A recent OECD report reveals that Canadian seniors receive a much lower proportion of their income from public pension schemes than do seniors in most other advanced economies. Although the OECD acknowledges that the rate of senior poverty in Canada is much lower than the OECD average, the report is putting more pressure on the federal government to improve the Canada Pension Plan (CPP).
The Federal Finance Minister, Jim Flaherty, has steadfastly resisted calls for the government to increase employee and employer contributions to the plan in order to boost CPP payouts. He has argued that the weak economic recovery makes any such addition to employment costs, and drain on after tax incomes, a risky proposition. In response, some of the Provinces, notably Ontario, are musing about setting up their own pension plans, if the Feds won't play ball. (Quebec already has its own, very well run pension scheme, completely separate from the CPP).
It's hard to see how this ends well, because the whole effort is coming too late. The people clamouring for the increase in public pensions are the baby boom cohort, now reaching retirement age and realizing that, despite decades of urging from governments and financial planners alike, they haven't set aside nearly enough to sustain their lavish, debt-fueled lifestyles. If Ontario proceeds with a pension plan of its own, it's dollars to donuts that it will start paying out immediately to all those seniors who have never contributed a penny toward the scheme. Premiums will be collected from employers and from current employees, adding to the financial burdens they already face as a result of their parents' profligacy.
There's been a lot of coverage in the media in recent months about rising economic inequality since the financial crisis. The problem is worst in the United States, but the same phenomenon is evident in Canada also. A big part of this rising disparity in incomes and wealth is surely age-related. One way or another, pensions are a claim on income. If you defer consumption during your working years, either by yourself or as part of a pension scheme, then you're making a claim on your own lifetime income. If you spent every paycheck and then some, then the pension you demand is a claim on someone else's income.
A large percentage of baby boomers have never exhibited any qualms about hijacking the income of future generations for their own purposes. Ontario Premier Kathleen Wynne, a youngish boomer herself, well knows that these folks turn out to vote in much larger numbers than do the young. With a finely-balanced provincial election just months away, she may well be tempted to offer up yet another unfunded inter-generational wealth transfer.
Friday 29 November 2013
Saturday 23 November 2013
Get ready to rumble -- at 35000 feet
On a business trip a decade or more ago, a colleague of mine decided to try out all of the ring tones on his new cellphone. On a Eurostar from Brussels to London, while passing through the Channel Tunnel. Looking around at the irate expressions on the faces of our fellow passengers, I had the distinct impression that we would be lucky to make it back to London in one piece, but fortunately my colleague soon tired of the game and stashed the phone away.
Fast forward to today, and we learn that the FAA in Washington is giving serious consideration to allowing cellphone use during passenger flights. The technical issues that led to the ban on the use of these devices were resolved (or debunked) some time ago, and a few international airlines, including Emirates, are already permitting their use.
Unions representing cabin staff are aghast, and rightly so. Phone usage in flight is likely to be very expensive, which may deter kids from calling all their pals to announce "I'm on the plane", but cost is unlikely to be an issue for the armies of bankers and hedge fund managers up at the front of the bus, just salivating for a new opportunity to bray into their iPhones.
How long before inconsiderate phone use triggers an all-out brawl in business class? I'd say before breakfast time on the first day the restrictions are lifted. Just one more reason to be glad I don't fly much any more.
Fast forward to today, and we learn that the FAA in Washington is giving serious consideration to allowing cellphone use during passenger flights. The technical issues that led to the ban on the use of these devices were resolved (or debunked) some time ago, and a few international airlines, including Emirates, are already permitting their use.
Unions representing cabin staff are aghast, and rightly so. Phone usage in flight is likely to be very expensive, which may deter kids from calling all their pals to announce "I'm on the plane", but cost is unlikely to be an issue for the armies of bankers and hedge fund managers up at the front of the bus, just salivating for a new opportunity to bray into their iPhones.
How long before inconsiderate phone use triggers an all-out brawl in business class? I'd say before breakfast time on the first day the restrictions are lifted. Just one more reason to be glad I don't fly much any more.
