is it just that this wealth is appropriated and redistributed by the Government?

  9. 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.

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