Saturday, May 29, 2010

Doth the Canadians Differentiate Themselves Too Much?

Canada's Financial Post reports that Canada won't fall victim to foreclosure wave, saying:

Canada's housing market is expected to cool off this year and next, but isn't at risk of falling victim to a U.S.-style foreclosure crisis anytime soon, according to a new report by debt-rating firm DBRS Ltd.

True. However, that doesn't mean that Canada won't have similar problems economically, and here the arguments are much less persuasive:

The report also highlights that Canadian households continue to have a particularly high level of debt, something that the DBRS notes is part of an ongoing trend. But it tempers that by adding that household debt is not as worrying as some analysts have suggested.

"We think the measurement of household leverage is subject to a fair amount of interpretation," said Mr. Marriott.

For instance, the debt-to-disposable income shows Canadians are generally more indebted than Americans - however, the report outlines that this doesn't reflect certain differences between the two countries that affect income, such as the fact that the U.S. has lower taxes but that Americans pay more money toward their health-care bills.

One can read on, but you get the point. Canada's lenders have loaded lots of debt onto their citizens, just as American lenders have. Or you can say it the other way, which is that the citizens have gone heavily into debt in both countries.

Under the gold standard, malinvestment related to unproductive borrowing and lending forced reduction in those practices. The alleged cure for the Great Depression was to remove the cop on the beat and get rid of the gold standard. Nowadays the prescribed cure for malinvestment involves more "money" creation, which by its nature in our system necessitates borrowing and lending, given that a dollar bill is a Federal Reserve "note" and therefore technically debt. Though good luck trying to redeem it for something other than coins made of base metal.

In medicine, when a process becomes unstoppable and drains the rest of the organism, one could be describing cancer.

Most of the developed world has a financial disease. Canada is no exception.

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