Buckle. Buckle down Canada, tighten your belts, stomp your feet and hope to keep warm, an economic storm, cometh our way Full of thunder and lightning I hope it will end up signifying nothing, or will wash itself into the calm of a blue sky, My fear though is that it will end up rocking the proverbial boat - yours and mine-in more ways than one.
Jim Flaherty the Finance Minister has implemented life altering changes to existing mortgage rules. A brief outline of the policies outlines a reduction in the mortgage amortisation period from a 30 year period to 25 years. The borrowing or re-financing limit is the amount that can be borrowed against the value or equity value of a house, this percentage will now be reduced to 80% from 85%. The maximum gross-debt ratio will now be fixed at 39% and the total debt-service ratio will be set at 44%. The CMHC Website states that the definition for GDS (Gross Debt service) is the entire monthly debt load which includes housing costs (PITH) plus all other debt payments (car loans or leases, credit card payments, lines of credit payments, etc.) this has now been restricted to no more than 39% of the applicants income.
The Total Debt Service (TDS) ratio will now be fixed at a maximum of 44%.
I believe if this rule had been implemented at a more stable time this could have been an excellent precursor to a more structured real estate/mortgage situation long term , it would have reined in the low interest rate fuelled growth that the industry has seen over the previous years. Timing is everything I believe at this time the world and Canada are walking a tightrope of financial turbulence. This skien of policy twisted around and around to form a whole, the inclination by all and sundry to keep parroting the scary debt ratio, are going to make it extremely difficult to stay upright. I know the debt ratio is huge, I shiver slightly whenever the number is thrown at me. You might harness your debt, slightly, but if you are smart you would have done so already. You might downsize to a smaller home, but again you would have done so already.
The consensus is that this new policy will negatively affect a meagre 20,000 applicants, 6% of the house buying populace. 6% of the population that rent in order to save up for the house of their dreams, 6% that live Scrooge lives, stuffing pennies and such under beds and into bank accounts. Is this 6% substantial enough to affect policy, I believe this 6% includes you and possibly every other person that you might talk to, your colleagues, your family, the person on the bus. You and everybody you know that is trying hard to achieve their goals, and is monetarily repressed at every turn.
Back to the 6% the people pressurised by everybody (to include without exclusion their six degrees of separation) to stop renting and purchase real estate. Me, I love the safe confines of renting, I like the stability it offers the fixed sum of money that goes out every month. But trust me it is almost every other day that someone, someone constantly in the know questions your sanity, tells you that with renting you might as well burn your money or in the clichéd nuance ‘flush it down the drain’. Renting does not equity build.
Renting is an option I will personally continue to choose, to be fair there are people out there, single parents, seniors, families, new immigrants, old immigrants trying to build a little nest egg of equity. And ears to the ground it is getting more and more expensive buy a home of your own, property values escalate, the middle class struggles to blend equity with dreams and fund normalcy, the rich use it to migrate into a strata of their own and deconstruct self-help books, write them even. It is the poorer brethren who rent, squeeze tight into houses five bedrooms too small, work jobs that underline overworked, underpaid. And yet it is said that these rules do not and might not apply to them. My view is it does.
These rules are meant for people who subscribe to a larger dream, they should not be used in the same broad brush stroke against the applicants struggling to create a life. I believe it might not be the right time for such a policy. It does not target the populace it is meant for. Instead it will harbour a fear that the future is going to be even harder to decipher for some. These rules may even end up revoking the basic right to own property for a decent hard working class of people.
At this time a number of economic policies have been set in motion that have become restrictive in terms of the amount of money they will leave in the hands of the general populace. They go under different titles but their scope is the same. The the new EI policy, the extension in recipients age for Old Age Benefits and Pension plans for seniors, the constant replay of Canadian Debt Ratio peaking at 152%. This potent mix is to me like the key that sets into play the eerie music precludes the opening of a Pandora music box, It will inevitably unleash chaos in it’s wake.
Here are some excerpts that may or may not help strengthen the reasoning behind my fears
Globally, the average cost of basic food items has been climbing steadily for the past eight months. Cereal prices, including wheat and corn, are up more than 70 per cent from last year. The price of sugar reached a 30-year high last November, and it keeps rising. It's now 16% higher than a year ago. And dairy products, like milk and butter, are also well beyond historically high levels.
