Drum and Zakaria are busy applauding us Canadians for our financial foresight. While it is true that the relative lack of leverage in the financial system was a good thing, it is also true that the Canadian economy tends to follow the course of the US economy with a 2-3 quarter lag. In short, does this (Canada's trade balance, released Tuesday, attached) look like the chart of a healthy economy? We are a leveraged play on the US and Asian economies.
Canada is now being held up as a regulatory example to us, but Canada has always been an odd duck--it was also the only major economy in the Great Depression not to have a banking crisis. You can tell a lot of stories about why this is so, but most of them--like nationwide banking, big downpayments on mortgages, and banks keeping substantial portions of the loans they originated, are found elsewhere. Moreover, it doesn't explain why they didn't have a banking crisis the first time around, when both their banking system and ours looked very different. Another Canadian of my acquaintance credits some deep resistence in the Canadian soul to get-rich-quick schemes, or even get-rich-slow schemes, but I couldn't comment.
It is quite true, however, that if the American economy really tanks, it won't matter much how great the Canadian banking system is; they'll have a nasty depression just the same. Their GDP is by now so dependent on exports, particularly to the US, that a downturn in the US means massive job losses in our neighbor to the north.
What they do indisputably have is a government in a much better position to deal with a crisis, because they've been running surpluses and paying down debt for over a decade. If only we'd had similar prudence.
The (French) Canadians of my acquaintance seem to think of making money as something dirty. Their competence leaves something to be desired as well.
It's led to this common joke where I work:
What do you call an ambitious, successful Canadian? A naturalized American citizen.
"What they do indisputably have is a government in a much better position to deal with a crisis, because they've been running surpluses and paying down debt for over a decade. If only we'd had similar prudence."
To be fair, this has a lot to do with Canada having a small, highly-skilled population (thanks to an immigration system that selects for skilled immigrants) and massive natural resource wealth. Australia has a similar combination of massive natural resource wealth and a relatively small, skilled population, but it's in better shape than Canada because it is less levered to the U.S. economy.
The first thing you need to know about Canada is that economically it is run by Chinese, Indians, and Middle Easterners.
From that, all else follows.
Canada is a mostly cautious, conservative and risk-averse society which is serving us well in these current environments but can be frustrating when credit flows.
Btw, it's interesting to note that the paying down of debt and the running of surpluses happened under 12 years of Liberal government which points to the pragmatism of Canadian politics. It's the same Liberal government that also refused to de-regulate the banks, under intense lobbying efforts from the banks and the Conservative opposition (who is now currently Prime Minister).
"The first thing you need to know about Canada is that economically it is run by Chinese, Indians, and Middle Easterners.
From that, all else follows."
What the hell is that based on?
I've worked in the financial industry my whole career and its about as white as you can get aside from the lower ranks.
Ditto for most other industries. Open a Globe Business section and the vast majority of position announcements are White (except for the accountants).
As demonstrated in the comments of the mommy post a few back, it has become a given of American life that we must spend money that we don't have to buy things that we don't have the time to enjoy.
The first thing you really need to know about Canada is that the CMCH (govt mortgage and housing agency) has taken $75 Billion worth of mortgages and MBS off the books of Canadian Banks since late 2008. Multiply times 10 to equal the size of the US and that is a $750 Billion bail out.
Next thing you need to look at is other fast and despearate attempts by banks to raise capital, like TD's recent sale of 10% yielding bonds.
And then you need to look at the capitalization rate for themajor banks, some of which are not so comforting.
Last, factor in Canada's 1-2 year time lage behind the US in real estate cycles. The bust just began up North. Couple that with world-wide depression and oil prices that make the tar sands unprofitable . . .
and if you still want to invest in canadian banks, then have I got a bridge to sell you in Brooklyn!
Heh, that is one hell of a chart.
I can't imagine the panic in China.
The world is now finding out the downside of running a trade surplus on the back of America: they need us a lot more than we need them.
I don't know about Canada in general, but I follow the Vancouver housing bubble blogs, and British Columbia is doomed. The housing sector is bloated and the local economy is heavily dependent on selling natural resources to the US. See condohype.wordpress.com or vancouvercondo.info. I don't know what kind of lending has been going on to fuel the craziness in BC, but the region is in trouble and the Olympics are not going to help. Vancouver has already had to start bailing out the Olympic Village.
