How bad will it get?

Facing the worst financial crisis in decades, five experts chart out the future


How bad will it get?

Last week brought another massive plunge on world stock markets, followed by yet another government bailout of a troubled bank—this time a US$300-billion lifeline from the U.S. Federal Reserve to Citigroup. The S&P/TSX Composite index has now dropped by 44 per cent since June, wiping out more than four years of market gains, and marking the sharpest decline for Canadian stocks on record. Millions are wondering and worrying about job security, the value of their homes and what’s happening to their dreams of retirement.

With North Americans now embarking on the biggest shopping season of the year, the economy is at a critical point, and Maclean’s assembled five of Canada’s brightest financial minds to answer some of the most pressing questions in the air:

• Patricia Croft, chief economist at RBC Global Asset Management

• Don Drummond, chief economist with TD Bank Financial Group

• David Rosenberg, chief North American economist at Merrill Lynch

• Avery Shenfeld, managing director and senior economist with CIBC World Markets

• George Vasic, equity strategist and chief economist at UBS Securities Canada.

Due to scheduling conflicts, Maclean’s interviewed each participant separately. This is an edited transcript of their comments.

Maclean’s: How would you describe what has happened on the stock markets over the past three months?

Vasic: Other than to say it’s been traumatic? I’d say, we’ve certainly seen a historic plunge in markets on the back of a potential financial system collapse that was inconceivable in the minds of virtually all investors.

Croft: It’s been absolutely incredible. This is the worst bear market in stocks since the Great Depression. In some ways it feels like a vortex. You get swept up in it every day.

Drummond: We’ve gone from a period in which the general expectation is that the U.S. economy, despite increasing signs of trouble, was going to go on growing rapidly forever, to a feeling now that it’s just falling endlessly and has not reached a bottom.

Shenfeld: [The markets have] seen the typical selling you’d expect to see in a recession, coupled with a broader wave of forced selling by fund managers who’ve seen redemptions or have had to pay back loans. This sell-off has been much larger than what one would have expected from an ordinary recession and even worse than what we’ve seen in past financial crises.

M: We heard Stephen Harper sound a pretty grim tone at the APEC meetings over the weekend. What should we take from his comments?

Vasic: He’s preparing us for the fact that the surplus is going to turn into a deficit. Canada has more fiscal firepower at its disposal than you’d see in the U.S. or Europe or anywhere. The real question is whether we want to deploy it or not. If I were Mr. Harper I wouldn’t be very aggressive on using it. The history of all these fiscal initiatives [like massive increases in government spending] is that a) they come too late, and b) they’re hard to get off once the economy recovers. That’s how our fiscal problems got started in years past.

Croft: I think it’s very refreshing that Harper has finally used the R-word [recession]. That’s usually verboten for a politician or a central banker. But it’s all about managing expectations. There is no magic bullet for Canada. We are unfortunately going to suffer much the same fate as every other major economy around the world. We have a very stable financial system, which will hold us in good stead, but we are a very open economy and a very small economy. Our major trade partner is in a very deep recession, and I don’t think we’ve even really begun to feel the impact of that decline.

M: How bad is this likely to get for the Canadian economy?

Drummond: I would have expected a more profound impact than we’ve seen so far. One of the first places you’d expect it to slow as soon as we began seeing economic uncertainty would be car sales, and so far car sales have continued to increase in Canada, albeit modestly. We’re even still creating jobs in Canada. That’s a bit of a puzzle. But I still think we will see worse economic outcomes in Canada than we’ve seen so far. Not as deep as in the U.S., but it will get worse before it gets better.

Rosenberg: Now we are entering into the eye of the hurricane: the intense consumer leg of this recession. The U.S. consumer now accounts for over 70 per cent of U.S. GDP and almost 20 per cent of global GDP, and that’s why as soon as the U.S. consumer started to give it up in late summer, that’s when oil prices started to peel off. This is the most broadly based U.S. recession in post-World War II history, and it has gone global. In the U.S. we have already lost 1.2 million jobs, and we probably have at least another three million to go. In our forecasts, the unemployment rate peaks between 8.5 and nine per cent in the opening months of 2010.

In Canada, whatever happens in the States inevitably migrates north of the border. Anybody who was around in the early 1990s knows what that’s about. Canada’s vulnerability is that corporate profits are reliant on commodities—that’s strike number one. Strike two is that Canada is disproportionately exposed to the auto sector. Strike three is that the principal buyers of Canadian products are U.S. consumers. On the other hand, Canada [benefits] from the fact that the banks aren’t nearly as under-capitalized as they are in the U.S. And although house prices are deflating, they’re not nearly as bad as in the U.S. Third point—the Canadian government, having started this with a balanced budget, has more room to ease fiscal policy than the U.S. So Canada has three strikes, but it also has three balls.

Vasic: Well, it’s going to get worse from here. We’ve really just recently fallen into the teeth of the economic slowdown. The thing that stands out is just how little Canadian employment has been affected so far. We know that capital spending cuts are coming [from major companies], we know that in central Canada there will be a lot more adjustments to come in the manufacturing sector, so the employment picture is going to deteriorate quite significantly in the next six to nine months. But we’re coming off an employment situation that is very close to the best we’ve seen in 30 years, and that’s worth remembering. If our unemployment rate goes [from around six per cent now] to 7.5 per cent, which we think it will, it’s not a good thing. But for most of the past 30 years, we were above that anyway.

Croft: In the U.S. I think the unemployment rate is going to at least 8.5 per cent, and in Canada I think we’re going up to 7.5 per cent. If you look at construction employment, it’s at a record high in Canada at a time when residential real estate is cooling precipitously. Those jobs are at risk. I have to believe there are more job losses in manufacturing, too. And the auto sector—wow . . . that’s a significant concern.

M: What’s the outlook for the stock market?

Rosenberg: People in Canada are going to be braced for some pretty tough times. The epicentre was in the U.S., but we don’t live in a vacuum. It is a global recession, and Canada is tied to the global economy.

Croft: Anybody who says they know we’re close to the bottom . . . I just don’t believe them. I don’t know where the bottom is. I hope we’re close to it, but we’re not out of the woods in terms of the financial crisis, and we’re just beginning to feel the economic impacts. The credit crisis has gone global and become a solvency crisis in the financial system, and an economic crisis. Markets could stumble around here for a few months.

