Vainglorious

The shiny new (career politician) Con leader is making a splash. Like the most successful pols he’s learned two things.

First, tell aggrieved people what they wish to hear. Second, divide the universe into Us and Them. This works. It’s the rocket fuel of the rightist movement making strides from Finland to Italy to Mara Lago.

Globally, there’s fertile ground for the message of the ‘have-nots’ vs the ‘have-yachts.’ With inflation raging everywhere, 90 central banks jacking rates, food and energy insecurity, supply chain woes and real estate unattainable for most, there’s a war on the elites. That includes the World Economic Forum, epidemiologists, Bezos, the Bank of Canada, Dr. Fauci, CEOs, King Charles, banks, most Boomers, Poilievre’s ‘gatekeepers’ and, of course, Justin Trudeau.

Yes, the impact of inflation is real. Worse, it’s only started. It’s clear interest rates haven’t crested and Mr. Market told us last week the economic fundamentals now suck. Look at the results of this Leger poll of how Canadians and Americans answered days ago, when asked this question: “As a result of rising inflation over the past few months, have you….”

When a third of people are depleting savings to pay monthly bills or throwing expenses on their credit card – and the economy’s only started to crack (with the best job market in half a century) – you can see what’s coming politically. Remember that Canadians do not vote for leaders. They vote against them. The new guy may have warts. But at least he’s not the old guy. Off with his head.

But wait, where does inflation come from? Is there a scintilla to suggest Justin, Tiff and Chrystia cooked this up?

Current leaders (the elites) argue that crazy, swelling prices and your financial insecurity were imported. Putin and Ukraine did it. The broken supply chain. Corporations hoovering billions in pandemic profits. An unforeseen economic pop after Covid, making it all worse.

Such beliefs justify the T2 government spending even more money, like with the $5 billion in new ‘relief’ cheques announced last week, or the $20 billion in additional payments to indigenous families. They tell us inflation is a regressive tax on the poor, therefore government’s correct role is to mitigate the suffering with more public money.

But wait. Does inflation come from too much money, or excessive demand? After all, the airports are jammed. New car sales are historic. Bidding wars sent house prices to the moon. Borrowing on lines of credit, mortgages and HELOCs is epic. Was this all the fault of CBs lowering rates too far, making the feds blameless?

The debate matters. It may well dictate what kind of dogma rules Canada next.

This weekend a lone, brave economist steeped forward to call out anyone who thinks the current mess was accidental. “This is economic heresy in defiance of the facts,” writes Scotia’s precocious Derek Holt. “It smacks of vainglorious attempts at excusing policymakers for having caused much of this inflation.” For example, says Holt, our current real estate crisis was entirely manufactured.

Econ 101 says that if you light up a torrent of demand then more spending chasing goods and services can light up prices. We see that in record housing activity. Housing has been overwhelmingly driven by domestic buyers responding to too-low-for-too-long interest rates and by heavy fiscal stimulus transfers. It was made unaffordable to lower- and middle-income households by such policies and yet instead of admitting that, governments have opted to point the finger at foreign buyers and tax them.

It’s what a certain pathetic blog has been moaning about for years. The inverse relationship between interest rates and house prices has never failed. When money is too cheap houses become too dear. And it was Canadian buyers who did this, not the Chinese dudes or struggling immigrants we vilified.

So what now?

There’s no election until 2025, thanks to you-know-who. So expect no sea change. But it’s clear interest rates will continue to escalate until cost-of-living increases slow dramatically. Recession odds grow. The record-low jobless rate will rise. In a year nobody will be talking about quiet quitting or WFH resistance. The political future of the governing Libs will grow darker. The biggest impact on residential real estate is yet to come as mortgage pre-approvals end, variable-rate payments are triggered, and prices are forced lower.

In politics a weekend’s a long time. The distance until June of 2025 is an eternity. By then inflation, interest rates and the cost of real estate may all be lower and stable. Covid could be a faded memory. Will we still be angry?

Somebody hopes so.

About the picture: “This is Skutchy on the left and Bertie in the right,” writes Terry. “Two big goldens who love a boat ride around the bay often to dry off after a swim post walk. They also love nothing more than to point their noses over the bow to see what’s ahead. Like the sage advice you give. It helps us all see what’s ahead.”