Thursday 21 November 2013
On spreads and rates
The "business" section of the Toronto Star is not usually a place you'd turn to for serious analysis. It's normally full of articles about how banks or utilities are gouging their clients for unjustified fees, or profiles of individuals whose poor financial management has got them into trouble. Remarkably, however, today's print issue has two weighty articles about the kind of topic that I used to get paid to analyze, back in the day. Let's scrape off some of the rust and take a look.
We begin with an article about whether the City of Toronto's borrowing costs have been affected by the Rob Ford circus. I approached this with some trepidation: remember how, at the height of the Eurozone crisis, there were almost daily scare stories about how Italy would be unable to service its debts if its bond yields reached 7 percent? The specific number seemed to be plucked out of the ether, and the authors never seemed to note the fact that, since most of the country's borrowings were for long terms at fixed rates, it would require market rates to stay at or above the 7 percent level for many years before Italy's actual debt service costs would even begin to approach that level.
It's good to be able to report that the Star's piece avoids any such errors. It correctly points out that the city's borrowing costs are fixed, and further notes that since no further bond issuance is likely until mid-2014, any short-term move in Toronto's bond "spread" (the gap between the yield on the city's debt and that of the Government of Canada) is effectively insignificant. The article even ventures to suggest that changes in Toronto's bond spread may be driven not by events at City Hall, but by changes in the spread for Ontario bonds, since the Province is seen as the "backstop" for Toronto's debt. It's a sensible and informative piece of work, so kudos to the writer, Dana Flavelle.
Let's now turn to a piece on the Bank of Canada, which was warned this week by the OECD that it might need to start raising interest rates before the end of 2014. The Bank's new governor, Stephen Poloz, has been much more reticent than his predecessor, Mark Carney, about predicting (sorry, "providing guidance") about where rates might be heading, but he has been quick to react to the OECD's suggestion. He doesn't agree that rates will need to rise that soon, based on the Bank's own analysis of the degree of slack in the economy and its view that inflation, currently at 1.1%*, is "lower than the Bank would like it to be".
That's the sort of statement that still gives me the heeby-jeebies, what with me having spent more than half of my professional career watching central banks struggling mightily to get inflation under control. It will be interesting to see whether Poloz is right about this. The aforementioned Mark Carney is sounding less confident about keeping UK rates on hold for as long as he had previously expected, and the latest FOMC minutes have got US and global markets fretting again about a possible end to QE as early as December. (For what it's worth, I don't think that will happen. I think it will be left to new Fed chief Janet Yellen to initiate the QE "taper", which would help her to allay market fears that she's too wedded to cheap momey).
As the Star article points out, the Canadian dollar fell in response to Gov. Poloz's comments, and it can only fall further as the inevitable end of US QE comes into view. That would quickly give Poloz the higher inflation he appears to crave, and start the countdown toward a tightening cycle in Canada. The first rate move probably won't come before the end of 2014, but it's unlikely to be much later than that.
*UPDATE, November 23: But hey, what do I know? The day after I posted this, StatsCan reported that inflation fell to 0.7% in October -- something which Poloz presumably knew when he made his comment about the rate being too low.
We begin with an article about whether the City of Toronto's borrowing costs have been affected by the Rob Ford circus. I approached this with some trepidation: remember how, at the height of the Eurozone crisis, there were almost daily scare stories about how Italy would be unable to service its debts if its bond yields reached 7 percent? The specific number seemed to be plucked out of the ether, and the authors never seemed to note the fact that, since most of the country's borrowings were for long terms at fixed rates, it would require market rates to stay at or above the 7 percent level for many years before Italy's actual debt service costs would even begin to approach that level.
It's good to be able to report that the Star's piece avoids any such errors. It correctly points out that the city's borrowing costs are fixed, and further notes that since no further bond issuance is likely until mid-2014, any short-term move in Toronto's bond "spread" (the gap between the yield on the city's debt and that of the Government of Canada) is effectively insignificant. The article even ventures to suggest that changes in Toronto's bond spread may be driven not by events at City Hall, but by changes in the spread for Ontario bonds, since the Province is seen as the "backstop" for Toronto's debt. It's a sensible and informative piece of work, so kudos to the writer, Dana Flavelle.
