Yeah, what I have been saying for the past year, spending should not be increasing my more than income, and when savings/the stock market/mutual funds are tanking, people should be spending less and paying off debt, even if their income goes up a whole 4%.

Saskatchewan is not immune from this financial crisis, and it is very tough to feel bad for anyone who loses their shirt while spending 20% more on eating out, cars and fancy shirts instead of paying down their debt

“Deflation is good for people who have saved, bad for people who are in debt.”

When hardly nobody saves, deflation would be catastrophic for our economy. I can only think of one country in the whole world where deflation would be good and it is not Canada.

I think you have hit the nail on the head. I believe there is a new bubble right now and it is the US dollar. And I believe a crash with the US dollar is coming.

They borrow 2 billion a day to keep the lights in that country nevermind the bailouts.

10 trillion in debt, not including private debt, social security and medicare. I think that is over 50 trillion. I am seriously looking at Gold.

Good posts.

http://tinyurl.com/6hvwmf

“Japan’s painful hangover from its own version of the global financial crisis is a grim lesson for those who hope for a quick recovery from the present one. Japan is the only major industrialized country since the Great Crash of 1929 to go through a crisis of a similar scale. Like the United States and other world economies today, it suffered a market meltdown, a collapse in consumer confidence and a crisis in its banking system.

It has never fully recovered. After being knocked flat on its back by the bursting of a stock-market and real-estate bubble in the early 1990s, it stayed there for the rest of what became known as its “lost decade.” It bounced back slightly after the turn of the century, only to head into trouble again as the global economy weakened. In all, the after-effects of its crisis have lasted nearly two decades.

Is it possible that North America and other parts of the world could suffer as long? Just a few months ago, the idea seemed far-fetched. But as the crisis widens and deepens, it no longer seems so implausible. Some argue that Japan was actually in better shape after its bubble burst than the United States and other hard-hit countries are today. Yet Japan suffered four recessions after the bubble burst in 1990 and has just entered a fifth.

If Japan is any guide, it will take much more time to rebound from the current global crisis than many of us expect. Much more money, too. Of all the lessons from Japan’s unhappy experience, the most profound may be: Expect the worst. This is going to be a long, rocky ride.”

Agreed, deflation is bad, bad, bad for everyone. But printing money doesn’t solve it until people decide to spend that extra money. If they save it, or hoard it, deflation can continue even as money supply expands rapidly. The extra money helps eventually. When people do start to spend that extra money, there is suddenly too much money chasing too few things, and inflation quickly follows. But people have to spend, not hoard, first. I think governments are very aware of what they need to do to combat deflation these days. If it happens, I’m guessing it will be pretty short lived. Who knows though.

A deflationary scare as I believe we are in now cannot occur without a true deflationary backdrop. Without the ability of central banks to print(add digits) we would already be in a deflationary death spiral. The true deflationary backdrop was made worse by the Federal Reserve as they had actually been reducing the money supply(balance sheet) in the months leading up to the Bear Sterns event. I am not a conspiracy theorist, but it seems to me that the Federal Reserve were presented with a timing and authority problem. A large investment bank was not supposed to fall until a later date, but it did. In doing so the fed used the opportunity along with treasury to get special powers that had never before been granted. Examples would be accepting anything they wanted on there balance sheet without any oversight and eventually this all led to the TARP program and special powers granted to FDIC. None of this would have been allowed without a deflationary scare made worse by the Federal Reserve reducing their balance sheet(money supply).

If you look at the Federal Reserve balance sheet over the last three months it looks like a flat line with massive upward spikes at the end. The balance sheet as they report it has increased by over 2 trillion dollars in 3 months.

See Bloomberg article for further information: http://www.bloomberg.com/apps/news?pid=20601103&sid=aR1kyQpuAH.o&refer=us

Now, two trillion dollars does not sound like that much but in a fractional banking system times that amount by 8=16 trillion dollars. That may not sound that big when you add up stock and real estate prices around the world but, almost every central bank in the world is doing the same thing. The money being injected into the banking system world wide is almost unimaginable.

Which brings me to your question.

If you think that “printing” will avoid deflation in the short term, I’m not certain that I agree. I’m not sure I see how deflation would occur shortly after a hyper-inflationary period.

