Why the recession is here to stay

Prepare for more pain—this recovery is only a blip

Why the recession is here to stay When U.S. marshals put Bernie Madoff’s Long Island mansion on the block last month, few expected much action. Sales of luxury homes have been as dead as the lowly subprime market—and surely the oceanfront playground of a disgraced Ponzi fraudster would be hard to move. Then something astonishing happened. A furious bidding war erupted, and the house sold in mid-September for US$8.75 million in cash, well over the asking price. Madoff’s US$65-billion scam may have embodied all the lying, cheating and greed that got us into the Great Recession, but the frenzy for Bernie’s old digs shows that the froth is back, alive and well.

Evidence of reawakened exuberance is everywhere. Bidding wars are breaking out all over North America. In Costa Mesa, Calif., one 1,300-sq.-foot home drew 68 offers and sold for nearly US$100,000 above the asking price. In Vancouver, dozens of potential buyers reportedly drove the price of a tiny bungalow in the popular Kitsilano neighbourhood up $180,000 above the asking price, to $1.14 million. Condo projects that looked gaudy and excessive amid the new frugality of April are now back on the block as the latest must-haves. Toronto’s struggling 1 Bloor megaproject surged back to life last week with new developers. In Vancouver, the radio waves are filled with ads for home-equity loans and marble countertops, and luxury retailers are beating down the doors in Calgary. Next month Holt Renfrew will open a new store there, three times larger than its existing one, and featuring a boutique from French luxury giant Hermès, famous for its $7,000 Birkin bags. Conspicuous consumption didn’t die after all. It was just hibernating.

Barely six months after fretting about the end of the world, analysts and economists are suddenly transfixed by a more welcome finale: the end of the recession. Along with the housing market comeback, retail sales, a key measure of how the all-important American consumer is feeling, are on the rise. Most economists now forecast that, at least for the next few quarters, U.S. GDP will expand at a rate as high as four per cent, while Canada already saw a 0.1 per cent uptick in June. But the surest sign of euphoria can be seen in the raging markets. The S&P 500 has jumped a whopping 58 per cent since bottoming out in March; its counterpart in Toronto is up 53 per cent. Even if markets haven’t fully recovered from their recession lows, the surge in prices has suddenly made people feel a lot wealthier and more confident again, and that’s helped drive everything from auto to home sales. “We’re clearly out of a very dark hole,” says Glen Hodgson, chief economist with the Conference Board of Canada.

So why, then, does it all seem too good to be true? It’s hard to swallow the notion that “the worst crisis since the Great Depression,” as it was repeatedly described last winter, could, seemingly overnight, become little more than “the most inconvenient downturn since 1991.” The only truly substantive change has been the rebound in consumer confidence and investor sentiment. In other words, investors are driving the rally with their hearts, and not their heads.

Which is why some experts are warning there is still a lot more pain to come. In many cases, they were the same rare voices who accurately predicted the subprime mortgage collapse, credit crisis and recession. Just as the phenomenal rise in stock markets is built on hope, and not fundamentals, improvements in the economy are due almost entirely to the wheelbarrow loads of government stimulus money, and nothing more. A real, sustainable recovery is still five or 10 years away. Which means we should be preparing for America’s lost decade. What that means for Canada is painfully clear. We may have avoided the worst of the crisis—our banks are sound, unemployment is lower here and the housing market more stable—but Canada remains inextricably linked to the U.S. economy, and continued pain there threatens to drag this country’s economy down further.

“It’s not a case of being bullish or bearish, it’s being totally realistic about what happens after an epic US$14-trillion loss of household net worth,” says David Rosenberg, chief economist at Gluskin Sheff + Associates in Toronto. “It doesn’t mean we’re going back into a recession, it means that we’re going to have a period of stagnant U.S. economy that’s going to have an impact across the globe, including Canada.”

This past July, the U.S. government rolled out an incentive program called the Car Allowance Rebate System, better known as “cash for clunkers.” The idea was simple. Over the next four months, it would spend US$1 billion offering people as much as US$4,500 to turn in their beaters and buy new, fuel efficient vehicles. So many jumped at the offer that, within a week, the money was gone. Another US$2 billion was added to the program. By late August, that was gone too, as nearly 700,000 cars were purchased with the help of Uncle Sam. Cash for clunkers, which single-handedly reversed years of auto industry floundering in less than 30 days, will likely go down as one of the most successful examples of government stimulus, ever.

