Federal Government & Politics II

[Build.It]

thewave46 explained this very well, and is what I was getting at

80s/90s governments knew the country could withstand a recession so they let the economy go into one.

Now is the opposite - governments across the world have been avoiding a recession like the plague for a decade because they are scared that it will be far far worse than any other recession we've experienced in our lifetimes. So they kept rates artificially low and bailed out large private sector organizations that were failing, and subsidized all this through money printing.

80s/90s was a recession. Today is a failure of the system where the normal course of action doesn't work anymore.

Ultimately they're going to have to choose between letting asset bubbles pop, or printing their way out of this or bailing everyone out. Historically, when governments have had to make this decision they have always opted for the latter (ie. money printing leading to inflation).

A graph that is very telling on this is the labour force participation rate (% of working age people who are working). LEading up to the late80s recession this had been increasing steadily for a decade. Today is the opposite - this number has steadily, gradually declined since the Great Recession, and has continued down that path after the covid blip. Part of this can be explained by early-retirees, but there are also a lot of 20-somethings who have effectively given up on employment, or even trying to find a job. Not sure how this compares to the late 80s, but it is concerning.


https://tradingeconomics.com/canada/...icipation-rate

[thewave46]

One could probably manage it under the current circumstances, if there was political will to do so.

Let the Bank of Canada rein in inflation by keeping interest rates elevated for a bit. It seems to be doing this right now.

Lessen demand on housing by slowing population growth. This factor is mostly dominated by non-permanent residents entering from outside the country. Let the overleveraged homeowners eat it, but don't shaft them completely. One accomplishes this by lessening demand for rental accommodation by slowing population growth. They lose the house, but land in a cheaper rental to recover their finances.

Balance government budgets with an eye to long-term fiscal stability.

Prevent a big upwards spike in unemployment during this process by clipping population growth (see above) while the Baby Boom exits the workforce.

Sure, one has to grill the Ontario college/Canada secondary university funding sacred cow, but grilling is going to happen anyway. Might as well control the timing.

[casper]

You’re leaving out the key factor that government today has better modelling and understands the dynamics of the economy that in earlier years. The 90s were also a time when government had less flexibility.

The Harper government ended up taking action to avoid a severe recession. This government is doing the same. The next liberal government would do the same. If it turns out to be conservative I would hope they do the same.

Tossing people out of their home is bad for politics. Best option is slow downward changes in the cost of housing over time.

What the immigration minister is saying basically translates into a reduction in foreign students. So the feds want to point fingers at the provinces. At the end of the day it does not matter if the numbers come down.

[Build.It]

I'm honestly confused by this. Isn't issuing student visas a federal thing?

[Build.It]

Originally Posted by casper

The Harper government ended up taking action to avoid a severe recession. This government is doing the same. The next liberal government would do the same. If it turns out to be conservative I would hope they do the same.

Tossing people out of their home is bad for politics. Best option is slow downward changes in the cost of housing over time.

What you said here is exactly what is happening, and what is likely to continue happening. Government will kick the can as far down the road as they possibly can to avoid the deep recession and housing crash. Bare in mind that all this can kicking is what caused the bubble in the first place, and every solution is going to be more can kicking?

Ultimately what is going to happen is that the housing crisis is going to turn into a homelessness crisis - government will be forced to build lots of emergency shelters, lots of "wartime" apartments. This will of course be done with printed money, which will lead to higher inflation. Higher inflation will push up bond rates, which will push up mortgage rates. Rent prices will go up due to everyone being priced out. Mortgage holders will be bailed out in one form or another, which will prevent house prices from collapsing, despite the high rates.

In the end the way that housing will become affordable is through an inflationary crash - ie. not much change in nominal terms, but a massive decline in real terms. This will prevent most mortgage holders from ending up underwater, but it will reduce everyone's purchasing power.

This is how every debt bubble ends - lots of printed money, lots of bailouts, high inflation.

As much as I wish Poilievre sticks to his word about balancing the budget, ending deficit spending, etc - history has shown that no leader in this position ever does this. Unless his goal is to just run for one term, do the necessary but unpopular things, and then pick a different career in 2029 - but I highly doubt this to be the case. He is still a human being like all of us and when push comes to shove will put his own interests first, which is going to be to get re-elected. And so the solution is going to be inflation, because that is what is going to be most palatable for most people of all the options on the table.

Ultimately we are going to reach a point where the BoC and federal governments are going to have conflicting interests - BoC's mandate for 2% inflation will mean higher rates and less money printing, however federal government will need a lot more money than they can tax or borrow to fund all the programs needed to get out of the housing crisis. I would say there is a relatively high probability that the Bank of Canada Act gets rewritten so the feds can print whatever money they need without any interference from the BoC.

