Mark Carney – “Invest in productive capital, not in houses or condos”

“And there’s a variety of things that European authorities can do, that the IMF can do, others can do to contain it so that Canadian business and Canadians can get on with their lives and focus on how we’re going to grow our economy, which is largely going to be investing in productive capital, not in houses or condos, and in growing our economic relationships with the major emerging markets,” Mr. Carney, the Bank of Canada governor, said in an interview with CTV.
– from Globe and Mail, 9 Aug 2012

Excellent point; a reference to the dire misallocation of resources that occurs during speculative manias in housing.
At the same time, it’d be fair for many to retort:
“But, Mr Carney, thanks to your low interest rates, my money is not attractive to potentially productive business concerns; as a result I’ve been drawn into high risk speculative activity, such as buying over-priced RE, with leverage, for presumed future price increases.”
– vreaa

12 responses to “Mark Carney – “Invest in productive capital, not in houses or condos”

  1. Invest in weed. Big returns.

  2. “investing in productive capital”

    And that would be…? I think he was saying this two years ago.

  3. Hmmm let’s see.. GM closed its plant in Oshawa due to high labor costs; Caterpillar closed it’s plant in Windsor due to high labor costs; RIM is slashing its work force due to lack of funding and innovation; the government is slashing jobs, corporations are slashing jobs, inflation is rising again, savings are at an historic low; which only leaves one option for Canadians to boost productivity: borrow more, which is more debt.

    There isn’t much to analyze anymore as it has become evident that a bunch of sociopathic bankers have taken control of the monetary system and will not do what EVERYTHING IN THE CENTRAL BANK TEXTBOOK TELLS THEM TO DO.

    Lift rates and let the market figure it out.

  4. Ralph Cramdown

    “…my money is not attractive to potentially productive business concerns…”

    Do you mean “not attracted to”? While the IPO market is admittedly dead, there’s plenty of investors out there willing to sell you quality equities. The ones that aren’t growing are yielding 4-6%, and the ones that are growing are… growing. Sure, there’s a lot of stinkers, but there always are. Just to name a few high profile companies making big bets on productive enterprise, there’s pipelines trying to build Northern Gateway and Keystone XL, an activist investor who bought a big chunk of CP and shook up management hoping for better returns, Bombardier sinking a few billion into the C Series, the banks getting together to buy the stock exchange… And you could have gone along for the ride on all of these, or scoped out some of the smaller plays, the companies growing slowly but steadily and the cash cows. Consensus opinion right now is petrified of risk, which has driven the price of “risk free” investments skyward (one wag said that government bonds, rather than offering risk free returns, now offer return free risk) and the price of many productive enterprises to lows. Be the contrarian.

    • Mostly agree.

      Still many attractive yields available in Canadian equities. Not a bad time to be a buyer.

      So many Canadian industries still have moats around, a la telecoms, protecting your money. Its a good play.

  5. “thanks to your low interest rates, my money is not attractive to potentially productive business concerns”

    low rates make all risk assets (stocks, commodities, RE) attractive – not just real estate.

  6. Too little, too late, dumbass. Why don’t you go read some Milton Friedman?

  7. Why would anybody listen to this? His suggestion is at odds with the Bank’s own policy. The Bank of Canada is transferring wealth from savers and investors to subsidize debt-based consumption. They are propping up the “borrow and spend” economy at the expense of the “save and invest” economy. If you want savings and investment, perhaps there should be a reduction of penalties applied to that. Setting the interest rate equal to the rate of inflation is a good start.

    But I think it’s much too late and the damage has been done. Savers are skewered. Investors are swimming in risk because inflation eats most of their returns in a low yield environment. ZIRP is completely toxic:
    1) ZIRP delays restructuring and writing down of bad debts
    2) ZIRP punishes those who try to save and invest
    3) ZIRP subsidizes speculation and malinvestment

    I can understand ZIRP in a de-leveraging economy, as in the US or Japan in the 1990’s. But it is inexcusable to have this policy in Canada now. It has encouraged ever more leverage and speculation and punished those who don’t play along. Screw you Mark Carney, the country is bankrupt. The only question is what will be salvaged when our credit bubble bursts. Given our lack of reserve currency and our dependence on exports to China’s investment bubble, this could get bad quickly. Furthermore, we have an expensive social safety net in Canada. I think Canadians have a hell of a lot to lose, and we have voted for that with our ballots and our wallets.

  8. The tax system says otherwise. Since capital gains on your principal residence are tax free, the rational thing to do is to plow everything you have into your principal residence and lever up us much possible. Works great (on the way up anyway). If they want people to invest in productive capital, the tax system wil need a major overhaul. The current system encourages speculating as much as possible in principal residences and discourages paid employment, lending, and investing in common stock. Is it any wonder we ended up in this crazy position.

  9. Leading by rhetoric instead of leading by setting incentives properly is doomed. Unless you want to build a USSR style propaganda machine, then you might make it work for a short time.

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