REVscene Automotive Forum - View Single Post

Hehe · 01-20-2015, 07:55 PM

Canada is being hit with what I consider a perfect storm.

From a USD perspective, CDN assets shrank significantly; be it real estate or natural resources. I.E: Oil dropped over 50% from its peak, property prices not increasing on par with the devaluation of CDN. 1M USD used to get you a 1M CAD house. Now that same 1M house costs 1.05M CAD, while is worth around 870k USD. Effectively, again in USD term, the house lost 13% of the value. This would fuel foreign investors (specially Chinese as yuan is pegged to USD) to flee as the longer they wait, the less value they get.

So, what do we have here? Many Canadians have used the equity in their property as ATM to afford a lifestyle. Now suddenly what they can afford became so much less than just a year ago. (since we import the majority of our goods). Economy is tanking when price of the same basket is soaring.

If BoC decides to keep its rate steady or even drop, I foresee a real problem for Canada if nothing happens to USD (which is likely the case in near term). Canada would basically go through a stagflation. Assets no longer grow in value while cash in CAD also loses value. And since the interest rate is low, it makes more sense to channel the CAD outside of Canada as it's the only way that investment would make sense. This would lead to even less job growth in Canada as a whole.

If I were BoC, I will just increase the rate to prevent money flowing outward. Sure it would probably kill the real estate market, but it makes more sense than killing the labour market which many Canadians depend on.

01-20-2015, 07:55 PM	#3111
Hehe OMGWTFBBQ is a common word I say everyday Join Date: Dec 2002 Location: YVR/TPE Posts: 5,241 Thanked 3,303 Times in 1,464 Posts Failed 685 Times in 223 Posts	Canada is being hit with what I consider a perfect storm. From a USD perspective, CDN assets shrank significantly; be it real estate or natural resources. I.E: Oil dropped over 50% from its peak, property prices not increasing on par with the devaluation of CDN. 1M USD used to get you a 1M CAD house. Now that same 1M house costs 1.05M CAD, while is worth around 870k USD. Effectively, again in USD term, the house lost 13% of the value. This would fuel foreign investors (specially Chinese as yuan is pegged to USD) to flee as the longer they wait, the less value they get. So, what do we have here? Many Canadians have used the equity in their property as ATM to afford a lifestyle. Now suddenly what they can afford became so much less than just a year ago. (since we import the majority of our goods). Economy is tanking when price of the same basket is soaring. If BoC decides to keep its rate steady or even drop, I foresee a real problem for Canada if nothing happens to USD (which is likely the case in near term). Canada would basically go through a stagflation. Assets no longer grow in value while cash in CAD also loses value. And since the interest rate is low, it makes more sense to channel the CAD outside of Canada as it's the only way that investment would make sense. This would lead to even less job growth in Canada as a whole. If I were BoC, I will just increase the rate to prevent money flowing outward. Sure it would probably kill the real estate market, but it makes more sense than killing the labour market which many Canadians depend on. __________________ Nothing for now