The Canadian Economy: "A Rock of Stability"?

[Cosmo]

Jim Flaherty, Federal Finance Minister, six days before the federal election: “We’re sure not going to run a deficit. We will maintain a surplus in Canada and we will continue to pay down debt. We are a relative rock of stability.”

Jim Flaherty this past weekend at a G20 summit of finance ministers in Brazil: “This is a time of crisis.”

Uh-oh... what happened, Jim? Everyone in Canada (particularly BC) has been re-assuring themselves with the 'it can't happen to us' defence.

In case you missed it, China (of all countries) unveiled a $586 billion stimulus package this weekend. The country cut corporate taxes by over $17 billion, dropped interest rates and shovelled hundreds of billions into infrastructure (roads, railways, airports), affordable housing, social assistance and technology.

China has 1.3 billion people and an economy that grew last year by 11%. Annual export growth has been 20% and evey year 15 million more people join the workforce. It is now the third-largest economy in the world, and holds $2 trillion in short-term US debt.

And it’s worried about fighting off the global economic contagion?

Spain has 40 million people, and that makes it about the same size as Canada. Unemployment there is approaching 3 million, on track to achieve a depression-era level of 20%. This is just one year after enjoying boom conditions, like in Iceland.

Speaking of Iceland, last year that island country was named by the UN as the best nation to live in. Now it’s a wreck, and 30% of the population wants to leave. Unemployment has gone from zero to ten per cent.

Did you catch the jobless numbers last month in the US? On an annualized basis, it’s running at three million lost jobs a year.

And while Canada is still creating a few positions, "the writing is on the wall". Or at least that’s what our finance minister now says.

What happened to that "Rock of Stability"?... Oh yeah, election is over now. Silly me.

But should we worry?

Nah. Apparently hoards of wealth Asians won't be pulling money out of BC and will continue to buy Real Estate willy nilly here, thus keeping our real estate market and economy from going... "POP goes the bubble".

Riiight.

 

[87112]

The stock market in USA has rebounded nicely. I too dont see the reasons for the rebound back to 9000 Dow. GM, Ford, Chrysler might all go under, Circuit City just filed for Chapter 11 and DHL delivery just shut its US operations. Plus all the headlines dont point to a recover soon. I just dont get it either.

 

[Thatotherguy]

You know, the two statements don't have to be mutually exclusive. He said relative rock of stability. I believe that relative to many other countries (the US for example), Canada's in good shape. We're still in major shit, but we're not as deep in the shit.

We're looking at a world-wide event which will have serious effects on virtually every corner of the globe (I'm guessing that the Trobrianders of Papua New Guinea, for example, won't particularly notice ), but we're better positioned than most to weather the storm. Now, that doesn't mean that we will have an easy time of it, or even that we will successfully weather the storm, but our chances are better than most.

At best, we should be cautiously optimistic in Canada. More realistically, we should be cautiously pessimistic.

 

[threepeat]

The stock market in USA has rebounded nicely. I too dont see the reasons for the rebound back to 9000 Dow. GM, Ford, Chrysler might all go under, Circuit City just filed for Chapter 11 and DHL delivery just shut its US operations. Plus all the headlines dont point to a recover soon. I just dont get it either.

I thought the same thing on the long side about commodities this past summer before my portfolio got crushed . The two lessons I learned are:
1) technical (ie., trend following) trading is extremely important these days, and the hedge funds have the power to move markets, along with a fair bit of help from the Plunge Protection Team.
2) once the funds have used up their ammunition (long or short), there is no other option but a rebound back to the other side. Ultimately though, fundamentals have to win out eventually.

 

[Thatotherguy]

Which is like being "relatively" well hung at 3 inches when all the guys around you had their dicks chopped off.

Exactly! It's all relative!