Growing up, I heard:
Americans like to make money. Canadians like to count it.
A lot of the drop in exports is presumably explained by the collapse in petroleum prices. That's obviously bad for Canada, but it's not the same as what is happening in China.
China is different in a lot of ways, but arguably worse off:
Reporting from Shanghai -- China's exports in January took a dramatic turn for the worse, falling 17.5% in value from a year ago, as shipments of electronics, cellphones, steel products and other goods made in China plunged, the government said Wednesday.
And, amazingly, their imports fell by 43%, meaning their new consumer class is evaporating faster than it appeared.
I think you're right. Obviously, we should take our lessons where we can, and obviously, our banks need to be much less leveraged. But I just don't see a meaningful comparison to a country with a little more than a tenth of our population.
Um. You do know that Canada is the 51st state, don't you?
I just don't see a meaningful comparison to a country with a little more than a tenth of our population.
Please hold that thought until we get to talking about health care.
"And then you need to look at the capitalization rate for themajor banks, some of which are not so comforting."
While there may be some worries about the BMO dividend, Canada's banks are very well capitalized compared to their international peers. Don't know where youre getting your info.
Oh and it's CMHC not CMCH and most of that debt is yet to be transferred, so there is a program but it hasn't really been utilized.
Not arguing that Cdn Banks are a good investement (TD and BMO in particular have alot of US exposure) but they aren't insolvent like most US banks.
And, amazingly, their imports fell by 43%, meaning their new consumer class is evaporating faster than it appeared.
Not necessarily. They import a whole lot of oil, and when the price of crude drops 70% it's gong to have an effect. I assume they need other raw materials, too, like steel, so it's not hard to imagine a 43% drop as being entirely unrelated to consumer spending.
My sense is the Chinese consumers buy mostly local goods, especially consumer items. Factories produce the goods under the brand name we're familiar with and also the local, cheaper brand. Same stuff, and the local consumers know it. They buy foreign stuff if it isn't made in China or as a display of conspicuous consumption.
Not to pile or sound smug or anything but Australia is in much the same position as Canada. Our banks are holding up very well. Having run surpluses for years and paid down debt the first, modest stimulus package here didn't take us in to deficit. The next one, which is got a no vote in our Senate yesterday, will generate substantial deficits.
All of which may not save us either. We are an export economy serverely dependant on Japan and China.
BTW Our stimulus got blocked yesterday in the Senate by the conservative opposition, on idealogical grounds very similar to the GOP, plus one independent who is holding out for billions for fixing the Murray Darling river system. A worthy goal if you ask me but possibily not the point right now. This is a step up from the last indepentant Senator who was in such a position who got a ban on RU 486 in exchange for voting for a bill to sell the telephone company (no really, you can't make this stuff up)
Not to pile or sound smug or anything but Australia is in much the same position as Canada. Our banks are holding up very well.
Yeah, sure, but you guys are gonna be replacing a lot of stuff in Victoria.
Yeah, sure, but you guys are gonna be replacing a lot of stuff in Victoria.
Dude, you'e a thoughtless idoit. You're talking about 200 of my countrymen being burned alive 80 miles from my house.
So, seriously stupid, ignorant uncaring and unfunny. OK?
Get stuffed
The point about Canada is that it is a much more open economy than America's. Canada lives and dies by its ability to trade internationally. America is defined by its domestic consumption. So as the world economy plunges Canada is going to plunge too, but I'd be careful saying that this reflects a fundamentally weak economy. I guess it depends on how you view capitalism, but if you think that swimming with sharks makes you sharper than Canada's high degree of exposure to international markets makes for a stronger economy. I think it specializes and disciplines the workforce in a way a more domestic oriented economy can not.
What they do indisputably have is a government in a much better position to deal with a crisis, because they've been running surpluses and paying down debt for over a decade. If only we'd had similar prudence.
If you didn't vote Democratic in 2000, you have only yourself and the Supreme Court to blame.
The banks have been fairly conservative, NINJA 100%s barely started and then they got quashed by wiser heads.