Printing alone will not stem the tide of deflation, you are correct the main problem central banks will face is causing the velocity of money to increase the opposite of pushing on a string. Even if you print money(Digits) like mad and nobody spends it or pays of debt with it there is no velocity of money and therefore no inflation. The big problem of the Federal Reserve is how do you change the psychology of the market. I believe that will do several things in the not to distant future.

1. They will start forcing banks to lend. And government spending through another stimulus package would be a good start.

2. They will manage a precipitous drop in the U.S. dollar. It seems to me that the dollar is beginning to form a top at the 88 cent level on the U.S. dollar index. A lower currency would no longer mask the effects of the expanding balance sheet.

Another point to consider is that the CPI numbers for years (Since the Clinton administration) have been understated. Allowing the substitution of hamburger for steak and many other statistical manipulations.If the government showed the true inflation numbers it would lead to wage price spikes also adding to inflation.

A hyperinflation scenario would follow, wiping many of the debts off all balance sheets. The effect of this would be the destruction of all fiat currencies. People would simply would not trust paper money. A new monetary system would have to be set up to gain the confidence of the public. You would have to back the currency with something. I imagine that if the above scenario plays out Gold and Silver would do extremely well and the currencies of world would have to be once again backed by them.

A gold/silver backed currency along with all debt being wiped would lead to dramatically lower prices, but the effects of deflation would be far less when everyone was starting with a balance sheet of “0″.

There is so much more to be said, enough for now perhaps.

DYODD and NIA.

I appreciat any comments or questions you may have,

Nix

Capitulation!

Hello to you to. It’s nice to see you here.

Yes, Statistics Canada has announced the seasonally adjusted CPI fell from September to October. And it wasn’t just gas prices. Core was down too (not seasonally adjusted). That’s deflation (on a monthly basis).

If you’re in debt during a deflationary period, your assets lose value while the amount of debt you have outstanding will remain the same, making that debt more difficult to pay off. Asset-backed nominal losses may take years, or in worst cases decades, to get back in nominal terms.

The idea behind holding cash or cash-equivalents during this period is obviously to reduce deflationary losses. Don’t forget, if the expected rate of deflation is x% YOY, you can “earn” x% real interest YOY just by holding cash.

Nix,

I know your post wasn’t directed at me, but I noticed it only after I had posted. You’re entirely right, in a worst-case scenario deflation is “good” for no-one. All one can do is attempt to mitigate their losses, I suppose. I’m not in a position to entirely contemplate worst-case scenarios right now. You certainly seem to have the “psychology” of deflation pegged.

“I believe that central banks around the world will first inflate and monetize like crazy”

I’m not sure if I’m interpreting what you’re getting at correctly. If you think that “printing” will avoid deflation in the short term, I’m not certain that I agree. I’m not sure I see how deflation would occur shortly after a hyper-inflationary period, either- perhaps you could elaborate. I apologize if I’m misunderstanding you.

We seem to keep having the same conversation.

While I agree with your basic premise that “Deflation is good for people who have saved, bad for people who are in debt.” The statement does not hold true in today’s world. In a true deflationary environment no one really benefits. With government, corporate, and public debt all over the world at extremely high levels a deflationary environment would ensure extremely high tax rates, governments trying to service the ever growing demands of there own debt. Massive unemployment, starvation, or thousands of other horrific outcomes +60% unemployment would cause. Because you see in deflation no one buys anything, the consumer begins to realize that future prices will be lower and will hoard there cash to wait for lower prices. These leads to massive unemployment. The demand for everything would drop. You get the point. The cycle would continue and even savers would end up having no savings because they would be unemployed.

Anyway my bone of contention is not whether deflation will happen or not the question is of when.

I believe that central banks around the world will first inflate and monetize like crazy. Inflation and deflation is nothing more than a monetary phenomenon. They will inflate as long as they are allowed by those that are not debtor nations. Once they have been allowed to or been able to they will then be able to deflate. At this point deflation is far more acceptable because the debt will not be oppressive as it currently is. This will of course destroy all fiat currencies but that is another issue.

The moral of the story is that they will inflate then deflate. All this talk of deflation is nothing more than talk giving Central banks and governments the ability to print and do whatever it takes to cause inflation.

Helicopter Ben to the rescue.

