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The U.S. government shutdown: If America sneezes…

… what happens to Canada’s economy?


 

Carolyn Kaster/AP Photo

When the U.S. sneezes, goes the adage, Canada catches a cold. In the case of a U.S. government shutdown, though, it should probably read the other way around: When the U.S. catches a cold, Canada sneezes.

That’s because, while the Canadian economy is very sensitive to whatever happens to U.S. consumers and private companies, we’re not quite so closely linked to the public sector. There aren’t that many Canadian firms that depend directly on the U.S. government for their business.

The last time the U.S. went through a partial government paralysis in 1995-1996 — for roughly four weeks in two separate instances — our economic growth slowed by a quarter of a percentage point during the last three months of 1995. A two-weeks shutdown this time around could shave a decimal place off Canada’s growth rate in the fourth quarter, estimates Avery Shenfeld, chief economist of CIBC World Markets. So, if you were projecting growth of 2.2 per cent, it might be 2.1. “The impact of two-week shutdown would be lost in the decimal places of measuring Canadian GDP,” Shenfeld told CBC. With Canada expected to grow in the range of 2-2.5% between October and December, that really doesn’t sound too bad.

The danger, though, is that Uncle Sam’s cold turns into a full-blown flu. A few days or a couple of weeks of shutdown is an inconvenience. Many government employees and contractors will have to make do with a little less cash, as Washington freezes pay and payments. Canadian truck drivers crossing over into the U.S. will likely have to put up with longer lines, as U.S. border agents might not put in overtime, even though they are exempt from furloughs.

A prolonged shutdown, though, would take a sizable toll. Unpaid U.S. contractors might be unable to pay their employees and creditors on time. Families of government employees might have to trim consumption. The backlog at the border could turn into gridlock, and Canadian exporters would lose money and business opportunities.

Add it all up, and a long federal government freeze could trim U.S. growth by 1.4%, reports the Washington Post’s Zachary Goldfarb. That means the economy would barely expand during the all-important Christmas season. “A longer shutdown, could significantly impede the economic recovery,” Craig Alexander, chief economist at TD Bank Group, wrote yesterday in a note to clients.

Keep your fingers crossed it doesn’t come to that.

 


 

The U.S. government shutdown: If America sneezes…

  1. Well, if we had a trade deal with the EU…… and China and Japan and India etc right now…….

    • While it helps, its far too little and too late for this debt mess. Fleabaggers (other peoples money for nothing and debt is for free types) need to consider that when currency devalues, what are they going to do for their keep when people are busy spending everything they have on food and then mortgage?

      I ask this serious, as everything in history says the debt ponzi fraud scheme used by Carney/Bernanke for buying US and Canadian debt that no savvy legitimate lender would buy is going to fail. Like Greece, we will see a drop in standard of living for all that are not savvy and aware, but it will occur differently in that it will happen because our currency loses value to the debt fraud.

      Already happening but I suspect if governments don’t stop debt this will accelerate:

      http://www.xe.com/currencycharts/?from=USD&to=CNY&view=10Y

      And Japan too:

      http://www.xe.com/currencycharts/?from=JPY&to=CNY&view=2Y

      There is a lot of inflation coming as currency exchange passes this inflation to us. Just ask the Japanese that have lost 50% of their standard of living in 20 years of debt.

  2. I suspect it will be like Belgian’s shutdown a few years back. It lasted about a year and they decided to make most shutdowns permanent.

    People fail to realize our federal governments do so very little that we really don’t need 1/2 of what they do. Its waste, its bloat, is pandering, its bailout BS…none of it helps productive Canadians or Americans.

    Most are not having kids as we have too many Ottawa kids to support, another reason why have your child born into debt-tax slavery? Why can todays corrupt greedy government and unions just slap more debt on our kids and grand kids? Its immoral and unethical debt greed.

    Debt addiction is like heroin addiction. Makes you lose sight of reality, become belligerently irrational as addiction rules your thoughts. Just one more fix, always one more fix, that slowly kills you.

    Sorry, when our currency becomes worthless, I will have no sympathy or Canadians and Americans as we become just like the third world.

    As immoral delinquent debt is a moral sin against others. And now lots of people need to learn the lesson the hard way as they are just too damned stupid to see why just more debt, just more money print is wrong.

    time now to get the rest of my USA into gold, really money the greedy can’t fraud people with.

    • Like anything else, gold only has the value we choose to assign it. If there’s no one buying jewelry etc., do you really think its value will hold (or rise)?

  3. Were it not for your example, I would think “shaving a decimal point” would involve dividing by 100 (ie, 2.1 becomes 0.21), not shifting 0.1 units. Did anyone else read it that way or am I the foolish one here?

  4. Is this all part of the outsourcing jobs to India plan?

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