The Central Bank That Cried Wolf.

There once was a central banker who was bored as he sat on the hillside watching the village sheep. To amuse himself he took a great breath and sang out that some property prices were “probably overvalued“.

The Canadians came running out of their homes to try to pay down their debt and get their finances in order. But when they arrived at the top of the hill, they found record low interest rates and rising property prices along with stagnating incomes. The central banker laughed at the sight of their angry faces.

“Don’t cry ‘high debt loads” said the Canadians, “when there’s no interest rate increases!” They went grumbling back down the hill and signed up for some more mortgages.

The banker was replaced with another, but he played the same naughty game, singing out “The elevated level of household debt and stretched valuations in some segments of the housing market remain an important downside risk to the Canadian economy”

By this time though the Canadians were wise to these pranks and they wisely held their place in the line up for the latest greatest condo pre-sales opportunity.  The banker retired with a gigantic pension and everyone lived happily ever after.

MORAL: Load up on more consumer debt, invest in hot real estate. What could possibly go wrong?

 

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comet comment
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comet comment

“What could possibly go wrong?”

Comet Ison is a dud, and does not lead to Force Majeure like the bankers expect. We wake up in the morning with debts still due, Central Bankers lose their maneuverability, we crash into Liquidity crisis deflation.

mac
Member
mac

Unfortunately, this isn’t that kind of fairy tale with a happy ending. This one will probably be writ by the Brothers Grimm since there’s a wolf in sheep’s clothing at the head of all central banks. One wonders where to put one’s life’s earnings? Marc Faber, as nutty as he is, says there will be no safe asset class. He may be right.

BWilson
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BWilson

Slow growth despite ramping consumer leverage generally does not bode well for the future.

The economic cycle is essentially a credit cycle, so if we get a large degree of credit expansion with below average growth, that sets us up for a worse than average recession once the credit cycle turns.

ILoveCharts
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ILoveCharts
It’s not the job of the central bank to regulate the housing industry. They are trying to regulate the economy on the whole. Central bank needs to keep the rates low to help businesses. Central bank doesn’t mind pushing down the dollar on fears of a housing bubble because it helps all exporters. The ball is back in the court of F. Unfortunately, it’s unlikely that he will do much in Q4. This is a game of hot potato. The last person to touch it is going to get burned and blamed when the bubble bursts. (For the record, Poloz is the now the most recent person to touch the potato with his comments of today.) Real estate reaches a low point each winter. If F does anything today, every idiot in the MSM will accuse him of causing a… Read more »
2.79% 5 yr. NEVER AGAIN
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2.79% 5 yr. NEVER AGAIN

My US stocks just got a nice 1% boost today with the dollar dropping.

As I said before there is more than one way to make money.

hunter
Guest
hunter

@mac
I think faber is right. No safe assets.but he says also to have some real estate and gold. I have both. The ones having no asset will be clobbered in the next turmoil

jesse
Member

They removed their interest rate normalization wording. Sounds like on at least that front Poloz is mindful of the “downside risks” to his bank’s credibility.

Maybe it’s still too soon, but has anyone done some thoughtful analysis on what a decade of low overnight rates might mean for house prices? Asking for a friend.

CanuckDownUnder
Member
CanuckDownUnder

The Bank of Canada looks angelic compared to the Reserve Bank of Australia. While we occasionally get a veiled reminder of excessive debt loads, last Friday the RBA’s Head of Financial Security denied that there was a bubble in the housing market here, calling such talk “unrealistic alarmism.”

Meanwhile here’s what happening to prices in Sydney:

http://www.macrobusiness.com.au/2013/10/sydney-property-prices-are-going-berserk

patriotz
Member

@6: “The ones having no asset will be clobbered in the next turmoil”

“When you’ve got nothing, you’ve got nothing to lose” – Bob Dylan

There is always some asset that gives you a positive real return going forward. The problem of course is identifying it before the fact.

Unplugged
Guest
Unplugged

So why are there so many mixed messages out there? Why does one economist from one organization have a complete opposite opinion than the economist from the bank? The answer is actually quite simple, the man from the bank has a vested interest in maintaining continuously appreciating assets… even when he knows that those assets are way over inflated and destined to correct. In fact, just like normal everyday people he is likely to also hold a mortgage with the bank; the man from the bank is exposed to the exact same kind of risk as the general public and of course wants to do everything he can to avoid fueling the flames of the inevitable!

http://mayer320.wordpress.com/2013/07/28/these-things-never-really-end-well/

Best place on meth
Member
Best place on meth

US central Bank talks of winding down QE for 5 months, then decides not to.

Canada’s central bank talks of raising interest rates soon for over a year, then drops the notion.

Something’s up in the world’s economy and it’s not going to be something good.

