The "Sectoral Savings as a Percentage of Global GDP" chart suggests that households since the mid 1980's have been using up their savings to maintain lifestyle and since the start of ZIRP and NIRP in March of 2009, households with renewed zeal, have been moving cash out of their dwindling low interest savings accounts paired with record low borrowing costs to chase yields at risk.
Corporations since the mid-80's have amassed savings into record levels and after the smoke cleared in 2010, they resumed investment as well.
But in Canada as my Household Debt chart with overlays of GDP, Net Trade and Federal Direct Investment plots show, Canada has not been a net positive target for offshore investment money for the last 20 years. As we know the Alberta tar sands' appeal is troubled:
Carlos Murillo (Conference Board of Canada economist), predicts Canadian (oil sector) industry costs will jump by an average of 13 per cent per year between 2017 and 2021... the peak investment level was $62 billion in 2014... " The Canadian Press March 13, 2017
And the recency bias among households is working itself into heat exhaustion according to Bloomberg (May 8, 2017):
Expectations for Canada’s housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50 percent in records dating back to 2008... “Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos... The latest burst of housing momentum has led policy makers to question whether it’s being led by supply and demand or by speculation.
If one is willing to leverage up and buy a negative yielding asset while the attendant stakeholders from government to loan creators are lining up to take a piece of the action, sellers will simply show up and sell it to you. That's a sure thing, just like the Canadian real estate market is speculative 101.
ITEM: "Toronto Homeowners List Detached Homes For Sale At A Record Pace - Toronto homeowners are listing detached homes for sale at a rapid pace, with new listings soaring over 61% last month." BetterDwelling.com May 10, 2017
ITEM: China Commodity Crash Accelerates As Traders "Forced To Destock" ZeroHedge May 9, 2017
Imagine having to sell real estate in a falling Canadian market.
St. Germain - Sure Thing
Balanced Budget Bluster
Joe Oliver presented the delayed Government's budget yesterday and touted it as "balanced". All the fuss was done to lead off the Government's campaign into the upcoming October Federal Election by assuring voters of the incumbent's prowess as responsible managers.
Journalists coming out of the lockup were quick to make the point that the "balance" ie: slightly more revenue than expenditure, is a product of selling assets, reducing federal expenditures and delaying "promises" into the future.
To assuage our fears, the government will spend $7.5 million (The Tyee) of our tax-payer money beginning next month to encourage us to continue voting for the present management.
One problem that is never discussed in the mass media is the lack of understanding about how a modern national economy like Canada, which has the authority to issue and enforce the use of its own currency, actually works.
There are 3 sectors to the national economy in terms of income and expense:
And the simple balance sheet equation is that the net sum of the 3 sectors have to balance to zero, ie:
Net Public Sector+Net Private Sector+Net Foreign Trade Sector = 0
The result of this accounting reality is that:
Most people on the political right or left are programmed by their ideological beliefs and have never been presented with the above accounting reality.
Yesterday's heralding of the budget does nothing but further limit the Private Sector.
Because the current federal government has been methodically cutting its own spending since taking over in 2006, today, Canadians have fewer choices to maintain their lifestyle. They either have to continue to drain their savings or take on more debt, or find new earning sources (the search for yield).
Since the Pit of Gloom in 2009, the Feds have been on an ideological mission to "balance" the federal budget by ignoring the Negative Trade Balance and by adding to the Negative Private Sector Balance.
The following is an abstract of some of Cullen Roche's observations about how a modern national economy works with links to further reading. I originally posted this in June of 2012.
Why is the chart above a big idea?
The following is from PragCap.com edited by Cullen Roche, December 18, 2012 taken from research by Tanweer Akram of ING discussing the economics of Japan over the course of their continuing balance sheet recession.
Worried About a Canadian Housing Bust?
BMO study finds nearly 20% of Canadians surveyed didn’t save a dime in 2014
Financial Post April 7, 2015 via Canadian Press
A new survey of Canadians found almost 20% of respondents didn’t put aside a dime in 2014 and a further 40% felt they were not saving enough.
Net Private Sector (Savings less Investments)
plus Net Government (Taxes less Spending)
plus Net Trade (Imports less Exports)
(S-I) + (T-G) + (M-X) = 0
In terms of the private sector:
(S–I) = (G–T) + (X–M)
ie: The private sector balance is equal to the addition of the government and trade balances; or "... private sector saving is the source of net finance for the government deficit and the international capital account deficit." Source Material: monetaryrealism.com
- If society wants more private sector saving (which is the source of investment capital), then either the Federal government must run a bigger deficit or exports must increase.
- When the government runs a surplus, then the private sector must run a deficit unless exports are booming and make up the difference.
Well guess what folks... Canadian exports are not booming, there is a global slowdown in demand for commodities, finished products and services and a falling CA$ which is good for exporters has not yet materially changed the current account balance which remains in a deep funk since the Pit of Gloom in March 2009. The CA$ dropping is however affecting the private sector balance with increased costs on import prices and a rising cost of living for our consumer dominant society.
But the government also knows that their ideological policy of "balancing" the federal budget always sounds good in question period and in media sound bites because every tax payer has a visceral reaction to the notion of having to balance 'the budget" and this fear of "going broke" is a prelude to staging the coming federal election where we will hear that the federal "surplus" will be "spent" funding the most deserving lobbies and loyalists and that will energize the job creators.
Look at the chart again and notice the U.S. federal government surplus during the Clinton years of the late 1990's and the subsequent March 2009 crash and reversal back to federal deficit financing. The federal surplus led directly to the private sector deficit which caused weak hands to liquidate, repair balance sheets and build up savings again.
So Long Mr. Flaherty, nice timing on your exit. The new guy Joe Oliver cut his teeth with Merrill Lynch investment banking and probably also understands sectoral balances but finance ministers are hired on ideology not merit.
Jim Flaherty (1949-2014) died April 10, 2014 soon after his resignation.
Live at Wembley Arena, London 2012
Cullen Roche's research has shown that this is likely due to the lack of evidence showing direct connections between economic environments and consistency in prior cases of hyperinflation.
The widely held belief is that government debt and deficits (aka, “money printing”) lead to hyperinflation. But Cullen's research shows that hyperinflation is not merely the result of “money printing” or an expansion of the money supply and in fact tends to occur around very specific and severe exogenous economic circumstances which lead to an increase in the money supply ultimately leading to hyperinflation.
Hyperinflation is not merely high inflation or a collapse in confidence, but is actually due to severe exogenous shocks with very real and provable transmission mechanisms. Historically, these events tend to be:
- Collapse in productivity or lack of economic stability due to lack of productivity.
- Rampant government corruption.
- Loss of a war.
- Regime change or regime collapse.
- Ceding of monetary sovereignty generally via a pegged currency or foreign denominated debt.
History, Charts & Curated Readings
Balance Of Trade
Rent Or Buy