Combined with Harper Regime's Austerity Program, Continuous Deleveraging of Household Debt Could be a Serious Issue

House prices have been speculatively bid up to 29% over real value with all the low interest, easy credit banks have been only too willing to give us. They're just sooo good to us. But a little recent fear has begun a deleveraging of household debt in Canada - which is, relative to income, at an untenable 150%. If it is widespread, shallow, and long, such deleveaging could be an issue since it will mitigate demand, a process that will in turn affect production or supply. In other words, it will take considerable spending out of the economy. Add to this possibility the fact that, despite corporate tax cuts theoretically designed to spark hiring, corporations have merely hoarded their cash and not spent it on employing more workers or much capital equipment, both of which could have led, in turn,  to more spending as a spin-off.  Of course the Harperities are also deleveraging severely with their misguided austerity program. So overall spendings is slowly winding down, but, remember, spending generates at least 62% of our economic activity. This is a serious situation worth keeping an eye on. Here are some disturbing figures from The Globe article:

"According to the most recent data from the Bank of Canada, chartered banks in this country had $68.3-billion in personal loans outstanding in October, up from $67.7-billion in August but compared with $61.5-billion in October of last year. Credit card balances grew to $62.4-billion from $62.2-billion between August and October, and compared with $57.3-billion last October. Lines of credit rose to $229.8-billion from $227.4-billion, up from $218.9-billion a year ago.

Mortgage assets held by the chartered banks, meanwhile, hit $563.5-billion in October, up from $561.2-billion in August. But, illustrating how growth has slowed, that number was $500.2-billion in October, 2010."


Meanwhile, meaningful deleveraging to some sort of reasonable balance between debt and income for households might take a decade, some say, but realistically expect small to medium cyclical economic crises to occur instead - which is much more likely given the irrational nature of capitalism and the excessive power of the financial sector.  Banks are greedy for profit, after all, and when credit's easy, it's difficult for households to remain disciplined. It's not likely the Bank of Canada is going to raise interest rates anytime soon, but if they do, look for some serious economic fallout for overextended households - which is just about everyone.

Once again the greed of the  financial sector, supported by western governments who have fully bought into the neoclassical paradigm - as we can clearly see today by the EU's importation of a U.S. style bailout economy - the real economy and real people continue to suffer. We should never have been allowed or encouraged to borrow such exorbitant amounts.*


Note: Notice that just about all the economists consulted for mainstream media stories, with the exception of The Toronto Star,  are connected to the financial sector. Occasionally, someone likes Jim Stanford or Armine Yalnizyan are called upon, but, notice, only in conjunction with neoclassical economists, not by themselves.
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Government should spend like a household  
Canadians rein in debts amid uncertainty
Economics focus: House of horrors, part 2
Canada's Real Wages Fall As Inflation Outstrips Income Gains 
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*I've been writing about economics a lot lately because everything we do socially, politically, existentially is grounded in it. We are all cradle capitalists inscribed ideologically in it from birth. It needs to be hollowed out from within to create system change. Progressives, who focus on the political understandably, have to begin paying much more heed to the economic ground to which their political concerns are inextricably bound. What I see on the horizon is scary to me, especially since I don't think it will be dramatic but long and drawn out.

Steve Keen on BBC HARDtalk [good sync] - YouTube

Steve Keen on BBC HARDtalk [good sync] - YouTube: ""

'via Blog this'

Stephen Keen "Progress Occurs one Funeral at a Time" - Capital Account (11/10/11) - YouTube

Stephen Keen "Progress Occurs one Funeral at a Time" - Capital Account (11/10/11) - YouTube: ""

'via Blog this'

Occupy Economics - YouTube

Occupy Economics - YouTube: ""

'via Blog this'

We Do Have a Moral Licence to Resist the Dictates of Harper Regime

McQuaig: Occupy moves us into a new era - thestar.com

Linda McQuaig says "Canada isn’t a dictatorship, and so protesters — like the group now ordered evicted from St. James Park — don’t have the same clear moral licence to ignore bylaws that their Egyptian counterparts had." I'm not so sure, Linda, given all the autocratic, authoritarian, centralizing policies, protocols, and legislation perpetrated by the Harper Regime since their first ascendance to power. It seems to me, to countless activisits, and to many even in the mainstream media that we have all the makings of a dictatorship. And so I'm beginning to think we do have the moral licence to resist the unjust and democracy destroying initiatives of the Harperland bunch, be they nominally legal or not - a growing conviction that many others also share. Couple our growing awareness of the malfeasance of the Harper Regime with the ever widening conversation the occupy movement has begun, and we're on our way to some sort of revolution. Something is slouching towards Ottawa.

