Borrower-Friendly Mortgages and Mortgage Interest Deductibility:Two Key Differences

Harry Koza, from the Altantic Institute for Market Studies, does everyone a great service by summarizing the two major differences between US and Canadian borrowing/financial system.

Mr. Krugman states that Canada’s advantage has been in being stricter about limiting bank leverage, and that’s true. But he then blames Reagan-era deregulation for the “dangerously interesting” US banking system and suggests that the wild American banking mustangs must thus be broken to the regulatory bit.

The thing is, in his Keynesian enthusiasm, he is neglecting the most important qualities of the Canadian financial system, the things that really made the difference and account for the fact that we didn’t have a US-style housing collapse and have to bail out our entire banking system. The stuff he cites in his column is all correct, as far as it goes, but it’s just the feathers, not the chicken.

The first major difference between the US and Canada that Mr. Krugman neglects is that we do not have the perverse government-spawned incentive of mortgage interest deductibility.

[...]

The second big difference in Canada that Mr. Krugman neglects to consider is that our mortgage law is far more lender-friendly than that in the US, where it is far more borrower- friendly. We don’t have no-recourse loans where you can just mail in the keys on your underwater mortgage and walk away. And, more importantly, our lenders can much more easily act on their collateral.

Economic Recession Looms while the Civil Service Booms

No big surpise here, when government’s go on uncontrolled spending sprees, the only one who benefits are those who work for and in government:

The highest-paid federal employees are doing best of all on salary increases. Defense Department civilian employees earning $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009, the most recent figure available.

When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.

The trend to six-figure salaries is occurring throughout the federal government, in agencies big and small, high-tech and low-tech. The primary cause: substantial pay raises and new salary rules.

What are the odds the same result isn’t occurring in Canada?

Mark Carney: double-speak economist

More nonsense from Mark Carney, the Governor of the Bank of Canada:

“For some Canadian businesses, the recovery may prove as challenging as the downturn,” he said.

Is recession a dirty word?

Complete the sentence:

“While the bank does not entirely understand why productivity growth has been as slow as it has been, we do understand the consequences,” Mr. Carney said, repeating a warning last month that economic growth could be limited to no more than 2% for much of this decade. This will be due to slower productivity growth and an ageing population.

… and ultimately due to the printing of money.

Printing money creates a false economic indicator. As a result, it aggravates business cycles. That is what we are witnessing right now. Thank you, all you money printers and credit expansionists!

N.S. Premier Darrell Dexter fighting for brownie points

Nova Scotia Premier Darrell Dexter must think tax-payers are as stupid and arrogant as politicians:

“I can say that it was a bit of a surprise to me,” Dexter told CBC News on Friday. “I’ve never had any problem sharing the credit for undertakings by the government with the various levels.”

Most people are smarter than that. Most people know any “credit” belongs to the tax-payer and, regardless of what level of government exacts the money, there is only one tax-payer. Since politicians do not pay taxes in any honest or intelligent sense, it does not surprize me to learn the stupid complaint from Darrell Dexter.

Lessons In Economic Unstimulus

Shawn Ritenour of the Mises Institute analyzes the performance of Obama’s economic plan so far:

From an economic perspective, Obama’s stimulus plan is equivalent to a giant welfare scheme. Instead of the money going to lower income Americans, however, it is meant to go to municipal bureaucrats of various stripes. Instead of productive American citizens determining what to do with their own scarce resources, the state is stepping in and dictating how they will be used. Consequently, such spending is essentially government consumption, which is what vulgar Keynesians think we need now more than ever. Such economists are shocked — shocked! — to find out that Americans are now saving any increases in income instead of blowing it on even more consumer goods. Not to worry, however. If private citizens do not consume enough for official tastes, the government always can.

Jim Flaherty needs Financial Literacy Task Force himself

Like, we need one more task force?!? This new Financial Literacy Task Force looks like a liberal project washed over with blue paint.

I find it rich that the federal finance minister, the grand overseer of monetary inflation, the recent corporate bailouts and the largest deficits, is now telling Canadians that they need more financial literacy. Jim Flaherty should be getting more financial literacy himself, if you ask me! Not too long ago Flaherty was trying to convince us that we believe we need more credit. What happened to that campaign? et cui bono? by the way.

If my car is not working, I go to my auto mechanic and he helps me. If my back is malfunctioning, I go to my chiropractor and he helps me too. Those guys also give me advice on what I can do on my own but in the end, they are the ones who have the specialized knowledge. In common economic parlance, we call that the division of labor. I do not need to improve my literacy on auto mechanics nor on vertebral physiology. I just need to pay them to do their work. Having confidence in their abilities to deliver service helps too.

