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Yeah, that's correct. On January 5, 2021, Bloomberg reported in a News Brief that:  Back in 2012, policy makers drove their main rate below zero to defend the krone’s peg to the euro. Since then, Danish homeowners have enjoyed continuous slides in borrowing costs. (and) ​The country with the longest history of negative central bank rates is offering homeowners 20-year loans at a fixed interest rate of zero. The Bloomberg brief goes on to explain that:

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Denmark has a so-called pass-through system in which mortgages are directly tied to the covered bonds used to fund the loans. Lenders act as brokers between borrowers and investors, generating income from fees, not interest rates. Borrowers get the coupon rate, though the effective cost is generally a bit higher because bonds rarely sell at par. ​(and) ​As rates have continued to sink, other banks in Denmark -- home to the world’s biggest mortgage-backed covered-bond market -- are joining Nordea. (and) Demand is there, Lisa Bergmann, chief housing economist at Nordea Kredit, said in a note. The bonds backing the mortgages are likely to price close to a record high, she said. (full brief here)

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Cost of Living Index PRICES IN CANADA ARE LOWER Consumer Prices in Canada are 24.02% lower than in Denmark (without rent) Consumer Prices Including Rent in Canada are 20.60% lower than in Denmark Rent Prices in Canada are 11.14% lower than in Denmark Restaurant Prices in Canada are 38.97% lower than in Denmark Groceries Prices in Canada are 6.69% lower than in Denmark Local Purchasing Power in Canada is 13.11% lower than in Denmark Source: Numbeo.com

But Commute Times are Greater

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"As a city develops, nothing is more important than maintaining mobility and housing affordability." Alain Bertaud

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A tweet from @JohnPasalis last week caught my attention; it included a chart (left) of the number of home sales the week before Christmas plotted over the last 10 years. The end of year swarm of sales by the FOMO 2.0 crowd is a 10 year record (maybe longer) of over 40% more than the highest of previous years recorded. Wow. I mashed up the chart with end of year data for average SF Detached Y/Y price increases and the Bank of Canada 10 year bond rate. It looks to me that as interest rates drop, the demand rises for physical assets. This can also been seen since the asset crash into March 2009 in my chart of SF Detached, Bitcoin and Gold. And if we look at the "Real" BoC Bank Rate chart which has been mostly negative since the 2009 crash, it becomes even more evident that the reach for yield comes at the expense of risk management. Although the Bank of Canada rejects the policy use of negative nominal rates (chart left), real negative rates continue to animate the FOMO crowd and force the weaker hands into lower consumption and higher savings to repair balance sheets. At the retail street level, the major banks all agree in their forecast statements (chart left) that 5 year fixed mortgage rates will remain well under 3% for at least the next two full years through 2022. These projections may not unfold as suggested; a 2020 Bank of England Staff Working Paper "Eight centuries of global real interest rates, wealth returns and broader real growth, and the ‘suprasecular’ decline, 1311–2018" concludes in part:

"The data here suggests that the “historically implied” safe asset provider long-term real rate stands at 1.56% for the year 2018, which would imply that against the backdrop of inflation targets at 2%, nominal advanced economy rates may no longer rise sustainably above 3.5%. Whatever the precise dominant driver – simply extrapolating such long-term historical trends suggests that negative real rates will not just soon constitute a “new normal” – they will continue to fall constantly. By the late 2020s, global short term real rates will have reached permanently negative territory. By the second half of this century, global long-term real rates will have followed."

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The Brookings Institution provides current World Data Lab projections indicating that there are four projected patterns of recoveries. ​Canada is projected to "recover" from the coronavirus perhaps in 2023 or 2024, and that Consumer Spending in North America is down nearly 1% Y/Y and is projected to continue dropping (charts left). Zero or positive growth in spending per capita. This group includes China, Egypt, Vietnam, Taiwan, Bangladesh, and most countries in sub-Saharan Africa. Fast recovery in spending per capita: recovery by 2021-2022. These “fast recovers” represent a wide mix of countries, including India, most of Europe, and much of Southeast Asia. Medium recovery in spending per capita: recovery by 2023-2024. This group includes large economies, such as the U.S., Canada, U.K., Australia, Brazil, and most of South America. Slow recovery in spending per capita: recovery completed after 2025. This group includes Mexico, most of the Middle East, and parts of sub-Saharan Africa. The drop in consumption affects employment (chart) especially in service related sectors which is where nearly 80% of Canadians earn their paycheques (Workforce Distribution chart left is from Statista.com). As noted on my Household Debt chart, "The widening spread between total household debt and household mortgages means we are borrowing even more to maintain lifestyle.​" But this trend requires positive cash flow which has been pinched for many Canadian households.

