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Thread: Canada's economy is suddenly the envy of the world

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    Canada's economy is suddenly the envy of the world

    Canada's economy is suddenly the envy of the world
    Canada's economy is suddenly the envy of the world - Yahoo! Finance

    TORONTO (AP) -- Canada thinks it can teach the world a thing or two about dodging financial meltdowns.

    The 20 world leaders at an economic summit in Toronto next weekend will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered.

    World leaders have noticed: President Barack Obama says the U.S. should take note of Canada's banking system, and Britain's Treasury chief is looking to emulate the Ottawa way on cutting deficits.

    The land of a thousand stereotypes -- from Mounties and ice hockey to language wars and lousy weather -- is feeling entitled to do a bit of crowing as it hosts the G-20 summit of wealthy and developing nations.

    "We should be proud of the performance of our financial system during the crisis," said Finance Minister Jim Flaherty in an interview with The Associated Press.

    He recalled visiting China in 2007 and hearing suggestions "that the Canadian banks were perhaps boring and too risk-adverse. And when I was there two weeks ago some of my same counterparts were saying to me, 'You have a very solid, stable banking system in Canada,' and emphasizing that. There wasn't anything about being sufficiently risk-oriented."

    The banks are stable because, in part, they're more regulated. As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren't as leveraged as their U.S. or European peers.

    There was no mortgage meltdown or subprime crisis in Canada. Banks don't package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans.

    In Canada's concentrated banking system, five major banks dominate the market and regulators know each of the top bank executives personally.

    "Our banks were just better managed and we had better regulation," says former Prime Minister Paul Martin, the man credited with killing off a massive government deficit in the 1990s when he was finance minister, leading to 12 straight years of budget surpluses.

    "I was absolutely amazed at senior bankers in the United States and Europe who didn't know the extent of the problem or they didn't know that people in some far-flung division were doing these kinds of things. It's just beyond belief," he told the AP.

    The Conservative Party government of Stephen Harper that took over from Martin's Liberals in 2006 broadly stuck to his predecessor's approach, though he cut taxes and, when recession struck, pumped stimulus money into the economy, with the result that Canada again has a large deficit.

    But it is recovering from the recession faster than others, and although its deficit is currently at a record high, the International Monetary Fund expects Canada to be the only one of the seven major industrialized democracies to return to surplus by 2015.

    This month Canada became the first among them to raise interest rates since the global financial crisis began.

    George Osborne, Britain's Treasury chief, has vowed to follow Canada's example on deficit reduction.

    "They brought together the best brains both inside and outside government to carry out a fundamental reassessment of the role of the state," Osborne said in a speech.

    It's a remarkable turnaround from 1993, when the Liberals took office facing a $30 billion deficit. Moody's downgraded Canada's credit rating twice. About 36 percent of the government's revenue went toward servicing debt.

    "Our situation was dire. Canada was in a lot of trouble at that point," Martin said. "If we were going to preserve our health care and our education system we had to do it."

    As finance minister, he slashed spending. A weak currency and a booming U.S. economy also helped Martin balance the books. In the 1998 budget the government estimated that about 55 percent of the deficit reduction came from economic growth and 35 percent from spending cuts.

    "The rest of the world certainly thinks we're the model to follow," said Martin, who was prime minister from 2003 to 2006. "I've been asked by a lot of countries as to how to go about it."

    Don Drummond, Martin's budget chief at the time, says the U.S. and Europe won't have it that easy, because the economic climate was better in the late 1990s than it is now, with large trade gains and falling interest rates.

    "There's a lot to learn from Canada but their starting conditions are worse," he said. "Even though we were on the precipice of a crisis we weren't in as bad a shape as many of them are."
    “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all” -- Joan Robinson

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    “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all” -- Joan Robinson

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    Does this picture requires comments?
    Winter is coming.

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    tell me, when was the last time housing in the greater BC areas not over priced.
    Last edited by xinhui; 21 Jun 10, at 16:28.
    “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all” -- Joan Robinson

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    On average in property you will see %100 growth over a decade. Looks like Vancouver on average beat that but not by that much.

    The %100 growth over 10 years is pretty much how it works everywhere.

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    Im yet to be convinced of the REAL benefits to an economy gained from above average housing price growth.

    It makes housing unaffordable to people entering the work force and provides nothing to single house owners. Except of course the ability to borrow against the family home to purchase cars and boats etc. These loans need to be paid back and are only really taking money from the future to spend now.

    If you buy a house for 100k and ten years later sell it for 250k you still need a roof over your head and have to purchase another house in the inflated market.

    For those who say "Ive made 150K on my 100k investment" i would ask them if they borrowed to purchase that house and how much have they paid in interest and upkeep? 90% of house buyers borrow 75% of the value of a house.