Shenfeld: In normal times we could look at how far we’ve fallen relative to earnings, and be confident that we’re near a bottom. In this environment that’s a tougher call because so much of the selling has been forced by hedge funds losing their investors and their sources of credit, and other ripple effects of unwinding debts around the world. Stocks look cheap relative to earnings, but one can’t be too confident that they won’t get even cheaper for awhile.

Drummond: To me, the first sign of hitting a bottom in the economy is U.S. housing prices hitting bottom, and I think they need to come down another 10 to 15 per cent. I think they’ll get there by spring 2009. But I think the stock markets will hit bottom before that . . . somewhere between two weeks ago and April of 2009 [laughs] . . . obviously I don’t have the confidence to pinpoint a day.

I think these massive stimulus packages already announced by China and the U.K. and the United States should at least give some confidence for a recovery in the second half of 2009.

M: How long will this take to recover from?

Drummond: Eighteen months, same as the APEC ministers [said], not 17 and not 19. [laughs] We’re going to go through a very extended period of de-leveraging around the world as companies and individuals pay down debts, and I think that will constrain growth. Maybe the worst will be over by the summer of 2009, but I think the problem will linger for a while. This is not just a one- or two-year wonder. Economies aren’t going to come racing back, it’ll be more of a limp.

Vasic: Well, getting back to the 15,000 level on the TSX is really going to require getting oil back up over $100 a barrel, and a recovery in other commodity markets as well, up to close to the levels of last spring. That’d be an event for 2010 or maybe 2011.

Rosenberg: I’m not even convinced we’ve seen the bottom yet. The answer lies in Japan—they are 19 years away from the peak. This is not some correction in a cyclical bull market. There are some fundamental, structural economic problems that still haven’t been worked through. When will we hit the next peak in the Dow and the S&P 500? I’d say it’s at least 10 years away. But let’s focus on when we’re going to hit bottom before we start talking about prior highs.

Shenfeld: On average it tends to take around three years to make up for the scale of losses we’ve seen on the stock market. But it could take up to five years if the recovery is less robust. And even that is going to require a lot of economic pump priming by government to restore growth.

M: Do you worry that some of these stimulus plans are going too far, and could create larger problems down the road with excessive debt and huge deficits?

Croft: No, not at all. And if they do, we’ll deal with them later. Right now, the more pressing issue is deflation. That is the last thing you want to see. I think it’s absolutely justifiable for Canada, and every other country out there, to run large budget deficits on a temporary basis to ensure a mild downturn doesn’t morph into something deeper, more prolonged and more serious.

Shenfeld: I’m very encouraged that Ottawa has shifted away from planning to fight the deficit at all costs, to talking about possibly even expanding the deficit as a way to fight economic weakness.

Drummond: I think we’re building up for some ugly long-term problems. We already have a U.S. government that’s going to run trillion-plus deficits for the next couple of years. How are they ever going to get out of that? I think perversely some of the things being done to ease short-term pain are going to create longer-term pain. The rumour from the U.S. is Obama is considering a stimulus package of US$500 billion or more. They already have a debt problem much like the one Canada had in the mid-1990s.

M: Who in the world could finance all that debt?

Drummond: Well, the Chinese and Japanese central banks. But there is always a point at which they decide they don’t want to do that anymore. And as the U.S. dollar returns to a trend decline, it’ll occur to them that’s a pretty lousy investment. That’s the big risk.

M: How concerned should people be about the stability of their pension plans and their retirement?

Drummond: I think we have a fairly serious situation developing in Canada with regard to pensions. The Canada Pension Plan is fine but . . . it’s not really a comprehensive program. We know Canadians don’t have huge amounts of money, I would argue they don’t have adequate amounts of money in their private RRSPs. So it really comes down to employer-sponsored programs. There are basically no new companies in Canada offering either defined-benefit or defined-contribution plans. If you’re lucky they’re offering group RRSPs. We have a long-run issue—will there be adequate pension coverage? You really start to wonder whether what we need to do is bolster up the coverage of the CPP plan. I think it’s a great worry.

I think it’s going to have an impact. We’ve already seen a small uptick in the average age of retirement.

Rosenberg: As bad as the retirement problem is in Canada, it’s worse in the U.S. The reality is, we went through the 1990s and peoples’ retirement was the “Nasdaq nest egg.” That got destroyed by [the dot-com] crash. We went right into this massive housing bubble. Then their retirement was the “for sale” sign on a 5,000-sq.-foot McMansion in the suburbs. Now that’s destroyed. The reality is that savings rates are at record low. People are going to have to save more of their income for retirement. Relying on asset inflation to pay for retirement—that fairy tale is over. People are going to work as long as they can in order to ensure they can maintain their living standard in their golden years.

The boomers have spent their adult lives building up an incredible stockpile of consumer durable assets, but they have not prepared financially for their retirement. These concerns are real.

Shenfeld: They say that 50 is the new 40, because we’ve lost all the money we’ve saved over the past 10 years, and that’s going to mean a later retirement date for many Canadians.

Croft: I think the concerns are well-founded. Obviously if you’re 20 years old, you’re not too worried. But if you’re on the cusp of retirement or recently retired, I think the concern is real. That said, a lot of people have the tendency to look at what’s happening now and think it’s never going to get better. It will get better. But it might take a while for us to dig our way out of what has become a pretty deep hole.

M: How worried should we be about real estate?

Croft: Not too worried, but that said, I’ve been surprised by the rapidity of the decline. In the U.S. I think prices will be down 30 per cent before all is finished, and that’s a tremendous impact on American wealth. Here in Canada we don’t have that far to fall, maybe another five or 10 per cent.

M: What do you expect this holiday season to tell us about the condition of North American consumers?

Vasic: The U.S. consumer is clearly going to have a very difficult year. People aren’t even over the shock of things yet. But in Canada, the decline in the stock market has had a negative impact on sentiment, but the employment shocks have not come, and for most Canadians this collapse has not yet affected them directly. They’ll be spooked to some extent and rightly so, so I think it’ll be soft, but not nearly as difficult as in the U.S.

Croft: Early indications from the U.S. are quite grim. That said, I went to Oakville Place on the weekend and couldn’t get a parking space. People are in a mindset right now that if it’s not 50 per cent off, I’m not going to buy it. People in Canada are going to delay their purchases and wait to see if prices come down. But down in the U.S. it’s looking like a very frugal Christmas.

