Monday, June 20, 2016

Yes, There is a Housing Bubble in Vancouver

Of the housing bubble in Canada, Prime Minister Justin Trudeau said: “We need to make sure any action we take doesn’t make things worse.”

Oh, poor JT, no matter what you do now, it's going to get worse.

Flying to Vancouver on the taxpayer's dime, Canada's PC Principal met with Vancouver "experts" to talk about fixing a problem they created but either a) can't admit to, or b) honestly believe they're not responsible. 

Trudeau was smart to speak to the "unintended consequences" of restricting foreign investment but failed to explain how the federal government's Bank of Canada helped contribute to this global monster with artificially low-interest rates.

He offered no word on how high housing prices themselves are an unintended consequence of creating fake savings accounts for chartered banks. 

That is, how there have been no new savings prompting up this capital structure since the last financial crisis. Governments and central banks just papered over the problem and now, in 2016, we are dealing with the consequences.

So of course, Trudeau offered no specific promises on what to do now that he's prime minister. A two-day visit, a series of meetings and planning, all costing taxpayers daily, and what was accomplished?

An agreement that something must be done to bring down housing prices.

Trudeau said: “We need to make sure any action we take doesn’t make things worse.”

Oh, poor JT, no matter what you do, there is going to be a crisis. A point in time where prices reveal what Austrian economists have known all along: that the capital structure behind the housing market lacks sufficient funds to sustain its current trajectory. 

No amount of money printing will undermine the reality of scarce resources. Further intervention into the market will only prolong the correction and give a false sense of prosperity.

But unlike 2008/2009, the central bank lacks ammunition. Interest rates are already low and in some places zero and below.

Besides, that's no way to provide a real recovery. 

The Liberals promised during the campaign to "consider all policy tools" to deal with high prices. One policy tool would be to stop debasing the currency. I don't imagine this will be considered.

If the government really is engaged in a "deep dive" of information, hopefully, they come across this blog since I warned of this in 2010. Of course, I would be nowhere without so check them out that as well. 

Everything on is free, whereas the federal government has already spent $500,000 of our money studying the problem.

Like most of its history, Vancouver is scapegoating Chinese people. This time, it's foreign investors looking to get their wealth out of China and into Canada.

Chinese wealth, of course, stimulated by the same massive worldwide inflation that's driving Canada's housing market. 

A real estate bubble is present in China as well, to the extent that the Communist government builds entire cities where no one actually lives.

If that's not a bubble, then nothing is. 

But insomuch that Chinese buyers are responsible for high housing prices in Vancouver and Canada is to misinterpret the larger picture of cause and effect.

Once upon a time, people prospered by reducing their consumption and saving their income. This provided capital for entrepreneurs to put to use, with the end result being a higher standard of living for people who periodically stop saving their income and spend on consumer goods.

An economy grows when one can reduce their consumption yet still live a comfortable life that, nowadays, includes the possibility of iPads and air-conditioning.

Once upon a time, indoor plumbing was a novelty. Successive generations of capital accumulation, entrepreneurial ingenuity, and technological advancement have led us to this point in civilization, not government bureaucracy.

Making credit available where there are no new net savings is called capital consumption. And that's the source of high housing prices.

Central banks, like the Bank of Canada, make credit available instead of leaving it to the forces of supply and demand.

And while some may scoff because "money and credit are too important to leave to the whims of the free market," on what basis do they make this claim?

Most of the world has had at least 45 years of a government paper standard and 80+ years of central banking and this is the result.

Not global commerce on a scale never seen before, but the unsustainability of this system that consumes the capital accumulated by previous generations.

There is nothing Justin Trudeau can do now that won't upset the lifestyle of millions of Canadians. The gravy train is coming to an end.

And far from being able to fix anything, any interventions by the government "will not annual economics," as Ludwig von Mises wrote, "they will stamp out society and the human race."

If Justin really cared about the middle-class, he'd cut some taxes and abolish others, while reducing red tape across the board and legalizing competing currencies. 

He'd also order the Bank of Canada to cease its open market operations.


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