[kwoldtimer]

Originally Posted by Build.It

What you said here is exactly what is happening, and what is likely to continue happening. Government will kick the can as far down the road as they possibly can to avoid the deep recession and housing crash. Bare in mind that all this can kicking is what caused the bubble in the first place, and every solution is going to be more can kicking?

Ultimately what is going to happen is that the housing crisis is going to turn into a homelessness crisis - government will be forced to build lots of emergency shelters, lots of "wartime" apartments. This will of course be done with printed money, which will lead to higher inflation. Higher inflation will push up bond rates, which will push up mortgage rates. Rent prices will go up due to everyone being priced out. Mortgage holders will be bailed out in one form or another, which will prevent house prices from collapsing, despite the high rates.

In the end the way that housing will become affordable is through an inflationary crash - ie. not much change in nominal terms, but a massive decline in real terms. This will prevent most mortgage holders from ending up underwater, but it will reduce everyone's purchasing power.

This is how every debt bubble ends - lots of printed money, lots of bailouts, high inflation.

As much as I wish Poilievre sticks to his word about balancing the budget, ending deficit spending, etc - history has shown that no leader in this position ever does this. Unless his goal is to just run for one term, do the necessary but unpopular things, and then pick a different career in 2029 - but I highly doubt this to be the case. He is still a human being like all of us and when push comes to shove will put his own interests first, which is going to be to get re-elected. And so the solution is going to be inflation, because that is what is going to be most palatable for most people of all the options on the table.

Ultimately we are going to reach a point where the BoC and federal governments are going to have conflicting interests - BoC's mandate for 2% inflation will mean higher rates and less money printing, however federal government will need a lot more money than they can tax or borrow to fund all the programs needed to get out of the housing crisis. I would say there is a relatively high probability that the Bank of Canada Act gets rewritten so the feds can print whatever money they need without any interference from the BoC.

Only with significant cuts AND tax hikes would this be possible. I suspect nobody will look to deeply at that aspect of PP's rhetoric, and he's not likely to offer more than sweeping generalities.

[Build.It]

Originally Posted by kwoldtimer

Only with significant cuts AND tax hikes would this be possible. I suspect nobody will look to deeply at that aspect of PP's rhetoric, and he's not likely to offer more than sweeping generalities.

Don't get me wrong, there are still plenty of places we can and need to cut, he's not wrong about that. And he's still the best option we have, as he has displayed a much better understanding of how the economy actually works, and what is actually going on than the incumbent's have led on. But I don't expect him to crash the housing market, even if that's what would cause the least amount of pain the long-run.

[Truenorth00]

Originally Posted by thewave46

The current situation is sort of an inverse of the late 1980s/early 1990s.

Then: Unemployment was high and home prices were plummeting from their 1980s high. Government was hacking away at budgets. Resource prices were in free-fall, interest rates were very high.

Now: Unemployment is lower, home prices are high. Resource prices are up (for how long?), government is disinclined to balance budgets.

Today is the bigger risk, despite looking better on the surface. Debt levels are much higher at a personal and government level, so small interest rate changes have an undue effect. If 5% Bank of Canada rates cause screaming, 14% (as in the early 1990s) induces heart attack.

If resource prices give out, a lot of export wealth goes up in a puff of smoke. The hacking will do ugly things to the job market quickly. If government finds it can't roll over debt cheap anymore, it's going to find that hard when 1990s meat-cleaver tactics don't work on entitlements/healthcare as easily. If the labour market softens considerably, importing a million people per year is going to spike the unemployment rate rapidly.

The creaky three-legged stool of debt, resources, and mindless population growth seems ever more creaky. Hope a leg doesn't give out.

I just don't see the risk, mostly because I see corrections happening long before the shock arrives. We forget that in the 90s the Liberals were forced to cut because bankers were telling them our bonds wouldn't roll over. They had to basically throw out their election promises and immediately get to austerity. We aren't close to anything like that today. And we'll be seeing a lot more warnings before something like that arrives. For one, unlike the 90s, Canada is actually better than most of the rest. So if we're failing so dramatically, there's going to plenty to watch before us (including the US).

Also, what situation do you imagine happening that sees inflation soaring to the point that we need double digit interest rates, while seeing commodity prices simultaneously collapse? And what then would see the government continue their immigration policy following such an event? Basically, we're imagining a worldwide recession tanking commodity prices, with record immigration, and high inflation caused by a lot of unemployed people spending insane amounts of money. I honestly would like to know how such a situation could arrive, cause I am not imaginative enough to see this happening.

I get that we have economic challenges. I am not sure hyperbole helps the discourse though. We are on our way to a recession. Current interest rates are slowly taking us there. The next government will impose some austerity and curtail immigration. It'll be rough for the rest of the decade and then we'll bounce back.

[Truenorth00]

Originally Posted by Build.It

Today is a failure of the system where the normal course of action doesn't work anymore.

"This time it's different." Says every generation facing the economic crisis of their time.