The economic growth that has buoyed so many hopes of a turnaround has been driven—particularly in the U.S.—almost entirely by this kind of public spending. It’s brought key economic indicators like retail sales back to life, and forecasters have eagerly jumped on this as a sign the worst is over. But there are crucial elements integral to a healthy economy that are completely absent from this recovery picture, like the return of private investment and jobs. As successful as direct government handouts have been in the U.S, there’s little indication of progress on either front. “As long as the government is giving money away, people are going to spend it,” says Mike “Mish” Shedlock, of Sitka Pacific Capital Management. “Those are not conditions that cause a sustainable recovery.”

Managing this kind of artificial growth presents a difficult balancing act for governments, says the Conference Board’s Hodgson. If stimulus spending is shut down too early, it could quickly throw the economy straight back into recession (what’s known as a double-dip recession). Keep spending too long, and suddenly the government is competing with the private sector, overheating the economy as it drives up input prices and, eventually, interest rates. Jack Ablin, chief investment officer at Harris Private Bank in Chicago, argues that stimulus spending is clearly working, and could pave the way for as many as four quarters of growth. But he likens this to someone running a marathon on a diet of crullers. “It’s hard to know how much of this recovery is real and how much is just fuelled by these doughnuts,” he says. “A year from now, we’re going to be at a crossroads.”

This was the same challenge facing policy-makers during the Great Depression. Through the 1930s the U.S. government spent heavily to stimulate the economy. When it stopped, another steep recession followed in 1937. Similarly, Japan suffered a recession relapse in 1997—seven years after its economy crashed—when it tried to tighten up its fiscal situation, notes Rosenberg.

To add to the difficulty, the U.S. will have to come to terms with the trillion-dollar deficits this spending is helping create. Many economists worry that America’s creditors will stop lending in the face of such impossibly huge debts, forcing a spike in interest rates, inflation and maybe a whole new crisis.

But perhaps most discouraging of all is the fact that the conditions behind this short-term recovery look eerily similar to those seen during the lead-up to the crash in late 2007. At that time, consumers were over-leveraged, borrowing on credit cards and against their mortgages, buying homes they couldn’t afford with zero per cent mortgages and cars with money they didn’t have. That was driven by a long period where interest rates were kept too low for too long. That tactic is still being used today to try to encourage reluctant consumers. Only this time, consumers are in no condition to play along. In Canada, debt levels are still rising. Bankruptcies were up 36 per cent in July. In a recent survey, the Canadian Payroll Association found that more than half of Canadians say they are living paycheque to paycheque. The U.S. consumer is even more beaten, says Shedlock. “We still have rising credit card defaults, rising foreclosures. Neither of those conditions have been addressed.”

All this could play out with predictably disastrous results. And nowhere is that more obvious than in America’s troubled housing sector.

The recent flurry of real estate bidding wars on both sides of the border has emboldened those who claim the housing crisis is over. But for every drooling homebuyer, there are hundreds of thousands of homeowners trapped in houses they’re struggling to afford. And the situation, especially in the U.S., is about to get much, much worse.

Just like in the auto sector, it’s Uncle Sam who’s driving the supposed rebound in housing, says Rosenberg. Last winter Congress introduced a US$8,000 tax credit for first-time homebuyers, and the program has proved wildly popular. Rosenberg estimates 85 per cent of the housing activity in the U.S. right now is being supported by Washington. (We saw just how fragile the housing recovery was last week, when both new and used home sales failed to meet economists’ rising expectations.) So it’s no surprise the real estate industry in America is lobbying hard for the credit to be extended beyond its Nov. 30 deadline, and even expanded to US$15,000. If Washington pulls the plug, it could send the housing market spiralling again.

What the housing stimulus hasn’t been able to do is offer any support to the growing number of Americans underwater on their mortgages. According to a report last month by Deutsche Bank, by the year 2011 as many as 25 million Americans, or 48 per cent of those with mortgages, will owe more than their homes are worth. The situation isn’t expected to improve for a long time to come. Moody’s, the rating agency, predicts average house prices won’t return to their 2006 peak levels until at least 2020.