Let's now turn to a piece on the Bank of Canada, which was warned this week by the OECD that it might need to start raising interest rates before the end of 2014. The Bank's new governor, Stephen Poloz, has been much more reticent than his predecessor, Mark Carney, about predicting (sorry, "providing guidance") about where rates might be heading, but he has been quick to react to the OECD's suggestion. He doesn't agree that rates will need to rise that soon, based on the Bank's own analysis of the degree of slack in the economy and its view that inflation, currently at 1.1%*, is "lower than the Bank would like it to be".
That's the sort of statement that still gives me the heeby-jeebies, what with me having spent more than half of my professional career watching central banks struggling mightily to get inflation under control. It will be interesting to see whether Poloz is right about this. The aforementioned Mark Carney is sounding less confident about keeping UK rates on hold for as long as he had previously expected, and the latest FOMC minutes have got US and global markets fretting again about a possible end to QE as early as December. (For what it's worth, I don't think that will happen. I think it will be left to new Fed chief Janet Yellen to initiate the QE "taper", which would help her to allay market fears that she's too wedded to cheap momey).
As the Star article points out, the Canadian dollar fell in response to Gov. Poloz's comments, and it can only fall further as the inevitable end of US QE comes into view. That would quickly give Poloz the higher inflation he appears to crave, and start the countdown toward a tightening cycle in Canada. The first rate move probably won't come before the end of 2014, but it's unlikely to be much later than that.
*UPDATE, November 23: But hey, what do I know? The day after I posted this, StatsCan reported that inflation fell to 0.7% in October -- something which Poloz presumably knew when he made his comment about the rate being too low.
Monday 18 November 2013
Said it before and I'll say it again
Whoop-de-doo and jump for joy! US stock indices are advancing to new highs, with the DJIA moving above 16000 for the first time ever. This has triggered a certain amount of soul-searching on CNBC and the like, about whether things are getting just the teensiest bit bubbly here. The general conclusion: Naaah! Valuations are in normal ranges, companies are sitting on piles of cash, and so on.
But what's driven the markets to these fresh highs? Just last week there was a very disappointing Empire State report on the factory sector, and incoming Fed Chairman Janet Yellen told her Congressional inquisitors that the national unemployment rate, at 7.3%, is still too high, so it can't be economic fundamentals that are moving the market.
The upward pressure on stock prices is, of course, driven by the likelihood that the Fed, under Ms Yellen's guidance from January onwards, will keep its QE program running full-tilt for several more months. Whether this is really needed at this point in the recovery is debatable, but what's beyond dispute is that ultra cheap money leads to an increasingly desperate search for returns, which in turn leads to the mispricing of assets, setting the stage for the next financial crisis.
So it's worth repeating that we'll only know whether QE has been successful, other than as a Band-Aid, when we see how the global economy copes without it. Right now, we still don't even know how the Fed expects to bring about the long-awaited "taper" of its asset buying program. The higher stocks go, the greater the likelihood that the taper, when it comes, will be messy.
But what's driven the markets to these fresh highs? Just last week there was a very disappointing Empire State report on the factory sector, and incoming Fed Chairman Janet Yellen told her Congressional inquisitors that the national unemployment rate, at 7.3%, is still too high, so it can't be economic fundamentals that are moving the market.
The upward pressure on stock prices is, of course, driven by the likelihood that the Fed, under Ms Yellen's guidance from January onwards, will keep its QE program running full-tilt for several more months. Whether this is really needed at this point in the recovery is debatable, but what's beyond dispute is that ultra cheap money leads to an increasingly desperate search for returns, which in turn leads to the mispricing of assets, setting the stage for the next financial crisis.
So it's worth repeating that we'll only know whether QE has been successful, other than as a Band-Aid, when we see how the global economy copes without it. Right now, we still don't even know how the Fed expects to bring about the long-awaited "taper" of its asset buying program. The higher stocks go, the greater the likelihood that the taper, when it comes, will be messy.
Wednesday 13 November 2013
Unguided
Mark Carney's attempts to introduce "forward guidance" into UK monetary policy just after he arrived at the Bank of England in mid-year attracted a certain amount of skepticism, from market participants and pundits alike. His decision to tie possible monetary tightening to a specific indicator, the unemployment rate, was widely seen as a hostage to fortune -- and that's how it seems to be turning out.
