brockm
Active Member
You know, my fundamental point, that a lot of people seem to miss when I criticize the solvency of Canadian banks, is that we have a banking system -- not just in Canada, but worldwide -- which is wholly dependent on central banks for stability because of the nature of fractional reserve banking.
After the Great Depression, in which a total 5% of deposits were actually lost, the world shifted towards having governments backstop the financial industry and become intractably embroiled within the way the financial markets function.
In fact, government debt is one of the major vehicles of money creation and the overwhelming way in which international settlements are handled.
Governments have become dependent on cheap credit to finance their burgeoning debt. Consumers have become dependent on cheap credit to finance their spending habits. And thus, artificially pegged, low interest rates have come to be seen as absolutely essential to the economy as a whole.
The degrees to which liquidity risk even exists today in financial markets is fundamentally based on the relatively tiny fractions of capital that back all the transactions to begin with.
Real estate, in this case, is merely a vehicle for much of this created money. The excessive amount of it is distortionary and is sending the false signals to builders and everyone that consumers can afford higher and higher prices. Thus, incentivizing real estate investors to pile into the market.
Take away the punch bowl, by raising interest rates to even a neutral inflation level relative to CPI and this market would implode.
The rate of debt accumulation to income is absurd. It represents an ongoing and ever growing serious inflation risk to the economy writ large. It is sending the wrong signals to investors and it is sending the wrong signals to consumers.
It takes only back-of-paper-napkin math to see the crisis in the making. The OECD has underscored it. And our great hypocritical monetary overlord Mark Carney has been warning about it for two years.
I say hypocrite, because as Carney runs around warning Canadians to the dire risk of consumer debt, it is his monetary policy that supports the environment in which the accumulation of that debt is possible. He wants the low interest to stoke risk taking, investment, and shore up liquidity. But he wants that cheap money sloshing around to get used "responsibly" by everyone. Which is like telling people not to get fat.
After the Great Depression, in which a total 5% of deposits were actually lost, the world shifted towards having governments backstop the financial industry and become intractably embroiled within the way the financial markets function.
In fact, government debt is one of the major vehicles of money creation and the overwhelming way in which international settlements are handled.
Governments have become dependent on cheap credit to finance their burgeoning debt. Consumers have become dependent on cheap credit to finance their spending habits. And thus, artificially pegged, low interest rates have come to be seen as absolutely essential to the economy as a whole.
The degrees to which liquidity risk even exists today in financial markets is fundamentally based on the relatively tiny fractions of capital that back all the transactions to begin with.
Real estate, in this case, is merely a vehicle for much of this created money. The excessive amount of it is distortionary and is sending the false signals to builders and everyone that consumers can afford higher and higher prices. Thus, incentivizing real estate investors to pile into the market.
Take away the punch bowl, by raising interest rates to even a neutral inflation level relative to CPI and this market would implode.
The rate of debt accumulation to income is absurd. It represents an ongoing and ever growing serious inflation risk to the economy writ large. It is sending the wrong signals to investors and it is sending the wrong signals to consumers.
It takes only back-of-paper-napkin math to see the crisis in the making. The OECD has underscored it. And our great hypocritical monetary overlord Mark Carney has been warning about it for two years.
I say hypocrite, because as Carney runs around warning Canadians to the dire risk of consumer debt, it is his monetary policy that supports the environment in which the accumulation of that debt is possible. He wants the low interest to stoke risk taking, investment, and shore up liquidity. But he wants that cheap money sloshing around to get used "responsibly" by everyone. Which is like telling people not to get fat.
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