Oh No, Canada!

Are We Watching Another North American Financial Crisis Unfold?

 

For some time during and after the financial crisis, it was fashionable to point to Canada as a paragon of fiscal and regulatory prudence. In the years leading up to the crisis, the Canadian government ran budget surpluses, which enabled it to stimulate the economy without creating huge debt loads we now see in Greece and Spain. In addition, the Canadian banking system faced stricter capital requirements and were more risk-averse than their American and European counterparts. Perhaps most important, Canada avoided the sort of real estate bubbles seen in the U.S. and Great Britain due to tighter lending standards and the absence of mortgage interest deductibility — at least until recently.
For the past year or more, Canadian officials have nervously watched as household debt levels has risen to worrying heights, fueled by increased mortgage borrowing. As The Wall Street Journal reported this week:

“Borrowing to buy property has helped make Canadians some of the most leveraged consumers in the world, at a time when their counterparts in other heavily indebted countries—such as the U.S.—are digging out. Household debt is now 163.4% of disposable income in Canada, close to the U.S. level at the height of the subprime crisis.”

Just like in the U.S., housing prices in Canada steadily rose in the decade immediately preceding the financial crisis, soaring 198% over ten years. They dipped slightly during the global recession, but bounced back quickly between 2009 and the beginning of this year, fueled in part by a low interest rate policy the Bank of Canada put in place to nurse the Canadian economy through the global economic slowdown. Real estate prices have risen so high, in fact, that many housing analysts believe the bubble is about to burst. Housing economist Robert Schiller told CBC news in September, “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”
Indeed there are signs that the party is already over. Due in part to efforts by the Canadian government to strengthen lending standards, home prices in Canada nationwide dipped year over year in October, and declined in many of the key local markets as well, according to a recent report in Reuters. ”With cooling evident in several major cities, speculation has turned to whether the slowdown will be a soft landing or a crash,” the report said.

What will determine the difference between a soft landing or a thudding crash like the one the U.S. experienced in 2007? Lending standards are a big part of the equation. In the run up to the bursting of the American real estate bubble, many homeowners bought homes with little money down and financed the purchases with loans that had low teaser rates that would jump higher a few years into the life of the mortgage. Those sorts of products swamped many homeowners in short order, and also meant that they had virtually no equity cushion when lenders came to foreclose. The lack of equity cushion meant that banks — who were over-indebted themselves due to poor regulatory oversight — had to resell the homes at steep losses, feeding the panic that soon turned into a full-blown housing crisis.

Canada, on the other hand, requires homeowners to put at least 20% down on a home, or to purchase mortgage insurance from the the Canadian Mortgage Housing Corporation (CMCH), a federal agency. Furthermore, Canadian lenders are in a much better position than U.S. banks were to absorb losses from any housing downturn.

As CIBC economist Benjamin Tal told CBC news:

“The Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned . . . Therefore, when it comes to jitters regarding a U.S.-type meltdown here at home, the only thing we have to fear is fear itself.”

Of course, few analysts in America predicted that the U.S. real estate market would blow up in the spectacular fashion it did in 2007, either. As financial blogger Pater Tenebrarum puts it:

“This kind of thinking has things exactly the wrong way around. It is precisely because such a state-owned guarantor of mortgages exists that the vaunted lending standards of Canada’s banks have increasingly gone out of the window as the bubble has grown. Today some $500 billion, or 50% of Canada’s outstanding mortgages are considered ‘high risk’ according to the Financial Post . . . Through CMHC and government guarantees for privately held mortgage insurers Genworth Capital and Canada Guarantee, Canadian tax payers are on the hook for more than C$1 trillion in mortgages. In other words, there is no practical difference to the role played by the once nominally private GSE’s and credit insurers in the US and the Canadian version of them: in both instances these institutions have enabled vast growth in ever more risky lending, while ultimately tax payers are picking up the tab when things go wrong – as they invariably must.”