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​First up, here's an abbreviated list of some of the main arguments that "This time REALLY is different" by Carmen Reinhart and Kenneth Rogoff in their new  Bloomberg Markets interview of May 24, 2020 via Moneyweb. ​ This is an interview update of their 2009 history of financial crises "This Time Is Different: Eight Centuries of Financial Folly".

​CR: So pandemics are not new. But the policy response to pandemics that we’re seeing is definitely new. If you look at the year 1918, when deaths in the US during the Spanish influenza pandemic peaked at 675,000, real GDP that year grew 9%. So the dominant economic model at the time was war production. You really can’t use that experience as any template for this. That’s one difference.

It’s certainly different from prior pandemics in terms of the economy, the policy response, the shutdown... The reversal in capital flows in the four weeks ending in March matched the decline during the [2008-09] global financial crisis, which took a year. So the abruptness and the widespread shutdowns we had not seen before.

KR: Certainly the global nature of it is different and this highlights the speed. We have the first global recession crisis really since the Great Depression. 

The economic policy response has been massive and absolutely necessary... But certainly the aggressive crisis response reflects lessons learned in 2008.

CR: Let’s take monetary policy before the pandemic. US unemployment was at its lowest level since the 1960s. By most metrics the US was at or near full employment. It’s very possible that the path was toward rising interest rates. Clearly that has been completely replaced by a view that rates are zero now and that they’re going to stay low for a very long, long, indeterminate period of time, with a lot of liquidity support from the Federal Reserve. So that’s a big game changer, discounting futures.

What this does mean is that the market is really counting on a lot of rescues. The blanket coverage by the Fed is broad, and that is driving the market. And expectations are that we’re going to have this nice V-shaped recovery and life is going to return to normal as we knew it before the pandemic. And my own view is that neither of those are likely to be true. The recovery is unlikely to be V-shaped, and we’re unlikely to return to the pre-pandemic world. 

KR: It’s not just the people not working. What’s the efficiency of the people who are working? The monetary response has been done hand in hand with the Treasury. The market is banking on this V-shaped recovery. But a lot of the firms aren’t coming back. I think we’re going to see a lot of work for bankruptcy lawyers going across a lot of industries.

CR: There is talk on whether it’s going to be a W-shape if there’s a second wave and so on. That’s a very real possibility given past pandemics and if there’s no vaccine.

The shock has disrupted supply chains globally and trade big-time. The World Trade Organisation tells you trade can decline anywhere between 13% and 32%. I don’t think you just break and re-create supply chains at the drop of a hat. 

Another reason I think the V-shape story is dubious is that we’re all living in economies that have a hugely important service component. How do we know which retailers are going to come back? Which restaurants are going to come back? Cinemas? When this crisis began to morph from a medical problem into a financial crisis, then it was clear we were going to have more hysteresis, longer-lived effects.

KR: So we use a much more modest version of recovery. And still, with postwar financial crises before 2008-09, the average was four years, and for the Great Depression, 10 years. And there are many ways this feels more like the Great Depression.

And you want to talk about a negative productivity shock, too... There’s a lot of uncertainty, and it’s probably not in the pro-growth direction.

So there are going to be phenomenal frictions coming out of this wave of bankruptcies, defaults. It’s probably going to be, at best, a U-shaped recovery. And I don’t know how long it’s going to take us to get back to the 2019 per capita GDP. I would say, looking at it now, five years would seem like a good outcome out of this.

“If it drags on, the forces that are pulling the euro zone apart are going to grow stronger and stronger.”

CR: The problem in emerging markets goes beyond the poorest countries. For many emerging markets, we’ve also had a massive, massive oil shock. Nigeria, Ecuador, Colombia, Mexico—they’ve all been downgraded. So the hit to emerging markets is just very broad. Nigeria is in terrible shape. South Africa is in terrible shape. Turkey is in terrible shape. Ecuador already is in default status, as well as Argentina. These are big emerging markets. It’s going to be enormously costly.

For the G-20 initiative, I indeed hope it is the G-20 and not just the G-19. China needs to be on board with debt relief. That’s a big issue. The largest official creditor by far is China. If China is not fully on board on granting debt relief, then the initiative is going to offer little or no relief. If the savings are just going to be used to repay debts to China, well, that would be a tragedy.

KR: The IMF at this point is all-in on trying to find a debt moratorium, recognizing there’s going to be restructuring in a lot of places. But I don’t think the US is by any means all-in, and a lot of the contracts of the private sector are governed under US law. And if the US government is not in, if China’s not in, it’s not really enough. 

KR: The financial markets think there’s no chance interest rates will go up. There is no chance inflation will go up. If they’re right, and if another shoe doesn’t drop, it’ll be fine. But we could have costs from this. We’re talking about economies shrinking by 25% to 30%. And those [declines] are just staggering compared to the debt burden costs, whatever they are. So certainly we would strongly endorse doing what governments are doing. But selling it as a free lunch, that’s stupefyingly naive.

