Flaherty won’t ‘stand by’ in recession

The more things change the more they stay the same.

The president is back in the white house and there’s rumbling of a fiscal crisis again.

Flaherty has said he’s not going to take another recession lying down.

Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney both pledged Wednesday to take action to support the economy if a shock from the U.S., or Europe, threatened to once again plunge the country into recession.

“We are a pragmatic, sensible government. If our economy goes into recession because of an external shock from the United States or the eurozone, or both, we will take steps to stimulate the economy,” Flaherty told the Commons finance committee in an evening session.

“What we have done before we will do again. We will not do exactly the same thing again…but we are not going to stand by and have the Canadian economy slip deep into a recession with high unemployment.”

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DOW
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DOW

I read this morning that McDonalds reported same store sales dropped a lot for the mont of October. You know when 0.99 cents Mac becomes unaffordable, we have a problem.

Reality Check
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Reality Check

The Cons will do everything in their power to keep housing prices up (low rates) and wages down (high immigration).

Need a new party in Canada.

Aleksey
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Aleksey

Does it mean they could bring 40 years and 0% down back?
Could they go lower with a rate?

mac
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mac

Oh boy. We are so screwed.

Bull! Bull! Bull!
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Bull! Bull! Bull!

This is bullish for real estate.

rp1
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rp1

By “won’t stand by” does he mean “run for the hills” ? Because if I had created a gigantic boom and bust by messing with government mortgage guarantees, I’d consider going into hiding. He owns this.

Anonymous
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Anonymous

@Bull! Bull! Bull!: no. This is bullish for government debt. The individual is up to their eyeballs in debt but the government stll has room. See the US 16 trillion dollar debt for reference.

Many Franks
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Many Franks

@Bull! Bull! Bull!: How so? Do you think he’ll try to…
– Drop interest rates?
– Stimulate bank lending e.g. by transferring liability?
– “Improve affordability” e.g. by loosening lending regulations like maximum amortization?
– Open the HELOC taps?
– Boost employment numbers by funding infrastructure with federal debt?

…or something else?

jesse
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” We will not do exactly the same thing again…but we are not going to stand by and have the Canadian economy slip deep into a recession with high unemployment” It’s so obviously going to be infrastructure investment I don’t know how else to say it. The workforce and capital equipment currently available are not capable of retooling in any way quick enough to jack up GDP growth in time to staunch a recession. Flaherty is not going to do “exactly the same thing”. What do you think he means by this? Based on all the signals from the Bank of Canada, household credit should not be made to grow much more. Any stimulus, therefore, must be made through government and preferential corporate loans and grants (loan guarantees, SRED increases, job training incentives, etc.). The other thing they can do… Read more »
Not much of a name...
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Not much of a name...

@jesse:

Look at the history of the last CMHC/household bailout in the early 1980s for some clues,

Without doing the research myself, could you state what these were? I always enjoy your posts, but I will admit that I am a little lazy on this one.

Patiently Waiting
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Patiently Waiting

@jesse: They should be looking at getting young people working. This would mean some sort of subsidized employment program, I suspect. Some post-secondary graduates will happily work for minimum wage if its in their field.

Veni Vidi Vci
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Veni Vidi Vci

@jesse: …and even look at the dozens of schemes the US government did to bail out various distressed parties post-2008.

And look how well that worked out for the housing market there!

More Data Please
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More Data Please
@Many Franks: “Stimulus” Methods This is a repost from yesterday’s thread on the same story: Flaherty gave few details of what measures he might bring in to stimulate the economy, but he said he’s learned a few lessons from the 2009-10 stimulus packages — one being that moving fast is good. “One example that did work very well was colleges and universities…they have a lots of pent-up infrastructure to do,” he explained. “It employs people and it employs people quickly and it doesn’t take a long tendering process. “At a time of economic crisis … the quicker a project can go the better.” I’ll ask the question again. Does anybody have information on the nature and scope of the spending at universities and colleges in 2009 and 2010 under this makework program? Is it direct hiring or contract firms? What… Read more »
Yalie
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Yalie

@jesse:

I would actually expect a whole bunch of smaller schemes that all add up to a huge CMHC/borrower/lender bailout but by themselves look like no big deal.