That is to say, the difference between a soft landing and a meltdown could boil down to the financial integrity of the CMHC. A report from the agency released yesterday stresses its health and ability to stay solvent in the event of a downturn, and the conventional wisdom is that the Canadian real estate market will go through a rough patch and nothing more.  But anybody who was paying attention during the American housing crisis can remember similar assurances, which turned out to be just plain wrong.

 By Christopher MatthewsNov. 30, 2012
 http://business.time.com

Modern-day Wheat is a 'Chronic Poison'

All set to order that next sandwich on wheat bread? Using wheat-based pasta instead of regular spaghetti noodles tonight because you've been told wheat-based foods are better for you?

Not so fast, says one doctor.

William Davis, a cardiologist, calls modern-day wheat a "chronic, perfect poison" in a new book all about the world's most popular grain.

What gives?

Davis says the wheat we are currently eating isn't the same thing your grandparents used back in the day.

Modern wheat is "an 18-inch tall plant created by genetic research in the '60s and '70s," he told CBS' "This Morning" program in a recent interview.

"This thing has many new features nobody told you about, such as there's a new protein in this thing called gliadin. It's not gluten," he said.

"I'm not addressing people with gluten sensitivities and celiac disease. I'm talking about everybody else because everybody else is susceptible to the gliadin protein that is an opiate," Davis continued. "This thing binds into the opiate receptors in your brain and in most people stimulates appetite, such that we consume 440 more calories per day, 365 days per year."

Can you say expanding waistline?

'We're seeing hundreds of thousands' lose weight

In the interview Davis was asked if the agriculture industry is capable of changing back to using the grain it once produced.

That's possible, he said, but it would be costly to farmers because the old-style wheat doesn't produce as much yield per acre, and in a hungry world where the population is growing, food is becoming more scarce and prices are already on the rise, that choice would be a tough sell to today's agriculture giants.

Nevertheless, Davis notes that a movement is afoot to drop the weight-causing grain, and that those who have done so have said goodbye to wheat are dropping clothes sizes.

"If three people lost eight pounds, big deal," he said. "But we're seeing hundreds of thousands of people losing 30, 80, 150 pounds. Diabetics become no longer diabetic; people with arthritis having dramatic relief. People losing leg swelling, acid reflux, irritable bowel syndrome, depression, and on and on every day."

Those are real results and they are widespread, Davis said - not isolated or fluky.

Okay, so someone decides to shun the wheat; what are their alternatives? "Real food," Davis suggested, like avocados and olives, olive oil, some meats and, yes, veggies.

"(It's) the stuff that is least likely to have been changed by agribusiness," he said. "Certainly not grains. When I say grains, of course, over 90 percent of all grains we eat will be wheat, it's not barley... or flax. It's going to be wheat."

So, this is "really a wheat issue," he said.

Smart diets, sans wheat, will help trim the belly

There are those health resources and dieticians, he said, that are serving up and advocating a more balanced diet, like the Mayo Clinic, that does not include wheat. But in his interview, Davis said what they are offering is just a poor alternative.

"All that literature says is to replace something bad, white enriched products with something less bad, whole grains, and there's an apparent health benefit - 'Let's eat a whole bunch of less bad things,'" he told the program. "So I take...unfiltered cigarettes and replace with Salem filtered cigarettes, you should smoke the Salems. That's the logic of nutrition, it's a deeply flawed logic. What if I take it to the next level, and we say, 'Let's eliminate all grains,' what happens then?"

"That's when you see, not improvements in health, that's when you see transformations in health," he added.

Without question, the nation is in the throes of an obesity epidemic. Cheap foods (for the most part) like wheat-filled pastas and other fillers have caused the country's collective waistline to expand to bursting. But as Davis notes, you don't need fad diets and gimmicks to lose the belly fat and cut back on the calories. You just need to eat smarter.

Monday, September 10, 2012 by: J. D. Heyes

Learn more: http://www.naturalnews.com

Who Moved My Peak Oil?

The buzz about peak oil has peaked, and for a good reason: the peak remains MIA. That doesn’t mean that the global supply of crude oil is a non-issue. Far from it. But for the moment, at least, statistical evidence in favor of arguing that the world’s output of crude has hit a ceiling, or is in imminent danger of doing so, looks thin.