Another interesting thing is that the Canadian banks have been the financial supermarket that Citi dreamed of (including a fair bit of insurance, though with some regulatory hassles and blocked mergers). The broad offer has generally worked well.
The commodity crunch is hurting, as is auto retrenchment - these are the two primary causes of the trade balance going south. This is the first trade deficit in 33 years. It's also of "record size", but records have only been kept since 71, while there has been just a bit of GDP growth since that point.
The banking sector is just less dynamic in Canada. 5 of the 6 national banks are headquartered within 2 blocks of each other. 4 of the 6 have their main offices ON THE SAME CORNER. The King & Bay intersection has 4 major office towers, each the HQ of a major bank, with another bank one block south at Bay & Wellington.
Those office towers have the headquarters of much of the asset managers in the country. The management has to deal with involved investors who go to lunch beside them, live beside them, have kids in the same schools, and have summer houses next door.
The pension funds are also much more sophisticated - no grandstanding like from CalPERS. The Ontario Teachers run a major Private Equity shop, they took an LBO run at one of the major telecoms, own a huge stake in a broadcaster, own the most valuable professional hockey in the world. Teachers and the Ontario Public Employees' pensions own the headquarters for 2 of the major banks through their respective real estate arms, which are both huge and capable players.
This oversight and substantial direct personal involvement makes any over ambitious strategy hard to get through the board. It also means that people on all sides of the table are mature, talented people who have to take each other seriously and do business again and again across all of their lines of business.
So you get less risk taking and innovation, but with a healthy culture it ends up being fairly positive. The truly good thing is that new ventures are fairly well treated through junior exchanges and access to the US and UK funding markets, so the conservative personal and commercial banking culture isn't pervasive across all aspects of finance. It's actually rather aggressive on the junior side (rather notoriously so), but with commodities well and truly screwed that doesn't matter much right now.
Unfortunately it's not a useful example for the US since the few replicable items don't seem to be guaranteed to work. The reason that the country has been in surplus for so long is because it came close to a New Zealand debt wall crisis and had governments that were serious about fighting deficits for more than 20 years. Of course getting out of deficit takes time, so the first government that was serious about getting to surplus never did, but until December 08 the idea of running a deficit has been anathema to serious Canadian politicians at any level, no matter the party. A big assist for this comes from living next door to the US and free-riding on military expenditures.
Canada's economy, like all the other major exporting countries at the time, got hit very hard during the Depression. In a worldwide slowdown, it's always the major exporters that tend to get hit the worst.
And, amazingly, [China's] imports fell by 43%, meaning their new consumer class is evaporating faster than it appeared.
Vast amounts of Chinese imports are raw materials, parts and even subassemblies that are then assembled into final products and exported right back out again. A collapse in imports is an expected part of a collapse in exports.
Not saying that your interpretation is wrong. But your evidence doesn't prove it at all.
A big assist for [Canada's surplus] comes from living next door to the US and free-riding on military expenditures.
A big assist for EVERYONE'S budget is free-riding on the US military (and medical) expenditures. Which is why any sensible country wants the US to continue spending vast amounts on both. If only those idiots in Europe would shutup and stop lecturing you guys to do the opposite.
Seriously. I expect that even China and Russia are probably spending less militarily than they would in a world without the Pax Americana.
I will just point out that a lot of banks were considered well capitalized and stable just 6 months ago, and they turned out not to be so.
This rush to laud Canadian banks' rectitude might be just a wee bit premature. I suspect that there are more than a few bodies to be found in the wreckage of the commodity crash.
The philosophy, if it can be called that, behind the organization and regulation of the Canadian banking system has been to make them so profitable that they couldn't possibly fail. There are only six of them after all. So it's good in bad times but bad in good times. (I got a mortgage on my house in the U.S. at a way lower rate than I would have gotten in Canada.)