Note: In the meantime, we also have a right to do a Pat Martin whenever we see an outrageous breach of democracy inflicted on us by, as Joe Thomas calls them, Harper and his Stepford wives.

Armine vs. Canada's Poster Boy for Capitalism

On last night's Lang and O'Leary Exchange, given that the odds were 3 to 1/2, Armine Yalnizyan held her own against Kevin O'Leary (Canada's poster boy for capitalism), a bank economist, and a corporate CEO. Amanda Lang did her best to make sure that Armine was heard in the din of male, finance-first sputtering from these gleefully drooling mouths: profit first; real people, nothing more than clients. Their only concern was should clients buy in at 3%, 7%, or 10%. But, being the generous folks they are, they're also going to lower their rates. Whew!

There is much to object to in this Pooled Registered Pension Plan proposed legislation, but three things stand out:

1) They are different from RRSPs only in that a small business can set up - with a third party investment agent - automatic contributions from employees (with an opportunity to opt out or not join). Yeah, sure, but there is no obligation to match contributions from an employer, as there is with the CPP, and most small businesses have already claimed that they cannot afford to contribute to such a plan. At one point, Armine asked why are employers being let off the hook? The implied if not fully articulated answer: we've already got a bunch of suckers lined up; we don't need them.

2) They're voluntary. So how many people of the 60% demographic without pensions are going to opt in when many are living paycheck to paycheck as it is, already up to their proverbial eye balls in debt, a record 62% of the economy in mortgage and credit-line debt? (god [yes, Pat, my homage to you: a small g] help them if housing prices decline significantly or interest rates climb appreciably.) Compulsory participation in the CPP based on income level is the only way to enhance pensions effectively, and there is nothing, so far as I know, preventing any business, small or otherwise, from buying into that except the proft motive.

3) Pooling both expands the asset base and presumably diversifies or lessens investor risk, but, as Armine pointed out, there is no better diversified asset based and risk secured pension operation in Canada than the CPP. Why not take advantage of it?

The provinces have still to buy in on the legislation, but it seems clear then that this is another for profit, market-driven, capitalist, private sector scheme hatched by the Harperites to favour their sometimes friends in finance, though, to be fair, they did try to float a CPP enhanced proposal earlier this year only to be shot down by, as Armine reminded us, Alberta and subsequently Quebec, both of whom feared the political ramifications of increased CPP premiums. This is really no surprise, for almost all policy decisions on taxes or the economy are investor or financial sector driven ones in the Harper Regime. And we should also remember on occasions like this to take what any bank economist says on a talk show with a full sack of salt, for they have an undeclared conflict of interest and speak essentially not for the general economy but the financial sector. CEOs of course should axiomatically be viewed with scepticism on such shows.

Incidentally, The Taxpapyer Federation of Canada wants the government to shift away from CPP support for government employees to PRPP plans on the grounds of projected pension liabilties. Isn't that just ducky?

Lang and O'Leary Novmber 17

Krugman and Summers: A Reading of the Munk Debate

What happens to the U.S. economy, as we all know, will affect Canada profoundly - which is no doubt why this Munk debate garnered so much attention here. The debate is repeated several times on BNN.

Krugman has the edge for me since he has always recognized that all economic theory is grounded in the political. Summers is a technocrat, and I simply don't trust technocratic economists whether they're on the left or the right. And despite what Don Gardner says in a tweet - that Summers is unconsciously channelling Future Babble, Gardner's book (a very large claim) - and despite the notion that Summers "doesn't think in forecasts so much as in probability distributions — a much less constricting way of thinking" - Summers' vision remains a rosy, U.S. excepeptionalist view of the future.