That suggests we won’t see a slowdown in foreclosure activity any time soon. As it is, the rate of foreclosure is near record highs, according to RealtyTrac, a real estate research firm. In August, 358,000 houses went into foreclosure in the U.S., 18 per cent more than in the same month last year, when the meltdown was in full force and the world was gripped by foreclosure horror stories. The problem is, even as America struggles to cope with the fallout from the subprime debacle, a second and third wave of foreclosures is about to hit. Daren Blomquist, with RealtyTrac, says the next wave will be triggered by the continued rise in unemployment levels. We’re already seeing signs of that. Until recently, the foreclosure crisis had mostly struck those cities in Sunbelt states like California, Arizona and Florida, where the housing bubble was most egregious. But recently, cities with high unemployment levels in Oregon, Utah and Idaho have started popping up on RealtyTrac’s monthly list of the top 10 hardest hit areas.

And a third wave of foreclosures is expected to hit next year, when huge numbers of “Alt-A” and “option ARM” loans come due. Those loans were used by buyers who either weren’t able to provide necessary documentation or couldn’t afford the higher-end homes they wanted to own. “It’s going to prolong the pain we’re going through,” says Blomquist.

Unfortunately, housing isn’t the only problem in the real estate market. Though it receives far less attention, the commercial real estate sector is in dire straits, and the repercussions for the economy are even greater. As with housing, commercial property values have been in free fall over the last two years. The Moody’s/REAL Commercial Property Price Index, which tracks the sector, is down 39 per cent from its all-time peak in 2007. Likewise, banks, hedge funds and institutional investors are all heavily exposed to the commercial market through their loans and investments in the sector. Yet an increasing number of buildings sit empty. It’s not just a problem in the U.S. Last week CB Richard Ellis, a brokerage firm, revealed office vacancy rates have risen almost 50 per cent in Canada in the past year. In some markets, like Calgary, as much as 13.1 per cent of space now sits empty—a remarkable reversal from the city’s boom days.

As prices crumble and vacancy rates soar, more and more borrowers are failing to keep up with their payments. It’s left some economists worrying about yet another banking and credit crisis as financial firms grapple with these massive losses. According to a report by Richard Parkus, a commercial mortgage analyst at Deutsche Bank, as many as 65 per cent of commercial mortgages coming due in the next five years won’t qualify for financing. As such, banks may have to write off 10 per cent of the US$1 trillion in commercial real estate loans sitting on their books. Such a scenario could be avoided if employers started hiring again to fill up all that empty office space. But as it is, companies are axing employees by the hundreds of thousands a month, and there are few signs that’s about to change.

Last week, workers at the Caesars Windsor casino in Windsor, Ont., were warned by their union that layoffs could be on the horizon as business continues to slow. Meanwhile, in Plattsburgh, N.Y., 200 workers at a Bombardier railcar plant were given notice that layoffs could begin in December. For tens of thousands of workers across the United States and Canada, the prospect of more job losses still looms large. America’s unemployment rate now sits at 9.7 per cent, a 26-year high. When the latest job figures came out in September, some diehard optimists grasped for any faint sign of hope—at least job losses slowed slightly in August, compared to the month before, they said. Unfortunately, that trend may not hold. New Labor Department data shows that mass layoffs (job cuts involving 50 or more employees) actually jumped sharply in August after improving in previous months. But even if the bad news about jobs does become a little less bad, says Rosenberg, it doesn’t really matter. “You can’t feed your kids or pay your bills with less negative data.”

In the U.S., 15 million people are now out of work and a third of them have been without a job for six months or longer—a record high. Meanwhile, rates of underemployment (the laid-off banker who has found work as a waiter) are also at record highs. In hard hit areas, the unemployment rate is staggering. California hit a new postwar high in August of 12.2 per cent unemployment. By some estimates, Michigan’s unemployment is set to hit 15 per cent. Canada is struggling too, with 1.6 million people out of work. According to a recent report from the Organisation for Economic Co-operation and Development, unemployment could hit 10 per cent next year, up from the current rate of 8.7 per cent. Among young Canadians between the ages of 15 and 24, unemployment is already over 16 per cent—an 11-year high.

Economists often say that unemployment is a lagging indicator, meaning that the economy must improve before we see companies confident enough to start hiring again. But the reality is that unemployment is only getting worse. Many jobs in manufacturing, construction and finance that only existed because of the bubble are gone for good. “Now what?” asks Shedlock. “Where’s the driver coming from for jobs?”