CR: If you look back to 2008-09, nearly everybody had a banking crisis. But a couple of years later, the focus had moved from the banking problem to the debt problem... And if there’s a shakeout that involves concerns about Italy’s growth, then we could have a transition again from the focus on the Covid-19 crisis this time to a debt crisis. But Italy, as I said, is on a different scale than the peripheral countries that got into the biggest trouble in the last crisis. It potentially also envelops Spain. So I think that if you were to ask me about an advanced economy debt issue, I think that is where it is most at the forefront.

KR: We argued at the time that the right recipe was to involve write downs of the southern European debts. And I think that would have been cheap money in terms of restoring growth in the euro zone and would have [been] paid back. And we may be at that same juncture in another couple of years where you’re looking at just staggering austerity in Spain and Italy on top of a period of staggering hardship. Advanced countries have done this all the time—finding some sort of debt restructuring or writedown to give them fiscal space again, to support growth again. If the euro zone doesn’t find a way to deal with this, maybe eurobonds might be in the picture to try to indirectly provide support. Again, we’re going to see huge forces pulling apart the euro zone.

CR: It’s hard to say in China what is public and what is private, but corporates in China levered up significantly, expecting that they were going to continue to grow at double digits forever. That hasn’t materialised. There’s overcapacity in a lot of industries.

China came into this with inflation running over 5% because of the huge spike in pork prices. So I think initially that the PBOC [People’s Bank of China] has been somewhat constrained initially in doing their usual big credit stimulus by uncertainty over their inflation. I think that’s changing because of the collapse in oil price. So I do think we are going to see more stimulus from China.

KR: There will be a pretty sustained growth slowdown in China. We were on track for that anyway. But who can they export to? The rest of the world is going to be in recession. I think if they can average 1% growth the next two, three years, then that will look good. That’s not a bad prediction for China. And let’s remember, their population dynamic is completely changing. So 3% growth in that, with that Europeanising of their population dynamics, would not be bad at all. But there’s a big-picture question about their huge centralisation, which is clearly an advantage in dealing with the national crisis but maybe doesn’t provide the flexibility over the long term to get the dynamism that at least you’ve got in the US economy.

KR: So central banks all over the world are using the fiscal side of their balance sheet...  Monetary policy is essentially castrated by the zero bound.

CR: We really can’t look independently at central banks without also looking at the balance sheet, not just of the government, but the balance sheet of the private sector, which has a lot of contingent liabilities.

On the issue of negative interest rates, I do not share Ken’s views on that particular matter. When you have, as we do today, very fragmented markets, markets that became totally illiquid, I think the way I would deal with that would not be through making rates more negative, but by an approach closer to the one taken by the Fed, which is through a variety of facilities that provide directed credit. Sustained negative interest rates in Europe have led to a lot of bank disintermediation. And often bank disintermediation means that you end up with the less regulated, less desirable financial institutions.

KR: So the probability is, for the foreseeable future, we’ll have deflation. But at the end of this, I think we’re going to have experienced an extremely negative productivity shock with deglobalisation. In terms of growth and productivity, they will be lasting negative shocks, and demand may come back. And then you have the many forces that have led to very low inflation maybe going into reverse, either because of deglobalisation or because workers will strengthen their rights. The market sees essentially zero chance of ever having inflation again. And I think that’s very wrong.

CR: Some of the scars are on supply chains. I don’t think we’ll return to their precrisis normal. We’re going to see a lot of risk aversion. We’ll be more inward-looking, self-sufficient in medical supplies, self-sufficient in food. If you look at some of the legacies of the big crises, those have all seen fixed investment ratchet down and often stay down.

​READ THE FULL INTERVIEW TEXT "This time really is different" by Carmen Reinhart and Kenneth Rogoff in their new  Bloomberg Markets interview of May 24, 2020 via ​Moneyweb.

Canada GDP % Growth Annualized

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The Canadian economy advanced an annualized 0.3 percent on quarter in the three months to December 2019, below a downwardly revised 1.1 percent expansion in the previous period and matching market forecasts. It was the weakest growth rate since the second quarter of 2016, when the economy shrank 2 percent. (BEFORE THE FIRST COVID 19 CASE HIT)
Source: TradingEconomics.com

In his final official speech May 25, 2020, the Governor of the Bank of Canada ​Stephen Poloz said:

“Although a minority of observers worry that these extreme policies will create inflation someday, our dominant concern was with the downside risk and the possibility that deflation could emerge... Deflation interacts horribly with existing debt, the two main ingredients of depressions in the past... In effect, then, we were saying that the downside risks were sufficiently dire that there were no relevant trade-offs for monetary policy-makers to consider. Picture the pandemic creating a giant deflationary crater in the middle of the economy; it takes what looks like inflationary policies to offset it.” 