"In 2007, one of the strongest economic years in the past 30 years, 9.2% of Canadians – 3 million people – lived in poverty. Our trend analysis projects that the poverty rate increased to 11.7% in 2009, adding more than 900,000 people to the population living in poverty. The child poverty rate likely increased from 9.5% in 2007 to at least 12% in 2009, an increase of 160,000 children. While hundreds of thousands of Canadian families saw their income cut, they also had to stretch their meagre incomes farther as the cost of living increased in 2009. Food prices across the country rose 4.9%, compared to core inflation of 0.3%. Average rent for a two-bedroom apartment grew 2.3% between October 2008 and October 2009, compared to core inflation over this period of 0.1%. The rise in poverty and economic insecurity had an immediate, visible impact. Average debt load per household increased, as Canadians struggled with declining incomes and rising costs. Bankruptcies increased 36.4% between the third quarter of 2008 and the third quarter of 2009. Food bank use experienced its largest ever recorded increase, growing 18% between 2008 and 2009. 794,738 Canadians needed to use a food bank in March 2009. While 2010 has brought headlines of economic recovery, the employment situation has barely budged. Unemployment has edged down only marginally, to 8.2%. Because unemployment is projected to remain high throughout 2010, it is very likely that the poverty rate will remain at or close to 11.7% for 2010. Experience from previous recessions also provides caution. After the last recession, it took nearly 8 years for unemployment to decline to its pre-recession rate. It took 14 years for the poverty rate to return to its pre-recession level. While the focus of governments seems to be on recovery and budget cutting, there is a risk that poverty and unemployment could remain high for years to come if they do not receive attention"
Currently the Poverty rate is an estimated 9.4%, 3.2 million people now live in low income, including 634,000 children. They pay rent, subsist on cash for pay, suffer as costs keep rising, and their incomes dwindle, they are unable to move up and forward in life. A state of Limbo is the new come-uppance and the new EI policies will hold them firmly in place. This is an excerpt from the Globe and Mail on-line article dated June 18 2012 on the same. The unemployment rules will be tiered to applicants under the following classifications,
The new rules will create a sliding scale in which Canadians will be expected to broaden their search the longer they remain on EI.
This is an article that I found on the Human Resources Canada website
“Between 1976 and 2011, the unemployment rate reached its highest levels in 1983 (12.0%) and 1993 (11.4%), following two major recessions in Canada . The effect of the 2008-2009 recession on unemployment was a lot milder. Indeed, even though the unemployment rate increased from a decades-low of 6.0% in 2007 to 8.3% in 2009, it never came close to the previous highs and decreased to 7.5% in 2011.”
I am unsure of this number reducing. I still see a number of liquidation and going out of Business signs. What of these people, what of the self-employed hit by the recession, those who work for the cash for pay sector, and cannot afford EI, those who grit and lick their wounds in silence. By reducing EI accessibility we are asking people already struggling, to take whatever is available. We are giving even more power to employers to pay low wage. The take it or leave it offers will increase. and note salaries will get lower, work or be unemployed and being unemployed while waiting for a better offer will no longer remain a choice as employment insurance will now restrict your options on refusing a lower paying job.
In time as the costs of living rise, unemployment may even remain stagnant or may rise but salary growth will remain corralled under the fence of the new EI Policy. I have forgotten where I read this "A one-percent rise in unemployment rates leads to a six to seven percent decrease in salary." At a time when the headline on the cbc website read "Federal government looking to eliminate 19,200 public service jobs over the next 3 years"
When articles appear in Newspapers, liquidation and close out sales appear in strip and shopping malls. Where the bold lettering "Closing" resonates louder than the words of the New Employment Insurance Policy, it is defined now as being catered to tiers of the following group of workers. The writing on the wall is thick, I do not know if it will spell out LIMBO for a number of people or graph a downward slope for others.
In addition we think of winning the lottery and retiring young, a lot of us feel the pressure of our daily lives, the strain that money holds for us. We put our money into RRSP's, GIC's and all other abbreviations that spell INTEREST in big bold letters. The rate of return offered on most is negligible, but we do it anyway when we can afford it, and because we fear the wrath of the 'You have no savings' financial planner at some point in our lives. We do it for our old age.