This is a question with no easy answer. “Unemployment is probably going to keep rising for much of the next year. People aren’t going to think of it as a recovery,” says Dean Baker, an economist with the Center for Economic and Policy Research in Washington, who correctly foresaw the recession. Even if the economy grows at a healthy rate of three per cent, that creates between 100,000 to 150,000 jobs a month, says Ablin, the CIO of Harris Private Bank. At that rate, it would take four years to get back all the jobs that have been lost over the past year and a half. Efforts by government to create jobs through make-work stimulus projects are also at best temporary measures.

Many of these problems loom largest in the United States. In most respects, Canada has weathered the downturn far better. Job losses are not as severe, the housing market hasn’t crashed, and credit markets never completely dried up. “There’s a very significant difference between what we’ve seen in Canada compared to the U.S.,” says Sherry Cooper, the chief economist with BMO Capital Markets. “This was not a made-in-Canada recession by any stretch.” As such, the Canadian economy will be stronger than the U.S. economy in the coming quarters, she adds.

But that’s not to say roadblocks to a recovery don’t exist here, too. A good portion of the jolt the Canadian economy has felt in recent months has come thanks to the same thing that’s been juicing the stats in the United States: government dollars. Take the cash for clunkers program. The demand for cars in the United States almost single-handedly pushed up manufacturing sales in Canada by 5.5 per cent in July (the biggest monthly jump since 1998). Wholesale sales in Canada were also up thanks to auto exports. It’s hard to find a positive growth number in Canada that hasn’t in some way been driven by consumer demand in the U.S. Ultimately, Canada must face the same tough question as its main trading partner: what happens when the free-money tap is shut off and U.S. consumers stop buying?

In 2007, there were plenty of onlookers who watched the United States slipping into recession, and who argued that Canada would be immune to the coming crisis. The strength of Alberta’s oil wealth alone could keep Canada in the black, they argued. Even esteemed economists floated the possibility that if the U.S. sneezed, Canada might not catch a cold. That proved to be fanciful thinking. By the same token, there will be no quick recovery in Canada without recovery in the United States. “We are along for the ride,” says the Conference Board’s Hodgson.

The most optimistic forecasters still cling to the hope that we’re experiencing the beginning of a V-shaped recovery. As quickly as the economy nosedived, it will surge upward again on new-found consumer confidence and carefully timed government spending. The bears predict we’re due for more of a W-shape, where a rebound is followed by another dive into recession. Others point to a more gradual U-shape or even a long, drawn out L-shaped recovery. But the real outcome may well be an alphabet soup of all of these things, strung together over the coming years so that the economy and capital markets never really grow.

It has happened before. People may be feeling richer as they watch the markets rebound and their net worth rise again, but to some observers, this is the same kind of false start that has haunted Japan for so long. That country suffered a “lost decade” in the 1990s after its housing bubble burst. It continues to struggle to this day. “The reality is a 60 per cent jump in six months is not the hallmark of a bull market, it’s generally what you see in a secular bear market,” says Rosenberg. “Japan has had no fewer than four of these 50 per cent plus rallies, in the context of a market that’s down over 70 per cent from its peak.” Shedlock puts it in even starker terms: “This is the most massive suckers’ rally since the Great Depression.”

The unfortunate reality is that until households get their finances in order and are capable of spending again, the corporate sector won’t rebound and neither will jobs. That’s a healing process that could take years. So as bullish analysts and pundits feverishly ramp up their forecasts, maybe it’s time instead to listen to what those who predicted the crisis the first time around are warning—look out below.




Browse

Why the recession is here to stay

  1. The problem is intractable.

    As governments try to do more, they only lengthen the time to recovery.

    And if they do nothing, the time to recovery will be shorter, but perhaps unbearable.

    So do we walk through the hot coals slowly?

    Or do we run through the fire quickly?

  2. There is smart stimulus and dumb stimulus. Bribing people to buy cars, houses or granite counters is not very bright, as you’re only further impairing the balance sheet of consumers. It’s smarter to spend money on our infrastructure backlog. Not sexy things necessarily, but replacing 100 year old water mains and upgrading electric distribution. It would likely also be smart to beef up venture capital funds. In the grand scheme of things, we likely have to take our lumps as consumers begin to save more.

  3. The US is entering new deficit territory, a factor of 3-4 larger than anything seen since WW2. This can only mean huge additions to their debt or printing more money. Option A is vanishing as the Chinese get increasingly nervous about ever seeing their money again.

    Obama is going to pursue Option B: print more money. There will be a spike in inflation followed by a serious reduction in buying power. Essentially everyone who earns US dollars in going to get a lot poorer.

