The dirty little secret of Canadian Banking

Canadian debt and the prospects for an upcoming banking crisis

By Redmond Weissenberger

The propaganda you hear about the Canadian banking sector is just that – propaganda. Canadian banks are as leveraged up as there international counterparts – if not more: in fact Canadian banks have no reserve requirement whatsoever, zero. Of course you needn’t worry about your deposits in the event of a banking crisis, deposits of up to $100 000 insured by the Canadian Deposit Insurance Corporation. The CDIC doesn’t hold enough cash on hand to actually pay out the potential claims, but it does have the Bank of Canada ready to print the money up out of thin air to make you whole – with your own money. How do we know that the BoC would pony up the fiat currency? We come to the dirty little secret of Canadian Banking – the big five were bailed out just like every other bank in the world. The report in question was prepared by a left wing think tank, so we can question their motives, but the reality is that Canadian bank sector is subject to the same problems of fractional reserve banking as the rest of the western banking system.

Now what could lead to a Canadian banking crisis? Simple: exactly the same factors that led to the housing crisis in the US and Europe, namely artificially low interest rates leading to a bubble in real estate prices and unsustainable consumer debt.

You see, the Canadian housing bubble did not pop in 2007-08 like it did world-wide, and with the ZIRP policy of the BoC since then, Canadian households have managed to rack up a hell of a lot of debt. Mark Carney and the Federal Government have been issuing warnings on a regular basis to Canadian consumers to reign in their spending, but they aren’t listening. The elite are unwilling to do the one thing that would lead to a reduction in debt levels, that is, raise interest rates – two reasons jump out:

1. The Canadian Dollar has appreciated against the USD since 2008 from $.67 to roughly par. And a raise in Canadian Interest rates would necessarily lead to a further increase in value against the USD, further reducing Canadian exports to our largest trading partner, the USA .

2. Raising interest rates would put potentially millions of Canadians underwater on their mortgages, leading to – wait for it – the bursting of the Canadian real estate bubble, and the subsequent fallout in the Canadian banking sector.

And on that note, Mark Carney, head of the BoC has just pulled a Greenspan and jumped ship for the top spot at the Bank of England, the granddaddy of the Anglo-American Central Banks.

So please makes sure you don’t have your blinders on when it comes to the Canadian financial situation.