Sixty five seemed far enough for retirement but don't look now there is a policy that is being put in place that will increase the age where Canadians can qualify for their Old Age Security Pensions.
This is the excerpt "Canadians under the age of 54 will be forced to wait longer to qualify for their Old Age Security pensions, Finance Minister Jim Flaherty announced Thursday. As well, the pension plan for politicians, often criticized as an overly generous “gold-plated” scheme, will be adjusted, starting in the next Parliament, so they are “comparable” with contribution rates made by public servants.
However, there were no details on precisely how much of an increased share the MPs will bear in contributions, or whether they will lose two attractive elements of their scheme — qualifying for benefits after just six years in office, and claiming the money at age 55.
The controversial shift in OAS, the backbone of Canada’s public pension system, was first telegraphed by Prime Minister Stephen Harper in January but details didn’t come until Thursday.
Flaherty argued the changes are needed to ensure the long-term sustainability of the pension system. He told the Commons the OAS program was designed decades ago for a “much different demographic future.”
In the 1970s, there were seven workers for every one person over the age of 65, he said. In 20 years there will be only two. Similarly, in 1970, life expectancy was age 69 for men and 76 for women. Today, it is 79 for men and 83 for women. “The result is that Canadians are living longer and healthier. There are fewer workers to take their place when they retire. Canada has changed. Old Age Security must change with it, to serve the purpose it was intended to serve,” Flaherty said. Opposition parties say he is creating a “false crisis” and immediately mounted fierce attacks. NDP leader Thomas Mulcair said Harper had violated a promise to not touch pensions. “But today we learned that the word of the prime minister is worth nothing,” said Mulcair. “It’s totally inadmissible that in a country as rich as Canada we still have so many elderly people who are living in poverty. Mr. Harper prefers there would be more.” Interim Liberal leader Bob Rae said many Canadians, especially those in “physical industries,” won’t be able to work beyond 65 and would end up on provincial welfare rolls. “I don’t know too many construction workers who are working past the age of 65. I don’t know too many factory workers who’ve been on the line since they were 17 or 18, who are going to be working past the age of 65.”
The pension changes are as follows:
• Starting on April 1, 2023, the age of eligibility for OAS and the Guaranteed Income Supplement (GIS) will gradually change to 67 from 65.
• This means anyone who is 54 years or older as of March 31, 2012, will not be affected.
• People born between April 1, 1958, and Jan. 31, 1962, will become eligible to receive OAS benefits between the ages of 65 and 67, depending on their actual birth date.
• People born on or after Feb. 1, 1962, won’t be eligible for OAS until age 67.
• Eligibility for the allowance given to low-income spouses or survivors will gradually increase to 62 to 66, starting in April 2023, from 60 to 64 today.
• People can voluntarily defer receiving their OAS benefit for up to five years, starting July 1, 2013. If so, they will be subsequently rewarded with a higher, actuarially adjusted pension. For instance, someone who defers retiring at age 65 for one year (to age 66) would receive $6,948 in the annual OAS pension instead of $6,481. In recent weeks, political critics have said the OAS changes will merely off-load costs to the provinces, because more seniors will be forced onto provincial welfare rolls when they turn 65.
Flaherty has responded by promising to “compensate” the provinces for any “net additional costs” they face as a result of the change in OAS eligibility. On Thursday, one pension expert panned the OAS announcement as an “unfair and regressive change that will increase poverty and most hurt lower-income seniors.”
“The budget talks about healthier Canadians living longer and longer,” said Ken Battle, president of the Caledon Institute of Social Policy.
“Well, the fact is the poor seniors are less healthy than others, have lower lifespan and have less time in which to enjoy their Old Age Security benefits.”
Gregory Thomas, federal director of the Canadian Taxpayers Federation, was critical of the government for not going far enough in reforming the MPs’ pension plan.
“Essentially, government MPs are sending Canadians a signal that they continue to be a privileged class who write their own rules,” said Thomas.