If I am correct in this assumption watch for a precipitous drop in the dollar and a rise in gold and other commodities. I believe gold will move fist followed by the other commodities.

If I am wrong watch for a continued drop in oil, further increases in the U.S. dollar and precipitous drop in gold.

For the sake of man kind I hope I am correct.

NIA, DYODD.

Nix

http://www.reportonbusiness.com/servlet/story/RTGAM.20081121.wcpi1121/BNStory/Business/home

On a month-over-month basis, prices actually fell outright, down 1 per cent from September on a non-seasonally adjusted basis. That’s the biggest monthly decline in prices since June 1959, and prompted much chatter about whether Canada could be on the verge of a dangerous deflationary spiral.

The central bank has already indicated that it intends to continue slashing its key interest rate in order to stimulate Canada’s flagging economy.

the widespread fear of rising inflation that dominated economic discourse in the spring and summer has quickly given way to expectations for disinflation and even warnings of outright deflation. Deflation, which is a broad and sustained decline in prices, is dangerous because consumers stop making purchases in the hopes of lower prices in the future – making recovery from a recession more difficult.

But with Friday’s soft inflation numbers, economists at the Bank ofNova Scotia warned that deflation could be a problem here too.

Deflation is good for people who have saved, bad for people who are in debt.

“one of the best resources I found for reno’s was Mike Holmes forums. A wealth of information. And if you DIY for your bathroom, you will save thousands. I gutted my bathroom a while back and on evenings and weekends I worked on it. The bathroom cost me just about 2500 including renting tools( tile saw). At least double that to get someone in to do it. Good luck.”

Thanks for the tip- I have the forum bookmarked but haven’t checked it out as much as I should. The potential savings are pretty unreal given the cost of labour right now. It’s to the point where it might make sense for me to work a pretty decent-paying job part time next summer, and working on my renos for the rest of the time. I figure I’ll save more doing the labour myself than I lose in lost wages, even accounting for my competence level. Plus I learn skillz!

Joanne Paulson

The StarPhoenix

Thursday, November 20, 2008

Mario Lefebvre is almost afraid to predict Saskatoon’s economic growth. He’s been wrong — on the low side — so many times.

The economist and Conference Board of Canada’s director of municipal studies says Saskatoon is always surprising him with its buoyant economy, particularly in the last two years.

Still, in an interview Wednesday, he was willing to stick his neck out and predict 3.3 per cent growth for the city in 2009. That comes on top of 5.4 per cent growth this year.

“I’m afraid of making that call. You guys always seem to beat up what we predict,” Lefebvre joked.

“How long you can sustain this, I do not know. All I know is year in and year out, I go back to Saskatoon and offer my most sincere apologies.”

http://www.canada.com/saskatoonstarphoenix/news/story.html?id=b74c0d6a-63fc-456e-8877-59e3fc6077bf

About the biggest health-hazard I’ve ever run into in my vintage homes are bumping my head on those low floor joists at the bottom of the basement stairs. Will I ever learn? Another problem can be that they often have a clay pipe for the sewage from the house to the street; tiny tree roots can get into these and cause clogs to build up, which the city presently augers out for free. The trick is to remember that it’s time for a cleaning (every year or two) before you get a clog. There are often extra jobs to do (like painting wood siding and trim, which I think looks nicer than vinyl, anyways), but on the other hand, you know that the house has stood the test of time (they can be very solidly built).

Despite these issues, I would never buy anything but an older home, and I hope you will discover how awesome they are. One thing you’ve got to love about the old homes is that they often have a great location that you just can’t get in a new one. The quality of the workmanship is generally top-notch, the framing lumber and woodwork can’t be matched today (today’s lumber just isn’t the same as the old-growth stuff, and you’d pay a fortune to have high baseboards and solid wood doors done today), plaster is a much better sound insulator than drywall, and you can update anything else you feel you need to. Your house will be one of a kind, and if it’s less expensive than buying new, you can spend the difference on getting some renovations done just as you like. Trees, big lots, and alleys are nice, too. I really love old houses!

Haven’t checked in for quite some time but things seem to be get’n a lot more civil! I suppose writing’s been on the wall for the past while and anyone would be a fool to argue against the obvious

Just wanted to say hello amigo.

one of the best resources I found for reno’s was Mike Holmes forums. A wealth of information. And if you DIY for your bathroom, you will save thousands. I gutted my bathroom a while back and on evenings and weekends I worked on it. The bathroom cost me just about 2500 including renting tools( tile saw). At least double that to get someone in to do it. Good luck.

