Economic Crisis

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Turn inflation pain back on the bosses

Published by Anonymous (not verified) on Sat, 23/07/2022 - 9:52pm in

Inflation is turning basic food items into luxuries, pushing up prices across the board and eating into workers’ living standards.

The current rate is 6.1 per cent but the Reserve Bank of Australia (RBA) expects it to rise to 7 per cent by the end of the year.

The bank has responded in classic capitalist style by hiking interest rates, aiming to slow the economy and reduce inflation at the cost of raising unemployment.

After holding its cash rate (the price at which it sells money to the retail banks) at 0.1 per cent from November 2020 to April 2022, the RBA has raised the rate to 1.35 per cent—and everyone expects that to go much higher.

That directly affects mortgages. While many established home-buyers have built up a buffer by paying more than the minimum, anyone who has recently bought a home at the top of the market with a huge mortgage is facing a world of pain.

If the cash rate hits the forecast 3.35 per cent by November, someone with a $500,000 mortgage will have seen their monthly repayments rise by $909 in just seven months.

But many workers, including renters, are already struggling. Rents, petrol and house building costs have skyrocketed by much more than the official inflation rate. Food is much more expensive, too—particularly fruit and vegetables.

What’s to blame?

The classic establishment response to inflation is to blame “greedy workers” pushing up wages, in turn fuelling price rises.

But the ruling class is not pushing this argument with any great conviction for one obvious reason: wages have been behind inflation for at least three years.

So when Sky News business editor Ross Greenwood calls for the government to act on wage expectations, he isn’t talking about past pay rises creating inflation but his prejudice that workers defending themselves might make things worse.

Even Treasurer Jim Chalmers said there was no credible forecast that suggested wages could keep up with inflation.

So if inflation isn’t being fuelled by workers’ pay rises, what is causing it?

A major factor has been the disruption to supply chains resulting from COVID and western sanctions on Russia. Raw materials, components, minerals and grains have been in shorter supply, driving up prices.

But another has been the way capitalists have taken advantage of the situation to raise prices to boost their profits.

Dr Richard Denniss from the Australia Institute thinktank, told The Guardian: “Australia isn’t experiencing a wage-price spiral, it’s at the beginning of a price-profit spiral.

“The national accounts show it is rising profits, not rising costs, that are driving Australia’s inflation. While workers are being asked to make sacrifices in the name of controlling inflation, the data makes clear that it is the corporate sector that needs to tighten its belt.”

The Trading Economics site reports that corporate profits in Australia surged by 10.2 per cent in the first quarter of 2022 compared to the previous quarter.

“This was the fourth straight quarter of increase in business profits, and the strongest growth since the second quarter of 2020.”

CEOs aren’t holding back. The average bonus alone paid to chief executives of the top 100 companies last year hit a new high at $2.31 million each.

And their pay packets are obscene. At Afterpay, the two CEOs shared $264 million, with other top bosses picking up huge salaries—CSL, $58.9 million; Goodman, $37.1 million; Macquarie, $14.6 million; and Woolworths, $11.7 million.

Far from making further sacrifices, workers need to be taking the fight to the bosses for pay rises that at least match inflation and preferably go higher.

Too often, union officials are prepared to talk about “fair pay rises” and settle for effective pay cuts. In Victoria, teacher activists are campaigning for a fresh pay claim after officials earlier this year pushed through a deal offering a shameful 1.7 per cent a year, plus a 1 per cent bonus not built into permanent pay.

Public sector workers in NSW are right to demand that the Liberals’ pay cap of 3 per cent is scrapped. Meanwhile, teachers in the state’s religious and private schools are campaigning for a 10 to 15 per cent pay rise over two years.

Staff at the University of Sydney are demanding an above-inflation pay rise. Health workers stopped work in Perth over pay in the state with the lowest wage growth and the highest inflation rate in the country.

Inflation is a threat to every worker. It makes the need to fight, not sacrifice, ever more urgent.

By David Glanz

The post Turn inflation pain back on the bosses appeared first on Solidarity Online.

the recession’s likely long-term impact on homelessness

Published by Anonymous (not verified) on Fri, 11/12/2020 - 2:59am in

I’ve just written a report for Employment and Social Development Canada on the current recession’s likely long-term impact on homelessness in Canada. An overview of the report can be found here.

Homelessness in canada could rise due to recession

Published by Anonymous (not verified) on Sat, 26/09/2020 - 2:50am in

I am currently writing a report for Employment and Social Development Canada looking at the long-term impact of the current recession on homelessness. It should be ready by early November.

In the meantime, a teaser blog post I’ve just written on the same topic is available here.

Ten things to know about CMHC’s Insured Mortgage Purchase Program

Published by Anonymous (not verified) on Tue, 07/04/2020 - 5:42am in

In March 2020, the Trudeau government launched a new version of the Insured Mortgage Purchase Program (IMPP). According to CMHC’s website: “Under this program, the government will purchase up to $50 billion of insured mortgage pools through CMHC.”

Here are 10 things to know:

1. Canada Mortgage and Housing Corporation (CMHC) is a federally-owned crown corporation. Many of us know CMHC as the federal agency that works with provincial and territorial governments to assist some low and moderate income households with rental housing. Likewise, some of us know CMHC as the lead federal agency on Canada’s National Housing Strategy (geared mostly to renters).

