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November 11, 2011 Lucky to Be Canadian
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I applaud Finance Minister Flaherty’s decision in this week’s
Economic Update to postpone balancing the budget at this time of economic
uncertainty. With the rise in the unemployment rate to 7.3% and first half
growth of a mere 1.6%, along with increasing global financial uncertainty,
there is no need for Canada to mindlessly follow an austerity plan that was
developed when the economy was expected to grow at a relatively strong pace.
Bank of Canada Governor Mark Carney recognized months ago that Canada’s
recovery is dampened by the much weaker-than-expected U.S. economy and the
enlarging effects of the Euro crisis.
Canadians have benefited throughout this period from the fiscal reforms so
painfully enacted in the early-to-mid 1990s. In addition, the Bank of Canada
successfully broke the back of inflation in the early ‘90s and has
warranted its global credibility since that time. Our banks and other financial
institutions have earned the title of the ‘World’s Strongest’
through our prudent and principles-based supervisory and regulatory system.
And, our housing market was never exposed to the excesses of sub-prime lending
and collateralized debt obligations so explosively prevalent in the U.S. in the
boom years prior to the 2008 collapse. Canada is also advantaged by our rich
endowment of natural resources that fuels the rapid growth of the emerging
economies.
Nevertheless, we are an open economy intrinsically impacted by economic,
political and financial turmoil in the rest of the world. It is prudent for us
to maintain an open-minded and flexible stance on countercyclical monetary and
fiscal policy. We have struck the right balance, in my view, on both. Our
corporate tax rates are the lowest in the G7 and amongst the very lowest in the
OECD. Entrepreneurship is thriving in Canada, although much can be done to
develop a deeper venture capital market. Private sector research, development
and innovation are key to our future prosperity as public/private partnerships
between universities and hospitals and the business community are already
bearing fruit in developing and commercializing research and innovation
breakthroughs. Of course, much more needs to be done in this area and Canada
should continue to encourage the in-migration of young talent from the rest of
the world.
In the meantime, though, the U.S. is mired in a never-ending election cycle
that has created a dysfunctional stalemate between competing parties. The
so-called Supercommittee of Congress is unlikely to achieve a substantial
compromise proposal as the U.S. Thanksgiving deadline looms less than two weeks
away. Lack of compromise would force an automatic severe cut mainly in defence
spending, adding to the already-large layoffs in the noncivilian sector and
negatively impacting government suppliers which include a significant number of
Canadian companies. Moreover, the U.S. housing market continues to flounder,
keeping the contractionary pressure on Canadian exports of lumber and other
building products.
The Euro Crisis has its negative impact on Canada as well. Certainly the
selloff in stocks, market volatility and the sideswiping impact on our bank
stocks unnerve investors, cause large losses in private and public pensions,
and discourage businesses from investing and hiring for the future. Consumer
confidence, though well above that in the U.S., has been weakened by the global
uncertainty, making many feel vulnerable to further potential bad news.
The crisis in Europe is far from over. As technocrats take over the helms in
both Greece and Italy, there is greater hope for unpopular government and
labour reforms. But other measures are urgently needed, including the
recapitalization of European banks, the broader role of the ECB and the
dramatic enlargement of the resources available to the bailout fund (the EFSF).
Contagion is a fact; bankrupt Greece will certainly default on its debt and the
contagion is manifest by the recent surge in Italian interest rate spreads.
Those spreads have temporarily come in with the forced exit of Berlusconi and
the ECB’s purchases of Italian bonds, which contributed to this
week’s successful Italian bond auction. But, this is no more than another
stopgap measure to temporarily keep the dyke from breaking.
Last week’s ECB rate cut under the new leadership of Mario Draghi was
a very welcome and dramatic turnaround from the misguided monetary tightening
of former ECB President Trichet. Hopefully, this will be a first step in
additional monetary easing as Europe is uncomfortably close to recession.
Austerity programs in most of Europe have weakened economic activity and raised
the jobless rate, reducing tax revenues and exacerbating the deficit and debt
problems. In some case, especially in the peripheral economies of Europe,
broad-based government and labour reforms and asset sales are
essential—Greece and Italy of note. But immediate fiscal drag is
threatening recovery in France, the U.K., and even Germany, not to mention the
U.S.
President Obama’s jobs recovery proposals are still struggling to get
Senate approval and a watered-down version is all that is likely to be
legislated.
Bottom Line: We are lucky to be Canadian. And all the more so because
we are in a position to ‘keep our powder dry’ in the event that
further countercyclical stimulus is needed. Unlike most other developed
economies, we have some ammo left and the good sense to know when, and if, to
use it.