VMD
Member

Bank of Canada rate stance could have adverse effect on housing market
The Bank of Canada is worried about the risk of a hot housing market. Ironically, it’s a risk the central bank is likely to make worse by changing its stance on rate hikes…

” the Bank of Canada said Wednesday that “the recent vigour in residential investment may partly reflect activity that has been pulled forward in anticipation of higher interest rates on mortgages.”

“Policy makers will be keeping a close eye on the market. Canada’s banking regulator has spent months now considering potential changes to mortgage underwriting rules.”

paulb
Member

New Listings 173
Price Changes 84
Sold Listings 103
TI:16614

http://www.paulboenisch.com

VMD
Member
Burnaby couple disputes low property value assessment Wen Hu and Robert Wang didn’t agree with the assessment of their property—but for the opposite reason. They believed that their Burnaby house at 7060 Halligan Street was valued too low. They were adamant that the assessor had made a mistake. The property in question was built in 1996, with a lot size of 33 feet by 120 feet. The one-storey house has a main floor of more than 1,100 feet and a finished basement of about the same size. Hu and Wang purchased the property in April 2006 for $490,000 and have done several upgrades. The 2013 assessment was $573,000 for land and $123,000 for improvements for a total of $696,000. The owners said that it should be more. In the end, the board confirmed the assessor’s valuation. It relied on the… Read more »
Son of Ponzi
Guest
Son of Ponzi

# 9 Patriotz
“The times they are a’changing”.
Bob Dylan for Governor of the BoC.
Can’t be worse than Carney and Poloz.

Son of Ponzi
Guest
Son of Ponzi

Hu are these people?
I hope they were charged costs for wasting the Board’s rime.

emmi
Guest
emmi

CanuckDownUnder

That’s wild. Did foreign buyers find a way around the purchase limits or something?

Son of Ponzi
Guest
Son of Ponzi

Emmi,
Sorry, to break it to you, but if you’ve got money you’ll find a way around anything.
Sad, but true.
Happens in Vancouver all the time.
Results justify the means. Chinese business model.

hu yu fulin
Guest
hu yu fulin

” Chinese business model.”

Yup. They learned the tricks of capitalism from the pros.

http://www.cbc.ca/news/canada/mcdonald-s-supplier-drops-2-egg-farms-accused-of-cruelty-1.2128688

#thisisadisaster
Guest
#thisisadisaster
southseacompany
Member
southseacompany

Globe & Mail: “Bank of Canada rate stance could have adverse effect on housing market.”

http://www.theglobeandmail.com/report-on-business/bank-of-canada-rate-stance-could-have-adverse-effect-on-housing-market/article15032903/

“But many experts don’t think the strength will last. “We don’t expect the recent upward momentum to carry forward into 2014,” TD economists wrote in a recent note. “Some of the strength reflects buyers rushing into the market to beat out recent interest rate increases, which will result in a payback later this year.”

Indeed, the Bank of Canada said Wednesday that “the recent vigour in residential investment may partly reflect activity that has been pulled forward in anticipation of higher interest rates on mortgages.”

Policy makers will be keeping a close eye on the market. Canada’s banking regulator has spent months now considering potential changes to mortgage underwriting rules.”

Son of Ponzi
Guest
Son of Ponzi

Amazon plans to hire 100 staff 3 years from now.
And this is going to drive RE in Vancouver through the roof???!!!!

Aggregator
Guest
Aggregator

Methinks that when stocks and RE go bust and the economy tanks, there will nobody else to blame other then central banks. This is their greatest risk. Since at no point in history have central banks put so much credibility on the line — globally — risking their independence as more people ask why central banks are even needed when they've been consistently dead wrong on just about everything.

All central bankers understand how this ends. Everything else is just kicking the can, until there's no road left.

"As a result of deleveraging, the global economy risks entering a prolonged period of deficient demand. If mishandled, it could lead to debt deflation and disorderly defaults, potentially triggering large transfers of wealth and social unrest." —Mark Carney, Dec 2011

CanuckDownUnder
Member
CanuckDownUnder

@emmi:

The crackdown on foreign buying in Australia was just a myth. Foreigners can buy as many properties as they want here as long as they are new. They are also allowed to buy existing properties as long as they plan to demolish them and rebuild within 24 months.

The government had changed the rules allowing temporary visa holders to buy existing properties here and keep them after they left the country. 18 months later they went back to the old rules where these visa holders have to sell when they leave Australia. Somehow this got interpreted as a crackdown.

registered
Member
registered

@4 ILoveCharts Says: “It’s not the job of the central bank to regulate the housing industry. They are trying to regulate the economy on the whole.”

What does that responsibility demand when real estate and associated industries reach a quarter of our economic output? Carney and the rest don’t get off that easily. They’re as complicit as Jumbo Jim.

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