“Obviously, there are a lot of government MPs who feel entitled to their entitlements and they want to cling to a gold-plated pension"
Out the window for an additional two years go my twilight silver-tinted dreams of rocking out in a well-worn chair, aging dentures by my side, relaxing doing the thing I love most but have the least time to indulge in reading, writing, listening to music, watching movies. Art at rest-my stolen pleasure. A couple of years more than before. 730 days, and I will only count that far. We work hard, we play hard, we should be able to retire well. The sad part is that almost half of all Canadians are not financially prepared for retirement, the sad part is that this policy might make it difficult for those who are struggling to make even the silver years feel Golden.
At a time when the government keeps emphasising that we the populace own debt ratios at an outstanding 152%, and at a time when these same banks will not allow a low interest pay back scheme, other than the competitive mortgages and re-financing schemes, the Prime Interest Rate continues to linger at an all-time low of 1%. We will continue to balance Bank Profit statements with Credit Card rates, Lines of Credit rates and other non-mortgage debts. Banks will not cater to the public with a plan that will alleviate their debt and propose for them payback policies strictly imposed at lower rates. Yet the same banks were provided a breather, a life jacket maybe even a straw when they were facing a downturn.
The controversial shift means that starting in 2023, the age of eligibility for OAS benefits will gradually increase to 67 from 65. With an 11-year “notification” of that change and a six-year phase-in that concludes in 2029, Flaherty said he has given Canadians “ample time to make adjustments to their retirement plans.” Flaherty also announced a new measure that will permit Canadians to delay claiming their OAS until later in life and, in return, be rewarded with higher benefits.
The purpose is twofold: Keep Canadians in the workforce longer to boost the economy and provide taxes to government, and limit the costs of the OAS system by ensuring there are fewer beneficiaries. In an apparent move to blunt some of the public uproar, Flaherty announced that pension plans for public servants will be changed to require that the employees pay a larger contribution: 50 per cent.
"Canada's biggest banks accepted tens of billions in government funds during the recession, according to a report released today by the Canadian Centre for Policy Alternatives.
Canada's banking system is often lauded for being one of the world's safest. But an analysis by CCPA senior economist David Macdonald concluded that Canada 's major lenders were in a far worse position during the downturn than previously believed.
Macdonald examined data provided by the Canada Mortgage and Housing Corporation, the Office of the Superintendent of Financial Institutions and the big banks themselves for his report published Monday.
It says support for Canadian banks from various agencies reached $114 billion at its peak. That works out to $3,400 for every man, woman and child in Canada , and also to seven per cent of Canada 's gross domestic product in 2009.
The figure is also 10 times the amount Canadian taxpayers spent on the auto industry in 2009.
"At some point during the crisis, three of Canada 's banks — CIBC, BMO, and Scotiabank — were completely under water, with government support exceeding the market value of the company," Macdonald said.
"Without government supports to fall back on, Canadian banks would have been in serious trouble."
During October 2008 and June 2010, the banks combined to report $27 billion in profits on their balance sheets.
CMHC mortgage program aided banks
One of the most well-known ways in which policymakers helped the banks during the crisis is through a $69-billion CMHC program whereby the housing agency took mortgages off the balance sheets of big Canadian banks. In contrast with other support facilities, all of the funds granted by the CMHC were through selling assets (in this case mortgages) to the housing agency. They were not funds that had to be paid back. The CMHC has provided the aggregate total of how much was given out, but has yet to release specifics on which banks sold how much to them, and when, the CCPA says. When asked for comment in reaction to the CCPA report, the Canadian Bankers Association noted that the $69 billion that Canada 's big banks sold into the CMHC program is in fact only 55 per cent of what was allocated for the program. "Many of the mortgages were already insured and therefore, created no additional risk for the government," the CBA noted in an email to CBC News. The CMHC estimates that by the time the program is wound up, it will have generated $2.5 billion in profit as those mortgages are paid off, the bankers' group noted.
Calling the CCPA report "completely baseless," Department of Finance spokesperson Chisholm Pothier noted that the mortgage program has already generated more than $1.2 billion in net revenues for the CMHC's coffers.
