Central Bank Reserves
We hear a lot about how solid the Canadian banking system is, but how solid is the backing from their Central Planners at the Bank of Canada?
What reserves do they have on their books that could make the Canadian banking sector solid?
Here is an overview from their own webpage and it becomes apparent they are only sitting on a mountain of Paper.
As you can see Canada has a lot of paper from US dollars to IMF’s Special Drawing Rights, but being an economy of the size of Canada make them look like a nobody when it comes to gold reserves. The historical low of 112k Oz or less than 4 tons of gold held by the Bank of Canada puts them in one of the worst places in the world when it comes to gold vs. currency supply and if countries start reverting back to a gold standard, Canada will be a massive looser. Back in in the late 90’s and early 2000’s Canada had lots of gold. Almost 200 tones, but now they have a lousy 4 tones. It is believed that Central Banks like the Canadian and my home country the Norway dumped gold on the market throughout the 2000’s to calm the markets and prevent a run on the banks. It did help for a while but what will these banks do next time to protect themselves? Experts says one shall have between 5-20% of it’s total wealth in gold, but Canada’s accumulated money supply vs. gold cannot even be measured I 0.00’s%
There is a need for change as the Canadian banking system when closely examined, it is rather a minefield placed on a peaceful path throughout the forest of strong and sound banking as they claim. Let’s take a look and one of the next weaknesses and what we believe is madness when a country could borrow directly from their central bank at next to nothing.
How does the Canadian Government borrow money?
The Canadian Government stopped borrowing money from the Central Bank in the 70’s and are instead using the big 5 banks as borrowing institutions. This is madness when the government could borrow cheap currency at near 0% from the Bank of Canada. Instead the government borrow at rates of 2-4% making tax payers pay way more than they should for the racked up Canadian debt.
The interest cost is huge when one can use the Publicly owned Bank of Canada. It is not the best idea, but it is way better than using private banks.
Here are several articles that proves that Canadian governments are using the Private Canadian banks the same way the US Uses the FED for borrowing.
We need to wake up to the bankers tight grip on the Canadian Economy. The only thing that makes Canada have this infinite growth that we have seen since 2008 is the expansion of credit and most of it comes from the Fractional Reserve Banking system aka. private banks.
Banking and Investment Fees
The way banks make money is through fees and interest. This was recently seen as The Ecommerce giant Alibaba’s IPO made bankers $300M. This is only one of the ways that bankers make loads of money from being money managers. The Canadian banks and investment corporations are known for some of the world highest fees on investments. There is a book written about this and if you are Canadian you should read the book. The Naked Investor. It is an investment insiders view of the investment and banking industry.
Many mutual funds in Canada has almost double the fees as similar funds in Europe and in the US and on the top of that there are the funds of funds where you pay fees twice sometimes making fees paid as high as 7-13% depending on the funds. This is a clear fraud, but the Canadian SEC knows how to keep the status quo for the industry by putting out legislation beneficial for the big corporation and destructive for small investors and businesses trying to compete with the big ones.
In Canada there is one company worth to take a look at and that is Power Corporation of Canada. This organization have consolidated tremendous amounts of market cap in the fund industry owning almost 2/3’s of the industry. Instead of investing in mutual funds invested in mutual funds how about buying shares in Power Corporation of Canada. That is if you are eligible of course.
On daily banking there is fees, on credit cards there are 100’s of fees and on your mortgage there are interest rates which the banks charge. Bankers have become the ruling elite class buy being money managers and making money on billions of dollars changing hands in fees and interest rates.
The way that investments in Canada is set up is to benefit the government and banks. To get in the government and the CRA are luring you in with a tax deduction of 15% on the small sum you invest. Then you are turned over to the bankers and investment firms which suck capital through your investment and their funds and the value of your investment is falling on top of that in form of inflation created by the same guys. When you are ready to retire you at age 71 in Canada must start withdrawing money from your RRSP (Registered Retirement Savings Account) and it is now becoming law that you need to take your money out and pay between 20-40%+ taxes on your hard earned and saved up money. I was looking at some top performing mutual funds in Norway and over the last 20 years they claimed to have increased by 263%. If you take away fees and this was in Norway + fees and then you add the loss from taxes when you take out the money from your pension account you only sit with a gain of 100% well that is suddenly only a gain of 5% every year instead of what you thought a 12.5% is return a year. Numbers in the industry are very manipulated and also some prospectuses you really get to see the bad fees. You only get to see a glossy one page overview showing a return on investment, but look closer and you then see that the stats are with you contributing monthly and the return is still not that great.