On government debt, the key difference here is that the Parliamentary system means that once the governing party is satisfied that there is a genuine problem, they have the power to turn it around. That's what happened in the 1990s. The Liberals, after fighting the previous Conservative government that wanted to tighten fiscal policy all through the 80s, switched to the other side when they won office in 1988. In the U.S., the much vaunted division of powers makes doing the right thing very hard to carry out. It has to be popular, and paying bills is never popular--certainly not when people aren't seeing contemporaneous benefits. That's why fiscal conservatives are leery about looming deficits: they see no prospects for the current or future governments ever getting on top of the problem. To see this ask yourselves why Obama doesn't propose a carbon tax (or gasoline tax) to be implemented sometime in the future after all this mess is cleared away. It would cap the fiscal problem and take some needed steps on global warming at the same time. The answer is because it isn't something for nothing which is the only thing that the US public is unanimously in favour of. Republican forms of government are good for keeping good situations going but terrible for turning around bad situations.
As much as we up here are pompous and look down our noses at the US, deficits became a dirty word when the federal government and a few provinces hit the wall, ie. couldn't borrow money at low rates anymore.
A Liberal finance minister, after running two or three years of deficits and trying to do infrastructure spending on borrowed money to kickstart the economy, saw the light. Got rid of the deficit, raised taxes and cut spending. It was $40 billion or so at the time. There were a few tough years, but since then the economy has been trending up.
Provinces that have done the same had robust economies. Provinces with socialist or left leaning governments (high tax, deficits) have become 'have not' provinces, receiving essentially welfare payments from the Federal gov't.
Right now Ontario has one of them, and having more than half the population has kept the Canadian economy down. The only growth over the last handful of years has been in Alberta where an oil construction boom kept the federal government afloat and hired any stray worker anywhere in Canada. Saskatchewan and BC, neighbors have benefited from the spillover of money.
Right now BC has fallen off a cliff. The east never was much to begin, but Ontario is hurting bad facing the loss of the automotive industry. Alberta is regaining some sanity, excess is being punished. The bloom is off, but probably is still the best place to find work right now.
Canadian real estate in the west did the US bubble thing. The burst is lagging, and probably middle of the year will drop off. Some markets are real bad. Alberta had a severe demand driven bubble. Houses purchased two years ago are probably worth half. Alberta had an unusual housing situation for the longest time. A young man could go to Calgary, get into a trade, buy a house on his wages (seriously) and in 8-10 years have a good income, steady work and some equity in his home. When the housing prices increased dramatically, some made money but it made the labor shortage severe. Good wage people were living in their cars, not ideal for -40C weather.
The east real estate was never as crazy, so it won't drop as badly either. Wouldn't want to be a mortgage holder for anyone in BC.
40% or so of our economy is export based. If we are in a trade deficit now, do the math. It's going to get ugly.
Heard a rumour today from well connected people in Calgary. The natural gas producers are getting very antsy because they are not seeing any cash from the US utilities. Can't shut the gas pipeline off due to the Marines. They could secure the oilfields in about 3 hours, and the local Albertans would probably welcome them and point out the Ontarians among them for target practice.
Derek
Oh, if the Marines show up, we would lodge a complaint with the UN. Beware.
Another interesting little tidbit that we learned up here a number of years ago. Rattled the politicians.
They found that if they raised taxes, they generated less revenue.
Government expenditures have been increasing at about double the economic growth rate. The commodity boom, minerals and oil have been wonderful; taxes not connected with people who can complain. With the drop in commodity prices (oil is 1/3rd or so, others 1/2 from a year ago) there isn't anything or much to skim off the top. And the economy is shrinking. For the last 6 months the only one making any money on anything in Canada is the government.
We for our own reasons are about to hit a wall as bad as the US. This time caused by dramatic fall off of government revenue. Everything is strained through government up here, health, even electrical bills.
Essentially we have an economy where the absolute maximum is taxed, almost every aspect of the economy is regulated or run by government. The services government is providing now, or let's say last year when money was flowing like water are very inadequate. Health care is in good times severely rationed. In the east infrastructure is very bad, falling apart. All governments are a whisker away from bond rating adjustments.
Derek
"Not to pile or sound smug or anything but Australia is in much the same position as Canada."
Both Australia and New Zealand come up a lot on the thehousingbubbleblog.com. I don't recall the details, but the house price to income ratio is supposed to be way out of whack in at least certain parts of Australia (Sydney?), which is a sign of an unsustainable price level.
The thing is, here in the US a lot of people said "We're doing fine! It's different here. We didn't have much of a bubble in our area, not like those crazy speculators over there!" up until the financial roof fell in. The housing bubble was global. It affected the UK, Spain, Russia, Bulgaria, you name it. It's just that a bunch of places don't know that they've been hit yet. The time table is different in different places.