M: What do you think when you hear colleagues and pundits drawing comparisons to the Great Depression?

Shenfeld: The Great Depression, last I looked, didn’t have a six per cent unemployment rate. I think what’s fair to say is that the crisis in the global economy is one of the worst in decades. We could well have been headed for another depression if Herbert Hoover were still in the White House. But governments in the U.S., Canada, Asia and Europe are doing precisely the opposite of what got us into the Depression.

Drummond: Well, in economics all you’ve got is history and theory, so you might as well exploit whatever history you can to figure how this is going to end up. The origins of the Great Depression definitely have some similarities. But so far the policy response bears no resemblance. Back then, right until 1934 you had governments trying in vain to maintain budget balances, cutting spending and raising taxes. This time, you’re going to see the opposite.

Rosenberg: This is not the Great Depression. We already had the Great Depression. This is a modern depression. We’ve got a framework now that we didn’t have in the ’30s—we didn’t have deposit insurance, we didn’t have welfare—so, the comparisons can only go so far. But there are lessons to be learned from the Great Depression, and from Japan in the 1990s.

Vasic: It’s really the only dislocation that we’ve seen that was worse than the one we’re currently going through, so comparisons are certainly natural. But most people don’t appreciate the differences. We went to 25 per cent unemployment, and we learned a lot from that. The speed of the actions we’ve seen so far truly are unprecedented. This is the first time since the Great Depression that we’ve had this kind of potential market meltdown, and while our authorities have not acted perfectly, they have acted swiftly, and continue to act. I don’t think we’re heading anywhere close to a Great Depression.

The thing to bear in mind is that while this panic attack is justified, it can just as easily be reversed. Of the 10 worst days in the history of the TSX, five of them have happened in the past two months. But, of the 10 best days in TSX history, five of them have also occurred in the past two months, too. We could quite easily snap back to TSX 10,000 quite quickly, and then begin the process of repair.

M: So what can people do to get through this as best they can?

Rosenberg: Focus on cutting their debt loads. Find ways to cut costs and raise cash. Invest conservatively. We’re not talking about having to go back to the days of Leave It to Beaver and Ozzie and Harriet, but I think that frugality is going to emerge as the new fashion. It’s going to mean, instead of going out for dinner twice a month, have friends over for a potluck dinner. Instead of driving to work, maybe take transit or carpool. People think this is draconian, this frugal future, but people may find they’re happier.


How bad will it get?

  1. Rosenburg’s final advice at the end of the article is pretty good. Sounds like getting back to the basics and if people follow it then there certainly will be a lot of community building and people coming closer together. Something good and lasting might come out of this for the good of humanity.

  2. Interesting that your ‘best and brightest’ come from the very industry that created this mess and stand ro benefit most from Flaherty’s 75$Billion Reganomic trickle down looting of the Canadian taxpayer, who btw will not receive one iota. Every penny will go to the financial giants.

  3. Very interesting that these experts think that the government response and actions at this time are appropriate and the oppostion parties in Ottawa think the opposite. Its at especially tough times like this that partisan politics should be put on the back burner and everyone pull in the same direction. Then maybe something good and lasting can come of this as Darrell hopes.

  4. As a past Marketing Director of a shopping centre, I must admit that vacuuming all wallets was my credo. The average shopper has no idea how much of their behavior is pre-programmed.
    Food Court sales dipping? I’d shut down the fountain and triple drink sales. Normally, I’d count on the cold rushing water. Fountains produce negative ions which are invigorating to shoppers. (Now you know why Niagra Falls is the honeymoon capital of the world.) My post-Christmas Sidewalk Sales were held before the credit card bills came in. The Fashion/Home Decor industry propped up constant and consistant craving. We were unstoppable dealers of the retail fix and the credit card companies were the pimps. Now people are beginning to realize that retail means, “ignore the plight of the world, the environment, your family relationships because your image is the most important reflection of not who you are but who you want other people to think you are.” Now, its Religion that should prepare for a boom as we look elsewhere for salvation.

  5. But what about the Canadian dollar value. Is it going to keep dropping against the US dollar or will it even out. Shouldn’t the US dollar be taking a serious beating if their economy is falling apart. Why is it so strong against most other world currencies? Anyone? I’ve been asking this for awhile and no one has been able to answer me (at least so I can understand it – all I hear is that we are a commodities based economy…).

  6. I find it exceptionally aggravating to see huge amounts of money being poured into the financial institutions while my own, conservatively invested, mutual funds which reside with those very same institutions have declined by 50% in the last few months and there is no end in sight. It is completely delusional to believe that there will be any form of consumer confidence restored before this discrepancy is resolved. Within our own household we have been very responsible in both saving and managing debt however we definitely will not resume spending until our mutual fund portfolio recovers to a reasonable position of it’s previous 2007 value. If the mutual markets do not recover then we just will not resume any significant spending again. I know that this same perspective is held by many others in the same position so perhaps the the US and Canadian governments need to focus on individual Canadians with the same energy which has been applied to major financial institutions.

  7. Mike said “Very interesting that these experts think that the government response and actions at this time are appropriate and the oppostion parties in Ottawa think the opposite.” I think this article was written before we found out that the government intends to delay stimulating the economy (and going into deficit) until the budget in the spring. The economists all applauded governments for not being afraid of going into deficits, which up until and then until recently seemed to be the case with Harper. However, the newest incarnation of Harper’s position is to actively try to avoid a deficit, which is exactly what the economists in this article say exacerbated the great depression so much. The opposition parties are now complaining because the Conservatives are now refusing to do what every other major country in the world is doing.

    On a final note, it’s not surprising people get confused. The opposition’s criticisms of the government’s policies have to change every time the government’s policies change themselves, which has been rather frequently of late. To illustrate, during the election Harper called deficit spending “stupid,” at the APEC summit he called it “essential,” and now, judging by the fiscal update that has just been presented, Harper thinks a deficit must be avoided for now, at least until it won’t do any good. See, confused yet?

  8. Owen hit the nail on the head – confusion rules! Our economy is still on a somewhat sound footing which will be short lived as even the government admits. But why overreact now? Stay the course and react to real situations as the will inevitably come up. Why throw money at the problem before its truly warranted?