Talking about the bankers lets take a look at a trend that will always destroy a currency; compounding interest and how the Canadian Monetary System is no better off than the American or any other centrally planned economy. The Monetary supply.
Money supply is a rarely spoken of measure lately as if you took a look at true measure of most money M2 and M3 the trend shows that no matter if money in certain industries and certain types of money deflate the money total in existence keeps on growing. Here are some charts to prove what I am talking about.
As you can clearly see is that over time compounding interest gets uncontrollable and at one moment it will be a hockey stick moment bigger than any we have ever seen. I explain money creation this way. “If I had the only $1000 in the world and you wanted to borrow them from me. I would say great, lets do it. I give you the $1000, but there is one catch. I want the $1000 back but with interest. So you might ask. How will I be able to pay you back the interest? I would say don’t worry I will print the interest , but I also want interest back on the interest I just borrowed you, and on top of that I want more interest.”
It gets clear with when I explain how money gets created how the above charts never go into a deflating trend as all currency created has a interest charged onto it except basic money supply the paper and coins you use on daily basis as cash.
Study how any form of compounding effect work and you will soon see the mathematical certainty of a hockey stick moment of destruction as this is how bacteria grows and any other species in the world will grow exponentially until we have depleted all the food and resources available. The monetary system destroys wealth in the same way rapid expansion of deer population expands till there are no more resources to carry the population and it dies off.
Interesting how laws of science and math always plays out as certain forces explaining history and todays certain coming failures of monetary systems word wide and in Canada. Talking about compounding and how the monetary system needs a constant feed of people getting into debt or else it will collapse in on itself as the demand the food for the deer disappear and they die off and the monetary supply goes into failure mode as interest comes due and when there is no more money created to pay off the interest another certainty kicks into place. Bankruptcies and foreclosures. At the top of it is the lenders who can get the asset and business back for next to nothing.
Real Estate and Construction as a part of GDP
In Canada the Real Estate boom has seen no end. Markets like Winnipeg where I live close to haven’t seen a real downturn for over 30 years+. What is one of the main drivers of middle classes so called wealth? Real Estate, their house is looked at as an asset as it counts for 70% of the middle class wealth. When your own residence is an asset that is when a bird becomes an elephant. Anything that you have that takes more money out of your pocket on monthly basis than it takes in is a liability and your house end up in this category.
Real Estate booms are used to convince the public that they are becoming wealthier as more and more people are getting into real estate and getting loans for it. This creates a supply and demand issue which then drives up prices. The more this price can be driven up the better for banks and politicians as the people now could use their homes as ATM and wastefully spend the newly gained equity on vacations cars and more dodads as Robert Kiyosaki calls them.
The Canadian economy and their GDP heavily depend on growth trough real estate and the construction that the credit boom creates. A whooping 19%+ of Canada’s GDP comes from real estate and construction and here are the latest numbers shown in a chart.
Something is wrong when 1/5 of your economy is dependent on continuous building of new homes, condos, business and industrial real estate. The biggest growth is in Residential and that is the problem. The real economy of production and commodities are not there. Rather profit driven investments in real estate which in many cases gives no real value back to the community and are driven by cheap money from the central bankers. Meanwhile the middle class think they are getting richer. Cheap money creates massive distortions and great leverage that could only end one way bad! as people want to exit.
Also it is a way for the banks to reap great profits through all the fees, interest and long term low risk as they own the house until you paid the last penny on your mortgage.
Talking about Real Estate and the main driving force behind it we are going to take a look at debt the driver of almost all money. Money = Debt as most money created is created as debt through the banking system or through Corporate and Sovereign Debt(Bonds). Only a little fraction is money without debt. Cash as we call
Do you believe these stats affect the Canadian economy’s future in a bad way?
We do believe that especially Bank of Canada’s Reserves is a issue that should be spoken about on daily basis as Canada is one of the worst positioned G20 countries as they only have 0.01% Gold Reserves to GDP compared to Russia, Europa and the US at 2.2% to 2.7%. A move to a gold standard would devastate the Canadian economy. Canadian banking fees are the highest in the world and the organizations running this crime syndicate do not want any competition as they use the Securities to try to shut down or make it hard for any competition that may arise.
Canada’s Money supply is still booming together with almost all of the other 40+ economies I track on a quarterly basis. The Money supply has to rise in order to pay off new interest and this becomes a vicious cycle that will end in defaults either public or private. Real Estate’s exponential growth many places in Canada is also a worrisome signal as these booms are fueled by debt bubbles. In our 3rd part we will talk about Canada’s huge debt issue and what is to come for Canada’s massive debt bubble.
Let us know what you think about this blog!!?? Do you agree or disagree?
The Economic Truth