    It is rapidly becoming too late for the only corrective option to be implemented: reduce the deficit by reversing the stimulus boondoggle before the money is gone, foregoing Obamacare, and cutting government expenditures. Extending the Bush tax cuts would also help since this is no time for a tax increase.

  4. The US is entering new deficit territory, a factor of 3-4 larger than anything seen since WW2. This can only mean huge additions to their debt, or printing more money. Option A is vanishing as the Chinese get increasingly nervous about ever seeing their money again.

    Obama is going to pursue Option B: print more money. There will be a spike in inflation followed by a serious reduction in buying power. Essentially everyone who earns US dollars in going to get a lot poorer.

    It is rapidly becoming too late for the only corrective option to be implemented: reduce the deficit by reversing the stimulus boondoggle before the money is gone, foregoing Obamacare, and cutting government expenditures. Extending the Bush tax cuts would also help since this is no time for a tax increase.

  5. The US is entering new deficit territory, a factor of 3-4 larger than anything seen previously. This can only mean huge additions to their debt, or printing more money. Option A is vanishing as the Chinese get increasingly nervous about ever seeing their money again.

    Obama is going to pursue Option B: print more money. There will be a spike in inflation followed by a serious reduction in buying power. Essentially everyone who earns US dollars in going to get a lot poorer.

    It is rapidly becoming too late for the only corrective option to be implemented: reduce the deficit by reversing the stimulus boondoggle before the money is gone, foregoing Obamacare, and cutting government expenditures. Extending the Bush tax cuts would also help since this is no time for a tax increase.

  6. The US is entering new deficit territory, a factor of 3-4 larger than anything seen since WW2. This can only mean huge additions to their debt or printing more money. Option A is vanishing as the Chinese get increasingly nervous about ever seeing their money again.

    Obama is going to pursue Option B: print more money. There will be a spike in inflation followed by a serious reduction in buying power. Essentially everyone who earns US dollars is going to get a lot poorer.

    It is rapidly becoming too late for the only corrective option to be implemented: reduce the deficit by reversing the stimulus boondoggle before the money is gone, foregoing Obamacare, and cutting government expenditures. Extending the Bush tax cuts would also help since this is no time for a tax increase.

    • Unfortunately, what you're suggesting isn't a corrective option, it's capitulation.

      The "stimulus boondoggle" as you like to put it, is what kept the US from directly following the path of Argentina. Having the markets freeze due to lack of liquid would have given the fall so much momentum the panic it would have caused would have lead them back to the barter system.

      Are they going to get a lot poorer? Damn straight. That's the problem when much of your economy and wealth is built on imagination and supply driven marketing rather than production and demand driven purchasing. It's been due for years, sadly. With luck, their government will be able to moderate the descent enough to keep panic from setting in too deeply and to make sure that the worst don't get so desperate that they turn to crime and violence to keep themselves afloat.

      The government is not the culprit in this. The culprit in this are the misguided beliefs that rational economic decisions at the individual level naturally means rational economic results at the national level, and that irrational behavior will always be corrected by the masses.

  7. "Another US$2 billion was added to the program. By late August, that was gone too, as nearly 700,000 cars were purchased with the help of Uncle Sam. Cash for clunkers, which single-handedly reversed years of auto industry floundering in less than 30 days, will likely go down as one of the most successful examples of government stimulus, ever"

    That is one of the stupidest things I have ever heard. Grading success on how quickly people take free money? Oy. Have you even heard of opportunity costs? Does your argument even mention the multiplier effect (which, according to Barro, probably the biggest name in growth economics other than Romer, has just found to be less than one – ie. government spending is not stimulative).

    Okay, but what about the social and other benefits of the program. What are the positive spillover effects of cash for clunkers. Virtually none for the economy – it isn't like building a school or a road which has real benefits to people other than those who buy the cars and those who sell them. Okay, what about the environment? If you do the math cash for clunkers eliminates C02 emissions at a price of at least more than $100/tonne (not counting the cost of building the car). That isn't 1 tonne a year either, its one tone period. There are many other, far more cost-effective ways to reduce emissions.

    • HtH, welcome to the new English. Many more "successes" like that and we're done for.

  8. The home renovation tax deduction which was bragged about by government and still advertised by the industry was used by thousands of homeowners. The recent voting by the Iggy party to bring down the gov shows a total lack of compassion for this want to be leader, as these homeowners have one more crisis to deal with.

