Canada's economy is suddenly the envy of the world?

[perfoliate]

As claimed by this AP article: http://www.google.com/hostednews/ap/article/ALeqM5hM5MvpNJ2D2tMn8sVqk_qKObY8DwD9GF5JBO0

Here’s a portion of the article:

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’m assuming that most Canadian politicians embrace Keynesianism as well but is the Canadian economy only slightly more sound because Canada doesn’t have GSEs or as much debt accumulated due to reckless foreign interventionism?

[E_R_Olovetto]

There was no mortgage meltdown or subprime crisis in Canada.

I’m pretty sure that this is just factually incorrect. The crisis started to hit later but it is there. I believe Giant_Joe posted about it months ago.

[Giant_Joe]

I replied to this on another forum, using slightly harsher language than what I use here. But basically:

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.

We are are going to be facing it now. Just because we don’t call any of our no-money-down-don’t-have-to-prove-income home loans “subprime” doesn’t make it any better than subprime. We’re even worse off than the US was in this sense. They at least called a spade a spade. We call it sensible and “smarter than those stupid Americans”.

Garth Turner has been chronicling this just about every day as it unfolds. http://www.greaterfool.ca/ March and April were great for houses. As soon as banks started increasing mortgages rates about a month ago, sales started to collapse as listings went up. This is USA housing market 2007. No one before that saw the housing-crash-about-to-happen happening except those with an insight on how credit actually effects the economy.

[Solid_Choke]

The banks are stable because, in part, they’re more regulated.

In some ways Canadian banks are and have been less regulated than American banks. This is why they had no bank failures during the Great Depression.

[Giant_Joe]

This is true, Solid_Choke. In fact, a brief knowledge of the history of Canadian banking and American banking would lead anyone to conclude that Canada has had a freer market in banking than in the US when considering government regulation. I believe it has lead to less failure and systemic risk in the financial sector in Canada.

What has really been pushing the bubble up here recently is the CMHC’s recent expansion in the past decade and “emergency” low interest rates by the Bank of Canada when the US credit bubble burst.

The CMHC is (in a nutshell) government insurance for banks in case mortgages fail.

…

There are some really good posts on Garth’s blog. One of this links gives this:

http://guava.ca/indicators.html

Taking a good gander at the charts, I don’t think it can be denied that there has been some wicked bubbling of housing (in at least Toronto) in the past 3-4 years, at least. The US credit bust in lte 2008 was just a little bump in the road for housings meteoric rise here.

[Merlin]

I always thought it had something to do with the “zero inflation” policy of the Canadian Central Bank. Zero is still lower than “small but positive”. Throw in a modest growth economy, and one can see that, for Canada, a zero-inflation target translates into a 5% top increase in the money supply per anum.

[billott1]

The economy in Canada is like much better than that of those US hosers, you know eh?

[nirgrahamUK]

@Solid_Choke

In some ways Canadian banks are and have been less regulated than American banks. This is why they had no bank failures during the Great Depression.

Canadian banks didn’t fail because the Canadian government was politically committed to them not failing.

[Daniel_Hewitt]

The Canadian banks did get bailed out, albeit in a more stealthy and clever manner than their American counterparts.

http://krugman-in-wonderland.blogspot.com/2010/02/krugman-and-canadian-bacon.html

[Daniel_Hewitt]

Canada has its own housing bubble too. And it will burst soon.

http://globaleconomicanalysis.blogspot.com/2010/03/canadian-credit-bubble-in-pictures.html

http://globaleconomicanalysis.blogspot.com/2010/05/hosed-in-canada-housing-crash-is-given.html

http://globaleconomicanalysis.blogspot.com/2010/01/housing-bubble-comparison-us-uk-canada.html

http://globaleconomicanalysis.blogspot.com/2010/05/canadas-household-debt-reaches-record.html

[Giant_Joe]

Canadian banks didn’t fail because the Canadian government was politically committed to them not failing.

Can I get a link or some info about this? Thanks, nir.

The Canadian banks did get bailed out, albeit in a more stealthy and clever manner than their American counterparts.

Yes, right here: http://www.globalresearch.ca/index.php?context=va&aid=12007 (one of the links in the Krugman in Wonderland blog entry)

I’d tell this bit to more Canadians, but since we didn’t make a big fuss about it on the news, they’d think I’m crazy.

I always thought it had something to do with the “zero inflation” policy of the Canadian Central Bank. Zero is still lower than “small but positive”. Throw in a modest growth economy, and one can see that, for Canada, a zero-inflation target translates into a 5% top increase in the money supply per anum.

The policy was targeting between 0% to 2% annual price inflation. Gotta be on the upper side of it because of the worries of the “deflation spiral”. It was a “good” policy (good as far as central banking goes, I suppose) in that it pretty much shielded Canada from having a huge unsustainable bubble leading up to the dot-com crash. There was still a recession here, but the run up to it wasn’t as spectacual and the recession didn’t bite incredibly hard.

[Giant_Joe]

And from the horse’s mouth:

Canadian banks’ capital levels, and the quality of what they possess, has improved since December, the central bank said, while the risks posed by household balance sheets remain “roughly unchanged” even as households’ financial vulnerability to economic shocks is growing. The rising debt-to-income ratio among Canadians, which policy makers such as Bank of Canada Governor Mark Carney have been warning about for several months, also could pose a risk to banks and the economy as a whole, should borrowers default on their loans and force banks to hold back on extending credit.

Mark Carney is the chair of the central bank of Canada. Our “regulation” hasn’t shielded us from risk, nor did it prevent the creation of such risk.

from: http://www.bnn.ca/news/18432.html

[Marko]

The secret to success could lie in:

We are the beaver

[vostrostone]

I just don’t understand the mentality of people who want to put themselves in debt to own something that will be hard to sell fore a profit.

So just don’t do it. Buy what you can afford. Never mind 5% down payment, if you don’t have 50% of the price of the house you cant afford it, pick another one, or rent for goodness sake you will be way ahead and after the bubble bursts rents will go down.

As an ex pat I recently bought a house in Canada for my mother to live in and for us to visit occasionally. Great view, big property 30 min from downtown. Could not possibly afford the same in europe or even beaten down US.

Toronto too expensive, buy in Montreal. Or wait until you find something that meets your budget.

Why not be wise to do every thing that the US does even when you know it ends in disaster?

[nirgrahamUK]

Can I get a link or some info about this? Thanks, nir.

https://forum.freecapitalists.org/t/fractional-reserve-banking/4329/266