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November 11, 2011
Lucky to Be Canadian
I applaud Finance Minister Flaherty’s decision in this week’s Economic Update to postpone balancing the budget at this time of economic uncertainty MOREOctober 21, 2011
Euro Crisis: Canadian Consternation Warranted
Finance Minister Flaherty recently rebuked European authorities for dragging
their heels in devising an adequate action plan to forestall a global
recession MORESeptember 26, 2011
European Debt Crisis and a Possible Global Recession
The European debt crisis is the most urgent matter facing the global
economy MOREAugust 8, 2011
U.S. Downgrade is a Sideshow
Ahe U.S. Treasury says that the decision by Standard & Poor's rating agency to downgrade U.S. debt is based on flawed analysis MOREApril 1, 2011
Good News Really Can Be Good
The global economy is rebounding significantly despite the alarming number of black-swan challenges MOREMarch 25, 2011
Japan: The Forgotten Economy
Prior to the catastrophic earthquake and tsunami, the importance of Japan to the global economy went unrecognized MOREMarch 15, 2011
Bleak Headlines Might Be Overdoing Nuclear Danger According to Some Scientists
As the news of a potential nuclear crisis in Japan worsened, markets were reflecting a “get-me-out-of-everything-risky” mindset MOREMarch 11, 2011
How Will Japan’s Earthquake Affect Canada?
The earthquake, which registered 8.9 on the Richter scale, is the largest to hit Japan in at least 140 years MOREMarch 11, 2011
Cool Heads Must Prevail
Yesterday in St. Thomas, Ontario, and the end of my economic outlook presentation, I said that while we have no idea what natural disasters might befall us, the U.S. and Canada are likely to straddle 3% growth this year and next MOREMarch 10, 2011
Canada's Disturbing Productivity Performance
While we were cautiously optimistic about the economic outlook at the turn of the year, we now believe the odds have increased for a self-sustaining expansion in North America through this year and next MOREMarch 2, 2011
Canada Must Diversify its Export Basket
A recent analysis published in the Wall Street Journal highlighted the shifting sands of America’s trading patterns MOREFebruary 28, 2011
Union Backlash to Government Deficit Reduction Plans
State and local government budget worries are at the top of the news these days MOREJanuary 12, 2011
Fiscal Austerity Winds Blow
Canada’s provincial and federal governments will be confronted this budget season with the same dilemmas facing most industrialized economies MOREDecember 17, 2010
Eurobond Market Coming?
The euro wobbled again this week after Moody’s slashed Ireland’s debt rating by five notches, and threatened a downgrade of Spain MOREDecember 9, 2010
Top Ten Things to Expect in 2011
U.S. growth in 2011 will be at least 3% MOREDecember 8, 2010
2011 Forecast Revised Upward
The compromise stimulus deal is a welcome boost for the U.S. economy, household and business confidence and, by extension, Canadian trade MOREDecember 3, 2010
Eurozone Debt Crisis Will Continue
There is nothing surprising about the Eurozone debt crisis MORENovember 12, 2010
The Fed Did the Right Thing in this Imperfect World
There is a great global debate regarding current U.S. monetary and fiscal policy, shedding little light and no clarity on the reality of the situation MOREOctober 15, 2010
American Strength
Lost in all of the hand wringing about the outsourcing of American manufacturing is the underlying strength of American competitiveness MOREOctober 1, 2010
Real Estate Concerns in Canada
As residential real estate in Canada has slowed markedly from its overheated pace earlier this year, and the Bank of Canada begins to renormalize interest rates, an estimated 6.1% of households were already shelling out 40% of their personal income in debt servicing costs in 2009, according to the BoC’s latest Financial System Review MORESeptember 17, 2010
Downside Risks
There has been widespread concern that the U.S. economy, running at less than 2% growth, might again dip into recession, widening the record Canadian trade deficit MORESeptember 10, 2010
Cautious Optimism
The volatility in today’s financial markets reflects the uncertain economic recovery, particularly in the U.S. MOREAugust 19, 2010
Imagine Dollarization
What if we had pegged our currency to the U.S. dollar back in the dark days of the multi-year currency drop (late-1991 to early-2002) as I suggested way back then MOREJune 19, 2010
China Loosens Currency Peg
In a surprise announcement on Saturday, the People’s Bank of China
(PBOC) announced it would break the 23-month fixed peg in the yuan MOREJune 18, 2010
Fed Easing Coming?