    • Please. All parties have said they'll keep the home reno tax credit. An election will not stop it from going through.

    • Ralph (who may or may not be Jim Flaherty), the tax credit was only a government scam to ensure GST was paid on the project, thus ensuring more money would be coming into Harper's slush fund (not the other way around)

    • Besides, they don't even need a vote to pass the measure. Parliamentary authority is required in a Ways and Means motion to levy taxes, but not to rebate them.

  9. The article might be more reliable if there were more sources than Mike Shedlock (Mish) who has an overt political agenda to rid the US of the Fed and go back to a gold-based currency. That doesn't mean what Shedlock says is untrue, it's just that he as ulterior motive to make things sound worse than they are to further another agenda.

  10. GAAAH!

    Could someone please insert the qualifier "US" in the title?

    This article says essentially nothing about the Canadian economy.

    • I disagree. It relates to Canada many times..

  11. Excellent Article I must Say! Sums everything up incredibly well! Recession ended/ending is a NO GO :(

  12. Right on. I have been saying this for over a year. There is a lot more hurt on the way. And Stephen Gordon – to say that this says nothing about Canada is the type of narrow thinking that keeps the masses in the dark and keeps the Economists employed.

  13. I see the new tax payer sponsored Economic Action Plan ads by this government now say "The Home Renovation Tax Credit plan"(subject to parliamentary approval" ) – Do these folks have no conscience?
    Are Canadians that stupid?
    Iggy needs to line up and get this Tax Credit passed and the EI changes as minimal as they are and get his platform out to the public.

  14. The only way out as I see it is a global carbon tax – Not some cap and trade manipulation scheme. This would actually lend some stablility to oil prices avoiding some of the peaks and valleys – give governments more direct dollars from consumers, encourage local economies, give consumers choices in the level of taxation (Use less – less taxes) help out the environment, enable a mechanism for the World Bank to get money from outside the political realm. It would be a way to redistribute wealth across the globe – Allow governments time for more inward thinking – flatten out some trade imbalances and spur investments in Greener Energy sources.
    The ones that might be hurt are oil companies, low cost labour exporters and sociopath dictators but overall the human population has little sympathy forthese folks anyways.

    • If history has taught us anything, "taxes" and "governemnt" are not going to solve anything… The one hope the world has is to reduce the size of our various governments who I hold personally responsible for this whole nightmare.

      • No, a useless "global carbon tax" will solve nothing. And as for holding government responsible for this mess? WTF? Are you kidding me? We have just gone though two decades of neocon deregulate everything going back to Ronald Regan. Just get government out of the way and everything would be great. Well we have had 20 tears of that and what did we end up with. Enron, Maydoff, CEO's paying themselves bonuses even when stocks tanked and companies went bankrupt, phoney hedge fund managers running out the back door as trillions of dollars, etc. And tell me how government was responible for this? Buddy, what are you smoking?

  15. What we are really seeing is the failure of capitalism. This is the first time our globe is truly on the same economic page. Sadly, it is now joined in this beginning of a global financial collapse. At the core, this failure is rooted in the lack of true sustainability in the capitalist model. It is about short term quarterly profits having to beat the street. As always, it talks the sustainable role but as always has to take advantage of those without a voice – indigenous people and cultures and finally the planet itself. We gorge on our own entrails. We in the west have lived the dream – soon to be the nightmare as we join the rest of the world.

    • capitalism or corporatism? i would argue that the US currently does not fit the capitalistic model… it does fit the corporate model. regardless, i agree that neither is sustainable. i have long wondered why "we" focus on growth. moreover, since watching "The Story of Stuff" a year or so ago, i've oft wondered why our society is entirely based on the notion of planned obsolescence.

  16. Harrington – I wish I could dispute your comment. f4hq – I agree wholeheartedly but the current governments are the only ones who can reduce their own weight. I secretly wished that PM Harper would have been able to spread some of his Libertarian leanings in the Fed system but sadly he has failed miserably. I was against his tax policy but I thought his smaller government and accountability initiatives would have compensated – Sadly we now have an even bigger BLOATED government and no transparency. Tant Pis

  17. the Harper government gloats that the current federal debt of about $500 billion, relative to the size of the overall economy, isn't any worse than most industrialized countries.

    But add in all the debt of the provinces, territories and municipalities, and Canadian taxpayers are on the hook for close to $1 trillion, or roughly $33,000 for every man, woman and child in the country.

