cdr108
Senior Member
then they are delusional to believe Canada works within a bubble and does not get affected by global forces
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Baby, we got a bubble!?
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then they are delusional to believe Canada works within a bubble and does not get affected by global forces
CN Tower
Banned
Ontario, like California, going for broke
Neil Reynolds
From Wednesday's Globe and Mail Published on Wednesday, Aug. 25, 2010 6:00AM EDT Last updated on Wednesday, Aug. 25, 2010 11:32AM EDT
Now, let’s see. According to the state treasurer, who should know, California (population 36.4 million) has sovereign debt of $60-billion (U.S.) – $1,650 per person. Investors rate California’s 10-year bonds as slightly less risky than Croatia’s. Reputable academic analysts anticipate bankruptcy. (As Bill Watkins, director of the Center for Economic Research and Forecasting at California Lutheran University, put it: “California is now more likely to default than it is not to default.†)
On the other hand, Ontario (population 13 million) has debt of $220-billion (Canadian) – $16,900 per person – an economy with roughly one-third the people and roughly 10 times the per-capita debt. California would need more than $600-billion (U.S.) in debt to equal Ontario. So why does no one appear fussed by Ontario’s record-setting accumulation of debt?
Investors require a risk premium on a 10-year Ontario bond only marginally higher than they require of a Government of Canada bond: 50 basis points or less. (A basis point is one-hundredth of one percentage point.) The comparable risk premium on a 10-year California bond is 450 basis points – or 100 basis points higher than on a Portugal bond or an Ireland bond.
There are a number of explanations for the apparent indifference to Ontario’s debt (though the province’s bond rating has been cut in the last year) compared with that of California. The simplest one is the least plausible: that California’s books are crooked. How could California, so heavily audited, conceal significant debt? When The Sacramento Bee newspaper endeavoured to document California’s total debt obligations (including municipal debt), it stopped counting at $500-billion – more than eight times the debt officially reported by the state treasurer.
Here at home, Canadians know without equivocation that Ontario is far too big to fail – far more so than a couple of big U.S. banks or, for that matter, the state of California. By itself, California is the world’s eighth-largest economy but it represents only 15 per cent of the U.S. economy. Ontario represents 35 per cent of the Canadian economy. A bankrupt Ontario is a bankrupt Canada.
In any serious economic crisis, the federal government would assume Ontario’s debt (as it would similarly assume Quebec’s debt). This is moral hazard, of course, the kind of insurance policy that encourages Ontario and Quebec to borrow excessively – and, indeed, recklessly.
The U.S. government might well bail out California, too, in case of default. But California does not have the heft, in relative terms, of either Ontario or Quebec. Like tiny Rhode Island, California has only two federal senators. Congressional power has been migrating for years to lower-taxed southern states. (Based on the current U.S. census, for the first time, California could lose one or more congressional seats.) Furthermore, California is required by its own constitution to balance its books. Thus the state can’t go bankrupt; it must – sooner or later – either increase taxes or cut services. It can only issue so many funny-money IOUs of dubious constitutional validity.
Another possible explanation is simply that California’s debt is now in play, a gambler’s game. In this scenario, by aggressively trading insurance policies (credit default swaps) on California’s debt, investors have made it the most-insured debt in the U.S. – and, in the process, have momentarily exaggerated it.
Investors buy 10-year Venezuelan bonds – provided they get a return of 14.7 per cent. They buy Greek bonds for a return of 10.7 per cent. They buy California bonds for a return of 6.8 per cent – only somewhat less risky than corporate high-risk “junk†bonds (average yield: 8.7 per cent). In contrast, they buy Ontario debt for a return of only 3.3 per cent. This California-Ontario gap remains resiliently irrational. In one of these economies, the fear-factor calculation has gone wrong.
Although California’s economic policies (high spending, high taxes) are destructive, this is mainly a political drama. Democrats will not cut spending. Republicans will not raise taxes. As messy as this left-right struggle gets, California will almost certainly pay its bills, one way or another, in the fullness of time.
Will Ontario? The province has a distinctly different problem: It must now borrow more and more to accomplish less and less. It takes some sophistication to conceal this divergence. Ontario’s effective interest rate – the rate it pays, on average, on all of its debt – is 4.5 per cent. Interest payments will thus cost the province $10-billion (Canadian) this year on its $220-billion debt. Ontario needs half its deficit to make its interest payments.
In 2000, Ontario’s effective interest rate was much higher (8 per cent), its debt much lower ($114-billion). In 2000, interest payments cost $8.8-billion. Ontario, in other words, has used low interest rates to finance higher debt. Any increase in interest rates now will have profoundly disturbing consequences. Onario Premier Dalton McGuinty conceded the other day (in another context) that his government has made “some mistakes.†Really? D’ya think?