When Carney showed up on Threadneedle Street, fixed income markets in a number of countries were starting to price in monetary tightening quite aggressively, resulting in rising bond yields. The trend toward higher rates was triggered by musings from the Fed that it was starting to think about tapering its QE program -- something which, in the event, has not happened yet, and may not now transpire until well into 2014.
Carney's response to a similar emerging trend in the UK Gilts market went beyond anything he had attempted while at the Bank of Canada. He declared that rather than focusing on growth trends per se, the Bank would closely observe levels of slack in the economy, specifically the unemployment rate. Other things being equal, the Bank would not begin to tighten its policy settings until unemployment fell to 7%. Coupled with the Bank's own economic projections, this implied to markets and media alike that the Bank would be on hold until 2016. Even at the time, however, there were plenty of suggestions that trends in the economy would force its hand much sooner than that.
Fast forward a few months, and the UK economy is growing much faster than the Bank expected -- "robustly", as Carney put it in his latest presentation. As a consequence, the unemployment rate has already fallen to 7.6%. Suggestions are now starting to emerge that the economy will overheat unless the Bank starts to tighten in 2014, and most expectations, including the Bank's own, now seem to be that tightening will come no later than 2015.
However, as this piece from The Guardian suggests, the Bank is keeping its options open -- which can only lead to further doubts about the usefulness of its "forward guidance" in the first place.
As a footnote, back in Ottawa, Carney's successor at the Bank of Canada, Stephen Poloz, seems to have backed away altogether from providing specific guidance to markets about future policy. Even without such guidance, however, it seems very likely that Canadian rates will stay on hold longer than those in the UK.
When Carney showed up on Threadneedle Street, fixed income markets in a number of countries were starting to price in monetary tightening quite aggressively, resulting in rising bond yields. The trend toward higher rates was triggered by musings from the Fed that it was starting to think about tapering its QE program -- something which, in the event, has not happened yet, and may not now transpire until well into 2014.
Carney's response to a similar emerging trend in the UK Gilts market went beyond anything he had attempted while at the Bank of Canada. He declared that rather than focusing on growth trends per se, the Bank would closely observe levels of slack in the economy, specifically the unemployment rate. Other things being equal, the Bank would not begin to tighten its policy settings until unemployment fell to 7%. Coupled with the Bank's own economic projections, this implied to markets and media alike that the Bank would be on hold until 2016. Even at the time, however, there were plenty of suggestions that trends in the economy would force its hand much sooner than that.
Fast forward a few months, and the UK economy is growing much faster than the Bank expected -- "robustly", as Carney put it in his latest presentation. As a consequence, the unemployment rate has already fallen to 7.6%. Suggestions are now starting to emerge that the economy will overheat unless the Bank starts to tighten in 2014, and most expectations, including the Bank's own, now seem to be that tightening will come no later than 2015.
However, as this piece from The Guardian suggests, the Bank is keeping its options open -- which can only lead to further doubts about the usefulness of its "forward guidance" in the first place.
As a footnote, back in Ottawa, Carney's successor at the Bank of Canada, Stephen Poloz, seems to have backed away altogether from providing specific guidance to markets about future policy. Even without such guidance, however, it seems very likely that Canadian rates will stay on hold longer than those in the UK.
Tuesday 12 November 2013
War is too important to be left to the politicians
This angry and moving piece from OpenDemocracy is well worth a few minutes of your time. The writer, Adam Ramsay, is appalled that the Cameron government in the UK seems poised to re-write the history of World War I to suit its own political purposes. Remarkably, in the midst of its ongoing austerity drive, the British Government has come up with 50 million pounds to fund a Golden Jubilee-style "celebration" next year, marking the centenary of the start of the conflict. The irascible Jeremy Paxman has been moved to observe that "anyone who wants to celebrate war is a moron".
Quite so, and sadly the morons are not confined to that side of the Atlantic. Here in Canada, the Harper government has poured large sums of money into commemoration of the relatively small-scale (though historically pivotal) War of 1812. This may have been good for tourism in my neck of the woods, even if the last thing we need here is even more tourists, but it's an odd priority for a government that's much more committed to fiscal rectitude than David Cameron's.