    What does all that mean to the average Canadian family?

    $50 billion

    It means Canadians this year will pay somewhere around $50 billion in interest on the total debt so far accumulated by all levels of government.

    That works out to an average interest charge of about $1,400 per person.
    From the Canadian Taxpayers Federation! SCARY

    • Heh. Just wait until interest rates go up, as they surely must. With all the money being printed, inflation is a near certainty, which will necessitate a spike in interest rates. Then you'll see debt piling on top of debt. The massive debt accumulated under Mulroney was almost entirely due to interest rates, which were necessarily high because of high inflation rates. We'll be back to the future in no time.

  18. Anybody can identify a problem.I have yet to hear any recommendations.
    Our education system has produced a whole generation of lazy, me only, play now pay later bums who buy Starbuck coffee with credit cards. They have no sense of productivity, discipline, or responsibilities.
    Government hand out works: give them a fish and we fed them for a day. Are we willing to teach them how to fish? No, some crooks wanted us to teach them to play; so we will produce millions of failures; so we cannot compete with them; and we bought that: bait, hook and sinker.
    Wake up, Canada, smell the coffee, drill your kids. Re-engineer our education system before it is too late.
    No, please don't let them fool around for 7 more years before they are so hungry they will accept that job at MacDonald's.

  19. Focusing on increasing our GDP and our levels of efficiency are the onlyway out of this mess. Even Stephen Harper could not chop enough government spending to counter the damage that has been done to our countries finances and our own pocket book.

  20. Its been proven time and again that de-regulation,that is ,doing away with our checks and balances, open the doors for the greed herds and soon the grass is gone.Time to close the gate. Again.

  21. We have to default on the debt. After that then we need to invest in innovative productive projects that offer real economic value. That's capitalism by the way and it's not dead as one reader put it.

    The financial services industry was propped up by the government since the early 80s to replace lost domestic demand due to globalization. That's not capitalism, that's facism.

    How does propping up the economy and saving zombie banks help the economy? It doesn't. It only makes things worse.

    Government should keep out of the market. Let people default on the debt that should never have been lent. Get people out of their homes that they can't afford. Let incomes and consumer prices deflate so we can compete in the global arena. If it wasn't for the government, we'd never be in this mess in the first place.

    A few men overriding the decisions of millions is not democracy. It's facism. A few men and a few bank economists telling us the future of the world based on ill intentions is not democracy. Democracy is the freedom to pursue the truth as it means to you, and to make decisions based on that truth. Government in its own right destroys that pursuit and destroys any resemblance to what democracy really means.

    We should all take lessons more from Socrates than we do from BMO capital markets. But that is not the case.

  22. Our Feds took almost $70 billion of the debt of the Canadian banks through CMHC in order to free up money to loan out to Canadians – Seems the banks have been using their money to buy up foreign banks/investment firms – I do not see how that helps OUR economy.
    There might be a reason these foreign banks/investment firms are for sale?

  23. I REFUSE to participate in the in Recession!

    • So did I then… I got resturctured.

  24. The major flaw with the current economic strategy is the belief that pump starting the economy by inducing consumer spending will get them out of the current mess. This is at best wishful thinking. After all it was, among other things, rampant consumer spending, on credit, that got them into this mess.

    Currently almost half the U.S. states have run down their unemployment insurance reserves and are borrowing from the federal govt. These debts must be paid back one year after it is borrowed, and most states are close to bankruptcy. At the same time these debts become due most UI benefits will be running out which will only compound the situation.

    Not mentioned is, federal debt payments, possible loss of reserve currency status, ongoing costs of war, unfunded social security liability, inflation and higher interest rates, higher energy costs, higher taxes to pay for all of this etc.

    I think we may be witnessing the beginings of a perfect economic storm.
    There are real limits to growth and the U.S. is testing them, and we are blindly following in their footsteps.

  25. Anything like ten percent growth of investments from here seems very unlikely. The risk of loss is real. Talk to people and you will find alot of investors are just hoping to make up what they lost with a "few good years." Alot of them are in their 50s and 60s and seem willing to gamble rather than accept the long slow road to recovery. I believe these are alot of the people jumping in now. If you have a mortgage pay it down more aggressively rather than invest in the markets. If interest rates double which is quite possible you will be very glad you did.

  26. Yay, though I walk through the valley of the shadow of death.

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