'It's The Economy, Stupid' - Even In Canada
Just a friendly suggestion to the LPC and NDP, to remember that these elections should be first and foremost about the budget deficit of Harper and his Harpies (in lieu of surplusses from previous "liberal" governments), their far right/neocon fiscal vision (which includes full integration with the U.S. or even the E.U.) and, simply put, about "It's the economy, stupid!". Case in point, the following article as food for thought:
US Meltdown Puts Heat on Canada
Decades of fusing the two economies exposes us to grave risk
By Marc Lee
Watching the turmoil in financial markets this past week, the question is no longer whether there will be a meltdown, but how much melting is left to go. So what's next, and what does this mean for Canada?
US Meltdown Puts Heat on Canada
Decades of fusing the two economies exposes us to grave risk
By Marc Lee
Watching the turmoil in financial markets this past week, the question is no longer whether there will be a meltdown, but how much melting is left to go. So what's next, and what does this mean for Canada?
It's worth reflecting on just how far up we climbed. The back-story is now familiar: the lowest interest rates since the 1960s that prevailed in the aftermath of 9-11 reduced the cost of holding a mortgage, and led many people to buy into the real estate market. As prices went up, others wanted to get in on the action "or get priced out forever."
Before long, bullish sentiment overwhelmed rational thinking: real estate prices went through the roof, with doubling and in some cases tripling of resale prices between 2001 and 2007 in Vancouver.
On the way up, increasing asset prices created a "wealth effect" -- those lucky enough to see the value of their home go up so much were more inclined the spend money, thereby stimulating the real economy. Moreover, rising home prices led to spectacular new residential construction, providing more jobs and more income to keep the party going.
This particular party was a real bender, and now it's hangover time. Our southern neighbours went even wilder -- everyone was invited -- and they are now feeling a world of hurt. But even though our Canadian party did not rock as hard, there was plenty of liquid refreshment, and it went well into the wee hours.
The jaw dropping events in the U.S. are the gears thrown into reverse: a vicious cycle of falling home prices, with homeowners sitting on mortgage debt that is worth more than the market value of their home. New residential construction is at half of 2005 levels, undercutting employment, and home prices are down about 25 per cent.
Integration changed equation
In Canada, we have been lagging developments in the U.S. But new investment in residential construction fell in the first half of 2008, and average home resale prices in August fell by five per cent compared to a year earlier.
Because the U.S. is so much bigger than we are, and our economies so interconnected after two decades of increasing integration, their downturn will hurt Canada, too. Their drop in residential construction, in particular, hurts wood product sales from our forestry sector, and their overall slowdown undercuts our exports across the economy.
The unwinding is complicated by actions in the U.S. financial sector, which repackaged dubious mortgages, and made out like bandits. Once the value of homes started to come back down, it exposed a lot of bad wood underneath the veneer. What is becoming clearer by the day is that this can only be solved by major write-downs of those "toxic mortgages" that are clogging up the balance sheets of big financial corporations.
Big government steps in
An irony of the current situation is to see a right-wing U.S. government engaged in massive government intervention in order to prevent a meltdown -- except they are bailing out the people who caused the problem in the first place. Brokers and dealers made millions -- worth decades of real work by real people -- en route to the current financial crisis. The next step appears to be having the U.S. government take much of this bad debt off the hands of the banking sector. Privatize gains and socialize losses is the rule.
If only governments these days were as committed to protecting the security of regular working folks. It would be far better for the government to step in and take over mortgages from families, so that they could stay in their homes with greater certainty through this period of turmoil.
In Canada, how far down is the bottom is anyone's guess. What's troubling is a federal government whose answer to every problem is a tax cut. An economic downturn has already begun in Canada, with economic growth stalling in the first half of 2008. Canada's economic fundamentals are anything but sound, despite mantras to the contrary.
That downturn is pushing the federal budget towards deficit, but having rejected deficits outright, the Harper government will have to cut spending to balance its budget, thereby making economic problems worse. This is precisely the type of thinking that turns recessions into depressions.
(Keep reading ...)
Before long, bullish sentiment overwhelmed rational thinking: real estate prices went through the roof, with doubling and in some cases tripling of resale prices between 2001 and 2007 in Vancouver.
On the way up, increasing asset prices created a "wealth effect" -- those lucky enough to see the value of their home go up so much were more inclined the spend money, thereby stimulating the real economy. Moreover, rising home prices led to spectacular new residential construction, providing more jobs and more income to keep the party going.
This particular party was a real bender, and now it's hangover time. Our southern neighbours went even wilder -- everyone was invited -- and they are now feeling a world of hurt. But even though our Canadian party did not rock as hard, there was plenty of liquid refreshment, and it went well into the wee hours.
The jaw dropping events in the U.S. are the gears thrown into reverse: a vicious cycle of falling home prices, with homeowners sitting on mortgage debt that is worth more than the market value of their home. New residential construction is at half of 2005 levels, undercutting employment, and home prices are down about 25 per cent.
Integration changed equation
In Canada, we have been lagging developments in the U.S. But new investment in residential construction fell in the first half of 2008, and average home resale prices in August fell by five per cent compared to a year earlier.
Because the U.S. is so much bigger than we are, and our economies so interconnected after two decades of increasing integration, their downturn will hurt Canada, too. Their drop in residential construction, in particular, hurts wood product sales from our forestry sector, and their overall slowdown undercuts our exports across the economy.
The unwinding is complicated by actions in the U.S. financial sector, which repackaged dubious mortgages, and made out like bandits. Once the value of homes started to come back down, it exposed a lot of bad wood underneath the veneer. What is becoming clearer by the day is that this can only be solved by major write-downs of those "toxic mortgages" that are clogging up the balance sheets of big financial corporations.
Big government steps in
An irony of the current situation is to see a right-wing U.S. government engaged in massive government intervention in order to prevent a meltdown -- except they are bailing out the people who caused the problem in the first place. Brokers and dealers made millions -- worth decades of real work by real people -- en route to the current financial crisis. The next step appears to be having the U.S. government take much of this bad debt off the hands of the banking sector. Privatize gains and socialize losses is the rule.
If only governments these days were as committed to protecting the security of regular working folks. It would be far better for the government to step in and take over mortgages from families, so that they could stay in their homes with greater certainty through this period of turmoil.
In Canada, how far down is the bottom is anyone's guess. What's troubling is a federal government whose answer to every problem is a tax cut. An economic downturn has already begun in Canada, with economic growth stalling in the first half of 2008. Canada's economic fundamentals are anything but sound, despite mantras to the contrary.
That downturn is pushing the federal budget towards deficit, but having rejected deficits outright, the Harper government will have to cut spending to balance its budget, thereby making economic problems worse. This is precisely the type of thinking that turns recessions into depressions.
(Keep reading ...)
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