Wednesday, August 24, 2016
Canada's Ponzi Economy and the Vancouver Housing Market
For details and an interactive map
Here's a map
showing the proportion of Vancouver residents who are financially qualified to purchase a median priced home. The areas shaded in pale yellow, i.e., most of the map on the West side of town, indicate where less than 20% of households are so qualified.
It reminds me of 1986 when we planned on moving from the West Coast to Toronto. House prices in Toronto were on a crazy roll. Inventory was almost non-existent, and most of the houses that were for sale looked as though they were occupied by the kind of people who couldn’t possibly afford to buy a house for the kind of money their house was priced at.
But think about this. In 1972, we contemplated buying a house in the 4700 block of Vancouver's W 2nd Avenue, which was priced at $189 K. In the 46 years since then, that house has appreciated (according to the BC Assessment Authority) over 62 times to almost $12 million. That’s equivalent to a 500,000% increase per century. Does that sound like hyper-inflation?
Yet if real mortgage rates go negative, who’s to say prices cannot still sky-rocket!
Still, I don’t think things can go on as they have. In the short-run perhaps, but in the long-run, the trend for a huge and increasing proportion of income to be devoted to the payment of rent, either to landlords, or as interest on mortgages to banks, cannot continue. More capital has to go into productive sectors of the economy that generate real wealth, as opposed to capital gains on real estate which are in reality generational wealth transfers.
Of course I’m not complaining. Since the early 70's, our house (not in Vancouver) has appreciated about four times faster than wages, so when it is sold it should reap a windfall for someone — my estate I suppose — of around a million dollars (that's if I die soon, much more, on current trends, if I die later), the gain to be at the expense of the poor folks who will have to pay the mortgage on that amount.
Does that sound reasonable and fair? Will Canadians for ever put up with a Ponzi economy that punishes young adults most, i.e., young folks entering the RE market? It's great, I suppose, if you want to perpetuate the failure of Canadians, a tiny population occupying half a continent, to fully reproduce themselves (but that's another matter).
Question is, how did we get to the present state of the economy and how could that state be changed?
Steve Keen, and others outside the bubble of Nobel-Prize-winning bullshit economics, have well revealed the pathologies of the FIRE economy that has dominated the West since the drive for globalization went into high gear in 1994. That was the year Bill Clinton signed the GATT agreement, a treaty that exposed US labor to unrestricted competition from workers of the Third World earning less than 5% of US wages.
As American and other Western workers affected by the new wave of globalization became increasingly uncompetitive in the internationally tradable sectors of the economy, they made up for the short-fall in income by taking on ever increasing amounts of debt, the debt bubble continually stimulated by declining interest rates (now absurdly entering negative territory), and money creation, mainly by private institutions.
The question is, what to do to reverse this trend and stimulate wealth creating investment?
The answer, obviously, is to redirect capital from consumption and speculative investments in a Ponzi economy into productive activities. Trouble is, Western governments are all owned by the banks and other financial corporations that reap the profits of the debt-based economy and see less opportunity for profit from investment in productive endeavors than in driving asset bubbles.
So what to do? A lynching or two might help. At least the total public humiliation of scoundrel politicians such as Blair and Brown and Cameron, the Bush’s and the Clinton’s who do the bidding of the corporate elite (for pay) would be a start, so the ongoing public humiliation of Hillary, a life-long liar and swindler, is an encouraging start. A war crimes trial for Bush and Blair would be another step in the right direction. Publicly debagging some Central Bankers, past and present, would be a good idea too.
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