I saw this graph on Garths site.

Where is the bottom? 4 bear markets

http://www.greaterfool.ca/wp-content/uploads/2008/11/four-bears-large.gif

I took out a mortgage this year, and asked for a 25 year amortizations. The deal ended up going through with a 40 year term. I was less than impressed with my broker for that. I found out after 2 payments so it isn’t too bad for me, but if it had taken me much longer I wouldn’t have been impressed.

Yeah, I assume when you found out you got the amortization changed, and if you paid NHA insurance you got the difference back?

The difference in the insurance premium between a 25 year and 40 amortization is big. As I’ve discussed before, my spouses and I went with a 40-year, and we won’t be digging into the principal of our loan for the first 3 years of our term.

Matt said:

There are a number of larger 1800+ sqft houses in varsity view right now on MLS & Saskhouses… However, these houses are all quite old, mostly from the 1910’s.

I was just curious if anyone knows the history of any of these properties and has anything to say about the level of upkeep generally required? Are they suitable for a family or are there health hazards due to the age of the house?

I would echo the need for a home inspector, and say that you probably should be more comfortable with doing more handy-work around the house in an older home.

We bought a 1920s home in Caswell Hill that we knew had been well-cared for for 25 years (bought from my parents.) I think you have to have bit of a different mind-set when buying an older home- it’s a bit more of a labour of love than just a place to keep your stuff.

A year and a half in, I’m thrilled with our decision to buy a “character” home, and hopefully I will have fully discovered my inner Mike Holmes by the time any major projects become necessary. (In the next five years we’ll need to completely renovate a bathroom, replace a substantial amount of original hardwood flooring, and replace the furnace.)

Hmmm. That sounds a little sneaky. So, you were able to get that fixed?

http://tinyurl.com/68adx6

“Executives at Citigroup Inc., faced with a plunging stock price, began weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright, according to people familiar with the matter.”

By falling below $5, many mutual funds and institutional investors — in particular pension funds — must unload shares of Citigroup to comply with investment guidelines. Perhaps a merger? I’m not sure about that big rally tomorrow at all, now.

All those billions of TARP dollars that Uncle Hank handed them directly from the US taxpayer might not have been a very good investment… what a surprise.

That is a cool link. A few more points that I thought were interesting.

$136,000: The average mortgagor’s equity. This equity equals 51.7% of their home value on average.

72.3%: the percentage of equity for all Canadian home owners.

7%: the percentage of Canadian mortgagor’s with less than 10% equity.

78%: the percentage of Canadian mortgagor’s who have greater than 25% equity in their home.

0.28%: The percentage of Canadians who are 90 days or more past due on their mortgage.

This report doesn’t strike me as scary at all. In fact, it appears that Canadians are in far better shape than I would have imagined. Nearly 80% of home owners with mortgages could absorb a 25% decline in property values without seeing negative equity.

http://preview.tinyurl.com/59u5k6

Matt,

Those old homes do require a fair bit of upkeep but as long as I’ve been in this business I can only recall one instance where a Saskatoon homeowner claimed that their home was causing health problems. Generally, if the property is free of asbestos, mold, or bad wiring there shouldn’t be much to worry about. Always consult a qualified inspector on those items.

I was just curious if anyone knows the history of any of these properties and has anything to say about the level of upkeep generally required? Are they suitable for a family or are there health hazards due to the age of the house?

The snippet that made my head spin was this:

“22%: The percentage of mortgagors who took equity out of their homes in the past 12 months. People are spending more because last year it was 17%.

$41,000: The average equity that borrowers took out of their homes this year. That’s up 16% from last year. The most common reason for borrowing this equity? Debt consolidation.”

Putting the Line of Credit/Car Loan/Student loan onto the house debt? When housing values are falling?

This will NOT end well.

“Big rally tomorrow?”

Yola Edwards, technical analyst wrote yesterday, “A close above 9,381 would suggest a possible rally to about 10,200 while a close below 8,537 would negate the bullish pattern, and decline to about 6,874. Market closed at 8,490 on 11/19.