A panel of experts assembled by the C.D. Howe Institute and led by David Dodge, a former Bank of Canada governor, on May 25 said the central bank and government should “reinforce their commitment” to the two-per-cent target.

Poloz said the economy will “need significant monetary stimulus in the rebuilding stage,” but that “it is well understood that the bank’s ability to lend without limit must be backed up by the inflation target to anchor inflation expectations.”

Canadian 5 Year Fixed Rate Mortgage Rates 1951 = 05.46%​ +30yrs 1981 = 18.15% +30yrs 2011 = 05.19% April  2015 = 04.64%, a new low for 27 months MAY 13 2020 = 05.04% MAY 20 2020 = 04.94%

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"Eight centuries of global real interest rates, R-G [real wealth returns (R) and broader real growth (G)], and the ‘suprasecular’ decline, 1311–2018" Source Material
by Paul Schmelzing, January 2020. Bank of England Staff working Paper No. 845 (all 110 pages here)

The Introduction, in full:

The evolution of long-term real interest rates has in recent years attracted significant academic interest. Partly in the context of the “secular stagnation” debate and related contributions, which in different variants have advanced theories on the drivers behind a low rate environment, supposedly originating in the second half of the 20th century. Partly in the context of “inequality” and “wealth” debates, particularly stimulated by the contribution of Piketty (2014), and its peculiar view of long-term asset and wealth returns in their relation to broader income growth. Despite regular recourse to “history” from the proponents of such theories, it will be posited in this essay that both debates advance a misrepresentative view of long-run interest rate and wealth return trends – and only partly because they overwhelmingly omit archival and other historical factual evidence.

The discussion of longer-term trends in real rates is often confined to the second half of the 20th century, identifying the high inflation period of the 1970s and early 1980s as an inflection point triggering a multi-decade fall in real rates. And indeed, in most economists’ eyes, considering interest rate dynamics over the 20th century horizon – or even over the last 150 years – the reversal during the last quarter of the 1900s at first appears decisive.

Equally, the historical relation between real wealth returns (R) and broader real growth (G) has assumed a central role in the current debates on long-term inequality trends, culminating in the widely discussed contribution of Piketty (ibid.). The latter contended – on the basis of positing a “virtual stability of the pure return of capital over the very long-run” – that excess real capital returns over real growth rates would soon perpetuate an “endless inegalitarian spiral” (ibid, 206, 572).

From what are, at their core, return and capital cost debates, have sprung various related policy and academic contributions. For instance, more recently the spread between “Safe R” (the real capital cost for the “safe” sovereign debt issuer) and “G” (its respective real income growth rate) since 1950 has been documented, and highlighted as a key variable to assess public debt sustainability (Blanchard 2019).

This essay approaches these subjects from a historical perspective, arguing that the recourse to archives, printed primary sources, published secondary works, and assessed written evidence from the past, raises deeper problems for such recent debates. In what follows, I attempt to document for the first time the particular evolution of both GDP-weighted global and “safe asset provider” long-term sovereign real rates over a span of 707 years, relying on a collection of evidence from 14th century European municipal and imperial registers, over Habsburg, British, Dutch, crown documents, to (often ignored) earlier secondary sources, and to current Federal Reserve data.
 
First, the approach here modifies various of the empirical findings by what is perhaps the most comprehensive existing investigation on interest rate trends, the work of Homer and Sylla (1996, 2005). The latter do not take into account primary sources, and even the secondary source material is limited, once assessed in detail. Neither do they discuss real rate dynamics (bar four pages on the U.S. context), or attempt to build “GDP-weighted”, global series. In consequence, and for all the merits of their work, the timing and evolution of interest rate trends it suggests is partly inappropriate, partly inapplicable for current debates in both the historical and the economics literature.

One key empirical result analyzed here is that there is no evidence of a “virtual stability” of real capital returns, either expressed in R or “R-G” over the very long run: rather, – despite temporary stabilizations such as the period between 1550-1640, 1820-1850, or in fact 1950-1980 – global real rates have shown a persistent downward trend over the past five centuries, declining within a corridor of between -0.9 (safe asset provider basis) and -1.59 basis points (global basis) per annum, with the former displaying a continuous decline since the deep monetary crises of the late medieval “Bullion Famine”. This downward trend has persisted throughout the historical gold, silver, mixed bullion, and fiat monetary regimes, is visible across various asset classes, and long preceded the emergence of modern central banks. It appears not directly related to growth or demographic drivers, though capital accumulation trends may go some way in explaining the phenomenon. But whoever posits particular recent savings-investment dislocations in the context of an alleged “secular stagnation” needs to face the likelihood that such “imbalances” may have been a continuous key driver for five centuries.

