How did we get to a point where a majority of the Canadian economy is dependent on the real estate market?
In: Economics
Well, it has more to do with the Central Banking System. It works similar to USA, even though it’s not entirely the same. First, the government has bills to pay. The USA has a Treasury Department that determines how many bonds to issue. The Treasury Department goes to the Federal Reserve and tells them to sell those bonds. The Federal Reserve auctions the bonds to banks and individuals or other organizations. The Treasury has decided beforehand how much interest it will pay back. If it’s a high interest rate, lots of people will buy but then that causes investment to fall. If it’s a bad deal, then investment increases.
The Federal Reserve also lends money to other banks, this interest rate is based on how well the government bonds were sold. These smaller banks are the ones issuing mortgages. Now here’s the crux of your question, sometimes the government bonds are such a good deal, that the small banks don’t want to pay the high interest rate for borrowing from the Federal Reserve. So they take your mortgage to another bank and either sell it or use it as collateral to borrow cash. So, the mortgage is used as cash between banks.
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