I do not believe tax-payers are ignorant. Rather, I think they need to keep more of their own money and they need to stop financing cronyism, task forces and government nonsense. I also believe they should not be obligated to use a perpetually inflating currency but it will be a cold day in hell before any “conservative” even sees the monetary supply for what it truly is.

Instead of funding a task force, I think Jim Flaherty should focus on making life easier for financial consultants by putting an end to false economic signals. Maybe he can lead seminars called “How To Take Wild Guesses On What Sectors Of The Economy Will Get Bailouts” or “Who Gets The Cheap Credit First?” just to name a few.

Yeah, that was sarcasm. What I mean is that financial consultants, i.e. people who make a living off of precisely what the Financial Literacy Task Force is addressing, are misled by the government.

See, the problem is government intervention in the markets. The government inflated the money supply so, credit was made available to anybody. To stay competitive, the bankers and the money lenders had no choice but to ease their credit requirements. Thus, people who would ordinarily be turned down for loans, soon became eligible for mortgages. We got a housing bubble. Since printing money does not create wealth, vast sectors of the economy were given false signals of future productivity which, surprise, surprise, never materialized. Now, we have a recession while markets adjust.

As long as the government still gives people hope of bailouts and monetary inflation, the recovery will be slow. Business cycle theory is not more complicated than that.

Stimulus Isn’t Working: Obama Decides to Dig Deeper Hole

It seems President Obama isn’t willing to accept that his fiscal stimulus is a colossal failure, in fact, it’s full steam ahead for the rookie president’s Keynesian policies:

The White House acknowledged it has spent only $44 billion, or 5 percent, of the $787 billion stimulus, but that total has always been expected to rise sharply this summer.

“Now we’re in a position to really accelerate,” Obama said.

[...]

The economy has shed 1.6 million jobs since the stimulus measure was signed in February, far overshadowing White House announcements estimating the effort has saved 150,000 jobs. Public opinion of Obama’s handling of the economy has declined along with the jobs data.

For the first time, the administration admitted the economic forecasts it used to sell the stimulus were overly optimistic.

$45,000,000,000.00 / 150,000 jobs “saved” = $300,000.00 spent per job, hardly what I would call sound fiscal policy. Not to mention the stimulus contained a number of “buy American” provisions which will undoubtedly deepen the job losses:

At first glance, “Buy America” floated courtesy of billions of U.S. taxpayer dollars ostensibly to revive an economy that would create American jobs, looked like a political winner. Indeed, it may have initially looked like a godsend in what was to be a coming U.S. unemployment rate that would skyrocket to its highest level in a quarter of a century.

[..]

Now many U.S. exporters fear the provisions will backfire, costing American jobs as other countries retaliate. Some municipalities in Canada have already begun organizing boycotts of U.S. products, and EU and Canadian officials say they are reviewing their options.

Suprise Suprise, the US Fiscal Stimulus is a Failure

Dick Morris points out a sobering truth about the failure of “stimulus” economics:

Here are the details. In April, personal household, inflation-adjusted income rose by $122 billion. Of that increase, one-third or $44 billion came from the government’s stimulus program. But while personal income was rising, household savings (which includes paying down credit card balances, mortgages, student loans, car loans, etc) rose by $132 billion — $10 billion more than the rise in income. So personal consumption dropped 0.1%.

The stimulus package was a total and complete failure. As predicted, as happened with Bush’s 2008 tax cut, as happened with the Japanese stimulus packages of the 90s, fearful consumers sat on their money and wouldn’t spend it. Keynesian economics didn’t work. Again.

The economic situation in Canada is not likely to be much better.

John H. Cochrane writing at the economist.com:

There is little empirical evidence to suggest that stimulus will work either. Empirical work without a plausible mechanism is always suspect, and work here suffers desperately from the correlation problem. Quack medicine seems to work, because people take it when they are sick. We do know three things. First, countries that borrow a lot and spend a lot do not grow quickly. Second, we have had credit crunches periodically for centuries, and most have passed quickly without stimulus. Whether the long duration of the great depression was caused or helped by stimulus is still hotly debated. Third, many crises have been precipitated by too much government borrowing.

1934 Chicago Tribune Political Cartoon – How Things Stay the Same

[Via The Big Picture]

Bailing Out Poorly Run Companies is Pouring Money Down the Drain

Disturbing fact of the day from the latest issue of Claremont Review of Books:

The bailouts did not create the financial meltdown, but it is a good bet that they have contributed to the depths of our current problems and the stock market sell-off. We have robbed healthy companies of funds to pour money down the rat hole of failing industries like General Motors. For the cost of all federal bailouts, we could have suspended the corporate income tax for a year, which would have been a powerful stimulant to growth.[Emphasis mine]

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