Similarly, negative long-term real rates have steadily become more frequent since the 14th century, and I show that they affected around 20% of advanced economy GDP over time, a share that has historically risen by 1.2 basis points every year: once more, this suggests that deeply-entrenched trends are at work – the recent years are a mere “catch-up period” in this and a number of related aspects.

Together, I posit that the private and public assets covered in the following also go some way in enabling the reconstruction of total “nonhuman” wealth returns since the 14th century. Prior to the recording of robust public statistics, wills and tax assessments suggest that around one-third of private wealth is tied to public and private debt assets, with another third in real estate – in an environment where wealth-income ratios may plausibly have reached 150-250% of GDP. Aggregating such evidence, and constructing plausible long-run R-G series over the last 700 years, suggests that real returns on nonhuman wealth are equally downward trending over time. They are by no means “virtually stable”, a cornerstone of Piketty’s (2014) framework. In fact, if historical trends are extrapolated, R-G will soon reach permanently negative territory – a first since at least medieval times.

With regards to “secular stagnation” debates, I argue that in contrast to prevalent theories, global real rates are not mean-reverting within a certain corridor (Hamilton et al. 2016), and history does not suggest that they reach a steady-state value in the medium-term, even if that value is negative (Eggertsson, Mehrotra, and Robbins 2017, esp. 41). The “real safe rate” is not “normally fluctuating around the levels we see today” (Jorda et al. 2017, 4). In this sense, the decline of real returns across a variety of different asset classes since the 1980s in fact represents merely a return to long-term historical trends. All of this suggests that the “secular stagnation” narrative (Summers 2014; 2015; 2016; Rachel and Summers 2019), to the extent that it posits an aberration of longer-term dynamics over recent decades, appears fully misleading.

The data here suggests that the “historically implied” safe asset provider long-term real rate stands at 1.56% for the year 2018, which would imply that against the backdrop of inflation targets at 2%, nominal advanced economy rates may no longer rise sustainably above 3.5%. Whatever the precise dominant driver – simply extrapolating such long-term historical trends suggests that negative real rates will not just soon constitute a “new normal” – they will continue to fall constantly. By the late 2020s, global short term real rates will have reached permanently negative territory. By the second half of this century, global long-term real rates will have followed.

The standard deviation of the real rate – its “volatility” – meanwhile, has shown similar properties over the last 500 years: fluctuations in benchmark real rates are steadily declining, implying that rate levels are set to become both lower, and stickier. But downward-trending absolute levels, and declining volatilities have persisted against a backdrop of a secularly growing importance of public and monetary balance sheets. This would suggest that expansionary monetary and fiscal policy responses designed to raise real interest rates from current levels may at best have a cyclical effect in the longer-term context.

Finally, this paper is not naïve about the remaining limitations of the very long-term historical evidence. The robustness checks below cannot deflect from the fact that late medieval and early modern data can of course never be established with the same granularity as modern high-frequency statistics. One still has to rely on interpolations here, deal with the peculiarities of early modern finance, and acknowledge that the permanency of wars, disasters, and destitution since the times of medieval Condottieri and Landsknechte has irrecoverably destroyed not an insignificant share of the evidence ideally desired. But I suggest that whoever invokes “history” in the present debates needs to advance against the backdrop of these limitations.

This paper will proceed by first discussing empirical aspects across various assets and geographies, and elaborating on the technicalities of aggregating such evidence, before relating it to other economic and (geo-) political variables, and constructing main derivative series including R-G, the real rate standard deviation, and the long-run negative real rate frequency. This is followed by a discussion of robustness aspects, and, finally, by a closer focus on capital accumulation factors during the late 15th century.

The Suprasecular Rate Decline

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The Conclusion, in full:

This concludes the long-term survey. First, this paper has argued that – partly given their methodological shortcomings (such as the sole focus on secondary source, nominal, country-level, “lowest-issuer”, scattered rate evidence) – relying on existing narratives obscures historical interest rate dynamics: for one, there is across a multitude of assets no evidence of a “virtual stability” of real capital returns, and I have argued that with the approach here it is now at least able to approximate quantitatively actual trend falls over (sub-) periods and asset classes. This empirical basis, for one, suggests that it was not the Black Death that stands out as an inflection point (Epstein 2000, 61ff.), or the 13th and late 17th centuries as Homer and Sylla’s (1991, 556f.) semi-centennial sketch suggests. A far more relevant turning point – one that initiated a “slope” in real interest rates to which the post-Napoleonic period has once more returned – occurs in the late 15th century. That episode coincides with a sharp surge in capital accumulation trends, and a jump in plausible savings rates – an inflection which also clearly precedes institutional “revolutions” such as those proposed by North and Weingast (1989).