    In melbourne, australia, housing prices have gone through the roof thanks to the idiot labor state government drawing a line around the city and preventing new land releases outside this line. Calling it the ''urban growth boundry' Fantastic, but in the same breath they declared melbourne's population was to double by 2050. Free market dictates that if you reduce supply, demand and prices go up. Brilliant.

    So can any of you guys tell me of any real benefits to the majority of the population that are delivered from increasing the cost of one of lifes basic requirements? (roof over head).

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    Quote Originally Posted by Gun Boat View Post
    For those who say "Ive made 150K on my 100k investment" i would ask them if they borrowed to purchase that house and how much have they paid in interest and upkeep? 90% of house buyers borrow 75% of the value of a house.

    In melbourne, australia, housing prices have gone through the roof thanks to the idiot labor state government drawing a line around the city and preventing new land releases outside this line. Calling it the ''urban growth boundry' Fantastic, but in the same breath they declared melbourne's population was to double by 2050. Free market dictates that if you reduce supply, demand and prices go up. Brilliant.

    So can any of you guys tell me of any real benefits to the majority of the population that are delivered from increasing the cost of one of lifes basic requirements? (roof over head).

    I've made over 100K on my apartment in West Footscray in 2 years. It has nothing to do with the government and all to do with demand. People would rather live 7km from the city in my flat over living in Werribee. For the "Urban Growth Boundary" do yourself a favour and have a drive out East. There are so many new estates getting built it's ridiculous. They also stagnate in growth for the simple reason that no one will buy your house when just down the block you can get a new build no one has lived in.

    The only reason that there is any shortage in Melbourne at all is population growth because there is so much building and they still can't keep up.


    As for borrowing, I borrowed %90 and all I pay is interest. I have no intention of paying principle for awhile as I'm after equity. I then bought a second place in Ballarat by releasing some of that equity and have not put a dime of my own money into the second purchase. Both of the rents cover all payments including upkeep. The trick is don't borrow more than is easily manageable, and interest rise could screw you. Both of mine where under $200,000 at time of purchase. Not anymore, the other nice thing is those cheap ones grow fastest as they are what people can afford by comparison. Should I sell up now I would walk away with almost $200,000 profit minus tax of course. This is in just two and a half years and with just two houses. Imagine what you would get with ten!!!


    My current project is going to be more tricky as I have to save a larger deposit as I'm in Perth. This one I intend to get a dump fix it and flog it off to pay down the other two to ensure their stability as well as buy a house in Vancouver upon my return home.

    The problem with a lot of people is they want the first house to be the dream house and in most cases that is not affordable. Make your house work for you not the other way around.
    Last edited by Repatriated Canuck; 21 Jun 10, at 13:32.

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    The so called C/conservatives are spending like drunk sailors. Of course the ubiquitous L/liberals(and the communistic NDP) are the primary drivers of this expenditure by leveraging monority govt satus of Harper regime to their policy advantage.

    Jim Flaherty has to be the worst Finance minister Canada has had to date, this even after adjusting for the fact that these are exraordinary times and after making all the spending concessions.

    Canada's sound banking system is a myth being perpetuated by failed bankers elsewhere to continue to the same old,same old, albeit in a different garb. However, I do not support Bank Tax being proposed by Europeans. It would only act as an insurance for risky behaviour of the banks, besides the cost of this tax would eventually be passed on to the consumer.



    The Canadian Banking Fallacy The Baseline Scenario

    As a serious financial reform debate heats up in the Senate, defenders of the new banking status quo in the United States today – more highly concentrated than before 2008, with six megabanks implicitly deemed “too big to fail” – often lead with the argument, “Canada has only five big banks and there was no crisis.” The implication is clear: We should embrace concentrated megabanks and even go further down the route; if the Canadians can do it safely, so can we.

    It is true that during 2008 four of all Canada’s major banks managed to earn a profit, all five were profitable in 2009, and none required an explicit taxpayer bailout. In fact, there were no bank collapses in Canada even during the Great Depression, and in recent years there have only been two small bank failures in the entire country.

    Advocates for a Canadian-type banking system argue this success is the outcome of industry structure and strong regulation. The CEOs of Canada’s five banks work literally within a few hundred meters of each other in downtown Toronto. This makes it easy to monitor banks. They also have smart-sounding requirements imposed by the government: if you take out a loan over 80% of a home’s value, then you must take out mortgage insurance. The banks were required to keep at least 7% tier one capital, and they had a leverage restriction so that total assets relative to equity (and capital) was limited.

    But is it really true that such constraints necessarily make banks safer, even in Canada?