It's not just about commemoration, though. Even as Harper's team cuts social spending and eviscerates decades of federal-provincial co-operation, it's trying to recapture some of the Canadian military's past glories. The three services, which had been merged into a single "Canadian Armed Forces" as an economy measure, have been separated again, and restored to distinct, colonial-style uniforms, with UK-inspired ranks. The government has even taking to talking tough, for example taking a much tougher line on negotiations with Iran than any of the countries that are actually involved. It's all quite bizarre, especially as it's almost entirely for show; Canada's actual military capabilities are little more than risible.
Yesterday's Remembrance Day ceremonies, in the customary gloom and sleet of an Ottawa November morning, focused on the undoubted bravery of the fallen, with no mention of the idiocy of the politicians and generals who sent them to their deaths. Take the infamous Dieppe raid, for example, in August 1942, in which 60% of the Canadian forces personnel involved were killed, wounded or captured, and both the RAF and the Royal Navy took severe losses. (As it happens, my father was coxswain on one of the RN landing craft that survived the slaughter). A new book suggests that this raid, long explained as a tester for D-Day, was in fact an attempt to capture a new type of German cipher machine. Earl Mountbatten took the "credit" for the fiasco, but it appears that the author of the plan was none other than Ian Fleming, the creator of James Bond. It's probably not a major part of his memoirs.
It's important that we not forget those who died in war. but it's equally important that we don't fall for mythical accounts of why they were sent to die. And we need to remind our political leaders that the only real way to honour the fallen is to make sure we don't keep adding to their numbers.
Quite so, and sadly the morons are not confined to that side of the Atlantic. Here in Canada, the Harper government has poured large sums of money into commemoration of the relatively small-scale (though historically pivotal) War of 1812. This may have been good for tourism in my neck of the woods, even if the last thing we need here is even more tourists, but it's an odd priority for a government that's much more committed to fiscal rectitude than David Cameron's.
It's not just about commemoration, though. Even as Harper's team cuts social spending and eviscerates decades of federal-provincial co-operation, it's trying to recapture some of the Canadian military's past glories. The three services, which had been merged into a single "Canadian Armed Forces" as an economy measure, have been separated again, and restored to distinct, colonial-style uniforms, with UK-inspired ranks. The government has even taking to talking tough, for example taking a much tougher line on negotiations with Iran than any of the countries that are actually involved. It's all quite bizarre, especially as it's almost entirely for show; Canada's actual military capabilities are little more than risible.
Yesterday's Remembrance Day ceremonies, in the customary gloom and sleet of an Ottawa November morning, focused on the undoubted bravery of the fallen, with no mention of the idiocy of the politicians and generals who sent them to their deaths. Take the infamous Dieppe raid, for example, in August 1942, in which 60% of the Canadian forces personnel involved were killed, wounded or captured, and both the RAF and the Royal Navy took severe losses. (As it happens, my father was coxswain on one of the RN landing craft that survived the slaughter). A new book suggests that this raid, long explained as a tester for D-Day, was in fact an attempt to capture a new type of German cipher machine. Earl Mountbatten took the "credit" for the fiasco, but it appears that the author of the plan was none other than Ian Fleming, the creator of James Bond. It's probably not a major part of his memoirs.
It's important that we not forget those who died in war. but it's equally important that we don't fall for mythical accounts of why they were sent to die. And we need to remind our political leaders that the only real way to honour the fallen is to make sure we don't keep adding to their numbers.
Thursday 7 November 2013
Toronto, the needy city
It's no surprise that the Mayor Rob Ford drugs/video/drunken stupor scandal has been dominating the local media for the past week and more. The Toronto Star, in particular, has gone completely overboard, with front page headlines in gigantic type and numerous "special editions". Some days, the scuzzy saga has pushed just about every other news story out of the paper completely.
However, one story has appeared regularly, despite the Ford mania. What do you think that might be? The Senate expenses scandal? The Syrian conflict?? US gubernatorial elections??? No, none of the above. After the Rob Ford scandal itself, the second-biggest story has been.....how global media have been covering the Rob Ford scandal!! The newspapers have printed collages of screen captures about the Ford saga from the BBC, CNN, Al-Jazeera, El Pais and so on, while the local broadcast media have endlessly recycled clips from the BBC World Service, US current affairs shows and even the late night talk show circuit.