But the value of constructing the first multi-century, high-frequency GDP-weighted real rate dataset for both the global “safe asset provider”, and advanced economies on aggregate goes beyond purely empirical qualifications. In its applied dimension, I sought to suggest that a long-term reconstruction of real rate developments points towards key revisions concerning at least two major current debates directly based on – or deriving from – the narrative about long-term capital returns. First, my new data showed that long-term real rates – be it in the form of private debt, non-marketable loans, or the global sovereign “safe asset” – should always have been expected to hit “zero bounds” around the time of the late 20th and early 21st century, if put into long-term historical context. In fact, a meaningful – and growing – level of long-term real rates should have been expected to record negative levels. There is little unusual about the current low rate environment which the “secular stagnation” narrative attempts to display as an unusual aberration, linked to equally unusual trend-breaks in savings-investment balances, or productivity measures. To extent that such literature then posits particular policy remedies to address such alleged phenomena, it is found to be fully misleading: the trend fall in real rates has coincided with a steady longrun uptick in public fiscal activity; and it has persisted across a variety of monetary regimes: fiat- and non-fiat, with and without the existence of public monetary institutions.
 
Secondly, sovereign long-term real rates have been placed into context to other key components of “nonhuman wealth returns” over the (very) long run, including private debt, and real land returns, together with a suggestion that fixed income-linked wealth has historically assumed a meaningful share of private wealth. There is a very high probability, therefore, to suggest that “non-human wealth” returns have by no means been “virtually stable”, as posited by recent popular accounts (e.g. Piketty 2014, 206): only if business investments have both shown an extreme increase in real returns, and an extreme increase in their total wealth share, could the framework be saved. If compared to real income growth dynamics over the same timespan, R-G, we equally detect a downward trend across all assets covered in the above discussion.

There is no reason, therefore, to expect rates to “plateau”, to suggest that “the global neutral rate may settle at around 1% over the medium to long run”, or to proclaim that “forecasts that the real rate will remain stuck at or below zero appear unwarranted” as some have suggested (Hamilton et al. 2016, 663; Rachel and Smith 2017, 37). With regards to policy, very low real rates can be expected to become a permanent and protracted monetary policy problem – but my evidence still does not support those that see an eventual return to “normalized” levels however defined (for instance Eggertsson, Mehrotra, and Robbins 2017, 41, who contemplate a “nadir” in global real rates in the 2020s): the long-term historical data suggests that, whatever the ultimate driver, or combination of drivers, the forces responsible have been indifferent to monetary or political regimes; they have kept exercising their pull on interest rate levels irrespective of the existence of central banks, (de jure) usury laws, or permanently higher public expenditures. They persisted in what amounted to early modern patrician plutocracies, as well as in modern democratic environments, in periods of low-level feudal Condottieri battles, and in those of professional, mechanized mass warfare.

In the end, then, it was the contemporaries of Jacques Coeur and Konrad von Weinsberg – not those in the financial centres of the 21st century – who had every reason to sound dire predictions about an “endless inegalitarian spiral”. And it was the Welser in early 16th century Nuremberg, or the Strozzi of Florence in the same period, who could have filled their business diaries with reports on the unprecedented “secular stagnation” environment of their days. That they did not do so serves not necessarily to illustrate their lack of economic-theoretical acumen: it should rather put doubt on the meaningfulness of some of today’s concepts.

Schmelzing on Bonds, Why Investors Face Years of Losses
January 10, 2017

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While we wait for the July Canadian housing data to trickle out, let's return to Japan and their housing price experience after nearly 20 years of ZIRP and NIRP. I have posted charts about Japan since 2012 to illustrate the folly of global central banks and their monetary policies of instituting ZIRP & NIRP to stimulate inflation > consumption > production, the by-product of which, has been the manic search for yields as the underlying asset class values became stretched to perfection under pressure from the FOMO crowd. Instead of using fiscal policy which requires long term planning and socially cohesive agreements directed towards production and well being, the quarterly knob twiddling monetary policy has in part, along with the rise of a digitized global financial network, unleashed "megabyte" money laundering which the UNODC  estimates at 2-5% of global GDP per year. It has also crushed the incentive to save for a future funding of investment into productive assets.   The Household Saving Rate in Canada has decreased to 1.1% in the first quarter of 2019. ​​

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​Commodity Super Cycle - 10 Years into the Bear

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Here is a chart I published in a 2012 post "What Do You Do During a Housing Bust". The answer is "save". ​ If the CRB chart above has correctly identified a cyclical swing between bull and bear commodity production, then we should expect another "lost decade" of balance sheet repair especially in the over-speculated and now depreciating housing asset markets of Canada.