The other thing is that the Canadian banks treat their retail customers like serfs. There are huge user fees for everything, and they pay really crappy interest rates. The terms of mortgages are also a lot uglier - there is no such thing as a25 or 30 year fixed term; your mortgage rate will reset every 5 or so years, kind of like an ARM. Anyway, since all the big banks have all the functions under one roof, it means that they can simply squeeze retail customers to cover i-bank losses.
The government is kind of the same way - the government balanced the budget on a combination of tax hikes (including nasty bracket creep), a national sales tax, gutting the military and reneging on commitments to the provinces, but not otherwise cutting spending.
"I just don't see a meaningful comparison to a country with a little more than a tenth of our population." But approximately the same number of intelligent investors.
Freddie and Others:
Friends, decent banking regulation does not stop you having recessions. It just helps you avoid having banking implosions that make recessions much, much worse.
Canada will have a recession because the USA and most of the rest of the world are having one. Its recession will be much more manageable because it did not have a housing bubble, its public finances start in much better shape and its banks have much less exposure to bad and 'toxic' debt.
Here in Spain we have a largely home grown severe recession due to a housing bubble. Even so the recession is much more manageable because better regulation left the banks with low exposure to 'toxic' debt and ample reserves.
Like the Canadian banks, the Spanish banks are not as 'customer friendly' as many US banks used to be, pre-crisis; but speaking as a customer, the first thing I want from my bank is safe custody of my money. Anybody disagree?
The USA can learn from smaller economies, both from the smaller countries mistakes and the things they get right. Indeed a lot of US commentators have learnt from the Swedish example of how to get successfully out of the mess after sliding into a bad banking crisis.
A collapse in imports is an expected part of a collapse in exports.
Yes, but imports fell twice as fast as exports. I suppose one could argue it could be an inventory problem, but that's one hell of an inventory.
My sense is the Chinese consumers buy mostly local goods, especially consumer items.
In large part, probably, but that's not typically how trade works. Much of what China makes it cannot consume, and much of what it consumes it cannot make. That's how trade efficiencies benefit trading partners.
So the fact that Canada is better off than the rest of the world, in every metric save the tie to the US who brought the world into this mess, we should be criticizing them because there has been SOME damage north of the border and potentially more to come due to the global fallout and being tied to/lag the US? No nation, company or person on the planet could have or can avoid the ripple effect/ tidal wave of all of this - we're too connected. However, when this mess is over and we look back at how nations responded, and look to the data, I imagine Canada will have had a shallow and less lenghty downturn relative to the rest of the world. And the world will applaud for them for their conservatism, and staying the course when the world was partying. And while the world nurses our hangovers, Canada will have a pot of coffee on and cooking us all breakfast. Another example of the Tortoise and Hare.
...they've been running surpluses and paying down debt for over a decade. If only we'd had similar prudence.
Yes, if only we had listened to those DFHs who were saying the Iraq war was a bad idea, instead of fantasizing about smacking them in the head with a 2 x 4.
I think 2 x 4 comments have become Megan's version of Godwin's law.
The Canadian province I live in is still doing very well economically. But - our housing prices have more than doubled in the past couple of years and our economy is largely commodity-based. It's still too early to get too cocky.
On the other hand, my job is secure, my house is worth buttloads of money and Vegas vacations are really cheap! Whoo hoo!
Yes, if only we had listened to those DFHs who were saying the Iraq war was a bad idea,
Yep, then we wouldn't be stuck supporting a theocratic government in a worsening insurgency with no end in sight... oh wait, that's Afghanistan. Iraq just elected a secular government and is well on its way to being a self-sufficient model of moderate democracy for the Arab world.
I don't know, Freddie. Every scientific sample, every microcosm we study, is inevitably smaller than the subject itself. I think Canada's system should be viewed as such, and then of course, if anything is to be learned or applied to the American system, it can be evaluated on our disparate populations etc.
I think Canada not having a crisis is largely a mirage, as some commenters have pointed out. For example, Calgary had a worse real estate bubble than almost anywhere in the US, fueled by rising commodity (read: oil and natural gas) prices, causing most of Alberta to become flush with cash. Now that that's come crashing down, just you wait till the unraveling begins.