    Despite supposedly tougher regulation and similar leverage limits on paper, Canadian banks were actually significantly more leveraged – and therefore more risky – than well-run American commercial banks. For example JP Morgan was 13 times leveraged at the end of 2008, and Wells Fargo was 11 times leveraged. Canada’s five largest banks averaged 19 times leveraged, with the largest bank, Royal Bank of Canada, 23 times leveraged. It is a similar story for tier one capital (with a higher number being safer): JP Morgan had 10.9% percent at end 2008 while Royal Bank of Canada had just 9% percent. JP Morgan and other US banks also typically had more tangible common equity – another measure of the buffer against losses – than did Canadian Banks.

    If Canadian banks were more leveraged and less capitalized, did something else make their assets safer? The answer is yes – guarantees provided by the government of Canada. Today over half of Canadian mortgages are effectively guaranteed by the government, with banks paying a low price to insure the mortgages. Virtually all mortgages where the loan to value ratio is greater than 80% are guaranteed indirectly or directly by the Canadian Mortgage and Housing Corporation (i.e., the government takes the risk of the riskiest assets – nice deal if you can get it). The system works well for banks; they originate mortgages, then pass on the risk to government agencies. The US, of course, had Fannie Mae and Freddie Mac, but lending standards slipped and those agencies could not resist a plunge into assets more risky than prime mortgages. Let’s see how long Canada resists that temptation.

    The other systemic strength of the Canadian system is camaraderie between the regulators, the Bank of Canada, and the individual banks. This oligopoly means banks can make profits in rough times – they can charge higher prices to customers and can raise funds more cheaply, in part due to the knowledge that no politician would dare bankrupt them. During the height of the crisis in February 2009, the CEO of Toronto Dominion Bank brazenly pitched investors: “Maybe not explicitly, but what are the chances that TD Bank is not going to be bailed out if it did something stupid?” In other words: don’t bother looking at how dumb or smart we are, the Canadian government is there to make sure creditors never lose a cent. With such ready access to taxpayer bailouts, Canadian banks need little capital, they naturally make large profit margins, and they can raise money even if they act badly.

    Proposing a Canadian-type model to create stability in the U.S. is, to be blunt, nonsense. We would need to merge our banks into even fewer banking giants, and then re-inflate Fannie Mae and Freddie Mac to guarantee some of the riskiest parts of the bank’s portfolios. With our handful of new “hyper megabanks”, we’d have to count on our political system to prevent our banks from going wild; Canada may be able to do this (in our view, the jury is still out), but what are the odds this would work in Washington? This would require an enormous leap of faith in our regulatory system immediately after it managed to fail repeatedly and spectacularly over thirty years (see 13 Bankers, out next week, for the awful details). Who can be confident our powerful corporate lobbies, hired politicians, and captured regulators can become so Canadian so soon?

    The stakes would be even greater with these mega banks. When such large banks collapse they can take down the finances of entire nations. We don’t need to look far to see how “Canadian-type systems” eventually fail. Britain’s largest bank, the Royal Bank of Scotland, grew to control assets equal to around 1.7 times British GDP before it spectacularly fell apart and required near complete nationalization in 2008-09. In Ireland the three largest banks’ assets combined reached roughly 2.5 times GDP before they collapsed. Today all the major Canadian banks have ambitious international expansion plans – let’s see how long their historically safe system survives the new hubris of its managers.

    There’s no doubt that during the coming months many people will advocate some form of a Canadian banking system in America. Our largest banks and their lobbyists on Capitol Hill will love the idea. For some desperate politicians it may become a miracle drug: a new “safer” system that will lend to homeowners and provide financing to Washington, while permitting politicians and regulators to avoid tough steps. Let’s hope this elixir doesn’t gain traction; smaller banks with a lot more capital – and able to fail when they act stupid – are what U.S. citizens and taxpayers really need.
    ROLLERCOASTER!)


    .
    Last edited by indus creed; 21 Jun 10, at 15:30.

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    Quote Originally Posted by Expat Canuck View Post
    I've made over 100K on my apartment in West Footscray in 2 years. It has nothing to do with the government and all to do with demand. People would rather live 7km from the city in my flat over living in Werribee. For the "Urban Growth Boundary" do yourself a favour and have a drive out East. There are so many new estates getting built it's ridiculous. They also stagnate in growth for the simple reason that no one will buy your house when just down the block you can get a new build no one has lived in.

    The only reason that there is any shortage in Melbourne at all is population growth because there is so much building and they still can't keep up.


    As for borrowing, I borrowed %90 and all I pay is interest. I have no intention of paying principle for awhile as I'm after equity. I then bought a second place in Ballarat by releasing some of that equity and have not put a dime of my own money into the second purchase. Both of the rents cover all payments including upkeep. The trick is don't borrow more than is easily manageable, and interest rise could screw you. Both of mine where under $200,000 at time of purchase. Not anymore, the other nice thing is those cheap ones grow fastest as they are what people can afford by comparison. Should I sell up now I would walk away with almost $200,000 profit minus tax of course. This is in just two and a half years and with just two houses. Imagine what you would get with ten!!!


