Lee Friday – February 16, 2017
From a February 15, 2017 BNN article: “Let’s drop the pretence. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,” BMO Chief Economist Doug Porter wrote in a note to clients.
Porter is correct.
Definition of Bubble: Significant Price Inflation in a particular asset class which is intentionally caused by Monetary Inflation from the Monopolized Banking System. Porter is employed by a bank, so it is unlikely he would agree with this definition. I have written about money and banking here.
Serious problems lay ahead – defaults, foreclosures, bank bailouts etc. A housing bubble is not the only bubble we have to worry about, and all bubbles eventually pop. Credit card debt, student loans, car loans – more bubbles hanging over our heads.
Let’s talk about cars. According to this Financial Post article from March 8, 2016, in a 2014 report from debt-ratings agency Moody’s, the agency noted that auto lending by banks had grown at a compounded annual rate of 20 per cent since 2007, “significantly outpacing” the growth of even red-hot mortgages, credit cards, and lines of credit. In seven years, vehicle loans had jumped to $64 billion from $16.2 billion. . . . “Since our report, both consumer debt levels and auto loans at Canadian banks have increased,” Jason Mercer, one of the authors of the Moody’s report, said Tuesday. “Today, Canadian consumers face increased uncertainty due to persistent low oil prices and potential housing overvaluations, so these risks remain as relevant as ever.”
There is no doubt that monetary inflation from the banking system as well as foolish consumer borrowing are two significant contributing factors to the car loan bubble. However, there is another factor to consider. There would be much less demand for car loans if the cars were not so darned expensive.
Government regulations require cars to have numerous safety features. These are not options, they are mandatory. This substantially increases the cost of a car, the cost of repairs, and the cost of insurance. American automotive columnist Eric Peters writes:
Would you be interested in a brand-new, fully warranted, five-door crossover SUV built by a major, name-brand automaker that gave you 50-plus MPG with a gas (not diesel or hybrid) engine, that has a top speed around 125 mph, is capable of getting to 60 in 12 seconds (about the same as a Prius hybrid) that stickered for less than $5,000?
Peters explains that such cars are available, but not in the U.S., where they are illegal because they do not comply with government ‘safety’ regulations. The Canadian government also imposes stringent ‘safety’ regulations.
Politicians have the power, but not the moral right, to force us to live our lives according to their ideas about what constitutes ‘safe activities, pursuits, behaviour etc.’ Furthermore, such arrogant, presumptuous political edicts often fail to achieve their objectives. As economist Milton Friedman said “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”
DO SEATBELTS REALLY SAVE LIVES ?
I wear a seatbelt. I cannot imagine ever not wearing one. I think it is a good idea to wear a seatbelt. No doubt, an overwhelming majority of people wear seatbelts, and believe seatbelts save many lives. But is this true? Let’s explore the issue. A basic law of economics says you cannot change one thing in isolation. Every action produces one or more reactions. Evidence strongly suggests when drivers believe they are ‘more safe’, some of them tend to be more aggressive behind the wheel, with tragic consequences. In 1992, economist John Semmens wrote:
. . . Critics of seat belt laws have contended that they alter driver behavior in ways that increase the hazards for other users of the streets and highways. In particular, some drivers wearing seat belts may feel more assured of surviving an accident, and hence tend to drive more aggressively, thus raising the risk of collisions with other vehicles and pedestrians. . . .
. . . A recent statistical study of states with and without seat belt laws was undertaken by Professor Christopher Garbacz of the University of Missouri-Rolla. This study seems to support the altered driver behavior hypothesis. Dr. Garbacz found that states with seat belt laws saw decreases in traffic fatalities for those covered by the laws (typically drivers and front-seat passengers), but increases in fatalities for rear-seat passengers, cyclists, and pedestrians.[1]. . .
In 2000, in the British Medical Journal, Malcolm J. Wardlaw wrote:
. . . Between 1974 and 1982 cycling mileage in Britain increased 70%, but there was no increase in fatalities until the seatbelt law was introduced in 1983 . . . Compulsion to wear a seatbelt cut deaths among drivers and front seat passengers by 25% in 1983. But in the subsequent years, the long established trend of declining deaths in car accidents reversed, and by 1989 death rates among car drivers were higher than they had been in 1983. Evidently the driving population “risk compensated” away the substantial benefits of seatbelts by taking extra risks, putting others in more danger. This period saw a jump in deaths of cyclists. Although temporary, the jump can be explained fully only by cyclists having adapted to a more dangerous road environment through extra caution, retreat, or giving up. Is it coincidence that the long decline in cycling began in 1983? . . . [2]
CONCLUSION
If politicians really care about our safety, why haven’t they banned skydiving, boxing, MMA fighting, motorcycles, hockey, football, downhill skiing, race car driving, mountain climbing, coal mining, cliff diving, and many other risky activities? If the government really cares about our safety, why is it that the majority of murders, rapes, and robberies are never solved (see here)?
As the government pretends to decrease physical risk to consumers with its safety mandates, cars escalate in price, which begets all those car loans, which increases financial risk to consumers.
The truth is, the government does not care about our safety at all. They care about ‘control through legislation.’ They care about benefitting special interest groups. Numerous safety features for cars, with their added costs and profit margins, are a gift to car manufacturers. What happens when the bubble pops? Will the government keep consumers ‘safe’ from defaulted car loans and repossession? No. Will the government keep bankers ‘safe’ from huge losses on these loans? Yes.
Risk is part of life. We all deal with it every day. Some of us are risk takers, some are risk-averse. Each of us can attempt to minimize, or not, the risks we face. People should be free to decide how much they are willing to pay to reduce risk. Let car makers offer a basic model, with a list of various options. Let consumers make decisions about which options, which ‘safety features’, they want to pay for. In this environment – what’s it called, oh yeah, a free market – cars will be much cheaper. And as we have seen, studies suggest that fatalities might actually decrease for pedestrians, cyclists, and car occupants.
[1] John Semmens, Do Seat Belt Laws Work? July 1, 1992 (Foundation for Economic Education)
[2] Malcolm J. Wardlaw, Three Lessons for a Better Cycling Future, December 23, 2000 (BMJ, formerly known as the British Medical Journal) This article also presents strong arguments against bicycle helmets.