It's all symptomatic of Toronto's remarkable immaturity. It may just have surpassed Chicago to become the third most populous city in North America, but it remains as needy as a toddler. Just ahead of Mayor Ford's bizarre press conference on Tuesday, the Star's sports columnist, Cathal Kelly, tweeted that Toronto was finally about to enjoy a "global moment". People may be mercilessly mocking the city, but hey, at least they're talking about us!!
Instead of just tallying up the mentions it's getting in the global media, the city really needs to listen to what's being said. Last night Anderson Cooper discussed the scandal at length with a heavyweight panel that included Christiane Amanpour, PJ O'Rourke and Andrew Sullivan. They were joined on video from Toronto by one of the journalists who has done the most to uncover the scandal, the Star's babe-tastic civic affairs reporter, Robyn Doolittle.
There was a lot of chortling about the Mayor's transgressions, but as Ms Doolittle attempted to explain how he was able to cling to office, and how nobody could compel him to resign, the panelists' expressions changed from amusement to amazement. They were at a loss to understand how Canada has no equivalent to the US "recall" procedure for dealing with out-of-control politicians. It's not as if political bad boys are unknown in this country, but there's nothing more robust than the honour system to deal with miscreants.
In the case of Mayor Ford, that's very obviously not enough. The media are belatedly awakening to the need to equip municipalities, or even better, the citizenry, with an enforceable mechanism to deal with this sort of thing in the future. Another Rob Ford may not show up any time soon -- to quote SJ Perelman, "before they made him, they broke the mould" -- but it's abundantly clear that changes should be made, and quickly. Even if that does mean that Toronto will no longer get the attention it craves.
However, one story has appeared regularly, despite the Ford mania. What do you think that might be? The Senate expenses scandal? The Syrian conflict?? US gubernatorial elections??? No, none of the above. After the Rob Ford scandal itself, the second-biggest story has been.....how global media have been covering the Rob Ford scandal!! The newspapers have printed collages of screen captures about the Ford saga from the BBC, CNN, Al-Jazeera, El Pais and so on, while the local broadcast media have endlessly recycled clips from the BBC World Service, US current affairs shows and even the late night talk show circuit.
It's all symptomatic of Toronto's remarkable immaturity. It may just have surpassed Chicago to become the third most populous city in North America, but it remains as needy as a toddler. Just ahead of Mayor Ford's bizarre press conference on Tuesday, the Star's sports columnist, Cathal Kelly, tweeted that Toronto was finally about to enjoy a "global moment". People may be mercilessly mocking the city, but hey, at least they're talking about us!!
Instead of just tallying up the mentions it's getting in the global media, the city really needs to listen to what's being said. Last night Anderson Cooper discussed the scandal at length with a heavyweight panel that included Christiane Amanpour, PJ O'Rourke and Andrew Sullivan. They were joined on video from Toronto by one of the journalists who has done the most to uncover the scandal, the Star's babe-tastic civic affairs reporter, Robyn Doolittle.
There was a lot of chortling about the Mayor's transgressions, but as Ms Doolittle attempted to explain how he was able to cling to office, and how nobody could compel him to resign, the panelists' expressions changed from amusement to amazement. They were at a loss to understand how Canada has no equivalent to the US "recall" procedure for dealing with out-of-control politicians. It's not as if political bad boys are unknown in this country, but there's nothing more robust than the honour system to deal with miscreants.
In the case of Mayor Ford, that's very obviously not enough. The media are belatedly awakening to the need to equip municipalities, or even better, the citizenry, with an enforceable mechanism to deal with this sort of thing in the future. Another Rob Ford may not show up any time soon -- to quote SJ Perelman, "before they made him, they broke the mould" -- but it's abundantly clear that changes should be made, and quickly. Even if that does mean that Toronto will no longer get the attention it craves.
Tuesday 5 November 2013
Regulating the Bank of Mom and Dad
Canada's policymakers, both at the Department of Finance and the Bank of Canada, have taken steps in recent years to prevent the housing market from overheating. Most notably, downpayment requirements were notably increased, in an effort to ensure that first-time buyers were not enticed into the market by low initial carrying costs, only to run into trouble when mortgage rates began to rise again. This has remained a largely theoretical risk until now, and with the Bank of Canada set to stay on the sidelines for many more months yet, it's likely to remain that way for some time, but the concern is a valid one.