2. CMHC has been acting as a publicly-owned insurance company for residential mortgages since 1954. Indeed, in addition to assisting some renter households, CMHC also offers to insure mortgages with high loan-to-value ratios.[1] In other words, it tells the banks and other financial institutions: “If you are willing to provide a mortgage to this prospective homeowner, we’ll make sure you don’t incur any losses if they ever end up in default.”

3. The Superintendent of Financial Institutions (OSFI) regulates the banks to make sure they don’t engage in overly risky activity. Banks (and other financial institutions) sometimes like to get aggressive in their lending, so OSFI says they can’t make mortgage loans with less than a 20% down payment unless the mortgage is insured. CMHC provides such mortgage insurance, and premiums are paid by qualifying homeowners.

4. Most of Canada’s formal financial institutions are currently eligible to have their mortgages insured by CMHC.[2] Indeed, CMHC’s insurance program is not available to all lenders, but it does apply to all major mortgage issuers.[3] Mortgages that do not have CMHC insurance include mortgages with larger down payments and mortgages issued by some of Canada’s newer mortgage lenders.

5. Without CMHC’s insurance program (or equivalent) prospective homeowners would typically need at least a 20% down payment in order to purchase a home.[4] That would make it more challenging for many Canadians to buy a home for the first time. So without this insurance program in place, rental vacancy rates in Canada would likely be even lower than they are today (and this would be bad news for renters and prospective renters).

6. If an approved lender (namely, a bank, trust company, or credit union) makes a mortgage loan, CMHC will issue an insurance policy on that mortgage. The down payment can be anywhere from 5% to 20% of the value of the home. And if there’s a default, CMHC pays the bank. With this insurance program, a mortgage with a high loan-to-value ratio all of a sudden becomes a very good investment for the bank—that is, what once looked like a high-risk loan is now a low-risk loan. CMHC insurance therefore makes mortgage lending attractive for banks.

7. Homeowners then have to pay the premiums. For a loan-to-value ratio up to 80%, the premium is 2.4%. For a loan-to-value ratio between 80.1% and 90%, the premium is 3.1%. And for a loan-to-value ratio of between 90.1% and 95%, the premium is 4%. That’s the premium paid by qualifying homeowners, as a lump sum, when they take out the mortgage. Premiums go to CMHC’s publicly-owned insurance program. CMHC takes the premiums and invests them in stocks and bonds. When the time comes to cover claims on insurance, they can use the pool they built up to pay the claims.

8. With our looming recession, some homeowners will likely default on their mortgages. Knowing this, banks and other lenders have been looking at the state of all their loans (in fact, they must do so according to federal regulations).[5] And they need to be setting aside reserves against those possible defaults. Some banks are starting to think about calling in (i.e., cancelling) their loans and/or not issuing new loans. To avert such a crisis—known as a liquidity crisis—the Government of Canada is essentially injecting money into the financial system so that banks and other lenders don’t have to call in loans and stop issuing new loans (which would make matters worse for Canada’s economy). The Government of Canada is giving CMHC money to buy existing mortgages (all of which are insured by CMHC, and are therefore safe for the government to buy). When banks sell these mortgages to CMHC, banks get cash in return, which they can use to then make new loans (including new mortgage loans).

9. With the recently-announced IMPP, CMHC is offering to bulk purchase insured loans. CMHC effectively becomes a bulk purchaser of insured loans, bundled as mortgage-backed securities. CMHC has offered to buy back as many as financial institutions want to sell to them, up to the $50 billion threshold (an amount that has since been expanded to $150 billion). Homeowners will see no difference in the day-to-day. Once each mortgage term ends (they’re typically five-year term mortgages) homeowners will have to renew their mortgages with lenders.

10. A buy-back on this scale has only taken place once before. As is noted elsewhere: “Between fall 2008 and the end of 2010, CMHC purchased $69 billion of mortgages” via a previous iteration of this same program, in the immediate aftermath of the 2008-09 world financial crisis.

In sum. With the IMPP, the Government of Canada has likely helped prevent a financial crisis, which would have made our looming recession even worse. (For a concise overview of Canada’s housing finance system, see Chapter 4 of the Canadian Housing Observer 2014.)

I wish to thank the following individuals for assistance with this blog post: George Fallis, Susan Falvo, Marc Lee, David Macdonald, Marc-André Pigeon, David Pringle, Saul Schwartz, John Smithin, Tsur Somerville and two anonymous sources. Any errors are mine.

[1] A few caveats are in order here. First, CMHC also insures mortgages in rural areas that have low loan-to-value ratios (otherwise, the lender might refuse to issue a mortgage). Second, there are two other insurers of residential mortgages in Canada, in addition to CMHC. They are Genworth and AIG.

[2] And also by Genworth and AIG.

[3] Any lender or mortgage broker can apply to be an NHA-Approved Lender, and must then comply with CMHC underwriting standards—and if they don’t, they risk losing the approved lender status.

[4] Alternatively, they might provide another guarantee for the lender.

[5] OSFI sets requirements for reserves, based on risk-weighting criteria.