Hey,
Great article from Todd Hirsch on his blog today. Check out my response to it too.
http://www.toddhirsch.com/1/post/2011/11/albertas-plan-b-and-c-and-d-and-e.html
Friday, November 18, 2011
Wednesday, June 29, 2011
Back in Action
After a significant absense, I've returned to the world of internet commentary and economic/political analysis. So here it is.
Today's story is a response to an article in today's paper (Medicine Hat News) titled, Canada's economy not looking so hot: slow growth may be best-case scenario . The name says it all. After an estimated contraction of 0.1 percent in April, economists are arguing that Q2 will show some very modest growth. This is largely caused by global trends (earthquake in Japan, etc.) but still affects the bottom line.
"While nothing remarkable, most economists would gladly take such an undramatic outcome. The trouble is, drama is in the air...'You will see a lot of excuses Thursday about April,' says Benjamin Tal, deputy chief economist with CIBC World Markets. 'People will say, 'Oh, don't worry about it, it's just the weather.' The other story is that we are in a really soft period reflecting a very weak American economy and some softness in here in Canada. (But) The fact is we are in a very modest recovery and that's an understatement.'"
The bottom line is, net growth is slow. And it means that our "rebounding recovery" is starting to look like it will be similar to the rest of the world. There are a few key concerns which are valid about this.
1. The article notes that Canada is still carrying a housing bubble. If weak growth continues and causes any more recessionary aftershocks, this could lead to a bursting which would hurt a little.
2. With Greece's flailing fiscal situation still in question (although less so as of late), worries still exist of financial pressures (don't say the "C" word) on Canadian currency which could lead to problems for the BoC. The article explains it better, in case you're economics head has been in a hole for the past 6 months (apparently like mine has)
3. One of this country's long-term shortfalls has been its low worker efficiency. As noted in previous blogs, Canada is in a position to recieve a higher investment flow. With our current exchange situation, we are also in a good position to be importing higher amounts of capital and especially high-tech/tech-sector capital. This combination could result in the development of greater and more niche tech-clusters throughout Canada. This would, in turn, also positively impact worker output efficiency.
Continued weak growth could ultimately signal to investors that Canada isn't necessarily safe for high-tech sector investment and undermine this potential trend.
So those are the real problems that I'm concerned with in this article. However, keep in mind that it's not all bad. The blanket statistics which are reported in these articles always seem to ignore the fact that this growth is across the whole country. Certain provinces are going to continue to grow. The Oil and Gas exporters (BC, AB, SK, NF) are going to see a bit of a decline in growth with commodity prices pulling back but I believe that their key exports will be largely unaffected and so will their growth.
At the end of the day, I always believe that unless we a plunging as an economy a little recoil is fine as the economy is simply cutting speculative fat. It means that past growth wasn't based on substantive development but on borrowed money (as per the article) and speculated investments.
Today's story is a response to an article in today's paper (Medicine Hat News) titled, Canada's economy not looking so hot: slow growth may be best-case scenario . The name says it all. After an estimated contraction of 0.1 percent in April, economists are arguing that Q2 will show some very modest growth. This is largely caused by global trends (earthquake in Japan, etc.) but still affects the bottom line.
"While nothing remarkable, most economists would gladly take such an undramatic outcome. The trouble is, drama is in the air...'You will see a lot of excuses Thursday about April,' says Benjamin Tal, deputy chief economist with CIBC World Markets. 'People will say, 'Oh, don't worry about it, it's just the weather.' The other story is that we are in a really soft period reflecting a very weak American economy and some softness in here in Canada. (But) The fact is we are in a very modest recovery and that's an understatement.'"
The bottom line is, net growth is slow. And it means that our "rebounding recovery" is starting to look like it will be similar to the rest of the world. There are a few key concerns which are valid about this.
1. The article notes that Canada is still carrying a housing bubble. If weak growth continues and causes any more recessionary aftershocks, this could lead to a bursting which would hurt a little.