The U.S. economy is losing momentum and price pressures continue to fall MOREJune 10, 2010
Err on the Side of Ease
The move toward worldwide fiscal restraint runs the risk of weakening the economic recovery MOREMay 14, 2010
Global Credit Crisis Morphs Into a Global Debt Crisis
With the onslaught of the credit crisis in the fall of 2008, every country in the G20 agreed to stimulate their economies by boosting government spending and/or cutting taxes MOREApril 23, 2010
U.S. Pessimism is Overblown
There is just too much pessimism in and regarding the U.S. these days MOREApril 16, 2010
Productivity Gap Misleading
The record productivity gap between Canada and the U.S. has generated much handwringing MOREMarch 26, 2010
Health Care Reform Needed in Canada
Ironically, while the U.S. is going through the excruciating process of developing a more broadly available health care system, Ontario is working to reduce government provisions to hospitals in an effort to balance the budget MOREMarch 24, 2010
Fed Decision Making—Why New Appointments to the Fed Don’t Really Matter
According to media reports, President Obama is poised to name economist Janet Yellen to be Vice Chair of the Federal Reserve Board MOREMarch 23, 2010
Canada's Disturbing Productivity Performance
The Canadian economy has clearly pulled out of recession with 5% growth in the fourth quarter and good momentum heading into this year MOREMarch 12, 2010
The U.S. Foreclosure Crisis
Without doubt, the U.S. economy is showing signs of significant recovery in many sectors and regions MOREMarch 2, 2010
Canadian Calm in a Turbulent Sea
Canada’s domestic economy has rebounded strongly from the financial crisis and global recession MOREJanuary 26, 2010
Don't Rock the Boat
Now more than ever, the biggest risk to sustained recovery is the political response to the fallout of the financial crisis and its impact on consumer and business sentiment MOREJanuary 22, 2010
U.S. Labour's Lost Dynamism
For a generation that was known for its job-hopping and entrepreneurial spirit, boomer kids—now in their twenties and thirties—are suffering from significant career malaise MOREJanuary 8, 2010
The End of the Bull Market in Bonds?
Even the most bullish bond fund managers will admit that, in time, U.S. government bond yields will head higher MOREDecember 9, 2009
The Tax-Free Savings Account Is a Real Winner
In a surprise addition to the 2008 federal budget, the Tax-Free Savings Account (TFSA) was born MOREDecember 8, 2009
The Clouds Really Are Parting
The much-better-than-expected November employment numbers for Canada and the United States confirmed that the recession has ended and the recovery is underway MOREDecember 4, 2009
China Scolds Western Leaders
China has been flexing its muscles a lot lately MORENovember 13, 2009
Let's Cut a Deal
The falling U.S. dollar is grabbing enough attention these days that the Chinese authorities are signalling they will consider allowing their currency to edge upward once again MOREOctober 22, 2009
Sherry Cooper Takes Questions from the Globe and Mail
Dr. Cooper joined a forum at the Globe and Mail’s web site to take your questions about small business and the recession. MOREOctober 15, 2009
The U.S. Dollar’s Decline Is Not Such a Bad Thing
Many have suggested that the fall in the U.S. dollar is reflective of the sad state of American economic affairs replete with surging budget deficits, profligate consumer spending, overleveraged banks, enormous current account deficits and an increasing reliance on foreign capital inflows to finance the overspending MOREOctober 2, 2009
Remaking the Retirement Plan, Post-Crisis
Well before the financial crisis and recession, the traditional concept of retirement was outmoded MORESeptember 18, 2009
U.S. Job Woes: Canada 1990s Redux
There is a new kind of unemployment in the U.S.—long duration structural unemployment MORESeptember 11, 2009
Pain Not Over Yet
By now, it is pretty obvious that the financial crisis is behind us and the global economy is experiencing a synchronized recovery MORESeptember 9, 2009
Unbelievable
An article in today’s Wall Street Journal highlighted the possibility of the Chinese Investment Corporation (CIC)—the sovereign wealth fund responsible for investing roughly $300 billion (and growing) of China’s foreign exchange reserves—investing in U.S. commercial real estate which is already down roughly 35% from its peak MORESeptember 4, 2009
Who's Doing All of the Saving?