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CLICK CHART TO ENLARGE CLICK CHART TO ENLARGE ​Full CMHC 33 page 3Q 2019 PDF Report Here.​

​CMHC launched a new report earlier this week that will focus on mortgage market trends in Canada on a quarterly basis. This first report entitled "Mortgage Market Slowing & Share of Uninsured Mortgages Increasing" indeed highlights 2 major trends in place: Since the 2016-2017 peak of the FOMO frenzy that pushed housing prices in the hot Canadian markets to the most un-affordable global levels (Demographia), uninsured mortgage growth has grown more than three times that of insured mortgage growth. Since the late 1980's after fixed mortgage rates peaked at over 20% per year in 1981, the rate of GROWTH in mortgage creation in Canada has plunged to less than 5% Y/Y now even though nominal mortgage rates have been boot stomped via NIRP and ZIRP. #1 above suggests that housing unaffordability continues to grow as fewer potential buyers can qualify for a high ratio debt to equity insured mortgage. ​#2 suggests that reducing mortgage rates by 75% over the last thirty-plus years has led to debt revulsion as identified in my Household Debt chart which shows a peak and flattening since the hot market price peaks of 2017​

...History has shown that it takes a “long, long” time to restore household balance sheets, a situation that will be all that more difficult with trade and business spending hampered...
David Tulk, International Portfolio Manager for Fidelity Investment Canada, March 2019​

...The nation may already be in recession after growing at an annualized pace of just 0.4 per cent in the fourth quarter (2018) and a pretty “soggy” start to the year (2019)...
David Wolf, Asset Allocations for Fidelity Investment and Former adviser to the Bank of Canada

...Canada’s households are clearly more stretched in terms of debt and spending than their American counterparts... There’s just no latent capacity to spend or to buffer a shock in Canada... They just have less room for error, less room to cushion any kind of hit with spending, before they would actually fall into outright dissavings...
​Eric Lascelles, chief economist at RBC Global Asset Management Inc

Source of Quotes above from Financial Post.com June 2019

Meanwhile David Rosenberg May 2019
The investor class is heading towards liquidity
in the form of U.S. Treasuries and the USD

The Bank of Canada acknowledged that our current economic slowdown is now “more pronounced and widespread” than it had previously forecast.

Global economic momentum is slowing.

Our economic slowdown has been sharper than expected.

Housing and consumption have slowed, and business investment and exports haven’t picked up the slack as the BoC had hoped.

Inflation expectations have been lowered.

Uncertainty is increasing.

Our output gap is widening because debt is choking off growth, and that is a powerful, long-term headwind, which will continue to exert itself long after global trade networks have been re-established.

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​Why The Stock Market Is Heading For Disaster
In this presentation, Clarity Financial's economic analyst Jesse Colombo explains why the U.S. stock market is experiencing a dangerous bubble that is going to burst violently and cause serious damage to the underlying economy. Published on Oct 11, 2018

Trump Is Completely Misguided On Interest Rates

If the Fed or other central bank voluntarily abandons further credit expansion (most commonly by raising interest rates), the credit and asset bubble will experience a deflationary bust. Deflationary episodes entail credit busts, falling consumer prices, bear markets in stocks and housing prices, and falling wages. If the central bank decides to never put an end to the credit expansion (for example, if the Fed never raised rates), however, the result would be a runaway credit and asset bubble that leads to a severe decrease in the value of the currency and high rates of inflation. The latter scenario is what would occur if President Trump got his way – hardly a desirable outcome for the economy. To summarize, the Fed is crazy – they’re crazy for creating such a large bubble in the first place via loose monetary policy, but not for raising interest rates and normalizing their monetary policy.  Jesse Colombo, Oct 17, 2018 ​

​Market Bear Hussman Says Stocks Could Lose $20 Trillion

To state the obvious, bull markets do not last forever, and inevitably are followed by bear markets. Likewise, economic expansions also must end at some point, followed by recessions, and recessions typically are accompanied by bear markets. John Hussman, Oct 15, 2018 

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​My fantasy Plunge-O-Meter for September 2018 is showing a potential 51% average drop for Canadian housing prices for the 6 biggest markets in Canada if buyers go on strike.

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​There's trouble ahead in the global housing market
Source: Business Insider July 2018 

Toronto: Prices clearly peaked in early 2017. Prices are now down 3% vs last year. (Toronto SF Detached are down 17% from the peak. See the Sept 30, 2018 Plunge-O-Meter)

Syndey: Compared to last year, prices are now down 5% and supply has ballooned 22%.

Stockholm & Vancouver: Over a recent 6-month period, prices in the luxury property market fell 9% and 7.6%, respectively.

New York City: In Q1 2018, prices were down 8% YoY and sales were down 25%. NYC's luxury properties fared even worse.