2. With Greece's flailing fiscal situation still in question (although less so as of late), worries still exist of financial pressures (don't say the "C" word) on Canadian currency which could lead to problems for the BoC. The article explains it better, in case you're economics head has been in a hole for the past 6 months (apparently like mine has)
3. One of this country's long-term shortfalls has been its low worker efficiency. As noted in previous blogs, Canada is in a position to recieve a higher investment flow. With our current exchange situation, we are also in a good position to be importing higher amounts of capital and especially high-tech/tech-sector capital. This combination could result in the development of greater and more niche tech-clusters throughout Canada. This would, in turn, also positively impact worker output efficiency.
Continued weak growth could ultimately signal to investors that Canada isn't necessarily safe for high-tech sector investment and undermine this potential trend.
So those are the real problems that I'm concerned with in this article. However, keep in mind that it's not all bad. The blanket statistics which are reported in these articles always seem to ignore the fact that this growth is across the whole country. Certain provinces are going to continue to grow. The Oil and Gas exporters (BC, AB, SK, NF) are going to see a bit of a decline in growth with commodity prices pulling back but I believe that their key exports will be largely unaffected and so will their growth.
At the end of the day, I always believe that unless we a plunging as an economy a little recoil is fine as the economy is simply cutting speculative fat. It means that past growth wasn't based on substantive development but on borrowed money (as per the article) and speculated investments.
Tuesday, March 29, 2011
Layton's First Promise
My first blog post in a while is focused on Jack Layton and his first campaign promise of the year: cap the interest rate that can be charged by credit card companies.
The premise of Mr. Layton's promise: household debt is one of the most serious problems facing Canadians.
While I don't necessarily disagree with his premise, especially as one who is both trying to pay off my debt and who grew up in a fiscally conservative culture (i.e. southern Alberta), I do think that this policy is missing (or simply ignoring) some very important economic principles.
Economists consider the interest rate to be the "cost" of borrowing money. Interest is essentially a fee charged to a borrower that makes lending profitable. If you lower the cost of borrowing, people borrow more. That means an increase in the amount of debt people will have, not a decrease. High interest rates are a large deterent to taking on excessive debt. If you decrease this deterent, people think "hey my minimum payments will be lower, so I can afford to borrow more." In addition, card companies are likely to increase maximum limits so as to maintain profitability.
This actually implies that, in the long run, the average Canadian debt load is likely to increase.
Where reform is needed is in people's understanding of how credit card companies work and transparency within the industry. Hidden fees, rates changes, and the like need to be made more explicit so that individuals and families can make smarter decisions regarding their debt load and internalize the true costs of credit card debt. Layton calls for voluntary practices recently established to become mandatory. This policy would be much more beneficial.
The premise of Mr. Layton's promise: household debt is one of the most serious problems facing Canadians.
While I don't necessarily disagree with his premise, especially as one who is both trying to pay off my debt and who grew up in a fiscally conservative culture (i.e. southern Alberta), I do think that this policy is missing (or simply ignoring) some very important economic principles.
Economists consider the interest rate to be the "cost" of borrowing money. Interest is essentially a fee charged to a borrower that makes lending profitable. If you lower the cost of borrowing, people borrow more. That means an increase in the amount of debt people will have, not a decrease. High interest rates are a large deterent to taking on excessive debt. If you decrease this deterent, people think "hey my minimum payments will be lower, so I can afford to borrow more." In addition, card companies are likely to increase maximum limits so as to maintain profitability.
This actually implies that, in the long run, the average Canadian debt load is likely to increase.
Where reform is needed is in people's understanding of how credit card companies work and transparency within the industry. Hidden fees, rates changes, and the like need to be made more explicit so that individuals and families can make smarter decisions regarding their debt load and internalize the true costs of credit card debt. Layton calls for voluntary practices recently established to become mandatory. This policy would be much more beneficial.
Thursday, January 20, 2011
Not so much an economic issue but...
Interesting article today in the paper noted that Hu Jintao the President of China, admitted that his country has a human rights problem and that it needs to work on it.
