The Economy and the Recession

[Robbie]

Since this room is called a pub, then we might as well talk about something that we talk about in pubs. We all know that there's no need to beat around the bush as the economy is bad and we are in a recession.

In this bear market, stocks are nose dived. Compared to one year ago at this time:

Dow: 14,280.00 -> 8,451.19
NASDAQ: 2,861.51 -> 1,649.51 :x
S&P 500: 1,576.09 -> 899.22
Russell 3000: 914.30 -> 520.97 :no:
DJ Wil 5000: 15,938.99 -> 9,120.78

Our RRSP's, 401(k), and IRAs are of huge concern now. Unemployment is very high, foreclosures are high, inflation is high as prices are going up except.....the price of your house.

Well, we're on the same boat. And there's lots of threads about ranting when the Lions and other sports teams that they like don't do well. So how about a thread ranting about the economy. For what it's worth, you can give free advice to everyone else with a grain of salt.

In a pub, we need a bartender and some music. So I'll provide that with this youtube file. And since I created this thread, I guess I'll be the designated bartender if you need a real person. If you're good to me, perhaps I'll get you a beer since you rarely see me.

[video][/video]

and if the OLE does not work, here's the direct link:

[Toppy Vann]

Robbie, not sure why this is a pub topic restricting younger people from it?


The Canadian economy should weather these storms better than the USA.

The Globe has a good article on this - some excerpts but you can read the whole article yourself as I have just included some points - and left out large parts of it.

The Depression's history lessons
Derek DeCloet
Friday, October 10, 2008

Move quickly, be decisive

"The early response by the politicians to the onset of the Depression was denial. "In the 1930s, there was a reluctance to intervene … the thought that this was a temporary adjustment," said Bill Waiser, a professor of history at the University of Saskatchewan. The two prime ministers who governed during the Depression era, Mackenzie King and R.B. Bennett, at times used the constitution to argue that unemployment and relief were provincial matters — there was no national unemployment insurance scheme — and Ottawa initially threw only meagre, "temporary" support to them, Prof. Waiser said."

Don't demonize government deficits

Jeff Rubin, the chief economist of CIBC World Markets, thinks Canadian politicians have forgotten what governments are meant to do in a recession. The nation was so scarred by the monster deficits of the 1980s and early '90s that neither Liberals nor Conservatives want to add a dime of red ink. "The problem is we've lost sight of the role of fiscal policy over the cycle," Mr. Rubin complained on the same day Finance Minister Jim Flaherty unveiled his budget and pledged, yet again, not to break Ottawa's decade-long streak of surpluses.

Eight months later, the world is in a financial panic and the economic outlook is far worse. Yet Prime Minister Stephen Harper and Liberal leader Stéphane Dion have each stuck to the no-deficit line, with Mr. Dion even saying the Liberals would "never" cause a deficit. As a campaign strategy, it makes sense. No one wants to be attacked as a profligate.

Bailouts may be only the beginning

In modern-day banking crises, such as those of Finland, Sweden and Norway in the late '80s and early '90s, the experience was much the same. Their governments had to take control of, or inject capital into, large parts of the banking system, but it still took years before the crisis passed and those institutions were healthy enough that blanket government guarantees could be removed.

Don't fall for protectionism

The biggest mistake of Depression-era policy makers wasn't what they did inside their own economies; it was the way they tried to shut other countries out, said Joseph Martin, director of Canadian business history at the Rotman School of Management in Toronto....The folly of this is now universally acknowledged; world trade declined by two-thirds between 1929 and 1934, and the trade barriers surely made that worse. But will we repeat the mistakes of the past? Recall Senator Barack Obama's earlier rhetoric about the North American free-trade agreement being "a big mistake".

Protect the biggest banks

A major New York-based financial institution was on the brink. Regulators scrambled to find a healthy bank — or even a group of banks — to rescue it through an acquisition or merger. At the last hour, a potential deal fell apart, the struggling institution collapsed, and the episode touched off a cascade of bank failures.

Be wary of the rosy scenario

Just before he left office in 1929, U.S. President Calvin Coolidge said things were "absolutely sound" and that stocks were "cheap at current prices." In the spring of 1930, Herbert Hoover said: "We have not passed the worst and with continued unity of effort shall rapidly recover." The "worst" was still three years away.

In August, 2007, at the start of the credit crunch, U.S. President George W. Bush declared: "The fundamentals of our economy are strong." In November, Prime Minister Harper said: "Yes, we have some problems, but as our esteemed finance minister said more than a few times last week … the fundamentals of our economy are as solid as the Canadian Shield."

Hearing this would have amused J.K. Galbraith, the great Canadian-American economist, who died in 2006. In an updated version of The Great Crash, he wrote: "Always when markets are in trouble, the phrases are the same: 'The economic situation is fundamentally sound' or simply 'The fundamentals are good.'

"All who hear these words should know that something is wrong."

How it's different:

Social programs help cushion the blow

Unemployment insurance, old age pensions, Social Security in the U.S. — these things either didn't exist in 1929 or existed in only a limited form. They're called "automatic stabilizers" because they put money into the economy as the private sector contracts.

There's still inflation

When the Depression began, Canada's most important export was food, not oil or wood. And the farm sector was already stuck in a deep deflationary funk. By the end of the '20s, the inflation rate in Canada was zero, and the U.S. was already in mild deflation. Today, most producers of commodities — including farmers — have enjoyed years of prosperity before the downturn.

The magnitude of the crisis is different

This may be the biggest financial crisis in 75 years, but let's put it in perspective. The unemployment rate in Canada and the U.S. is still barely 6 per cent. In the U.S., it has been rising quickly, but some key sectors, like health care, are still hiring. That's a long way from the 20-per-cent-plus rates of the 1930s. The latest data do not even show the economy is contracting.