But Canadian lenders also dipped into a program set up by the U.S. Federal Reserve aimed at providing cash to keep American banks afloat. CIBC and BMO took almost $3 billion each out of the fund, RBC and TD took out $8 billion and Scotiabank drew down almost $12 billion, the CCPA report found.
'These funding measures were not put in place because banks were in financial difficulty.'—Canadian Bankers' Association
That data came from the U.S. Federal Reserve, which released it publicly. But Macdonald's analysis found that Canadian banks got a comparable amount — $41 billion — from Bank of Canada facilities, an agency that has been far less transparent in sharing information.
"Despite Access to Information requests for the data, the Bank of Canada refuses to release it," the CCPA report states.
"The federal government claims it was offering the banks 'liquidity support,' but it looks an awful lot like a bailout to me," says Macdonald. "Whatever you call it, Canadian government aid for the country's biggest banks was far more indispensable than the official line would suggest.
"The support for Canadian banks was much more substantial than Canadians were led to believe," Macdonald said.
The Canadian Bankers Association disputes the notion that the funds in question were any sort of bailout, arguing they were routine transactions aimed at keeping the financial system liquid. "These funding measures were put in place to ensure that credit was available to lend to businesses and consumers to help the economy through the recession," the CBA said. "These funding measures were not put in place because banks were in financial difficulty.
Since the start of the recession, the CBA notes 436 U.S. banks have failed. No Canadian financial institution went under, but Canada 's banking sector was hit by an overall crisis of confidence in the banking sector that caused some of the banks' normal lending sources to dry up, the CBA says. Canadian banks get about two-thirds of their funding from consumer and business deposits, but the other third comes from credit markets.
"It was these markets that were seizing up. Funding was less available," the CBA says. "Canadian banks continued to lend and increased their lending after some non-bank lenders pulled out of the Canadian market."
While some of the funding came from government sources such as the Bank of Canada, the bankers' association points out that the central bank itself says Canadian banks needed less official central bank liquidity support than their foreign counterparts.
"The credit was extended at competitive interest rates to protect taxpayers," Pothier said. "Financial institutions accepting this credit paid interest on the loans."
To show the scale of the funding, the CCPA report contrasted the total value of the support Canadian banks took against the bank's total value at the time. Under that comparison, CIBC received $21 billion in support — almost 1.5 times the value of the company at the time. BMO maxed out at $17 billion or 118 per cent, Scotiabank peaked at $25 billion or 100 per cent of its value, while TD and RBC maxed out at $26 billion and $25 billion — good enough for 69 and 63 per cent, respectively, of the total value of those companies at the time. "It would have been cheaper to buy every single share in these companies," Macdonald said.
But the CBA disputes those numbers too, saying comparing a bank's value to the level with which it participated in a liquidity program aimed at boosting confidence in the market is "an apples to oranges comparison as the two factors are not at all related."
"The Oxford dictionary defines bailout as 'financial assistance to a failing business or economy to save it from collapse," the Canadian Bankers Association noted.
"That definitely was not the case here: not one bank in Canada was in danger of going bankrupt or required the government to buy an equity stake under taxpayer-funded bailouts." I know this is a lot to read, like a long drawn out Thank you speech, it winds on and on, and yet all I try to do with this is acclimatize myself mainly, and then maybe you.
This is from the Financial Post News written by Julian Beltrame in the Canadian Press—
"Canada ’s economy will under perform even moderate expectations in the next two years, TD Bank economists predicted Wednesday, adding that recent tightening of mortgage and credit rules is contributing to the slowdown.
In a new forecast, the TD Bank now expects growth in Canada this year to average 2.1%, shaving a tenth of a point from its March outlook. And it expects two per cent growth in 2013, down four-tenths of a point from the earlier forecast.
That is still enough to generate modest job creation and TD says Canada ’s national unemployment rate should decline slightly to 7.1% in 2013 from the current rate of 7.3%.
TD is the latest of a list of forecasting groups to officially or unofficially downgrade their outlook for the economy, with some — particularly Capital Economics — coming in even weaker.
The Bank of Canada is expected to follow suit at its next policy announcement in mid-July and write down a call for 2.4% growth in both 2012 and 2013.
TD Bank chief economist Craig Alexander said conditions have deteriorated through much of the world in the past few months.
