Thread by @StephenPunwasi

Fun fact: 🇨🇦’s last finance minister executed a wild accounting scheme that no one is discussing.

This reckless moved padded the pockets of corporate interests, artificially inflates gov revenue, & is partially responsible for the loonie’s plunge.

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2/ One of her favorite moves was borrowing on behalf of corporate interests. 🇨🇦 wasn’t “giving” money, it borrowed for them.

It later forgave billions turning it into strategic corporate welfare & they refused to disclose for whom. But that’s another issue.

3/ the real issue was the real estate loans. The gov had this genius idea where it would buy its own mortgage bonds & execute a QE-style program to stimulate cheap debt.

CMHC warned this “blurs the lines between normal & crisis.” They did it anyway.

4/ it also crowds out foreign capital that would normally buy the mortgage bonds. Canada issued bonds it guaranteed to buy mortgage bonds it also issued and guaranteed.

On just mortgages they sunk the equivalent of 75% of the national budget; only payments count as spending.

5/ Since only debt service payments count as spending, this artificially reduced its spending *on paper*.

Mortgage bonds yield more than gov bonds, so the payments were technically negative.

Part of next year’s revenue growth is this debt it borrowed, not economic growth.

6/ the problem here is that has the same impacts as QE. It artificially created liquidity at the expense of balance sheet expansion.

In fact, it’s so close to QE, the BoC felt the need to clarify this is *fiscal* expansion, not them. It looks the same but it’s not them.

7/ one issue with this kind of expansion is that currency is impacted. Excessive money supply growth erodes the value of a currency since it’s just printing money.

That was partially responsible for this massive surge. Commodities are traded in USD, even in Canada.

8/ that means 2 things—🇨🇦 books higher revenues for commodities, & inflation rises.

🇨🇦 changed how it calculates inflation in 2021. One banks said the change will chronically underreport.

The result is only higher revenues. You feel unreported inflation, but it’s just a vibe.

9/ the other is this crowds out foreign capital. This is part of the investment flight observed.

🇨🇦 has a lot of reliable companies, but they’re need to issue bonds in USD now.

Anyway, 🇨🇦 just got fucked for multiple generations & people have no clue.

10/ Hilarious update: Friend at the BoC had an MP's call to confirm this thread was correct.

He said I nailed the mechanics, impact on foreign investment is the only uncertainty since it's a forecast.

1. Your gov is learning how its debt works via X threads
2. LMAO! 🤣

ps I'm a quant by trade. That's how I would program the risk weights for a fund. Since quants minimize risk & don't take big bets on debt, that's how most would weigh it.

There's a reason 🇨🇦's banks are issuing USD funds. High quality companies w/a shit currency.