The International Monetary Fund (IMF) figures 2016 will be the 5^th straight year of global growth below 3.7%, the average for the past 20 years.  It was 8 years ago that interest rates began the slide to zero interest rates (ZIR).  During the Dirty Thirties interest rates rarely went under 3%.  We are today in the position where world growth will continually get weaker as ZIR does its destructive work. 

ZIR have created a bubble in the stock markets and in real estate.  Based on corporate profits, the New York stock market is the third most expensive since WWI.  The Dow Jones Industrial average is bouncing along at around 20 times earnings, while the S&P 500 index is above 24 times.  During the last century the norm for the Dow was 14.4 times earnings.   Since 2000, the average has climbed to roughly 16 times earnings.

The average Canadian household income is $88,000.  Interestingly, Vancouver, the city with the most expensive home prices, has an average family income of just under $80,000.  The average selling price of homes throughout Canada is $440,000.  To purchase this house it means the buyer must put down a payment of $132,000 to qualify for a CMHC mortgage.  Very few Canadians have this kind of savings.  We have to assume most buyers today are going outside of banks to get mortgage money and get away with low down payments.  This is what triggered the 2005-08 housing bust.The housing market is an accident waiting to happen.  Not just in Canada, but in Hong Kong, Sydney, many American cities, London, and so on.  Mathematically, house prices do not add based on wages and savings.  

After taxes of roughly $31,000 the average household income shrinks to $57,000.  The average mortgage payment leaves little for food, medical, a child’s sports, other debt obligations, and next to nothing for saving.   This means when interest rates go up or house prices fall many Canadians are heading to the poor house, and will retire with not enough savings.

Canadian housing is in trouble on another front.  The population is shrinking and will continue to do so for at least the next 2 decades.  This fact will probably show up during the coming decade when there will be a surplus of homes.  The only thing to stop this will be to open the border to millions of immigrants.

ZIR are making it impossible for savers to build up equity.  Soon, if it has not all ready begun, there will be few home buyers.  Instead, sellers will begin to dominate, which is the death spiral for housing.

This means there is going to be falling demand for stoves, tvs, cars, etc.  For the stock markets this means a slow retreat back to past norms.  The profits from investing will come from dividends.  The world economy is in what we call the ‘bounce along economy’.  Until savers are rewarded and can earn 4% on their savings, there is little hope for a return to a healthy economy.