Global production of crude (defined as crude including lease condensate) hit an all-time high this past April: 75.872 million barrels per day, according to data from the U.S. Energy Information Administration. That wasn't supposed to happen, a number of peak-oil theorists warned over the past decade. In 2001, for example, geologist Ken Deffeyes wrote a widely cited book (Hubbert's Peak: The Impending World Oil Shortage) that predicted that “global oil production will probably reach a peak sometime during this decade.” Deffeyes wasn't alone in seeing trouble on the production horizon.

But as the chart below reminds, higher peaks keep coming.


The peak-oil theorists haven't given up. Instead, they keep revising their peak forecasts, pushing the dates for production crests further out in time. Two years ago, for instance, Charles Maxwell—the "dean of oil analysts"—predicted that the peak will come sometime between 2015 and 2020.

Perhaps, but some observers of the oil scene argue that the peak-oil warnings must be labeled flat-out wrong. George Monbiot, a visiting professor of planning at Oxford Brookes University and author of Heat: How to Stop the Planet From Burning, recently wrote: "The facts have changed, now we must change too."

For the past 10 years an unlikely coalition of geologists, oil drillers, bankers, military strategists and environmentalists has been warning that peak oil – the decline of global supplies – is just around the corner. We had some strong reasons for doing so: production had slowed, the price had risen sharply, depletion was widespread and appeared to be escalating. The first of the great resource crunches seemed about to strike….

Some of us made vague predictions, others were more specific. In all cases we were wrong. In 1975 MK Hubbert, a geoscientist working for Shell who had correctly predicted the decline in US oil production, suggested that global supplies could peak in 1995. In 1997 the petroleum geologist Colin Campbell estimated that it would happen before 2010. In 2003 the geophysicist Kenneth Deffeyes said he was "99% confident" that peak oil would occur in 2004. In 2004, the Texas tycoon T Boone Pickens predicted that "never again will we pump more than 82m barrels" per day of liquid fuels. (Average daily supply in May 2012 was 91m.) In 2005 the investment banker Matthew Simmons maintained that "Saudi Arabia … cannot materially grow its oil production". (Since then its output has risen from 9m barrels a day to 10m, and it has another 1.5m in spare capacity.)

Peak oil hasn't happened, and it's unlikely to happen for a very long time.

It certainly hasn't happened over the last decade. As the next chart reminds, production is up in several of the key oil-producing nations, including Saudi Arabia. According to the EIA, Saudi output is higher by nearly one-third over the past 10 years through June 2012.



As always in the oil game, there are key details behind the numbers. Oil, as they say, isn't just another commodity. Geopolitics, in other words, intrudes big time on what otherwise would be a fairly straightforward supply/demand analysis. In the chart above, for instance, Iraq's big gain is less about new discoveries and more about the country's resumption of production after years of war. Meantime, Iran's retreating production reflects the combined burden of international sanctions and domestic difficulties with aging technology.

Despite the various issues, global production managed to increase 12% over that past decade. That doesn't mean that we should expect oil output to effortlessly rise, year after year. The one forecast that some of the peak-oil theorists got right is that finding and producing oil is getting tougher. But technology is improving too, and so far the net result is that the oil industry has been able to squeeze out more supply from what ultimately is a finite resource.

The idea of peak oil isn't dead, not by any means. At some point, production will top out, plateau, and then fall. Exactly when that occurs is wide open for debate. Even what was considered accepted fact—that U.S. production had peaked and was destined to suffer a long, slow decline—no longer looks true. Domestic output is up 6% over the past decade, and most of the gain has come over the last year or so. A few years ago, almost no one expected a revival. Now we're reading reports of U.S. production at 15-year highs.

The lesson in all of this? Predicting is still hard—especially about the future, and particularly for relatively long time horizons.

Capital Spectator is a finance/investment/economics blog that's edited, owned and otherwise managed by James Picerno.