    My current project is going to be more tricky as I have to save a larger deposit as I'm in Perth. This one I intend to get a dump fix it and flog it off to pay down the other two to ensure their stability as well as buy a house in Vancouver upon my return home.

    The problem with a lot of people is they want the first house to be the dream house and in most cases that is not affordable. Make your house work for you not the other way around.
    The reason you earnt so much on your inner city dwelling is because of the urban consolidation policy. Trying to force people to live in the city so the government can save on infrastructure. The policy would have worked except for the problem of inner city councils doing their best to prevent development at every turn.

    If you were to see both your properties you would no longer have a roof over your head. So you would need to buy back into the inflated market. After paying stamp duties and taxes I doubt you would have much money to show. And if you had of invested the same amount of money in the share market I would thing you would have more.

    And we are by no means not able to build enough houses. The construction industry is quiet bar those companies working on the ''education revolution'' projects (Im in the industry). There is enough slack in the building industry right now to easily keep pace with demand but there is no land available. Think of places like Caroline Springs, Pakenam, Cranbourne all massive new housing developments made available before labors boundry was put in place. No new estates of that size, the size we need, have been developed.

    I guaruntee you that the current inflation of housing prices is a direct result of the Labors urban growth boundry. And bar the few that have investment properties with their own house payed off no one will benefit. The chooks must come home to roost.

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    Well then, so far so good for me.

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    There is a huge housing bubble in Toronto right now. This is from just walking by different neighbourhoods and listening to my friends talking about the prices of different places. Let's just say that they would make sense if they were making New York salary, but they make much less. And the rental to purchase ratio is also out of whack. Once the bubble bursts, it's going to get bad.

    But at least we still have natural resources.

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    hehe, a nice little run.




    Canada's Dollar Drops From Three-Week High as Price of Crude Oil Retreats
    By Chris Fournier - Jul 14, 2010

    *

    Canada’s dollar fell from a three- week high versus its U.S. counterpart as crude oil dropped and traders squared positions before the nation’s central bank meets next week to determine interest rates.

    The currency was the third-best performer among the greenback’s 16 most-traded counterparts last week, rising 2.8 percent on speculation higher borrowing costs weren’t fully reflected in the exchange rate. The Canadian dollar also slid today as U.S. retail sales fell in June more than forecast.

    “Oil prices are a bit lower today, which isn’t helping matters any,” said David Watt, senior currency strategist in Toronto at Royal Bank of Canada, the nation’s biggest lender, speaking in a phone interview. “And to an extent, it’s the sad- sack U.S. economic numbers of late. When U.S. data is underperforming, it’s not doing Canada any favors.”

    The Canadian currency declined 0.3 percent to C$1.0326 per U.S. dollar at 11 a.m. in Toronto, from C$1.0300 yesterday, when it touched C$1.0277, the strongest level since June 23. One Canadian dollar buys 96.83 U.S. cents.

    Crude oil for August delivery slid 0.2 percent to $77.02 a barrel on the New York Mercantile Exchange.

    The Bank of Canada next meets July 20 to determine interest rates after a report showed last week that employers added 93,200 jobs in June, about five times as many as the median forecast in a Bloomberg News survey of economists. Policy makers lifted the target lending rate on June 1 to 0.5 percent and said future moves would depend on the pace of growth in Canada weighed against signs of an uneven global recovery.

    Interest-Rate View

    “After the employment numbers on Friday, I don’t think there’s any debate,” RBC’s Watt said. “People have pretty much accepted that the Bank of Canada is going to have to raise rates at least a couple more times later this year.”

    Retail sales in the U.S., Canada’s largest trading partner, fell in June for a second month, indicating the pace of economic recovery moderated heading into the second half of 2010.

    Purchases decreased a more-than-projected 0.5 percent following a 1.1 percent May drop, Commerce Department figures showed today in Washington. Excluding auto dealers, demand fell 0.1 percent, matching the median forecast of economists surveyed by Bloomberg News.

    “We are now getting into an area of consolidation ahead of next week’s Bank of Canada meeting,” Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Holdings Ltd., said by e-mail. “Look for a tighter range in the Canadian dollar for the short term after this recent run-up.”

    The 10-year government bond’s yield increased one basis point, or 0.01 percentage point, to 3.28 percent. The price of the 3.5 percent security maturing in June 2020 dropped 11 cents to C$101.85.

    The Bank of Canada will auction C$3 billion ($2.9 billion) in 10-year bonds today. Results will be available on the central bank’s Web site shortly after noon Ottawa time. Canada’s government bonds have lost investors 0.9 percent this month, according to a Bank of America Merrill Lynch index.

    To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net
    “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all” -- Joan Robinson

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