We don’t get out much.
I mean we travel, especially with the family, but we don’t really go to many local events.
This week was an exception.
Craig Race, part of the Toronto team that got laneway housing approved in the city, hosted an “underground’ Missing-Middle dinner at an undisclosed location that I’m not sure I’m even supposed to be talking about. LOL!
So we went out to that this week.
The same night Daniel Foch and Nick Hill hosted their own party at a popular spot in Toronto on King West, Paris Texas.
So after the “missing middle” dinner we stopped by to say hello. They’re great guys and are doing real estate the right way, in our humble opinion.
They’re obviously much younger and cooler than us because we could never host a party at a Toronto nightclub.
My dream is to go to bed regularly at 9:45pm and get up at 5:00am to read, LOL.
That’s a party to me.
But it was fun to get out and hang out with all of these guys.
Quick Aside: And the Leafs won that night in OT with a Matthew’s snipe so it was just a perfect night all around!
The future is bright with people like Daniel, Nick, and Craig around.
OK, enough of the nice talk, let’s get real…
The Bank of Canada is screwed.
They cut rates with a “crisis level” drop of 0.5% yet again.
These types of cuts, the second big one this year and the fifth cut in the last six months are a sign.
The general population doesn’t understand money and doesn’t understand our current system.
The current regime in Canada is set to release its Fall economic update and expectations are that the annual deficit is on target to be north of $40 Billion.
Now, let us be very clear.
A deficit of $40+ Billion with no “crisis” and no “pandemic” is categorically bonkers.
And we’re not surprised at this amount in the least.
First, you have a government that doesn’t care about spending money at all (proof: see the deficit).
And second, you can’t have “real rates” in positive territory with this much debt in the country.
What do we mean by that?
Let’s look at this chart to help explain…
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See how over the last year the Bank of Canada’s interest rate has been higher than reported inflation?
When you have a total government debt in this country over 100% (not the 40% that the federal government likes to use…we’ll explain why they use that number incorrectly in a future email)…when the debt is that high you cannot have interest rates higher than inflation.
Let us repeat, when you have debt as high as Canada does you CANNOT have rates higher than inflation.
You may be able to pull it off for a year, maybe even two…but definitely not for long.
Why?
Think about this…
If the average interest rate has been 5% on debt in the country over the last little while….
…and the government inflation rate has been 3%…
…then your debt is growing FASTER than you are growing the dollars in the economy used to pay that debt.
5% - 3% = 2%.
You can’t have debt growing at a positive rate when debt-to-GDP is over 100%.
There is just not enough money in the system to make all the interest payments.
When you and I pay off debt we extinguish dollars. That’s right, when we pay off debt we are actually REMOVING dollars from the system.
That’s not good in a debt based system.
Sounds insane, right? We agree, but it’s true.
So the Bank of Canada has a huge problem right now.
Rates are higher than inflation and it desperately needs one of two things:
If rates are 2% and inflation is 3% then…
2% - 3% = -1%
Now, with this, “real rates” are negative.
Make no mistake about it…this is what the Bank of Canada needs to happen.
And they need it to happen FAST.
This is why we’re seeing multiple 0.5% rate cuts with no announced “crisis”.
If inflation keeps dropping, faster than rates drop, they run the risk of blowing up their entire debt-based, horror show of a monetary system.
This is the game.
They only raise rates when inflation gets so hot, like it did, that they get scared of “hyperinflation” which blows up their system in another way…loss of confidence.
You see we don’t use real money and we haven’t used real money since 1971 (Nixon closing the gold window)…or I could argue since 1944 (Bretton Woods) or perhaps even 1913 (creation of the Federal Reserve).
Regardless, our money is created through debt issuance and as a result it’s all a game of confidence.
And the Bank of Canada, make no mistake, is in a pickle.
Earlier this year, when NO ONE saw five rate cuts coming, we were thinking there easily could be because of what we just explained.
Back to the federal government…we’re not surprised that they’re going to announce a huge deficit number shortly.
They are broke, and with high rates they are “more broke”.
So they spend like crazy and the Bank of Canada facilitates this by enabling more dollars to be created to fund their spending.
It’s a complicated dance and it’s robbing the purchasing power of Canadians left and right.
Your mission…should you choose to accept it…is to buy good, hard assets and hold onto them for dear life.
For some, it’s equities.
For others, like us, it’s good rental properties in good areas. Focusing on income vs. expenses (not speculation in price increases).
And now, we can add beautiful Bitcoin to our lives too (Bitcoin is the most misunderstood monetary asset in existence today).
With Rock Star Inner Circle members we dive into all this stuff.
And with our VIP program we go even deeper.
We’re about to open up our VIP program for 2025, we only accept new VIP members once a year, we intentionally keep the group to a set limit.
If you’re interested in the real estate strategies we’re using right now…missing middle strategies, second suites, garden suites, student rentals…or you want to learn more about global macroeconomics and Bitcoin’s role in this world going into 2025…stay tuned for our VIP announcements coming out shortly.
We have a few special guests for the VIP group, that they don’t know about yet, that we’re SUPER excited for.
And in the meantime…
Understand that the Bank of Canada is in trouble.
They know they have to get rates down fast. They are praying for higher inflation but can’t come out and say that.
It’s all a game.
And your mission is to understand it so that you can live life on your terms!!
Chat next week…
Tom & Nick