 

[87112]

So scary

http://video.aol.com/video/resident.../2319830?icid=100214839x1212775039x1200842509

 

[mimi]

I've been doing a lot of reading on what actually happening in Canada after the stockmarket crash from the perspective of the people who actually lived it. And although it's a tad (LOL) long here is a one fellows story:

"My father left me four houses in Toronto and it was no problem keeping them filled up and when I wanted to buy some more in the same district the bank gave me credit with both fists. They couldn't give it away fast enough, and the four rented houses, were collateral and the price of the money was 7 1/2 % but who cared? This was 1928 and things were going good.
I bought four more houses, using half the $7,500 the bank gave me for the down payment and the rest to update them.
I was on Easy Street. Rents from my own four houses, my Dad's, I put half of that plus the rents from the second four houses in to paying off the loan. The rest of the rent, about $80 as I remember, went in to a special fund and I was going to buy more property with that. I was going to be a millionaire by the time I hit 40. Ho! ho!
By late 1930, four of my eight houses are empty. Disaster. I cut rents way down to get in renters, but that is just putting off the evil day. The bank loan is still waiting. Month by month I'd lost tenants. Skippers. (leave before the end of the month) Gone in the night. I'd get more.
So, you've got eight houses and only four or five filled and you maybe are lucky to get $80 or $90 a month from them, and the bank loan is $120 a month with that wicked interest. You see, it's wicked interest by now. You've got taxes and maintenance, otherwise you'll be in the slumlord business in a couple of years.
My little contingency fund of $80 a month, about $500, was gone soon. My job is houses, the management of them, and I can't get a job. Who wants me? Never done a day's work in my life. I 'm 26 and nothing behind me.
Then comes that day when the two converging lines meet. Pretty quickly. My own money is up the chimney and my rents don't come close to my bank loan and I go to the bank and I sit in an office with some accountant and out comes my file and there is some humming and hawing. Hmmmmm! Then the answer. It's like awaiting the jury's verdict when you're on trial for murder and you know the death penalty is automatic.
No, I can't have any more money. I don't blame them for that. Business. No, I can't have a reduction in interest. No, I can't have an extension.
So I'm out of business. The bank takes my father's houses. The trust company takes back the four houses I bought for half down payments. At 26, I'm finished.
Boy, was it easy to get credit when things were good! Boy, was it hard to even get a small smile out of a banker when things were bad! All their money was locked up and they weren't letting any of it out.
Everybody was a bad risk, and I read later, a banker saying that this was what made Canada's banking system so strong in Depression time. I should think so. No lend, no risk."

 

[mimi]

....and one more! Shorter! Nothing like a story about real people to give colour to an era that was largely ignored in text books. Everywhere I read I come across stories that suggest the construction trade was the first and hardest hit industry:

"There was this fellow, Steve Metarski. He'd come over from Poland, the Ukraine, as a kid of 14 or so and worked building railroad and became a sub-contractor. He was what you would call The Solid Citizen. He had a lovely house in a good part of Hamilton.
About 1930 construction just went crash and Steve lost his business in six months. They took his house and he got his lawyer to work something out so he'd still have possession and ownership as long as he made the payments. But, he'd bought this house in, say the mid-Twenties, and he had a big chunk of a house left to pay, and it was a hell of a house, and interest at 8-9%. We think 9% high today? Think what it was then. I 'm in the business and I would say it would be crushing.
Let's put this thing into a box, four sides, a bottom and lid. Here was Steve, no business, no job, no cash buried in the back yard and with some screwy deal between the bank and his creditors and where was his out? There was none.
He never made more than two payments and he had to sell the furniture to do that. Then the house was swiped out from under him and sold at about a quarter of actual worth to some guy in Burlington. The guy moved in with his wife and kids and let Steve and his wife live in the basement, and Sally, his wife, was the maid and Steve did work around the yard, stoked the furnace and was the guy's chauffeur. A chauffeur for Christ sakes!
Look at it this was. Say, on July 1, 1930, Steve still had a business and a fine house and a nice wife. By January 1, 1931, six months later, he's zilch. Living in the basement in his own house and his wife is the maid upstairs, and the cook."

This story and the previous one I posted were taken from "Ten Lost Years" by Barry Broadfoot, Paperjacks edition, 9th printing July 1987

 

[mimi]

Wow! Anna, that is like deja vu from the past. And you're right, it's scary.