One thing that *has* kept real estate bubbles from occuring in places like Ontario, BC, and Quebec is that Canada does not have a mortgage interest deduction, so there is no implicit government subsidization of consumer over-leveraging.
Finally, note that CIBC was one of the first banks to blow up on US mortgages, and I believe sold that business to another bank (forget who, at this moment). Also, let's not forget the restructuring of the Canadian commercial paper market after that market showed to have massive problems. The great white north, is really the great white hype.
I don't have a very wide view, but I have a mortgage in Canada and my similarly-aged cousin had a mortgage in the US. We are similarly educated and our households make about the same.
When I went to buy my first home, I had to have 5% down and if I didn't, I had to buy mortgage insurance from the CMHC to cover the possibility that I would default. Granted, this was in the mid-90s. I bought that home, paid down the mortgage (25 year term, renewed at 5 years) for 7 years, and then moved up to a second home. For the second home I had a greater than 25% down payment so I didn't pay much attention to the rules, but I think the deal was that you had to have at least 10% to put on a second home.
My cousin followed the same path more or less except on her second home, purchased in 2005, she went for a much bigger house. She took the extra money from her first home and renovated, went on a trip, and sympathized with me that mortgage interest is not deductible in Canada (so I had no real incentive to maximize the amount of the loan).
Then she had a brief period of unemployment and during this time had gall bladder surgery. She ended up owing about $20k on the medical costs so what did she do? She refinanced her home on an interest-only loan. Then when the payments essentially doubled, she lost the house. And by then the bubble had burst (it burst early in her area) so there was no way to get out of it.
I think that's some of the fundamental difference right there. I was never rewarded for taking out a big loan; interest-only loans were never available to me; and being Canadian the idea of getting hit with thousands of dollars' worth of medical care and having to use my house as collateral never comes into play.
Now, my husband and I are facing some recessionary issues (I may be asked to go down to 80% time at work, or one of us may be laid off) but we can still keep our home in those scenarios. So it won't turn into bad debt (hopefully; if both happened it would be tight).
Anyways, just a trench-level view on some of the differences.
For more info on the asset-backed commercial paper market in Canada (and its dysfunction) that I discuss above, go here:
http://www.nytimes.com/2007/09/07/business/worldbusiness/07paper.html
"The whole matter has become something of an embarrassment for DBRS, the country’s leading rating agency. While other agencies, notably Standard & Poor’s, refused to rate the asset-backed paper because of its potential for a liquidity crisis, DBRS took on the task.
...
The potential that banks might not support third-party paper, Ms. Puffer said, was no secret. But the credit ratings applied by DBRS, she said, generally overcame investor concerns."
It's kind of hard to make S&P look good, though it appears DBRS managed to do it.
The ABCP market blew up a LONG time ago - summer 07. It's been handled fairly well, no contagion.
Calgary's housing market went nuts for a reason - the economy was nuts. $140 oil does incredible things to the Alberta economy, enough so that there is a very large Venezuelan ex-pat community in Fort McMurray. Granted they're PDVSA exiles running from Chavez, but Fort Mac is 56 and a half degrees North - 3.5 degrees from the Arctic Freaking Circle. Unskilled labor can get $100k to drive a dump truck (size of a Wal-Mart and can crush a pickup without noticing, but still). With an economy like that housing HAS to go nuts, but there's nothing you can do to control/prevent that.
Energy is retrenching and many projects are being put on hold, but that will give time for infrastructure and housing supply to catch up.
"It's just that a bunch of places don't know that they've been hit yet. The time table is different in different places."
So we're just too ignorant and provincial to know what's going on in own back yard. Is that it?
Boy you guys can't let go of that exceptionalism can you?
Try this.
The % of the US housing market that was subprime was 15%. In Australia (and I think Canda) it was 1%. Which means that (proportionally) a lot fewer Australians will be losing their homes.
Yes we have a housing bubble and a cultural over dependecy on real estate as an investment. We're not perfect, nor claiming to be. But, the cold truth is that this crisis was designed and produced on US soil and in such circumstances a modicum of humilty might just be in order.