San Francisco: After hitting a record price high in January, the city has seen a rare spring decline in prices, while rents across the SF Bay Area are starting to "cool off"

Bond King Gundlach predicts yields
much higher before this move ends

"If you look at the charts and you look at the way the market's behaving and you think about the trends that are underneath the bond market, it wouldn't be surprising at all to see the 30-year [yield] go to 4 percent before this move of the breakout above 3.25 percent is over," he said on "Halftime Report" Thursday. CNBC, Oct 11, 2018

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Our Future is filled with Dumb Canadians Angus Reid July 2018 31% cannot afford for their kids to participate in after-school sports or music programs 41% haven’t been able to save any money for their children’s post-secondary education 45% say they could not afford to pay for a tutor if their child was failing at school ​​The public has been goosed into historically high leveraged balanced sheets that looked ok at the peak of Canadian housing prices in 2017 but now a year later, with interest rates and CPI rising (3% CPI at July 2018), and animal spirits fractured by Trump's war on our imports into the U.S., lenders are now purging out the marginal from the credit worthy. Our zeal for consumption is in the cooler. ​

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Half of Canadian jobs will be impacted by automation in next 10 years

​"...a growing demand for “human skills” will be more crucial across job sectors. In particular, critical thinking, coordination, social perceptiveness, active listening and complex problem solving — described in the report as “human skills” — were identified as being key characteristics Canadians should develop to prepare for changes to the workforce." Global News March 2018
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What is the link between education and earnings?​
Conference Board of Canada March 2013

"Canadians with a university degree earned $165 for every $100 earned by Canadian high school graduates. Those with a college degree earned $110 for every $100 earned by high school graduates, and those who did not graduate from high school earned only $80 for every $100 earned by high school graduates... The relatively lower financial returns on university education in Norway and Canada may be due to the dominance of their energy sectors, which offer relatively high-paying jobs that do not require university educations."

"Between 1998 and 2010...students skills deteriorated somewhat. The proportion of students with high-level reading, math, and science skills dropped, while the proportion of students with low-level reading and math skills increased."

"Canada needs to improve workplace skills training and lifelong education. Canada’s adult literacy skills are mediocre, with a large proportion of adults lacking the literacy skills necessary to function in the workplace. Canada gets a “C” and ranks 10th out of 15 peer countries on the indicator measuring adult participation in job-related non-formal education."

"Canada also underperforms in the highest levels of skills attainment. Canada produces relatively few graduates with PhDs and graduates in math, science, computer science and engineering. More graduates with advance qualifications in these fields would enhance innovation and productivity growth—and ultimately ensure a high and sustainable quality of life for all Canadians."

"Canada’s middle-of-the-pack ranking on university completion may reflect the fact that the financial return from investing in university education in Canada is also middle-of-the-pack at best. Many other countries (and the individuals in those countries) get much better returns on their tertiary investments."

"While not reflected in the report card due to lack of data and measurability challenges, there is a “learning recognition gap” in Canada. What this means is that people may hold knowledge and skills that are not formally recognized (through academic credits or trade/organization/professional certification) by employers or credential-granting institutions." 

"An obvious example is immigrants whose foreign credentials are not recognized in Canada. The Alliance of Sector Councils stated that “every Canadian is affected by inefficient recognition. Canadians across the country are short of doctors and other health care workers, while thousands of highly educated newcomer health care workers are not allowed to provide the services that so many Canadians want. People with prior learning gained through work and training are similarly hindered by a lack of learning recognition, as are those who transfer between post-secondary institutions or, in the case of licensed occupations, between provinces."
​

Is Canada’s workforce sufficiently skilled?
Conference Board of Canada June 2014

No. Given that Canada is a leader on post-secondary educational attainment, one might reasonably expect that the country would also be a leader on adult skills. Yet Canada and most provinces do relatively poorly on adult literacy, numeracy, and problem-solving skills, earning mainly “C” and “D” grades.

What accounts for Canada’s poor performance on adult skills? One reason is that literacy and numeracy skills are not “fixed” forever—individuals can lose skills after they leave school, through lack of use.11 The longer someone has been out of the formal education system, the more impact other factors will have on their proficiency, such as their work and social environment. On average, the younger cohort, aged 16–24, have higher literacy scores than adults aged 45–65, and these results hold no matter what level of education the person has.12 In the absence of continuing education or workplace training, it appears likely that, on average, the skills of Canada’s workers diminish over time.

The country’s grades on adult skills, however, are weak and have deteriorated over the past decade. Canada’s other weaknesses are its low numbers of students graduating with PhDs and with degrees in science, math, computer science, and engineering.

China Might Beat The US in Artificial Intelligence
Eric Schmidt November 2017
"LET THEM IN"