"Just when scientific progress was supposed to be ridding the world of myths and ghosts, famous people became larger than life.... Fame was found increasingly fascinating. And it seemed to happen by popular demand. The general spread of education didn't make people more resistant to fame. If anything, it made them less resistant."
-Clive James, Fame in the Twentieth Century
crawls hat-in-hand to Bay Street,
London is in trouble. The Bank of
England, having ceded its once impregnable reputation as banker to the world,
has cast its line for a Canadian to reign at the Bank of England.
Governor Mark Carney has
been lured to the post. He is leaving the Canada in the nick of time, but
you would never know it from the reaction. The Daily Telegraph felt
compelled to remind readers: "Mark Carney Isn't the Messiah," but it
looks as though the myth of central-banking infallibility has not suffered a
jot since September 29, 1998, when the Wall Street Journal published
James Grant's warning: "Alan Greenspan Isn't God." Americas
To start (and end) with, the Carney-led Bank of Canada has encumbered the country with a housing bubble that is starting to tumble. On April 29, 2012, Barrie McKenna anticipated just such a timely exit in the Toronto Globe and Mail. The "intensely image-conscious Mr. Carney" was already known to be "a candidate to head the Bank of England." McKenna was writing after Carney had publicly worried that "Canadian households as a whole are being overstretched, which creates risk for the economy." (Carney's hokum was addressed here before, on December, 16, 2010: See: "A Vote for Gold.")
"Oh, no you don't," McKenna as much as said when he wrote: "Mr. Carney has kept the pedal to the metal for years now with ultra-low interest rates, flooding the financial system with easy money. That has kept Canadians buying homes while markets elsewhere in the world faltered." In 2005, Federal Reserve Chairman Alan Greenspan engaged in a similar legacy-building exercise when he noticed there was some "froth" in the housing market.
A point of debate with Mr. McKenna is the word "falter." There may be exceptions (none come to mind), over the past few years, where a competent central bank stymied a budding housing bubble before it unleashed its horrors upon a population. (In which case, "falter" would fit.) Central banks have caused excesses in housing finance across six continents. Whether through incompetence or cowardliness they did nothing when the problems were manageable. Sometimes, they rooted for devastation when froth turned to bubble, after which, there is no return. The media's childish discussion of the heroics to be performed by Mark Carney at the Bank of England demonstrates a lack of integrity, responsibility, and intelligence
Housing excesses in
Hong Kong, Hanoi, Iceland
(again!), Melbourne, Nanning,
Toronto, and are in stages of bubble bursting.
To see what Carney is leaving behind, some comparisons are made to the Vancouver .
These are meant to show that United States
is heading into a housing catastrophe. The numbers are calculated differently
in each country so are only vaguely useful to judge the severity of Canadian
The home ownership rate in
has risen from 64% to 70%
over the past decade. In the Canada , the ownership rate peaked at 68%.
Remembering the skullduggery required to grasp the American Dream, Canadians
are in for some shocking disclosures. United
Canadian household-debt-to-household-income is 163%. The ratio peaked in the
at 160%. U.S.
Construction jobs in
have grown to a larger proportion of employment than was true of the
at its peak (which was 6%). According to Statistics Canada
(statcan.gc.ca): "Construction... employ[s] more than 1.2 million men and
women. In 2010, 7.1% of employed Canadians aged 15 and older worked in the
construction industry, an increase of 50.8% since 2000, when 806,900 people
worked in construction." (The population of United States Canada
is close to 35 million, about 1/9th the 314 million living in the .)
Adding construction to the financial sector (FIRE: finance, insurance, and real estate),
Canada is more
leveraged into mortgages and related paraphernalia than was the
at its housing peak. Over one-quarter of Canadian GDP is housing and
financial-service related. Loonie holders (Canadian dollars) might hope the
housing fever settled in the oil sands that surround United States , but those who have been buying
Canadian bonds are not simply betting on commodities. Fort McMurray
Canadian housing starts have averaged roughly 200,000 a year since 2007. Multiply that by nine and
approaches the peak,
building figures (2004: 1.9 million starts, 2005: 2.0 million, 2006: 1.8
million, 2007: 1.4 million). U.S.
The signs of collapse are manifest: new housing supply is booming; housing demand is waning. Prices are too high for the average buyer (the average Canadian house now costing $350,000). Without the average buyer, house markets tumble. Home equity withdrawal rose from 2% to 8% of disposable income, which spurred spending, and mortgage debt has more than doubled over the past decade.
How are those bullet-proof Canadian banks doing? Since 2000, they have expanded lines-of-credit by 700% when disposable incomes rose 70%. The five largest Canadian banks hold $400 billion of uninsured consumer credit. The Canadian Mortgage and Housing Corporation (CMHC), which insures mortgage loans, got giddy (increasing insurance to 100% of loans and to 40-year amortization periods in 2006). The government lifted the limit on CMHC insurance from $450 billion to $600 billion in 2009. The $600 billion limit is close to capacity, which may not excite a U.S audience, but
's GDP is around 10% of its
southern neighbor, so the liability (in comparative terms) is around $6 trillion.
On November 27, 2012, an "observer" at VancouverPriceDrop.com described an early indicator that the CMHC will drag
's credit rating down a few
notches: "43 listings dropped to a cumulative total of 20%+ this week, 12
[fell] 25% and 6 [fell] 30% this week." Canada
The opinions of Carney's effervescence come from the same sources that never saw, nor understand today, how the central banks blew up the world. What is it, exactly, that Carney, or anyone else, is going to do at the Bank of England that will matter at all? Finally, since Goldman Sachs gave us Robert Rubin and Jon Corzine, who could be anything but horrified with another alum at the top?