Five Lumps of Coal for Canada's Economy

The recent IMF Report on Canada prompts me to remind everyone of some startling figures about the Canadian economy: 


1) The private and federal debt combined ratio to GDP is an astonishing 203%. 
2) The jobless rate in November is 7.4%, the worst in 5 months. 
3) Youth unemployment is 14% and even worse in Europe and the U.S. Expect much social unrest in 2012 -  which may coalesce around the occupy movement. 
4) Household debt to income ratio is a staggering 152%.The average Canadian household is $26,000 in debt over and above any mortgage debt.
 5) Real wage gains continue to stagnate in November: 2.4% while inflation is 2.9, a -.5 net loss in real income.


 As I and others - even a few neoclassical economists - have argued many times (see my other posts here), we need stimulus of some sort now, and both the IMF and Mark Carney are in agreement about both that and the problem of household debt. Such recognition by both the IMF and Carney is unusual since die-hard neoclassical economists tend to overlook household or private debt in their macroeconomic modelling. I'm beginning to think Carney may be the check we need against Flaherty and his misguided policies.


Where's Flaherty? It would seem all he can do is tinker with his beloved financial sector - banks and CHMC most recently. Does he even understand the real economy? Does he think it's only exports concentrated in oil and other natural resources? He might since that's the only sector apparently driving the economy, and that in itself is extremely worrisome.

Note:Thanks to the Supreme Court for rendering the right decision on the Federal Securities plan. SCOC rejects Ottawa's bid to create securities regulator

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.

Fiscal Austerity: Does it Work?

The Harper Regime is in the process of implementing some severe fiscal austerity measures. But does slashing spending and reducing deficits, as the advocates of such a policy claim,  really restore confidence and drive economic renewal?  It would seem not if we take both the Euro Zone countries - especially Greece where public servants are rioting in the streets of Athens - and the U.S. as examples. In fact, as Paul Krugman argues persuasively,  "budget austerity may well be counterproductive even from a purely fiscal point of view, because lower future growth means lower tax receipts."  


Get that: lower future growth means lower tax receipts, and there can be no growth, in the current world economic situation, without government stimulus funded by tax receipts. Not to mention that slashing government departments in the interest of so-called "efficiencies" requires firing people, who then cease to be tax payers providing government revenues since they are unemployed. Does axing employees ever inspire confidence except in some amoral/immoral investors who think cost cutting improves the bottom line and right wing economic pundits who think it inspires business investment? Not at this moment.


So what should be done?  Klugman says "the answer is that we need a major push to get the economy moving, not at some future date, but right now. For the time being we need more, not less, government spending, supported by aggressively expansionary policies from the [in this case the Bank of Canada] and its counterparts abroad."


What this also means, I think, is that Mark Carney's stand-up push to get European banks more substantially capitalized is not necessarily the right move at this moment either, especially now that Greece wll probably default.   The theory is that further capitalization will mitigate risk and  forestall a potential banking collapse and resulting bailout.  But from where does that new capital come in these already struggling countries? Beats me, but my guess is European taxpayers.  Isn't this sharp stance just adding more pressure to an already absurd situation, which - let's face it - is going to migrate here to some extent no matter how much the Harper Regime tinkers with boutique tax credits while slashing, burning, and killing.


Once again, it's not about ordinary people, the 99%.  It's about the 1% - banks and their investors -  euphemistically called, as Jim Stanford says, "the market."  As always, finance trumps both industry and people.