{"id":50716,"date":"2019-09-23T19:57:00","date_gmt":"2019-09-23T23:57:00","guid":{"rendered":"https:\/\/prefblog.com\/?p=50716"},"modified":"2025-11-17T19:58:59","modified_gmt":"2025-11-18T00:58:59","slug":"september-23-2019","status":"publish","type":"post","link":"https:\/\/prefblog.com\/?p=50716","title":{"rendered":"September 23, 2019"},"content":{"rendered":"

A nice piece in the Globe today about Canada’s rentier economy<\/a>:<\/p>\n

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We have to think about what most people rely on nowadays to support themselves and secure their futures. And the answer is assets \u2013 housing assets in particular. It\u2019s no longer our salaries or incomes, nor even our pensions. Rather, Canada has become an asset-based economy in which it\u2019s now a viable choice to buy a house far above your income threshold and sit tight \u2013 renting out rooms to pay the mortgage you can\u2019t afford on your own income alone \u2013 waiting for its value to appreciate.<\/p>\n

But there are perils to relying on this sort of economy for our future. An asset-based economy is underpinned by continuous asset price inflation alongside the suppression of income inflation, meaning a rising debt-to-income ratio is built in.<\/p>\n<\/blockquote>\n

Another example of the asset based nature of our economy is the banks.<\/p>\n

The banks now basically control the entire Canadian financial system – rather than simply being an important part of it – with their oligopoly protected from foreign competition by legislation and, to a slightly lesser extent, from new domestic competition by regulation.<\/p>\n

A huge chunk of the Toronto Stock Exchange index is comprised of banks. with over 35% of the S&P\/TSX 60 index being financial<\/a> players; compared to less than 15% of the S&P 500<\/a>.<\/p>\n

And, I suggest, any attempt to introduce any real competition to the Canadian financial system – loosening Bank Act restrictions of foreign ownership and restricting bank encroachment on asset management and insurance – would be met by howls of outrage from the rent-seekers who invest in them.<\/p>\n

And it appears that Mohamed A. El-Erian is as concerned as I am (see September 20<\/a>) about the Fed response to the repo blip (from his Facebook page<\/a>):<\/p>\n

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The longer this continues, and it will for now, the more it will be seen by investors as (pick your term):<\/p>\n