Exactly. If housing falls too much the government will do a bunch of things to stimulate housing but probably not a reversal of recent changes since they do not want to appear even more flip-floppy than they already do.

Here is what I think these stimuli may include:
-first time home buyers grants / credits
-renovation grants / credits
-lower interest rates (I predict this will happen regardless for economic reasons other than housing)
-“one time” boost to immigration numbers (hey didn’t they just do this?)
-principle write-down schemes to “help” underwater mortgage holders (who rightfully should go bankrupt instead)
-mortgage interest tax deduction (unlikely but could happen if things get bad)

patriotz
Member
@Yalie: “Here is what I think these stimuli may include: -first time home buyers grants / credits -renovation grants / credits” Yes to both. “-lower interest rates (I predict this will happen regardless for economic reasons other than housing)” Not under GoC control. Even if the BoC does lower rates that does not mean mortgage lenders will pass it on. “-”one time” boost to immigration numbers (hey didn’t they just do this?)” Accomplishes nothing if they’re not wealthy. No job, no income, no demand. “-principle write-down schemes to “help” underwater mortgage holders (who rightfully should go bankrupt instead)” Major on-budget expense which would not prevent price drops and would cause backlash from the public. Also big moral hazard. “-mortgage interest tax deduction (unlikely but could happen if things get bad)” Huge on-budget expense which would have little effect on market… Read more »
carpet muncher
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carpet muncher

So what does this mean munchkin, Flaherty? More secretive big bank bailouts? You’ve already absolved them from mortgage debt with the CMHC. Now you want to throw more tax payer money at the most parasitic industry? Come clean!!!

Yalie
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Yalie

@patriotz:
I basically agree. To be clear, those are just some things I think the government (and BoC) might try to stop prices from falling to much. But whatever they do, I don’t expect it to have the desired effect, especially in the most bubble-tastic cities like Vancouver.

Boombust
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Boombust

More chutzpah than moolah. What a phoney creep.

carpet muncher
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carpet muncher

@More Data Please:

Yup, new party. The Canadian Bear Party 🙂

jesse
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@Not much of a name…: Read my post here on a mortgage market primer (a bit out of date but still mostly relevant) and chapter 6 from an old book that outlined the history of CMHC from its inception in the 1950s until about 1986 or so. It covers the basics of the early 1980s bailout of CMHC’s insurance contracts, a bailout instigated by high real rates of the late 1970s and early 1980s. For housing policy nerds, understanding what was done back then is more than fascinating.

http://housing-analysis.blogspot.ca/2012/05/canadian-mortgage-market-primer-and.html

jesse
Member
@Yalie: “the government will do a bunch of things to stimulate housing I am near certain the government understands it cannot hope to absorb the excesses in the market (i.e. high land prices) and predominately relies on private balance sheet contraction to retrench balance sheets. The best they can do is prevent the crash from turning into a prolonged depression and to that they will aim to bolster employment (i.e. jobs jobs jobs). The homebuyer tax credit in the US was a disaster, doing nothing to help prices revert in an orderly fashion or clear misallocated debts from homeowner balance sheets. It’s unclear whether this government is smart enough to avoid it. There were schemes in the US like HARP and HAMP to reduce principal payments. The sizes of these programs were limited but did speed things along. The environment… Read more »
Bull! Bull! Bull!
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Bull! Bull! Bull!

@jesse:

“I am near certain…”

And why should we trust your judgement?

You’re one of the lords of bull shit mountain. You and the other bull shitters of the realm have been wrong for more than half a decade.

Please don’t make appeals to your judgement. Your track records SUCKS.

Burgundy
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Burgundy

bolstering employment with minimum wage and part time jobs like what happened in US not gonna do it.

Patiently Waiting
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Patiently Waiting

@Bull! Bull! Bull!: Angry bull is angry. How long since you cashed your last commission cheque?

Patiently Waiting
Member
Patiently Waiting

@jesse: They also tried to stimulate car-buying demand with Cash For Clunkers. So many perfectly fine, old cars got wasted.

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