Countries that have historically valued gold have been, or have strived to be, global powers. The mere ownership of gold has always been a sign of authority. Canada, on the other hand is flying solo, and might be heading for a crash.
The original article has been edited here for length (…) and clarity ([ ])
Canada’s financial policies have been a puzzle to many. While other countries are amassing gold, it has deliberately sold off all its gold reserves, while other countries are attempting to reduce massive debts, Canada appears to plan on increasing its own.
There is precedence in a central bank selling off its gold, and it didn’t work out very well. In 1999, when the price of gold was low at $282.40 an ounce, the United Kingdom sold half of its gold reserves, worth approximately $6.5 billion. The sale raised $3.5 billion. By 2007, the price of gold had risen to $675.00 an ounce, and the UK had lost more than £2 billion. This financial disaster, known as Brown’s Bottom, did not work out well and Canada appears to be following in its footsteps.
…[With] the sale of its of gold, Canada’s market debt has surpassed $1 trillion in a historic milestone.
This debt is mostly due to the uncontrolled borrowing made possible by the Bank of Canada’s easy lending policies. Canada has a current debt ceiling of $1.168 trillion, and it is anticipated that Parliament will have to increase that ceiling in the near future. According to the government, it has the power to borrow to refinance its massive debt but borrowing will only serve to increase the already existing mountain of debt further. Canada has become one the leaders in global debt, and its solution appears to be to continue adding to it with new borrowing. Canada household debt now equals 101 percent of its GDP.
Ironically, Canada’s record debt comes at a time when economic growth is at 3% (2017) which was the highest in six years and many economists expect this to continue. That optimism, however, is misleading.
- Canada’s economic growth comes at a time when its total deficit spending has increased to beyond $18 billion.
- Outstanding corporate credit reached a historic high of $803 billion in 2017.
- In addition, Canada is facing a mortgage bubble, with homeowners who bought lavish houses on easy credit now finding themselves unable to afford increased interest rates on their mortgages or being unable to sell a house they can no longer afford.
Canada is not situated in a good financial place. Any shift in the global economic wind would leave Canada in a very precarious position.
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On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn. No one knows when insanity like this will come to an end. Bubbles are like an avalanche”, the longer they build up, the worse they will be when they eventually destabilize but it most likely will be the result of higher rates