Free markets & the Politician


Recent times have shown the inadvisability of politicians getting involved in changing markets.

In fact, I would suggest politicians should stay away from free markets, or those with heretofore limited regulation, if we want them to remain as such.

Measures taken (never timely) simply add layers of distortion. Dismantled with great difficulty at some future date when unintended consequences mount or the inflation of previous action becomes too much to bear.

The real estate market in Vancouver was naturally correcting going into the summer of 2016. Meanwhile the BC Liberals, in their infinite wisdom decide to implement a punitive 15% tax on homes purchased in the Greater Vancouver area by foreign nationals. Largely a knee jerk reaction to popular outcry. Globally, this tax was viewed as an assault on wealthy foreign nationals, not as an effective measure against rising house prices.

Managing to tax an already cooling market is one thing… alienating and offending an entire segment of the population is another. I would think it’s unwise. We will never know what the natural peak for housing prices was going to be in the Great Vancouver Area, but had it occurred, the effects would have sent an appropriate signal to investors and a cooling phase would gain strength from organic feedback.

Now we have a new & opposite form of distortion in the market; the government will step in and provide interest free loans (*be sure to read the fine print) up to $37,500 for folks that cannot afford a healthy downpayment. Does this not compound the housing affordability issue? Instead of letting the market ebb and flow, rise and fall of its own weight, we prop up and cajole.

Don’t get me wrong, I love to see my homes’ value rise, but millions of consumers’ maturation patterns are being impeded by a single and fundamental aspect of life – shelter. Contrary to popular belief, the political meddling needs to stop. Let the market take it’s course.

Debt is debt. This lovely gift from the Liberals is more debt. Plain and simple. Once again, the onus will be on the borrower, inflated by the government and backstopped by you, the tax-payer. The 6 big banks of Canada’s lending monopoly won’t hurt equitably when this unravels. Sure their dividends will decrease but they will repossess, repackage and write off. Meanwhile, an entire generation of freshly leveraged up, tired-of-going-nowhere-millennials, will feel the sting for the next decade with their underwater mortgages, foreclosures & bankruptcies.

Market cycles have a cleansing effect over time, separating the weak from the strong. When the fundamentals are stunted or encouraged you create incalculable & amplified crisis. Meddling with the natural process eliminates the chance for rebirth, for healthy growth and true long term stability. We want ebb & flow… we don’t want crisis.

— Stability does not equal the absence of volatility, volatility is necessary —

We need politicians with backbones strong enough to tell the public, you reap what you sow. Politicians strong enough to see their powerful & aging friends, lose money. Politicians with enough patience to not distort markets for votes, when the wave of consequence is sure to last decades. With enough presence of mind to see that the average citizen can find their own way into crippling debt without government encouragement.

If we can’t achieve this, we can rest assured that the next crisis will be larger than the last.

 

 

 

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