  9. I can’t believe that with our economy facing a potential recession created by other countries and external forces, that we may lose the Leaders that have Canada in the best economic shape of any country in the whole world. Everybody is looking at us and following our example and Canadians want the Three Stooges to take over! The Liberals with a failing party, a failed leader Stephan Dion and exploding debt growth, Jack Layton whose party after 50 years still can’t get more than 17 out of a hundred to vote for them and the bloc whose greedy, self centered goal is to destroy Canada. All we need is Elizabeth Who? the ‘sell out’ queen to complete the farce. I would rather face another election than the three stooges running the country into the ground.
    Canadians should be proud of how well we are doing so far through all this and that we are leading the world not bringing up the rear having our tail wagged for us. As for Maclean’s panel of experts, It’s a bit rich having them giving anyone financial advice while standing there begging for handouts from us.

  10. >Why throw money at the problem before its truly warranted?

    That is the crux of the issue. Unless we propose to run the presses at the Mint indefinitely, resources are finite. Every dollar thrown at a best-guess is a dollar unavailable to be thrown at a known threat. Even once we identify critical threats, we will still need to determine which are most responsive to fiscal bandaids and which will provide the best return on expenditure.

    Judging by the torrents of comment on the threads related to the party political funding brouhaha, most people believe that we can spend money on anything and it will magically cure the economy.

  11. It only seems like magic to people who haven’t bothered to understand what is going on.

  12. Were these all-knowing financial experts on the golf course when Michael Lewis wrote “Liar’s Poker”?

    Were they tonsil deep in martinis when the US launched”affirmative action in real estate” under the Community Reinvestment Act, providing cover for groups like ACORN to sue banks who declined mortgages on the basis of “unlikely to pay them back”. (I mean – what could possibly go wrong?)

    Aren’t they paid to due dilligence?

    So, in hindsight, why is Macleans wasting electrons on their useless opinions now?

  13. Uh, Alan.. we may be gaining the leaders that actually PUT US in the best shape in the world. The fact that the Harper government hasn’t (quite) been able to destroy it in two years is a testament to how good it was. Those 40 year, no income mortgages they conservatives crow about ending as a prudent action (replacing them with the almost equally bad 35 year low income mortgages) are the very ones they brought in themselves, and the exact type of thing that lead to the sub-prime crisis in the States.

    A surplus of 12 billion frittered down to “we might be able to maintain a balanced budget” in two years.. and those were the GOOD two years. Everybody has acknowledged that Canada really hasn’t felt any serious pain yet, just that we’re gearing up to. What on earth would our finances be like had the Conservatives been running it during bad times, when demands on EI are higher and tax revenues in general lower?

    Flaherty promising to sell assets (in the lowest market in years) and then booking the value before it’s even decided on which ones he’s going to sell? On top of that, look at Flaherty’s performance in Ontario.. he did the same thing, selling the buildings the government owned and was working in, and then turning around and leasing them back from the private contractors he sold them to. Hey, there’s a good move, why don’t we all sell our houses to some landlord then turn around and start renting. Yeah, that’s a surefire solution to save money in the long term.

    Incidentally, if you are looking to sell your house and rent it to me, do feel free to talk to me. I’ll even give you a Stephen Harper campaign promise that I’ll charge you less for the rent than your mortgage was.

  14. All the talk about the Conservative government frittering away a surplus and how the previous Liberal government did such a great job saving our economy is just that – talk. Two things turned our economy around in the early nineties from the downward spiral started by Trudeau. The GST (who thought that one up again….?) and cutting transfer payments to the provinces… I know who I trust with my wallet…

  15. >It only seems like magic to people who haven’t bothered to understand what is going on.

    Judging by comments under your tag here and elsewhere, you must know. So explain. Feel free to be specific about what the various measures are expected to achieve, and why; or, just cite the prevailing theory which is thought to govern the chain of cause and effect. I’m not an economist by education, but I do read.

  16. Hi This is James, I beleived that Goverment of Canada and USA should bailed out to all Canadians and Americans mortgages so that every person who had mortgage paid off by bailed out everyone’s mortgage so that every person will have money in their pocket and spend more money on shopping so the GST and PST and or SST collecting more money into goverment’s coffee. This is great idea! DO NOT BAIL OUT ALL COMPANIES because companies profit for nothing! SHOULD BAIL OUT TO ALL MORTGAGE of Canadians and Americans. MORE MONEY IN POCKET WILL BUY NEW CAR AND WILL SAVE ALOT OF JOBS!! also BAIL OUT EVERYONE’S OWE MONEY ON CREDIT CARDS AND LINE OF CREDIT so that alot will have alot of money in their pocket and spend more and more jobs and save more jobs!!! THINK ABOUT IT… COME ON GOVERMENT OF CANADA AND USA.. DO HELP Canadians and Americans one at a time if both goverment want to save Canadians and Americans jobs! HUH.


    Take care!


  17. Yes, we are in a recession. The people who feel it the most in Canada is the auto sector which will soon be followed by construction. The good news for these people with layoffs is Employment Insurance and/or Retirement/Buy Out Packages which should last for 2009. Those people will have to be more frugal in their spending and may have to downsize their way of living. Yes there is light beyond the recession – there always is.

    Why is the U.S. dollar doing so well when the U.S. contributed to this global recession? One because the U.S. is the bench mark for comparison against other currencies. However, this is not the answer you are looking for. The real answer is that american investors have been pulling out a lot of their money in other countries and bringing it back to the U.S. AND the Chinese have billions of dollars invested in the U.S. dollar. The American and the Chinese do not want to see a weak U.S. dollar or they both will have a lot to lose.

    Best advise – stay positive and don’t let the recession bother you. Adjust your lifestyle to your situation and you will be fine.

  18. I think every Canadian knows just what kind of trouble we are in. It would seem that the parties that are planning a coup, don’t get it .They seem to be trying to further a political agenda on the backs of the people who voted to have a Cons. minority, not a jumble of also rans trying to score some political points.I say if they have the guts call another election,then see how far the Canadian people will push them back into the woodwork. The Liberals had 12 years & did very little for Canada. The NDP almost broke On. The party from Que. should not even be a national party.This whole thing is a travesty….Don

  19. Gad, can we please stop calling it a “coup”?

  20. James’ post is a nice utopian package indeed. Here’s a reality check . In order for governments to pay off all consumer debt, they would have to run up huge amounts of government debt which would; (a) All but eliminate money available for private sector borrowing, (b) result in extremely high taxation to pay for all the government debt. Also, human nature being what it is, consumers(now suddenly freed from all their debt), will promptly set about accumulating more debt.