I agree with Summers, however, about the weakness of the analogy with Japan and that U.S. economic woes are different from either Europe's or Japan's and about the desirability of government stimulus spending, a position he shares with Krugman - something of course we should be doing in Canada as well. But his argument for U.S.'s uniqueness is based on yesterday's vision of economic America, a perspective that excludes the reality of a political descent, both internationally and domestically, that has been going on for at least 10 years and that has shaped - and continues to do so - economic policy and the real U.S. economy. This missing political dimension undermines Summers' pure economic argument in my judgement. And this is why I've called him a technocrat.

Krugman vs Summers: The debate | Felix Salmon
Paul Krugman, Lawrence Summers take their corners for Munk Debate - The Globe and Mail

Krugman: His Lucid Best on Euro Crisis and Its Implications

Legends of the Fail - NYTimes.com

Borrowing, if you must, in your own sovereign currency matters, and austerity never works, especially during a recession. Here are the facts, though I coud add the caveat if I were a neoclassical economist that those high interest rates for Spain and Italy are also, no matter what the currency, the result of lack of investor confidence in the economies of those countries. But I'm not, so I'll just say had the countries been able to manipulate fiscal and monetary policy with their own currencies instead of being locked into the Euro, which is controlled by the more wealthy EU countries - namely, Germany and France - there would be no investor confidence issue.

"... if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy’s 7 percent. Britain’s fiscal prospects look worse than Spain’s, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent.

What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy."

See too my earlier posts:
Pathological Commitment to the Ideology of Austerity Brings Only Economic Stagnation
Fiscal Austerity: Does it Work?

Pathological Commitment to the Ideology of Austerity Brings Only Economic Stagnation

The curse of austerity - thestar.com

This is a very insightful analysis of our current situation. Here's a bit of a gloss on it:

Neither the private sector nor consummer spending seems to be able to stimulate growth in the economy. This is the real issue. Only public spending can do that, but a pathological commitment to the ideology of austerity on the part of so many Western countries - bred by the tenacity of neo-classical economic theory and neo-liberalism politics - has created nothing but economic stagnation. We are beginning to see the real results in Canada now even without the full launch of cuts next year. Imagine that disastrous scenario.

This is not a simple economic or fiscal issue. It's a political issue - a question of the political brain trust actually understanding the real crisis. If they don't, we can certainly look forward to a lot more social and political unrest as they continue their misdirected austerity programs - implemented of course really to please the investor class - for it is real people who suffer, as always, from the pathologically inflicted leadership of the Western world. In Canada, we can only hope Harper pays a price for his blindness.

Cancelling the Greek Referendum and Angela Merkel's Steely Focus

Two final thoughts today on the Greek crisis: 1) Under immense political pressure from within his own party, the opposition, and the EU - i.e., Germany - Papandreou was forced to cancel the referendum. But the basic idea was a good one: he knew Germany would demand even more austerity as part of the bailout payments, but he also knew how much horrible economic pain and suffering has already been inflicted on his people by the current austerity regime. As Mark Carney recognized, seeking their consent was the right thing for a democratic leader to do, as challenging as that would be given the circumstances. 2) Ms Merkel doesn't really care about Greece: all she cares about, as she has made clear yesterday, is stabilizing the Euro. That's all anyone else in the EU, for that matter, cares about too.

Live chat: Should we worry about Europe's financial crisis

Live chat: Should we worry about Europe's financial crisis

Steve Jobs was no technological visionary; he was a disturbed and disturing individual

Limits of Magical Thinking
Steve Jobs wasn’t a technology visionary, but he convinced the world that he was.

Steve Jobs was a disturbed and disturing individual, and he was no technological visionary but a crafty marketer who knew how to create a cult of Mac, iphone, and ipad worshippers, three of the most ideologically loaded pieces of technology in the world. Think of how many people, consciously and unconsciously, have been sutered into this cult in the mistaken assumption that technology is inocent and that Apple products are inherently superior simply because, well, they're Apple after all, and think of the control Apple exercises in the world as a result of its cult following. Any and all religious analogies are appropriate.

And let's not forget that Apple still hasn't revealed its carbon footprint and is still dragging its corporate ass on conflict minerals.

All shopping is political.