Neil Reynolds
From Wednesday's Globe and Mail Published on Wednesday, Aug. 25, 2010 6:00AM EDT Last updated on Wednesday, Aug. 25, 2010 11:32AM EDT
Now, let’s see. According to the state treasurer, who should know, California (population 36.4 million) has sovereign debt of $60-billion (U.S.) – $1,650 per person. Investors rate California’s 10-year bonds as slightly less risky than Croatia’s. Reputable academic analysts anticipate bankruptcy. (As Bill Watkins, director of the Center for Economic Research and Forecasting at California Lutheran University, put it: “California is now more likely to default than it is not to default.†)
On the other hand, Ontario (population 13 million) has debt of $220-billion (Canadian) – $16,900 per person – an economy with roughly one-third the people and roughly 10 times the per-capita debt. California would need more than $600-billion (U.S.) in debt to equal Ontario. So why does no one appear fussed by Ontario’s record-setting accumulation of debt?
Investors require a risk premium on a 10-year Ontario bond only marginally higher than they require of a Government of Canada bond: 50 basis points or less. (A basis point is one-hundredth of one percentage point.) The comparable risk premium on a 10-year California bond is 450 basis points – or 100 basis points higher than on a Portugal bond or an Ireland bond.
There are a number of explanations for the apparent indifference to Ontario’s debt (though the province’s bond rating has been cut in the last year) compared with that of California. The simplest one is the least plausible: that California’s books are crooked. How could California, so heavily audited, conceal significant debt? When The Sacramento Bee newspaper endeavoured to document California’s total debt obligations (including municipal debt), it stopped counting at $500-billion – more than eight times the debt officially reported by the state treasurer.
Here at home, Canadians know without equivocation that Ontario is far too big to fail – far more so than a couple of big U.S. banks or, for that matter, the state of California. By itself, California is the world’s eighth-largest economy but it represents only 15 per cent of the U.S. economy. Ontario represents 35 per cent of the Canadian economy. A bankrupt Ontario is a bankrupt Canada.
In any serious economic crisis, the federal government would assume Ontario’s debt (as it would similarly assume Quebec’s debt). This is moral hazard, of course, the kind of insurance policy that encourages Ontario and Quebec to borrow excessively – and, indeed, recklessly.
The U.S. government might well bail out California, too, in case of default. But California does not have the heft, in relative terms, of either Ontario or Quebec. Like tiny Rhode Island, California has only two federal senators. Congressional power has been migrating for years to lower-taxed southern states. (Based on the current U.S. census, for the first time, California could lose one or more congressional seats.) Furthermore, California is required by its own constitution to balance its books. Thus the state can’t go bankrupt; it must – sooner or later – either increase taxes or cut services. It can only issue so many funny-money IOUs of dubious constitutional validity.
Another possible explanation is simply that California’s debt is now in play, a gambler’s game. In this scenario, by aggressively trading insurance policies (credit default swaps) on California’s debt, investors have made it the most-insured debt in the U.S. – and, in the process, have momentarily exaggerated it.
Investors buy 10-year Venezuelan bonds – provided they get a return of 14.7 per cent. They buy Greek bonds for a return of 10.7 per cent. They buy California bonds for a return of 6.8 per cent – only somewhat less risky than corporate high-risk “junk†bonds (average yield: 8.7 per cent). In contrast, they buy Ontario debt for a return of only 3.3 per cent. This California-Ontario gap remains resiliently irrational. In one of these economies, the fear-factor calculation has gone wrong.
Although California’s economic policies (high spending, high taxes) are destructive, this is mainly a political drama. Democrats will not cut spending. Republicans will not raise taxes. As messy as this left-right struggle gets, California will almost certainly pay its bills, one way or another, in the fullness of time.
Will Ontario? The province has a distinctly different problem: It must now borrow more and more to accomplish less and less. It takes some sophistication to conceal this divergence. Ontario’s effective interest rate – the rate it pays, on average, on all of its debt – is 4.5 per cent. Interest payments will thus cost the province $10-billion (Canadian) this year on its $220-billion debt. Ontario needs half its deficit to make its interest payments.
In 2000, Ontario’s effective interest rate was much higher (8 per cent), its debt much lower ($114-billion). In 2000, interest payments cost $8.8-billion. Ontario, in other words, has used low interest rates to finance higher debt. Any increase in interest rates now will have profoundly disturbing consequences. Onario Premier Dalton McGuinty conceded the other day (in another context) that his government has made “some mistakes.†Really? D’ya think?
TrickyRicky
Senior Member
The continuing economic malaise in the US should be of great concern to Canadians. The reason is that while the argument that "Canada is different" has some valid points, it is largely supported by the belief or confidence of domestic and international interests that this is so. Basically, the most important factor that makes "Canada different" is the belief itself that Canada is different. If the US economy recovers we might well get away with the biggest con job in Canadian economic history, as we will have avoided the worst of the downturn and would have the US economic engine to pull us out. The longer the US malaise continues, the less argument there is for having confidence in Canadian economic exceptionalism.
Roy G Biv
Senior Member
Aren't "they" global forces?
So if they remain delusional, they'll be fine.
Enough doom and gloom news stories and posts by CN Tower.....
CN Tower
Banned
Keep burying your head in the sand Rainbow Boy. I am merely reporting facts.