In face off such a comprehensive failure of all your key financial institutions how you can remain quite that arrogant is beyond me.
Re: Then she had a brief period of unemployment and during this time had gall bladder surgery. She ended up owing about $20k on the medical costs so what did she do? She refinanced her home on an interest-only loan
Big mistake. If she had simply owed the money to the hospital and declared bankruptcy (assuming she couldn't pay) she would have taken a big hit on her credit rating, but kept her house. A lot of people in the US made the mistake of transferring unsecured debt to home equity loans-- and they are losing their houses now.
God, Americans are moronic.
What they do indisputably have is a government in a much better position to deal with a crisis, because they've been running surpluses and paying down debt for over a decade. If only we'd had similar prudence.
This is false. Both the U.S. and Canada are sovereign currency issuing nations in a floating exchange rate regime. As such, neither actually "borrow" money in any conventional sense of the word (bond sales are reserve drains that act to support non-zero interest rates), and both can spend with regard for revenue (in fact, operationally taxes can only be collected after the money has been spent into circulation. A sovereign currency issuer has no more money to spend when its budget is in surplus than it has when it is deficit.
Heh, I love the Americans who make themselves feel better by saying it's all a lie and hype re Canada's financial health.
While it's true that we are going to feel the pinch economically, the rest of our system isn't imploding around that, we'll be ok b/c the Liberals in the 90's said no to following the US down the road to deregulated destruction.
Now we need to diversify our trade more and decouple from the US, cuz you guys are in trouble ;)
"It's just that a bunch of places don't know that they've been hit yet. The time table is different in different places."
'So we're just too ignorant and provincial to know what's going on in own back yard. Is that it?'
Over and over again, that was exactly the pattern in different parts of the US--real estate agents and journalists reassured the public that it's different here, we're special, everyone wants to live here, they're not making more land, real estate always goes up, the Baby Boomers are coming, rich foreign investors are coming, "subprime is contained," etc. And then when things fell apart, everybody says, "Nobody saw it coming."
The deal is that if a large proportion of your fellow citizens are paying more than 3X yearly income for a house, the situation is unsustainable in the long run. And 3X is pretty out there, in my opinion. I'm a renter and there's no way I'd pay 2X family income for a house. Even 1.5X income makes me queasy, when you consider property tax, maintenance, etc. As they say, a house is a box that sits out in the rain--you really don't want it to be a major part of your financial plan.
Vancouver BC is going down. The house prices are way, way out of line with local incomes.
If anything will make Australia "different" it was that the Australian housing market peaked and started to fall in about 2006 (for the majority of the population, ie. the south east).
Which meant that the Australian lending institutions were able to sell off their underperforming or just plain risky loans in late 2006/early 2007, at which point most people in the world were still buying such things at top dollar after 30 seconds of due diligence.
So: Australia missed out on the last year of price rises (about 25%), and has already fallen about 25% since the 2006 peak, especially in the stupider parts of the Sydney market. (Sydney is ~25% of the Australian market by population, and a lot more by capitalization, so it tends to dominate the discussion on a national basis.)
So it isn't that Oz isn't going to fall, it's that it already got a lot of the falling out of the way when the getting was good.
Rule 1. Don't panic
Rule 2. If you panic, panic first.
Australia paniced first, quietly so nobody else would block to path to the exits.
Facts are facts. Canadians live longer and healthier with lower infant mortality rates despite spending far less of our GDP on healthcare than do Americans. Canadians face much lower rates of violent crime despite having much lower rates of incarceration than do Americans. Canadians have the same level of home ownership (about 68%) as Americans despite not being able to deduct mortgage interest from their income (this costs the US about $100 billion per year). To buy a house you need a down payment, you need a verified job and a decent credit rating. So if you want to get a house you have to work on those things which means you are more likely to make your mortgage payments and keep your house. If you default you can't just walk away from your house in Canada, you are personally responsible (remember personal responsibility?)for any deficiency. Bankruptcy is a tougher process here as well.
It turns out that if you save money, pay your mortgage and work hard....you just might get ahead. That used to be the American dream. Now, in the States it appeared that all you needed to get a mortgage was a pulse and now the economy lacks one. This hurts the global economy including Canada. However, I don't think we are in quite the same boat as our friends to the South.