Europe’s problems with government debts in countries that use the euro currency have resurfaced, while China and the U.S. are both under performing expectations. Europe remains by far risk No. 1, he said.
His expects European leaders will stare the abyss squarely in the face and come up with the policies needed to avert a disaster, but he warns the situation will be dire if they don’t. “In the case of Europe , they are toying with the possibility of a global financial catastrophe,” he said. “The good news is that the politicians realise this, so it makes it more likely they will do what is necessary.”
Alexander wouldn’t put a number on the odds of another economic slump in Canada because all the risks depend on political decisions in Europe, United States and China “and I have no way of calculating those.” “If I were to make a guess, I’d say it is one in four,” he added.
For Canada , the slower global growth and tumbling commodity prices are responsible for about half the reduction in TD’s domestic growth estimate, particularly in 2013. The other half — or about 0.2 percentage points — comes from expectations of lower consumer spending, particularly for housing, as a result of changes to mortgage rules and new restrictions on borrowing.
Last week, Finance Minister Jim Flaherty announced that after July 9, the maximum amortisation period on a government-insured mortgage would be dropped to 25 years from 30, which will increase monthly payments assuming all other factors are stable.
As well, the federal regulator of financial institutions has told lenders they can only issue home equity loans up to a maximum of 65% of the property’s value, down from the previous 80%. “We think the housing market will cool down even more than we anticipated because of the new regulations,” Alexander said. Overall, he expects consumer spending on durable goods will fall by more than one percentage point from previous expectations, impacting the overall economy. But Alexander noted that he believed the changes were needed for the long-term health of Canada ’s housing market, and to rein in household debt. The bright spot in the Canadian economy is business investment, but TD economists believe that will also be dimmer than it might have been because of the risky global situation. On Tuesday, the Conference Board reported its consumer confidence index for June had fallen to where it stood in January, when fears about a European crisis were also elevated."
It is not the Debt ratio that makes us analyze, or the amortisation rules which will make us downsize it will always be our individual financial situation.
Banks continue to remain the most personal point of interaction between us and our finances unless said funds are stored in coffee pots and under mattresses. Financial institutions are the ones who take a key interest in our financial situation our savings, our debts, the illusions of mobility, shelter, life and mortality they present us and the reality of their achievement.Banks monitor spending patterns closely, if there is a strong effort by the borrower to repay whether it is the minimum payment or the principal, they are not spending frivulously, re-education, basic necessity bills they cannot support with regular cash flow are not frivulous, then they should be encouraged repayment through low interest loans closely monitored.
There is a huge burden that lies both on their shoulders and ours, responsible lending, responsible borrowing, responsible investment. responsible divestment.
I believe the if the debt ratio is high; if banks are presented with a proposal to support in well monitored manner the repayment of debt at low rates, again I am parroting myself, joining the flock now of beaky presenters of oft repeated nuances but I strongly believe that most people have the innate understanding that debt must be reduced.
Delaying the borrowers payback with unaffordable interest payments is only a prolonged catharsis of debt.
Providing affordable repayment schemes at low interest rates with stringent monitoring will encourage repayment improve the consumers credit rating, his savings and eventually will influence the overall debt ratio.
It is not the debt ratio which will influence consumer spending or the new mortgage amortisation rule which will counter us from buying a house. It is the fear that we will not be able to do so in the future as the costs keep rising and we keep accumulating debt to stay afloat. We keep wanting to stay afloat, so we can stop renting, or living within a constricted space and buy a house or a suitable house of our own. It is a vicious cycle and the multi pronged policies set in place are attacking the various spokes of this wheeled cycle, while setting in motion the very engine which turns the wheel faster, fear.
Finally. This is it. I will stop here.
These policies might end up fireworks at a status-quo event.
A lot of fiery speeches and dialogue from all and sundry to include the very humble thoughts of yours truly, It may end up a lot of smoke in the end accomplishing nothing, setting nothing asunder.
It might end up being a desirable approach for some, a deprivable approach for others. Let's hope less of one, and more of the other. We can see the stars from where we stand and they are for a large percentage of us-out of our reach , with these policies I hope we are not just being moved further away.