The article notes that human rights advocates have criticized this confession during the Chinese leader's trip to the White House as being merely words with no confession backing them.
While the criticism rings true inasmuch as China really hasn't done very well at all on this issue, the statement still says an incredible amount about the state of China's policy development.
1. It notes that Chinese leadership, on some level, acknowledges that human rights are a good thing. Regardless whether they have any actual intent to improve their track record, it means that as a public position, they are moving towards an ideal.
2. It also means, again on some level if not to a great extent, Chinese policy decisions are being influenced by international pressure. Be it pressure to maintain relations with the US (for economic reasons) or to develop a better image for more general trade and power purposes.
All this should be qualified by saying that, yes, words are cheap. But there is still some substance to be gleaned from this statement.
The article notes that human rights advocates have criticized this confession during the Chinese leader's trip to the White House as being merely words with no confession backing them.
While the criticism rings true inasmuch as China really hasn't done very well at all on this issue, the statement still says an incredible amount about the state of China's policy development.
1. It notes that Chinese leadership, on some level, acknowledges that human rights are a good thing. Regardless whether they have any actual intent to improve their track record, it means that as a public position, they are moving towards an ideal.
2. It also means, again on some level if not to a great extent, Chinese policy decisions are being influenced by international pressure. Be it pressure to maintain relations with the US (for economic reasons) or to develop a better image for more general trade and power purposes.
All this should be qualified by saying that, yes, words are cheap. But there is still some substance to be gleaned from this statement.
Tuesday, January 11, 2011
More Evidence that We Aren't Out of the Woods Yet
A recent Wall Street Journal Article discusses calls by academic economists at the American Economic Association annual meeting for even stricter reforms on the banking sector beyond what has already been done. Obviously, the experts are suspecting that persistent weakness in the US banking sector provides plenty of reason to suspect that a further bursting of the liquidity buble is possible.
Take this in consideration with a recent post by former IMF economist Barry Eichengreen who points out that internationally there still isn't a significant fallback option for the international monetary system.
Eichengreen notes that the fall of Ireland is spreading contagion, more importantly, he notes elsewhere their "rescue package" is inevitably going to come back to them, adding more stress to the EU banking sector. To top this off, austerity in the rest of the Union will keep economic growth meagre at best and ultimately will prevent the Euro from usurping the USD as the global dominant currency.
He notes that there may be some room for the Canadian Loonie and the Australian Dollar to absorb some of the excess foreign investment but that the majority of it will remain in the US, largely for lack of an alternative place to settle.
That said, if the USD is the best currency available and the reforms called for by the AEA ring true to the continued fragility of the US, what does this say for the next 10 years of global economic recovery.
Perhaps its time to start pushing alternative monetary schemes as a failsafe in the case of another monetary meltdown. Even though it's still viewed as unsustainable, a nation-wide development of regional or local currencies may provide a fallback measure and encourage local cooperation should the current global market crash again.
What are the other options?
Clearly, there are more questions than answers
Take this in consideration with a recent post by former IMF economist Barry Eichengreen who points out that internationally there still isn't a significant fallback option for the international monetary system.
Eichengreen notes that the fall of Ireland is spreading contagion, more importantly, he notes elsewhere their "rescue package" is inevitably going to come back to them, adding more stress to the EU banking sector. To top this off, austerity in the rest of the Union will keep economic growth meagre at best and ultimately will prevent the Euro from usurping the USD as the global dominant currency.
He notes that there may be some room for the Canadian Loonie and the Australian Dollar to absorb some of the excess foreign investment but that the majority of it will remain in the US, largely for lack of an alternative place to settle.
That said, if the USD is the best currency available and the reforms called for by the AEA ring true to the continued fragility of the US, what does this say for the next 10 years of global economic recovery.
Perhaps its time to start pushing alternative monetary schemes as a failsafe in the case of another monetary meltdown. Even though it's still viewed as unsustainable, a nation-wide development of regional or local currencies may provide a fallback measure and encourage local cooperation should the current global market crash again.
What are the other options?
Clearly, there are more questions than answers
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