  21. hi i just think every one made good solid points, BUT all the bikering back and forth I’ve already heard because so many people have the same opinion. It could be that we all have been brain washed by these goverment speeches. I just whant too say that not one of these guys that stand up there and strait out lie too us are ever going too do what they say their going to do, because too be onest they havent got the power too change things, they can set up road blockes but tomorrow things will be the same its the people that read the signs and make changes on their own behalf that change the way things are i have a suggestion that i think will work for a lot of people lets all just not spend any money at all and see if the goverment makes food,energy,gas,morgage,lines of cradit,visa rates go down because lets face it thay were all too high too begin with stop the inflation and on with the deflation. CRAZY EH!!! NO not crazy these guys will try too sell you what ever it takes too get you too put your hard erned money in ther pokets stop clear your credit cards payoff your morgage your car whatever you owe or if you cant because your dets too high rack up the rest and go bankrupt this is the perfect time too do it and not just cripple the banks put them six feet under so the goverment has too make it law all banks will be goverment run thay have too bail them out anyway why not just take them over every one keeps ther jobs and we all answer too the goverment anyway intrest rates all the same every things the same but like the health care system were all taken care of and these fat cat rejects can be completly monaterd so if thers another mistake its just another mistake we the people/goverment made lets face it if this crises did not involve the privet business we wold all just take it and move on with higher taxs anyway so go on do what ever you want because its your choice right don’t we all still have a CHOICE ya hahahahahahaha…

  22. Mr Flatulence our Finance Minister says he wants to sell some Crown Assets to stave off a deficit – Duhhh! – During a recession the smart people with cash or credit look for investment opportunities – only the ones who can’t afford to pay the bills look to sell off assets – Has PM Harper and his cabinet led us to the brink of fiscal collapse?

  23. Suckas, it’s all a big, steaming bowl of crapspeak.
    Can uuuuuu dig it?

    Mui Bueno Senor Harper, for refusing to announce huge spending right away. When times are tuff, spending one’s way out of it just makes no sense. And HUGE big-ups for putting government spending on perks on the chopping block. Spare us the jive, opposition parties – thios is the real reason their knickers are in a knot – they wont get to live such ridiculous jetsetting lifestyles.
    Caaaan uuuuuu dig itttt?

    NDP want the middle class to work their collective sacks off, keep most of the extra earnings thru taxation, and make the poor middle class.
    Liberals want the middle class to work their collective sacks off, keep most of the extra earnings thru taxation, and create more art exhibits so they can stand around, sip wine, act intellectual, and wax poetic…while they and their rich supporters pay no tax due to their ability to hide their gross earnings (a la Paul Martin) thru various tax shelters.

    Hoo-ray Conservatives. And cut the GST again, por favor.
    And sell the CBC – who watches Canadian tv anyway. It’s all crap, except for Hockey Night in Canada, which they don’t own anymore.
    And can the Governor General position. Useless! Watching that chick sashay around, trying to look “regal” – f*cking sick’ning! Who the f*ck are we trying to impress????



  24. Jack Layton is a total pompous turd and a poser.
    Love the shots of him with sleeves [artially rolled up. “The Working Man’s Politician”. Guy’s never worked a day in his life. Him and his useless chick sidekick used to share a downtown TO pad – co-op housing. That’s right – a place designed to help out financially burdened “working folk” trying to make ends meet.
    They stayed in a unit on the cheap while both were on the public payroll as local, TO politicos.


  25. The Canadian public is a collective dolt.
    They freak when gas prices go up, so a fillup costs, what, 3, 4, 5 bucks more? So 4 fillups: 12 – 20 bucks a month.
    What about the costs of utilities for homeowners, or taxes for homes, or condo fees?
    This stuff is going up 10% a year (or more) every year. But the collective dolt whines more about gas…..cuz they SEE it, on the big shiny display board at the gas station.
    Dolts. Look at the taxes taken from your paycheques. Look at your utility bills, condo fees.
    Who gets a 10% raise per year?
    One group does….politicians!
    Cut my taxes u ba$tards!
    If I choose to work more, work overtime, work on my days off…..let me keep more of it.
    Flat tax – rich folk too – 25%, no hiders (like u, Paul “Liberian Libre” Martin)!

  26. This mess has been created by greed. It is a foundation of the capitalist consumer based economy. Borrow and spend now and pay later mentality gone mad! All driven by the big financial institutions and business sector. The bigger the corporations the bigger the greed. Its all about profit, profit margins and executives thinking that they are financial heros and deserve multi million dollar salaries. Its incestuous inter-relationships and behaviour of the financial elite. Even our “wonderful” Canadian banking system was all into this up their necks, and took billions in write-downs. All of which were funded by your banking fees, high borrowing int. rates. They own us an apology! How about, “we are sorry we got you into this mess, it was our corporate greed that got us here, so all us executive manageres.

    I ask you, how many unsolicited bank credit card mailings did you receive in the mail this week, I had dozens from every banking institution in Canada, and I already have three major bank credit cards. Even the companies that I bank with and have credit cards with send me more mailings to get more cards. Give me a break. Stop this idiotic behaviour! Loose the greed mentality. Get some principles and morals in your financial behaviour financial sector.

    For heavens sake have some common sense people. All the bankers and financial institutions that “bought” into the subprime mortgage scheme shot be tarred and feathered. How rediculous that we do not regulate the financial sector with checks and balances to control the greed behaviour.

    I invest, I have RRSPs, I trade stock…and yes I have seen my investments devalued by a significant value. Calm down people. I haven’t made one financial move since this mess started. In fact I am watching it closely for opportunities right now. Be patient, let the panicers do their thing. While at the same time I get angry that investing to many is nothing more than legalized gambling. Things like options and derivatives, selling short…its all madness. Stop it!

    And, the media should get a grip on itself. Just like the old story, tell people you are going to run out of toilet paper and there will be a rush to buy it and yes you create the shortage. The media outlets are the best examples of how to take a story and make it doomsday when in fact it isn’t. It may be difficult but it is not doomsday. Clips skillfully displayed of frazzled traders, head in hand, ruffled hair, using phrases like, this plummeted, this has reached catastrophic proportions, is there no end in sight….yup it all keeps you glued to the evening news and sells advertising, which is what they are wanting to do. However, take a breather, look out the window, smell the air, shut off the TV, relax with a good book and you know what…things will be just fine!

