Economics

Vancouver Teetering On Edge of Bankruptcy

Beneath The Beauty

Is Vancouver teetering on the edge of bankruptcy? Are you old enough to remember the federal immigration policy instituted by Brian Mulroney which encouraged capital investment from abroad via the immigration system? Come to Canada and invest a sum while guaranteeing to employee a few. This was the start of the of the real estate growth wave in Vancouver. The program was only loosely monitored and became the conduit for infusing money into the lower mainland thereby ousting those native born without ancestral ties access to the market.

The demographic of Vancouver changed dramatically in a short time frame and there was a definite cultural shift amidst a policy of “multiculturalism”. This was new vocabulary established partly to challenge the xenophobe while complementing robust immigration policy. When we look around at the cultural mosaic today in lieu of the government message, we see some success but greater failure. The greater failures were middle aged and older Asians not really making the strong effort to immerse along with a white contingent who was not overly welcoming. So, there was a contrast between the government’s ideal and the urban reality. When we look around today, we can give strong marks to the immigrants of millennial and younger generations for gravitating toward their own Canadian destiny.

The capital infusion into B.C.’s lower mainland didn’t stop with the economic immigrant. Banking regulation in Canada has been lax. Imported capital has not been scrutinized. Dirty money has been making its way into Canada for decades and politicians have turned a blind eye. Bankers liked it. Bank shareholders have liked it. It’s only been as recent as four years ago that money laundering activity at casinos in Vancouver became targeted by regulators.

These two sources of capital have been substantial in the real estate market in Vancouver. As of this writing during the COVID-19 pandemic, the City of Vancouver has suggested bankruptcy as an option in the context of 65 per cent of Vancouverites missing their April 1, 2020 property tax payment. Fifty-five per cent are projected to miss their May 1st 2020 payment. What’s the correlation between a hypothesized artificial rise in real estate valuation and the failure of the city to collect taxes amidst the COVID crisis? I suggest that the city’s budget and historic spending grew in tandem within the context of a property tax system built on a weak structure of property valuation and hence the house of cards is now teetering amidst a black swan. 

Uncategorized

Calling Out The Bull

I’ve made a habit of calling out the bull way before COVID-19. Satire is one way of illuminating the ridiculous. Facebook friend OB has presented George Carlin as an eloquent broadcaster of satire from the comedy stage. Another way of bringing attention to incidences of bull is by doing a logic drill down to discover source motive. The trouble with this method is you need to be well researched because one flaw in your theory weakens your posture.

One thing for certain becomes evident. Your governments don’t believe you can conduct yourself with common sense. Or, they perpetrate policy with a surreptitious motive of executing one policy in concert with executing a larger purpose.  Here is where we start running into conspiracy theories.

Saving lives and health care finance are obviously worthy causes. However; I do question the imposition of regulation without the resources to enforce such regulation. Our governments have never endorsed using non deputized citizens as law enforcement agents. Issues around civil liberties become acute during a time when one entity starts behaving with misplaced authority.

The COVID-19 story line is one where we see dribs and drabs of regulation coloured with statistics and surprisingly muddled facts from folks who claim to be experts. Then we have the wannabe experts who follow on with their perceived social media empires believing that their message can fill in for the factual void.   

Of course despite the well publicized health recommendations from official health authorities, we have tenants and landlords who want to suddenly play hygiene and six foot police apparently ignorant of the patronizing tone it bestows in a landscape where commercial vacancies are at all time highs. Long term relationships are potentially jeopardized with naive overreach.    

Let’s not forget the establishments which remain open but then don’t want to serve anyway given the hysteria generated about germs. Want to get glasses fitted but then be denied service despite the place being empty with the doors open? We’ll remember who not to visit when things get back to normal.

We certainly don’t want to alienate long term relationships through paranoia over a situation where we should be able to apply common sense in the context of a broad message well heeded and well publicized from the official stage.

