In a sane political system, we would’ve raised taxes (across the board). That would’ve slowed down consumption and allowed the Fed to lower interest rates, which would’ve raised investment. It also would’ve reduced the deficit, which would also be good for long term economic health.
Instead, we blew up the deficit and lowered taxes (but only for the really rich).
So many problems and social angst is downstream of expensive housing. Higher interest rates, fewer laborers, and more expensive building supplies (due to tariffs) is just making the housing crisis worse.
Oh and just wait until the Fed’s independence is completely gone. Our economy is galloping towards Peronism. Favored groups get economic benefits. Inflation is out of control. Competitiveness is gone. Capital flight. Rapid erosion of quality of life. It won’t be fun.
So I lived in Canada (Ontario) for 18 years, and I've been back in the US for 4. In Canada (and here) I don't see how you "raise taxes across the board" when most tech salaries (90-180k) by the time you add in sales tax and fuel taxes you're already paying 45-50% tax rate. For example, hypothetically one year I was buying a house, so no RRSP contributions that year. On my hypothetical 160k salary I paid $58k in income tax and withholding, plus 13% HST on just about every single purchase, plus something like 24% for fuel/road taxes. That means an effective tax rate of something like 45%. But we don't get pensions or anything like that, so you also need to save. A lot. If my hypothetical example doesn't sound so bad, imagine if you were making $45k. Sure, lower tax rate, but still.
I'm sorry, as bad as it sounds to everyone, it's time for the capital class to pay up, the middle class can no longer subsidize society because it's simply too small now.
edit I want to be clear that I am not against taxes, I am for social services, I'm just tired of paying 10% of my net worth every year while folks worth tens to hundreds of millions of dollars pay very little tax because they have limited "income", but then I pay for the roads they drive on and the public services they use.
Lol wait wait... RRSP is equivalent to US 401K, right? You can't contribute to your 401K the entire year when you buy a house?
Agree w/ everything you said and have similar feelings. My SO is from Toronto and we've always considered moving but mix of job market/housing prices have continually convinced us otherwise.
It's not that I couldn't contribute to a 401k/RRSP that year, it's that I needed the cash for downpayment/repairs.
You can take a loan from your RRSP for a downpayment, but only on your first home purchase.
(I was an immigrant and had owned a house in the US, and I am apparently the only person who had ever answered that question honestly, so I could not borrow from my retirement, and I had to pay provincial sales tax because of this as well).
The economic theory where using taxes to deal with demand shocks works is predicated on lowering taxes while cutting spending when things are going well in the private sector, driving down investment with high interest rates, like in the last 15 years. Especially lowering social spending, trying to get as many people into the private sector as possible so that more people work when the inevitable next crisis comes, at which point a movement in the other direction (at which point the government would have lots of saved up money and resources to both drive up demand and take care of people the private sector can't take care of anymore)
The idea is that government-generated demand is adjusted to keep total demand for the economy to service roughly constant, while keeping everyone either employed or receiving benefits. This means when the private sector does well, the government deliberately slows down, almost hinders activity and builds up a bank (you can tell: when the government does this it drives down house prices). When the private sector does badly, the government generates economic activity with their piggy bank.
Of course, the government never lowered its expenditures. I could say "after the last crisis" but with only very few exceptions the government has never lowered expenditures. In fact all governments worldwide have lowered expenditures so few times in all of history that a lot of economists can recite the entire list of exceptions by hard.
So there will be a demand shock, which will really hurt the private sector, and this gives the government a steep drop in income while the private sector is dropping employees by the thousands and everyone is screaming for government benefits, because they're really needed. Oh and meanwhile interest rates are going up, so the government is also rapidly losing the ability to borrow, which they'll try to prevent by ... driving up house prices.
What can be said? This is exactly what Canadians (and UK, and US, and EU, and ...) citizens have voted for. Governments will be forced into drastic social services cutbacks while doing everything they can to raise house prices (in fact all prices, since that's where they loan the money, which then results in the people that manage to keep jobs/keep in business produce more goods for the government)
This sounds more disastrous than it is though. All that's really lost is the ability to buy foreign goods. So if the government is able to quickly get the private sector to build/grow the goods that are currently imported there won't be much of a crisis. However ...
All there is to say is: either move to a tax haven, or enjoy.
Instead, we blew up the deficit and lowered taxes (but only for the really rich).
So many problems and social angst is downstream of expensive housing. Higher interest rates, fewer laborers, and more expensive building supplies (due to tariffs) is just making the housing crisis worse.
Oh and just wait until the Fed’s independence is completely gone. Our economy is galloping towards Peronism. Favored groups get economic benefits. Inflation is out of control. Competitiveness is gone. Capital flight. Rapid erosion of quality of life. It won’t be fun.