    And finally, yes I know exactly what its like to loose a good paying professional job because of difficult times. During the 1981-1982 madness, I was a victim. I dug in, worked hard, changed careers, and have managed to successfully “weathered the storm”. While it might not feel well at this time, it is completely curable.

  27. I find what is going on at this time extremely stressful. I am a victim of auto parts supplier “lay off”.
    No I have not been given a severance (my employer wants to call it a temporary lay off) so as not to have to pay me severance. Under the employment standards act they came keep my severance for 35 weeks.
    I applied for EI the day I got laid off – Oct 24th. As of this date. Nov 29th I have still to receive a cheque. My debt is climbing. I have watched my modest amount of RRSPs deteriorate in half. Also my pension from my employer. The day I found out I thought I was going to pass out. I still have 17 yrs. before I can retire. I’m keeping my fingers crossed that this will be a quick turnaround for our country. I’m not looking forward to Christmas.

  28. Murray: Not quite true. The government grants the banks the right to create money by fiat, through leveraging their assets into loans. There is nothing that says the government cannot take this right for themselves.

    The danger of doing so is inflation. However, in a time when people are getting increasingly concerned about deflation, perhaps that’s not such a bad thing.

  29. BRYAN i like your attitude stay positive brother, would it be out line too say that your new career that you bost about is in the financial sector. That was beautiful man the way you just said exactly what are expert financial advisers sayed a few days ago, wait i guess i shouldn’t really refer too them as experts because the last i checked my 53 year old friend DLANE was feeling stressed about not having a job, and i presume he/she has a house too pay for and maybe kids too look after so when she goes out too find a another job and cant because she/he soon relizes that its not only the auto industries that getting hacked at its every were, and her rrsp’s are now completely gone and her house is up for sale and she/he is at the food bank where they only have a pice of bread and half eaten bowl of soup for her because the government cant keep up with the bailout’s, because the corporate rejects just cant fly couch it may stink up their 5,000 dollar suits, well it starts too paint a not so positive outlook. Look she/he’s a saver just like you. Look at her/him trusting her corporate rejects just like you i guess she/he just did not save enough in those 53 years of service as you did, but could it be that she/he dose have enough time with what she/he’s got, ya it all be over in 18 mounths so we haven’t got anything too worry about, keep it real brother i still have hope too we’ll make it EIGHTEEN MOUNTHS not long at all. ya hahahaha

  30. T Thwim,

    Not totally accurate. Banks create assets (loans) out of liabilities (deposits). The government allows them to play a percentage game of not keeping the entire asset available to the liability holder. This is no different than you borrowing from the bank and then investing or spending. The bank says you can pay back percentages etc or borrow multiples of other assets (your house, car, jewelry) that you have.

    In fact banks go and borrow (liabilities) from the government, or in the case of non commercial banks other banks and then deploy that liabilitiy into loan or an investment (asset). There is no fiat here. Mistaking fractional reserve, a regulatory funtion to prevent overleverage, and fiat is a mistake.

    Only the government can create money out of nothing based solely on its good name. Duriong crazy times like the late 80’s large companies will try a version of this. An example being Olympia and York where they told any banker who wanted to look at their books, or ask for pledges of securities and assets to take a major leap. Essentially they wanted to borrow on name. And as Banks and investors learn, lending debt as equity (is no covenants, no security) always leads to tears.

    The good name of the government is effectively lending against its taxing power against citizens and the nominal assets it owns in the country.

    Just a correction, because it is often used to say Banks spin money out of nowehere, and this isnt true. The asset is always matched against a liability. Example

    Bank A has deposits of $100…for sake of argument the fractional resevere is 10%. They could loan out $1000. The question is where do they get the $900 in cash. It can come from Bank equity, investors may have invested $5,000 or it can come from borrowings from the bank of canada. If the capital base is eroded due to loan losses, too much overhead etc, crdit crunch…. If the central bank is running tight money then the bank cant loan the money because it cannot get the cash…i.e. a credit crunch….or it can borrow from other banks, who then judge the solvency of Bank A….if that is questioned you get a credit crunch because they cannot find the $…..or they can not keep the asset on the books and sell it quickly taking a fee for origination and maybe admininistration….if they cant sell the security for the $900 then they have a credit crunch…..

    So canadian Banks had higher capital bases, slightly tighter credit granting, meaning lower losses, a greater amount of their liabilities coming from deposits (savings), not underpricing their risks and not overleveraging themselves on potentially illuiquid assets (loans they couldnt sell, recover or securitize or customers that do the same). This was a combination of industry culture, regulatory environment and industry structure.

    Point: is if banks could create money by Fiat then we would NEVER have a credit crunch.

    As for the “buying of mortgages” well the bank has now sold the asset and increased its liabilities, capital base. It can use that to cover off future losses on loans (if thats what is happening) and protect its solvency and reputation so others continue to it, or it can create new assets through additional loans or investments. The government now has more assets on the books, the mortgages, that earn interest. These were all government secured loans so the risk profile to the government hasnt changed, ultimately, just its capital deployed.

    Given that the government can borrow cheaper than the mortgage rates (for the moment) the governemnt will cover itself. This was not a “subsidy” to the bank in that the government gets nothing in return. The government’s balance sheet changes in composition, a matched incease in changes to assets and liabilities, and while interest rates are low the income statement actually changes to the positive…..the sources of uses and cash change dramatically.

    Point: Not a subsidy. An investment whose risk increase is solely based on interest rates and currently that is a government income statement gain.

    Sorry to be a pedant on this, but it gets twisted for political ends sometimes.

  31. Stephen: Thanks muchly! I’d recently seen a little presentation demonstrating money as being created by debt, and it seemed to make sense, however your question of “How would there ever be a financial crunch as we’re seeing now?” points out the problem with it.

  32. T Thwim,

    It isnt so much that money is created out of debt…its a source of money. Subtle difference.