Are households rebuilding their savings in the wake of the economic and financial collapse or is the rise in savings, measured as a residual in the national income accounts, merely a statistical illusion? MOREAugust 28, 2009
Upward Revision in Q3 U.S. Growth
We are revising upward our forecast for third quarter growth in the U.S. by
a full percentage point, from an estimated 2.8% to 3.8% MOREAugust 21, 2009
An Irresistible Opportunity for Successful U.S. Fiscal Stimulus
While everyone knows that the American consumer has been the weak link in
this recovery, in one sector the fiscal stimulus has opened consumer wallets MOREAugust 17, 2009
Strengthening Canadian-Chinese Ties
In the wake of the global recession and the plunge in the Canadian trade balance to a deficit position, Canada is working hard to strengthen business ties with Brazil, Russia, India and China, or the so-called BRIC countries MOREAugust 12, 2009
As Expected, No Fed Policy Change
The Fed is more optimistic about the economic outlook than it was in late June MOREJuly 24, 2009
Pain Not Over Yet
Since 2007, with the beginning of the U.S. housing meltdown and the ensuing financial crisis, there has been a global decline in private sector spending, a dramatic shrinkage in global trade and an unprecedented spike in government spending MOREJuly 17, 2009
The Painful Process of Deleveraging
The U.S. credit bubble in the 1990s through 2007 enabled a tremendous amount of consumer and business over-spending MOREJuly 10, 2009
Let's Get Real
Many fear that mounting deficits and debt will trigger inflation in the
future and call for a Fed exit strategy; others are now clamouring for
additional fiscal stimulus MOREJuly 2, 2009
Employment and the Fed
Those who have been calling for a Fed exit strategy from the extraordinary degree of monetary ease should be silenced by the June employment results MOREJune 8, 2009
Post-Crisis Withdrawal
As financial markets heal, banks are shying away from government assistance, betting that they can rely fully on the markets to build capital positions MOREJune 5, 2009
Worst Is Behind Us
Signs of improvement in the U.S. housing market, rising consumer confidence and a rally in financial stocks in the U.S. and Canada suggest that the economies are bottoming and the worst of the financial crisis is behind us MOREMay 28, 2009
Bet You Things Are Better Than You Think
There is increasing reason to believe that the worst of the financial crisis is behind us and the U.S. and global economies are bottoming MOREMay 15, 2009
Running the Printing Presses to Fund the Deficit
Many are concerned that, despite today’s very weak April CPI reading of ‑0.7% year-over-year, the huge monetary and fiscal stimulus in the U.S. will ultimately debase the currency MOREMay 3, 2009
Swine flu threatens to kick economies when they are down
In the midst of the longest and perhaps deepest global recession in the postwar period, the last thing we need is rising protectionism, travel advisories and reduced business and consumer activity MOREApril 29, 2009
Fed Still Adding Juice
Although the Fed announced no new initiatives today, clearly the tone of the
press release suggests that the Fed will continue to support previously
announced credit easing and expects to do so “for an extended
period” MOREApril 27, 2009
Swine Flu: Let's Not Get Carried Away
My phone has been ringing off the hook this morning with media requests to discuss the economic implications of a swine flu pandemic MOREApril 24, 2009
Investing Is No Longer Child's Play
The Bank of Canada made it clear this week that our economy is contracting far more than they earlier expected MOREMarch 25, 2009
Future of Finance Conference
The Who’s Who of finance descended upon Washington, D.C. Monday
for 24 hours of policy analysis MOREMarch 18, 2009
More Good News
Bernanke is the man, clearly the best spokesperson for the Obama
administration, raising his odds of reappointment this summer MOREMarch 13, 2009
Finally, Some Good News
No doubt about it, the Canadian employment nosedive in February is bad news, but it is bad news that is in lagged response to what has already been happening around the world MOREMarch 11, 2009
More Signs of Hope Needed
We are in a negative-news cycle, to say the least, and it is difficult to see a near-term end to it based on incoming data, heated policy debates and wealth-obliterating market activity MOREFebruary 27, 2009
A More Prudent Society
It has now been publicized around the world just how strong our banking system is in Canada MOREFebruary 5, 2009
The Demonization of Banks
The global financial landscape is changing rapidly and perhaps nowhere more
so than in the U.S. MOREJanuary 30, 2009
Can You Count on Dividends?
In the U.S., the answer is certainly no. MOREJanuary 28, 2009
Fed Does Not Dispel Confusion
The Federal Reserve just wrapped up its first policy meeting of the New Year MOREJanuary 27, 2009
The Advil Budget
The 2009 Canadian budget is chock-full of government spending and
rather light on the side of tax cuts, but the truth is that domestic
fiscal stimulus can only ease the pain of the global recession and credit
crisis MOREJanuary 23, 2009
Deflationary Forces Accelerate
Layoffs and reductions in hours worked have been accelerating in recent months and cover firms in virtually every sector of the U.S. economy. MOREJanuary 9, 2009
Recession Worsens
The latest jobs data signal that the year-long U.S.
recession is worsening and the Canadian recession is moving in with full
force MORE
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