Lifes Lessons, Lifestyle

Pandemic Potpourri

  1. So ah, take out delivery. Don’t you have tons of time on your hands to cook
  2. Something like seven years to get a doctors degree and still so much contradictory opinion about wearing a mask and defining etiology
  3. Idiocy of downplaying potential and then actualizing the black swan.
  4. Still selling toilet paper in packages of 18 rolls weeks after discovering supply chain issue.
  5. Much talk and little real leadership from particular politicians.
  6. Few people exercising outside and you know they’re headed for a weight gain dilemma.
  7. Human rights reflection in failing to permit cruise ships to port.
  8. Potential for infringing on civil liberties with cell phone tracking permissions.
  9. Discounting any semblance of common sense and government dictums with bulletin board notices and patronizing ads about staying home.
  10. Instances of misplaced sense of authority over others’ conduct.
Economics

Monetary System and Bankers Code

Canada is facing a large increase to the money supply in the context of new social programs associated with COVID-19. Your government in conjunction with financial news outlets do not want to use language like “increase the money supply” because it may be deemed alarming or inflationary. Instead, it refers to the monetary system in bankers code.

In essence, government securities are floated for distribution to commercial banks via the country’s “central bank”. The creation of this “security” (example would be a treasury bill or bond) in effect provides the directive for printing press operators to flip the switch. However; in advance of the creation of the new security, the central bank will check its “reserves” to ensure that the “vaults” are sufficiently equipped with an “asset” to merit the production of a new “security”. This is where things get interesting.

It used to be the case that gold characterized the reserve asset. However; gold lost its lustre as a reserve asset when President Nixon took the U.S. off the “Gold Standard” in 1971. President Roosevelt Roosevelt in fact ordered Americans to return gold for dollars as a mechanism to cope with The Great Depression.  

So now, we have the creation of new money without a tangible assets being served as its foundation for existence. Furthermore, we are presented with ever increasing national debts represented by the apparent financing of governments by holders of such securities which will stretch way beyond ledgers of domestic commercial banks. We also have the vast majority of economists supporting such a system and special interest groups professionally organized to acquire government funding.

What can happen when a Black Swan event such as COVID-19 compels governments to inject new money in the hands of consumers in the context of a monetary system which has no tangible asset at its root? Inflation or deflation of course. This is the great debate. Logic dictates that prices should rise with a larger monetary base. However; when social conditions deteriorate, a hoarding impulse may compel folks to store their cash thereby producing deflation. Every economist will tell you that the worst economic scenario is one of “deflation”.

 Politicians without any exposure to “Austrian Economic Theory” will naturally defer to “Keynesian” (flooding market with currency during demand drop) doctrine of mainstream economic thought. Will next generations be contented with paying interest on seemingly unsustainable national debts or will there be a consolidation at some point? Author Jim Rickard has referenced the “Special Depository Right” as a new unit of currency established by the International Monetary Fund.      

Politics

Still A Trump Fan? – Here’s One For You

So, you’re still a Trump fan? You’ve now heard of the $2 Trillion COVID-19 U.S. stimulus package – right. You recall that there was a bit of a delay in getting it through in spite of general bipartisan support. Well, it’s 880 pages apparently and room was needed to help along the one percent club during this health crisis. Yes. While health professionals scrambled without sufficient PPE ( you will know the acronym now) to care for the overwhelming caseload, while  masses digested news of job loss, and while families hunkered down in self-isolation,  legislators were hard at work fine tuning an earmark to grant a new tax benefit for the richest one per cent of Americans.

You see, the way you grant benefits to the one per cent club is you change a tax provision.  Those earning this kind of money have “multiple streams of income”. Tax rules typically have restrictions when it comes to amortization (depreciation). The U.S. tax code up until the corona virus stimulus package had a limit on the ability to deduct excess losses generated from amortization (depreciation) from real estate (buildings) against other forms of income. The limit was $500,000. This limit has been removed. Let’s think this through. For those real estate developers who are now going to encounter serious drops in market valuation, the probability of experiencing “recapture” on written down buildings in the future during an ultimate disposal is reduced (lesser capital gain or loss), but today they’ll get the benefit of reducing aggregate taxable income by utilizing unlimited excess losses. Actually, not only today but they’ve been granted retroactive treatment back to 2018 by amending their 2018 returns. 

Now, do you want to cut Trump a little slack with his incoherent COVID-19  bafflegab when behind the scenes he was distracted on how to potentially profit from misery with an earmarked addendum to a stimulus package?  

What would an honourable leader do if he wanted to grant such a benefit? He would float the topic to the public, debate it openly in parliament and grant it a vote within its own piece of legislation. 

Credits to CNN and NY Times.