    Interesting finance concept is the source of funds shouldnt drive acceptance of a project. This is true at the firm level, assuming there has been a strategic decision made earlier on what your overall finanicng looks like (structure of debt vs equity vs retained earnings (which is like equity but internally generated))

    It gets hammered in during B School (yes I have a Master of Bugger All) that source of funds doesnt matter. I believe this important point is true but gets taken to extreme, in that somebody abandons their responsibility to guard the capital structure decision….OR that firms get convinced that its ok to keep pushing the debt envelope. The temptation is there because increase returns on equity (stock) if you can successfully use debt to acheive the same operational goals as equity. Like all things there is a season for different types of capital structures.

    How that applies to government finance is a different story. There is an equivalent question, what should your capital structure be, i.e. what is the right Debt to GDP ratio, what is the right Interest payments to tax revenue ratio etc etc. How much debt, to the extent it is used, shoudl be foreign sourced vs domestic sourced.

    Answering those questions would set some constraints and floors around what government does do, how much it can do etc etc . But these questions do not get asked, explicitly or implicitly by the opposition, the press or voters. This is similar to a firm that doesnt tell its managers or investors what the discount rate for projects is, what the capital structure is targetted for (amout of debt not what projects). What happens is managers see their banks (the compnay treasury) as an endless supply of money and they continually make demands regardless of company strategy.

    So we have implicit promises in all parties proposals. I suspect the conservatives might have done more thinking than others but it may be more instictual rather than being written down. I think you would shock most finance ministers, Prime Ministers and Finance Critics if you asked them what is the long run target and path to get there for

    Debt to GDP
    Interest Payments to Tax Revenue
    Foreign Debt % vs Domestic Debt
    Tax revenue as a percentage of GDP

    What was their time frame for reaching each of those. That sets the table for how much governments spend, then you start to ask what % will be long temr hard investments, roads bridges etc, vs expenditures (subsidies, transfers, operating)

    There is no “right answer” on any of these per se, other than avoding end cases too much debt, too high tax, too little service from governemnt (inability to provide basic services)

    These questions dont get asked, they dont get taught in run of the mill political science courses and they dont enter our political discourse. But these basic questions need to be there. The demands on both sides are endless….from 0 taxes to complete government control. Explicit question of guiding principles need to be there, and asking parties and leaders to operationalize their philosphies is one way to do it. Thats how investors and boards of directors judge management, whether its of a for profit or a non profit, whats your strategy and what are its implication in real terms.

    Once again I apologize for being a pedant and long winded on this, but this is a hobby horse for me, the generally low level of discourse, whos hot whos not (yes I have a Jane Taber dart board) And journalists, well educated, intellignet and inquisitive people should be driving the questions….its not that it doenst happen all the time….it never appears to happen. It doesnt matter what your poltical affilitation is, your job is to ask questions and create insight and information. You can disagree later, but ask the darn questions of all sides.

    This current political and economic situation is a perfect example. All high drama, will the government fall..can the opposition overcome their differences (paper them over). All narrative and no content, fast food for their readers. What would the opposition provide if they succeed, what is the difference, what are the costs. How is Canada different, if at all, from their trading partners. The economists in this article, which was a start, seem to idicate that maybe there is value to keeping powder dry, unlike the US, UK and now China and Russia where it was use your bullets if you got em situation.

    So who met who, who is in what cabinet seat, who slighted who, who is not returning calls etc is the level of discourse…..I guess I have high standards. I sense you want a more nutritous discourse as well.

  33. I was surprised to begin reading the remarks by these ‘experts’. None of what they’ve said is anything new, just repeating what has been said already in the past month, and what has been predicted by so many financial and economic experts for the last five years. Come on, MacLean’s, you can do better.

  34. David Watts, they swapped government debt for mortgages, in order to inject cash into the system – precisely the kind of thing a government needs to do. The money isn’t meant to “trickle down” to anyone. It is meant to keep the financial system from seizing up entirely, leaving the banks in a position to keep refinancing various loans and debt when they come up for renewal.

    Those $75 billion worth of mortgages were already insured by CMHC, which meant the government was already holding all the risk on their books. The government might even make money on that transaction. (Though that particular justification I find a little suspect. If the economy recovered to that point, the banks would be lining up to repurchase the mortgages they were so quick to get rid of.) If you are indeed correct, that $75 billion in “taxpayers’ money” was handed over to the banks, then the deficit this year should be at minimum, $75 billion, correct? I haven’t even heard a single Opposition MP say something that absurd yet.

    Peggy O’Neil, the “experts” are full of it as always. Lately I’ve been recommending Nassim Nicolas Taleb’s book The Black Swan. He’s a Harvard professor with Ph. D.’s in both Mathematics and Statistics. Not only is the book funny and light-hearted, but the guy absolutely ridicules economists, financial gurus, investment advisors, MBAs, bankers, government officials, CEOs, fund managers and everyone else who believes they can forecast future economic and financial events.

  35. Scooter, the US dollar isn’t strong. Look at it this way, the US was the first to hit the tank. When it looked like the rest of the world was holding up rather well while the US faltered, the US dollar tumbled. Now, Canada, Europe, and everyone else is in recession, or close to it. We all just figured out we are in the same boat. Thus, our currencies have come down against the US. It has nothing to do with the US dollar being strong. It has everything to do with every other currency in the world being just as weak. You could say that it took longer for our currencies to fall than it did for the US, and that we’re ALL poorer now.

    Remember, currencies can only be measured as a cross-rate against other currencies. The terms “strong” and “weak” are always completely relative. The USD is much “stronger” now, because the rest of our currencies are much “weaker”. There was simply a lag of a year or two from when the US toppled to when the rest of us did.

  36. You could say that it took longer for our currencies to fall than it did for the US, and that we’re ALL poorer now.

    Sorry, that should have read, “You could say that it took longer for our economies to fall than it did for the US, and that we’re ALL poorer now.”

  37. Ranter,

    Great book…all about avoiding the Black Swan quadrant…..

  38. Are Canadians going to allow the Commie Coalition to complete its coup d’etat on our democratically elected government?
    This country is OVER.

  39. The Sunday Citi $ 326 Billion in Welfare….. was Followed Monday, Again Without Congress’ Approval,… With $ 800 Billion to Banks at 1.5 percent, so they can Loan 10 Times that much at 6,7,8,9+ percent?

    One Million jobs Lost in last 4 months!

    Former Treasury Secretary Paul O’Neill was told “deficits don’t matter” when he warned of a looming fiscal crisis.

