Saving Canada From The New Great Depression

We’re on the verge of a new great depression. That much is very clear if you only open your eyes and take a serious look around. The world is awash in debt. The Canadian federal debt currently stands at about $622.6 billion  Canada Federal Debt Clock  Canadian consumer debt was at $1.88 trillion as of October. The provincial debt of Ontario, where I live, stands at $297.5 billion Ontario's Debt Clock . The American federal debt stands at $19.2 trillion in funded debt and $102.1 trillion in unfunded debt American Debt Clocks .

        Most governments are VERY well aware of the likelihood of a depression. Certainly the Canadian government is. Both Harper in 2013 and Trudeau in March Trudeau Budget (page 223) introduced a buy-in provision, which I call the “Stick ‘Em Up” law. If a bank gets into trouble there is a forced recapitalization paid for by its depositors. If you have over $100,000 in a troubled bank the bank gets to take everything over that amount. So if you had $1.5 million on deposit the bank would take $1.4 million and leave you with just $0.1 million. If you had $100,000 in a GIC the bank would let you keep the principle, but it would take the interest.

Another sign that the Canadian government expects a depression is a statement Bank Of Canada governor, Stephen S. Poloz, made in November Bank Of Canada Statement He said that if the economy were to get bad he’d try negative interest rates. He added that he didn’t expect things to get that bad. However you don’t say that if you really don’t expect things to get bad.

Efforts to create inflation by pumping money into the economy hasn’t worked and neither has negative interest rates, which is a sign of desperation. The idea behind negative interest rates is to encourage more lending, but those who want to borrow already have. China has poured billions of yuan into infrastructure, but that hasn’t worked either.

Besides debt, other reasons for the coming depression are an aging population and living way beyond our means ecologically and energy wise. If we don’t deal with the ecological and energy situation VERY soon an even worse economic disaster awaits.

While Canada and the rest of the world can’t, at this late stage, avoid a world-wide depression, there is a way that Canada’s federal, provincial and territorial governments could avoid going bankrupt. That would be a return to borrowing from the Bank Of Canada, which is 100% owned by the Government Of Canada, instead of from private banks. That would save interest as it would in effect be borrowing from ourselves.

The federal government used to do this, but quit in the 1970s. After that Canada’s debt ballooned due to interest payments. From 1974-75 to 2010 Canada paid out over $1.1 trillion in interest.

According to an article in the National Post the federal government is spending $25.9 billion this fiscal year on servicing the debt, while Ontario is spending $11.3 billion. Eliminate this and both governments would be in surplus and the debt could start being paid down. Such a move might also save the Canadian dollar and ease the transition back to gold backed currency.

There is currently a case before the courts trying to force the government to go back to borrowing from the Bank Of Canada.

Some claim that borrowing from the Bank Of Canada would cause or increase inflation. There is no evidence to support this. And if it did now is the very time when we could use some inflation.

For a good overview of this, including the court case, see Liberate The Bank Of Canada

Next time I’ll discuss the Four Sisters of alternative investing.

Peter's Financial Predictions For 2016

Here’s fearless (or crazy) Peter’s economic predictions for 2016. The first is a no-brainer. Oil is going to soar. Several things have convinced me of this. The bearishness of the market. When you hear the mainstream media talking about $20 oil you know you’re at or very close to a bottom. On January 15 of this year oil hit a low of $29.15. Oil has fallen 74.8% since June of 2014 when it traded at a high of $115.71. It has fallen 80.2% from the July, 2008 all-time high of around $147.27. The talk is of an oil glut. Where were these people when oil was trading about $100? Besides people were talking oil glut in December, 2008 when it was trading at about $32.40 just as oil was about to soar. About a year later oil traded around $80. That isn’t to say that oil might fall a little more, but it will not stay down.

Natural gas too will also soar and in fact is showing signs right now of being in the early stages of doing just that. Between a high of $6.15 in February, 2014 to a low of $1.68 last month natural gas has fallen 72.7%. If you go back further to December 2005 when natural gas hit a high of $15.39 then it has fallen 89.1%. Natural gas too is seen to be in a glut. It has fallen again in recent days, but I’ve been expecting a correction, before the trend up resumes.

Gold (and silver) too is also going to soar, although that doesn’t mean it still can’t make a new low. If it does it will likely be before the end of January or February at the latest. Mining stocks may lag a bit before they too soar. Whether this turns out to be a bear market rally or a new bull market is too soon to tell. I lean towards a bear market rally that will last several months, although I can see it surprising everyone and turning into the continuation the bull market that began about 2001.

The Canadian dollar closed January 15 at 0.6875 American, the lowest it has been in about 13 years. I’ll go out on a limb and predict it will trade at about 80c American by the end of the year and at about 90c American by the end of 2017. The American dollar is due for a major correction and if, as expected commodities soar then the Canadian dollar should soar with it.

My final prediction is that the depression that I’ve long warned about will start to hit beginning with another stock market crash like we saw in 1929-1932. As I write this the Canadian and American stock markets are down for the first two weeks of the year. I believe they will bounce up again, perhaps make a new all-time high before they start to crash. I believe the Canadian stock market will outperform the American one initially due to rising commodities. Since their all-time highs of last May the DOW and the S&P are both down between 12-13%, while the TSX is down about 24% since its all-time high in August, 2014. The TSX is down about 23% from its 2015 high of last April meeting the definition of a bear market, while the DOW and the S&P are, at present, meeting the definition of a correction.

A NOTE TO SAY THAT THESE ARE MY PERSONAL VIEWS AND THAT I COULD BE WRONG WITH ALL OF SOME OF MY PREDICTIONS.