Although home prices in Toronto and Vancouver have still managed to rise to dizzying heights, these measures have for the most part had the desired effect. Canada has avoided the banking system problems that have afflicted most other developed nations, and the rapid growth in personal indebtedness that was in evidence before the financial crisis has decelerated sharply.
There is, however, one lender that the regulators have no power to influence: the Bank of Mom and Dad. And as this article in the Toronto Star explains, loans or gifts from parents, or even outright purchases of starter homes by baby boomers for their offspring, are a major factor at the more affordable end of the housing market in Canada's largest city. CIBC economist Benjamin Tal asserts, doubtless correctly, that the support provided by parents to get their kids into their first home is the key reason why first time buying has remained resilient in the face of tightened mortgage rules.
There's a paradox here, though. Imagine that the Bank of Mom and Dad had never existed, and all of that baby boomer moolah had not flowed into the housing market. Starter house prices would surely have moved sharply lower, almost certainly to the point where the kids would have been able to afford their first home through the more traditional combination of their own savings and a bank mortgage.
So the Bank of Mom and Dad stands charged with keeping house prices artificially high and maybe giving the Governor of the Bank of Canada a few sleepless nights. Still, although you have to feel sorry for young people whose parents aren't in a position to give them a hand up, the implications for the housing market are probably positive. Unlike the banks, Mom and Dad are unlikely to demand their money back at the worst possible moment, which suggests that the risk of a sudden correction in house prices has been somewhat mitigated. Sadly, though, neither the regulators, nor the banks, nor Mom and Dad seem to be doing much to solve Canada's real housing problem: a lack of construction of affordable, purpose-built rental units in the larger cities.
Although home prices in Toronto and Vancouver have still managed to rise to dizzying heights, these measures have for the most part had the desired effect. Canada has avoided the banking system problems that have afflicted most other developed nations, and the rapid growth in personal indebtedness that was in evidence before the financial crisis has decelerated sharply.
There is, however, one lender that the regulators have no power to influence: the Bank of Mom and Dad. And as this article in the Toronto Star explains, loans or gifts from parents, or even outright purchases of starter homes by baby boomers for their offspring, are a major factor at the more affordable end of the housing market in Canada's largest city. CIBC economist Benjamin Tal asserts, doubtless correctly, that the support provided by parents to get their kids into their first home is the key reason why first time buying has remained resilient in the face of tightened mortgage rules.
There's a paradox here, though. Imagine that the Bank of Mom and Dad had never existed, and all of that baby boomer moolah had not flowed into the housing market. Starter house prices would surely have moved sharply lower, almost certainly to the point where the kids would have been able to afford their first home through the more traditional combination of their own savings and a bank mortgage.
So the Bank of Mom and Dad stands charged with keeping house prices artificially high and maybe giving the Governor of the Bank of Canada a few sleepless nights. Still, although you have to feel sorry for young people whose parents aren't in a position to give them a hand up, the implications for the housing market are probably positive. Unlike the banks, Mom and Dad are unlikely to demand their money back at the worst possible moment, which suggests that the risk of a sudden correction in house prices has been somewhat mitigated. Sadly, though, neither the regulators, nor the banks, nor Mom and Dad seem to be doing much to solve Canada's real housing problem: a lack of construction of affordable, purpose-built rental units in the larger cities.
Friday 1 November 2013
Ford focus
There can't be many readers of this blog who are unaware that Toronto police have now revealed that they are in possession of a long-rumoured video showing the city's ursine mayor, Rob Ford, inhaling from what looks like a crack pipe. The story went around the world in minutes yesterday, featuring on CNN and the BBC, and providing the basis for a stunningly unfunny gag by Jay Leno on the Tonight Show. A #robford hashtag attracted 44,000 tweets on Thursday alone.
Naturally the Canadian media have gone completely gaga about the latest developments. The Toronto Star had something like twenty pages on all things Ford today, plus an editorial calling on Ford to resign. The other Toronto papers echoed that demand. For those who still feel they need to know more about the story, there's a fairly unsensationalized timeline on the CBC website.