    O’Neill, fired in a shakeup of Bush’s economic team in December 2002, raised objections to a new round of tax cuts and said the president balked at his more aggressive plan to combat corporate crime after a string of accounting scandals because of opposition from “the corporate crowd,” a key constituency.

    O’Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. “You know, Paul, Reagan proved deficits don’t matter,” he said, according to excerpts. Cheney continued: “We won the midterms (congressional elections). This is our due.” A month later, Cheney told the Treasury secretary he was fired.

    Bush-Cheney $ 5 Bil per month “War of Choice” Occupation for Big Oil Profits, Deregulation of Banking and Finance, … and Now Bush Gives $ 4.5 Trillion Welfare to Wall Street Crooks, AIG, Citi and most deposit banks, Freddie Mac and Fannie May, But ZERO For HOMEOWNERS?

  40. We have yet to see the tip of the iceburg. If everyone was amazed, in horror, at the crash of the sub prime market and subsequent shrinkage of the securitization market, then the jaw will fully hit the floor when the Credit Default Swaps (CDS) fully collapse. This unregulated “insurance” against defaults is estimated at over 70 Trillion USD. The intitial bailout of “hand picked” institutions was simply a bandaid. Financial institutions that previously had survived the great depression went out of business, except for those that received bailout funds. Any bailouts or guarantees by any of the world’s governments without regulation of Derivitives (including futures, short selling, CDS’s, etc.) will result in a short term delay of a longer term recession. Greed has driven the major nations to a point that more is not enough. Long gone are the days where banks could limit themselves to borrowing funds that they had on deposit from their banking members. A global paradigm shift will need to occur to take us back to the days where we spent less than we made and saved for a rainy day.

  41. Danno, futures are already regulated by the CFTC in the US, and by similar bodies in other countries. Futures are traded on centralized exchanges like the CBOT, CME, NYMEX, Montreal, LIFFE, etc… They are not the problem.

    The problem is the various exotic derivatives that have been created and traded, leveraged with tiny margins, and NO oversight. What we need to do it force derivatives into an exchange-like environment, where they can be traded in a transparent manner. Most of the exotic, highly leveraged derivatives would simply seize to exist. They’d never meet the standards of an exchange-listed contract.

  42. And I agree we need to get back to a more savings-oriented financial system. The quickest and most sensible way to do that would be to increase the margin requirements of all leveraged financial instruments, and, more importantly, the reserve requirements of all deposit taking institutions.

    That’s why all the stimulus talk is so back asswards. We’re spending too much. We’re throwing too much money around at too many things. We need MORE savings. Not less. Stimulus is a direct boost to aggregate demand. Retail sales are higher in the US this year than last. We’re fiddling while Rome burns. And Economists? They say we need more stimulus (i.e. more consumption), and they hand out awards to those who say it the loudest.

  43. Rage – I was referring more in regards to the unregulated default swaps. The bailouts to companies like AIG, Fannie Mae, and Freddie Mac were a temporary bandaid to cover the initial onslaught of CDS’s that were called. These companies, their stock holders, and execs got rich for several years off of these financial instruments and then fled when the the crap hit the fan.

    Short selling is also regulated, but when the regulators step in to “close the door after the horse has already left the barn” it creates little assurance to the markets.

    Let’s get back to how business was operated before there was a stock exchange, or credit lines for that matter. The growth of you business was limited to your cash flow. There could have been no Walmart in that system in as short a span as it has evolved.

    This leads back to your comments that I agree with whole heartedly. Namely blind bailouts will not help.

  44. that being said, it has been a great time to fill my boots with AIG, Freddie, and Fannie. Just need 1 of the 3 to rebound to 52w high and I can cover the hit on my retirement portfolio (which will come back on it’s own in the 5 year window).

  45. I just heard a contradictory statement by the P.M. one in english one in french – both not true. In french he said that the sovereigntists were in bed with the Liberals. In english said the liberals were in bed with the separatists. Oh wow!! talk about unity and stability – disgusting. Another false statement he uttered was that when the accord was signed there was no canadian flag there. That also turns out to be a falsehood.

    Ideological right wingers create instability – it’s in their nature. Many contradictions are surfacing. Mr. Harper himself signed an agreement with the separatists in 2004 to topple the then martin government, and sent a letter to the GG at the time. Seems that he is wielding double standard rhetoric. Not good. Now he is quoted as saying that when a leader looses confidence of the house a confidence motion should be immediately held, but now denies that to others. Hmmmm what to heck is going on with these birds?

  46. >Ideological right wingers create instability

    So do ideological left wingers, aka NDP. Even the Liberals have ideology. No fooling. No party has a monopoly on good or bad qualities, so let’s get past the kindergarten dialog and discuss issues. For example, how is $30B going to be divided? Who gets, how much, when?

    If you can read, go back to the 2004 letter – it isn’t an agreement; it isn’t a threat to topple the government; it’s a request to the G-G to consult the opposition if the PM requests dissolution after a vote of non-confidence. The letter is dated September, which marks a two month hiatus – lots of time to think about contingencies – since the late June election; in the event, the government outlived the letter by more than a year. Not exactly an ambitious timetable to “topple the government”, don’t you think?

    Also, a confidence motion isn’t held _after_ a leader “looses confidence”; the motion (or other issue) precedes the vote which declares non-confidence.

  47. Roger my man. Nice guess, but totally wrong. I am a professional forester. At the time I endured great financial hardship (1981-82) I had the three young kids, lost my forestry job, dept up to my ears and a house mortgage greater than the value of the house. It took 10 years before I recovered but here I am today, the message is – sure it may be tough, it sucks bad….say this to yourself, I could, like my friend be dying of cancer, I could be born into 100s of other 3rd world countries in the world.

    If you have your health, your family…you have the foundation to recover. Dont wallow, do something about it and don’t expect the gov’t to do it for you. I never drew one $$ from EI.

    I am a treaty negotiator, I get paid to negotiate big deals, high stress!

    My net worth has also dropped signficantly recently as others have noted, the point is I have my health, my family and I live in the best place on earth bar none, in spite of the corrupt financial folks.

  48. The fact remains that until the USA shows a material progress in a specific direction under the new administration, any stimulus package is a very expensive shot in the dark. Bailing out GM here in Canada etc., is simply ridiculous until we see some measureable progress south of the border. So Harper decides to wait a bit. Not a bad thought

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