Regardless, my posts are meant to splash some reality cold water on Bubble George's absurdities. In my experience this forum is about information and the more accurate the info the better informed we all are. I was starting to appreciate George's (sorry to talk about you in the 3rd person buddy, I know you are here too!) market comments until he started grasping at straws. The reality is that Ontario is in very deep sh*t and the Super Canada-story is incredibly superficial when you peel back the layers.
Regardless, my posts are meant to splash some reality cold water on Bubble George's absurdities. In my experience this forum is about information and the more accurate the info the better informed we all are. I was starting to appreciate George's (sorry to talk about you in the 3rd person buddy, I know you are here too!) market comments until he started grasping at straws. The reality is that Ontario is in very deep sh*t and the Super Canada-story is incredibly superficial when you peel back the layers.
Roy G Biv
Senior Member
It's naive to pretend that much of this isn't speculative. If people see bad news, they run, see more bad news, run faster, more bad news etc
I'm not denying your presentation of facts, just pointing out that you are part of the problem. The facts do point to a correction in the housing market, but if people of your ilk keep saying it's going to be 30%, it will be. The economy is an open system that is prone to irrational forces, so it doesn't really make sense to attempt to reduce it to a science. This is why economists are often seen as jokes.
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Condo George
Active Member
JayBee
Senior Member
It's funny watching the two camps go back and forth.
daveto
Active Member
???
It's for June paired resales. Based upon the TREB June results published from 6 weeks ago, we pretty much already knew this.
Seriously. If you're going to intelligently debate the subject, that's great. But please stop simply posting links. The internet is full of links proving and/or arguing all sorts of bunkum.
http://realbigfootvideo.com/proof.html
http://www.steelmarkonline.com/purchase_downloads.htm
http://skeptically.org/newtestament/id5.html
http://thefactsaboutislam.blogspot.com/2009/11/100-proof-jesus-was-not-gay.html
http://www.cuttingedge.org/news/n1352.cfm
etc, etc, etc
interested
Senior Member
George we have more recent data than this showing that it has in fact declined in the past month.
This is talking about Canada wide data. I believe more people are talking about the Toronto market on this forum, and the downtown TO condo market in particular. the last figure I saw showed that it was up 10% year on year. Given rising prices through the rest of 2010, the year on year figure will continue to decline.
BNN reporting is out of date on this.
Roy: When I was in Florida 2 years ago, a real estate broker told me that the problem was that the press should just "shut up" as they were aggravating/causing the problem by putting the data in the news. This is similar to the argument you are making that reporting the information will become a self fulfilling prophecy.
I agree talking about it may cause an overshoot, but no one was complaining when things were going up. In fact, the cheerleading by the press for R/E was welcomed by parties making great profits in the good times. Perhaps all the doom/gloom now is overdone but it is disengenuous to only complain on the way down and not when things were going well. And I point out that I say this with a fair amount of "skin in the game".
In my view, an informed consumer is the best hope we have for logical decisions. Having the press or others not report what they perceive as bad news is just censoring what I as a consumer can read. I would rather read overkill on both doom/gloom or irrational exuberance and then draw my own conclusions.
This is talking about Canada wide data. I believe more people are talking about the Toronto market on this forum, and the downtown TO condo market in particular. the last figure I saw showed that it was up 10% year on year. Given rising prices through the rest of 2010, the year on year figure will continue to decline.
BNN reporting is out of date on this.
Roy: When I was in Florida 2 years ago, a real estate broker told me that the problem was that the press should just "shut up" as they were aggravating/causing the problem by putting the data in the news. This is similar to the argument you are making that reporting the information will become a self fulfilling prophecy.
I agree talking about it may cause an overshoot, but no one was complaining when things were going up. In fact, the cheerleading by the press for R/E was welcomed by parties making great profits in the good times. Perhaps all the doom/gloom now is overdone but it is disengenuous to only complain on the way down and not when things were going well. And I point out that I say this with a fair amount of "skin in the game".
In my view, an informed consumer is the best hope we have for logical decisions. Having the press or others not report what they perceive as bad news is just censoring what I as a consumer can read. I would rather read overkill on both doom/gloom or irrational exuberance and then draw my own conclusions.
GraphicMatt
Looking forward to a FRESH START for Toronto
Sure sign of a real estate downturn is more agents having extra free time to go online and argue that there isn't a real estate downturn.
cdr108
Senior Member
worked the same way when RE industry was promoting that RE always go up and buy now or be priced up ... so what's your point ?
what % of correction/time frame do you think is in store if 30% within 5 years is considered 'irrational' in your opinion?
why is it that many think the above (ie. 30% decline over 5 years) is 'doom and gloom', while increases of 50+% in the past 4 years / 100+% in past 10 years / 150+% over 15 years is considered 'normal' ? ?
cdr108
Senior Member
and i thought he said he was going to be on vacation, so wouldn't have time to post ... oh well
Condo George
Active Member
My links are compared to these Dave, maybe some here appreciate me being here, I know where you stand
cdr108
Senior Member
i think it's the context, the current relevance of data, and the lack of explanation in which you post your links that's at issue