It's really not. This is the normal economic cycle. Recessions happen. Some of them are painful. Not sure what makes this time particularly special. The only reason so many younger people are fearful of the r word is because they haven't actually lived through a severe recession. And the shocks they've lived through have been atypical (GFC and COVID). Not every recession is a financial crisis. We're going to pay our dues for skating through the GFC by inflating housing. C'est la vie.

[Truenorth00]

Originally Posted by Build.It

Don't get me wrong, there are still plenty of places we can and need to cut, he's not wrong about that. And he's still the best option we have, as he has displayed a much better understanding of how the economy actually works, and what is actually going on than the incumbent's have led on. But I don't expect him to crash the housing market, even if that's what would cause the least amount of pain the long-run.

Given that we are short millions of homes, there's no real way to crash the housing market, like what happened in the early 90s. If immigration is cut down to 2015 levels, all that happens is the market stabilizes and goes sideways while the backlog is cleared. A real crash requires us to build more housing than demand. Like the markets in the US where they built 5-10 years worth of supply in some cases. I can't think of a single city where this could happen in Canada.

[Innsertnamehere]

Originally Posted by Build.It

thewave46 explained this very well, and is what I was getting at

80s/90s governments knew the country could withstand a recession so they let the economy go into one.

Now is the opposite - governments across the world have been avoiding a recession like the plague for a decade because they are scared that it will be far far worse than any other recession we've experienced in our lifetimes. So they kept rates artificially low and bailed out large private sector organizations that were failing, and subsidized all this through money printing.

80s/90s was a recession. Today is a failure of the system where the normal course of action doesn't work anymore.

Ultimately they're going to have to choose between letting asset bubbles pop, or printing their way out of this or bailing everyone out. Historically, when governments have had to make this decision they have always opted for the latter (ie. money printing leading to inflation).

A graph that is very telling on this is the labour force participation rate (% of working age people who are working). LEading up to the late80s recession this had been increasing steadily for a decade. Today is the opposite - this number has steadily, gradually declined since the Great Recession, and has continued down that path after the covid blip. Part of this can be explained by early-retirees, but there are also a lot of 20-somethings who have effectively given up on employment, or even trying to find a job. Not sure how this compares to the late 80s, but it is concerning.


https://tradingeconomics.com/canada/...icipation-rate

the run up in the 1980's was women entering the workforce and the slow decline today is the slow aging of our population.

it's not a structural change in our economy - just demographics and changing social norms at work.

[casper]

Originally Posted by Build.It

I'm honestly confused by this. Isn't issuing student visas a federal thing?

Regulating post secondary educational institutions is a provincial activity. Deciding how many students to accept into a program is provincial.

The feds have been accepting at face value that these programs are legit based on provincial certifications of the program.

While it may not be appropriate for the feds to limit how many students a university brings in I think that is exactly what the feds are going to do.

[Acajack]

All the talk about the dark times in the late 80s and early 90s made me think that it was also a time of crises, with Oka, Meech and of course the lead-up to the 1995 referendum.

I don't think the economic doldrums were the primary reasons but definitely contributing factors: when things are going so well economically it leads to tensions and the exacerbation of existing fault lines, since people are more on edge.

[Dengler Avenue]

Originally Posted by Acajack

All the talk about the dark times in the late 80s and early 90s made me think that it was also a time of crises, with Oka, Meech and of course the lead-up to the 1995 referendum.

I don't think the economic doldrums were the primary reasons but definitely contributing factors: when things are going so well economically it leads to tensions and the exacerbation of existing fault lines, since people are more on edge.

So well or so poorly?

[lio45]

Clearly he meant “when things are NOT going so well …”

It’s so obvious I’m almost tempted to edit his post and add that “not”, just because I can

[ssiguy]

Couldn't agree more. Even his much vaunted environmental sensitivities have been shown to be laughable as our emissions under his administration haven't declined and he is more than willing to toss his ideals out the window when there are votes to be bought in Atlantic Canada.

By every metric, our standard of living and quality of life has plunged under Trudeau. I don't really like PP but I fail to see how he could make the situation any worse. It's all up hill from Trudeau.

[Truenorth00]

Originally Posted by lio45

It’s so obvious I’m almost tempted to edit his post and add that “not”, just because I can

With great power comes great responsibility!

Happy to see you take on additional burdens!

[O-tacular]

With the exception of the referendum the 90's seem like a golden era in comparison to today. Remember Y2K?

God, we didn't know how good we had it back then. Almost every family could afford a SFH and annual vacation.

[theman23]

If the Conservatives were testing the waters on immigration with that interview in December, they dove right in in January.

• Video Link

[Acajack]

Originally Posted by lio45

Clearly he meant “when things are NOT going so well …”

It’s so obvious I’m almost tempted to edit his post and add that “not”, just because I can

You're correct.

(Moderator status going to his head already!)