The OTT coverage in the Star should have surprised no-one. The paper has been out to get Ford for years and broke the crack video story back in May. However, the gloating tone of today's articles is more than slightly unseemly: one columnist, the self righteous Joe Fiorito, has even taken it upon himself to call out specific readers who have quibbled with the paper's past coverage, belittle them and demand they apologize.
Ford has made it clear that he has no intention of resigning, and it's likely that one reason for his unapologetic stance is that he knows that the Star's hysterical approach to this whole tawdry mess may yet work in his favour. I imagine I may be typical of a lot of people when I say that, given his rabidly right wing politics, I can't imagine ever voting for Ford*, and I'm quite certain that he's a naughty boy with some very unsavoury buddies -- but at the same time, I'd like the media, and especially the Star, to back off.
The Star is very firmly in the Liberal camp politically, with occasional bows toward the more socialist NDP at the local level. But Ford's low tax, anti-establishment stance proved very popular with Toronto voters in the last mayoral election, and his base of support has remained remarkably stable. The Star is mortified and mystified by this, and seems to have chosen an all-out ad hominem attack on the man's character to compensate for the fact that it can't seem to undermine his policies. It's nigh on impossible to imagine the Star doing anything similar to a senior Liberal politician who went astray in his or her private life, short of evidence of something truly grotesque such as pedophilia**.
For all of Ford's initial bluster about staying on, it's hard to see how he can survive in the near term. City councillors are lining up to distance themselves from him, and the city's administration is likely to grind to a standstill if Ford digs in. However, he can't be counted out. If he recuses himself temporarily from his post, apologizes to the voters and seeks some form of rehab....well, the next mayoral election is just a year away. And if a reborn and contrite Ford runs and gets re-elected, his first "thank you" on election night should be to the editor of the Toronto Star.
* I can't anyway, as I don't live in Toronto.
** The callow Liberal leader, Justin Trudeau, has admitted to smoking marijuana, yet the story has gained no traction at all in the Star.
Naturally the Canadian media have gone completely gaga about the latest developments. The Toronto Star had something like twenty pages on all things Ford today, plus an editorial calling on Ford to resign. The other Toronto papers echoed that demand. For those who still feel they need to know more about the story, there's a fairly unsensationalized timeline on the CBC website.
The OTT coverage in the Star should have surprised no-one. The paper has been out to get Ford for years and broke the crack video story back in May. However, the gloating tone of today's articles is more than slightly unseemly: one columnist, the self righteous Joe Fiorito, has even taken it upon himself to call out specific readers who have quibbled with the paper's past coverage, belittle them and demand they apologize.
Ford has made it clear that he has no intention of resigning, and it's likely that one reason for his unapologetic stance is that he knows that the Star's hysterical approach to this whole tawdry mess may yet work in his favour. I imagine I may be typical of a lot of people when I say that, given his rabidly right wing politics, I can't imagine ever voting for Ford*, and I'm quite certain that he's a naughty boy with some very unsavoury buddies -- but at the same time, I'd like the media, and especially the Star, to back off.
The Star is very firmly in the Liberal camp politically, with occasional bows toward the more socialist NDP at the local level. But Ford's low tax, anti-establishment stance proved very popular with Toronto voters in the last mayoral election, and his base of support has remained remarkably stable. The Star is mortified and mystified by this, and seems to have chosen an all-out ad hominem attack on the man's character to compensate for the fact that it can't seem to undermine his policies. It's nigh on impossible to imagine the Star doing anything similar to a senior Liberal politician who went astray in his or her private life, short of evidence of something truly grotesque such as pedophilia**.
For all of Ford's initial bluster about staying on, it's hard to see how he can survive in the near term. City councillors are lining up to distance themselves from him, and the city's administration is likely to grind to a standstill if Ford digs in. However, he can't be counted out. If he recuses himself temporarily from his post, apologizes to the voters and seeks some form of rehab....well, the next mayoral election is just a year away. And if a reborn and contrite Ford runs and gets re-elected, his first "thank you" on election night should be to the editor of the Toronto Star.
* I can't anyway, as I don't live in Toronto.
** The callow Liberal leader, Justin Trudeau, has admitted to smoking marijuana, yet the story has gained no traction at all in the Star.
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