Economic policy is more flexible

The U.S. is no longer on the gold standard, in which all dollars can be converted to a fixed amount of gold. It can let its exchange rate fall to help exporters. Central banks now understand the perils of deflation, and balanced government budgets are no longer a religion.

[MacNews]

Unemployment is very high

Canada added 107,000 jobs in September, a record. How is un-employment high?

[Toppy Vann]

Unemployment is very high

Canada added 107,000 jobs in September, a record. How is un-employment high?

MacNews....lol... ONLY 10,000 of those jobs were full time. Unemployment isn't high by most standards - there are far worse problems than that which shows the Canadian economy is not faring too badly.

Canada between 1998 and 2002 at 2.4% employment growth each year more than doubled the performance of the USA. This was 300,000 jobs per year in Canada and with tech, resources, etc booming these were good jobs. Between 2000 and 2006, our economy grew faster than the US economy. We were far better in growth in income growth per capita than the USA. Oveall, Canada has had a stellar record in job creation and the best thing the Liberals could have done for Canada in balancing the budget and putting a debt control plan in place has been done. Despite what people say Chretien will go down in history as a good PM for his time.

Canadians with incomes less than $60,000 per year pay less in taxes than Americans. It is only those of us with higher paying incomes that are getting shafted. While the USA are said to pay 30% in income taxes and Canadians 35%, it doesn't tell the entire story. Canadians also have higher disposable incomes even today. We have nowhere near the costs of medical that the USA have and our home mortgage situation is fantastic compared to the USA debacle.

Where I see some cracks is in higher education and the cost to students that does not suggest that Canada is educating the next great generation of break through economic generating leaders to the extent we can and should.

[Lionheart]

Robbie, if I didn't know better I would think you were an american posting on an american site. Why do people have to assume america is our country? Can't we at least pretend we are sovereign?

Anyways, I'm now thinking of buying a house and lots of stock. Am I nuts??

[Soundy]

Robbie, if I didn't know better I would think you were an american posting on an american site.

I didn't know we had 401(k)s in Canada...

[Robbie]

That's why I said RRSP's and 401(k). There's a lot of Canadian expatriates living in America and they use 401(k).

[West Coast Blue Fan]

Yeah and this board if full of them........not

[Lionheart]

For a lazy rainy afternoon here's some lessons on money and economics. When we wonder why campbell is "giving" away our province (our hydro, water, rivers etc etc) this may explain why.

Money and how it works.

http://www.moviesfoundonline.com/zeitgeist_addendum.php

[MacNews]

MacNews....lol... ONLY 10,000 of those jobs were full time. Unemployment isn't high by most standards - there are far worse problems than that which shows the Canadian economy is not faring too badly.

I know most jobs were P/T, but that is better than no job at all.

How come Canada always lags the US in worker productivity?

[Toppy Vann]

MacNews....lol... ONLY 10,000 of those jobs were full time. Unemployment isn't high by most standards - there are far worse problems than that which shows the Canadian economy is not faring too badly.

I know most jobs were P/T, but that is better than no job at all.

How come Canada always lags the US in worker productivity?

Well a PT time job is not a FT job and that is materially different than what you posted.

And here you go again...lol. You don't quite have all your facts right with that one. Overall, yes, multifactor productivity - a truer measure of productivity is behind the USA primarily due to the service sector.

You don't let facts get in the way of a solid position on the issues do you??!!! lol.

What you will find that in future studies things might be changing. The US economy is falling apart because a lot of it is about making money off money and that is collapsing and taking everything down with it.

Check this site out for the facts on productivity between Canada and the USA.

http://dsp-psd.tpsgc.gc.ca/Collection/S ... 6-XIE.html

"Our main findings are as follows. First, the overall capital intensity is as high in Canada as in the
United States; but there are considerable differences in Canada’s capital intensity across asset
classes. Canada has considerably less machinery and equipment, about the same amount of
buildings and considerably more engineering construction. Second, most of the differences in
labour productivity between Canada and the United States are due to the differences in MFP.
Third, our industry results show that the levels of labour productivity and MFP in the goods and
the engineering sectors are closer to those of the United States. But, the level of labour and
multifactor productivity in the services sector is much lower in Canada. The lower levels of
labour productivity and MFP in the Canadian services sector account for most of the overall
productivity level difference between the two countries."

Multifactor Productivity (MFP) -

"The relative labour productivity level measures the relative efficiency with which the two
economies transform labour into output. The relative MFP level compares the relative output
differences across two countries, not just to labour input differences but also to capital input
differences, and it thus provides a more ‘complete’ measure of overall efficiency. The relative
MFP level captures the difference in the overall efficiency of an economy that arises from the
use of superior production techniques, technology, firm organization, firm scale and labour
quality."


7. What are the industry origins of the lower levels of labour productivity and MFP in the
Canadian economy relative to the United States?

The lower level of labour productivity and MFP in the Canadian service sector accounted for
most of the labour productivity and MFP differences between Canada and the United States in
1999. This is a result of the service sector having the lowest relative levels of labour productivity
and MFP in Canada and having the largest share of output and hours worked in the total
economy.

Macnews: the last sentence tells you we don't have enough high paying jobs in the service sector compared to the USA. The solution: EDUCATE OUR YOUTH!!!! Invest in new technologies!!! Canada's leaders didn't pay what today's youth have to pay for their education and now they are cranking up the costs for those who follow. It is criminal unless you are rich. That is no way to build a nation by making education harder to get and cranking out grads who if they don't live with their mommies and daddies - are debt ridden for life. That helps no one. Invest in people and the jobs will follow.

[Sir Purrcival]

Robbie, if I didn't know better I would think you were an american posting on an american site. Why do people have to assume america is our country? Can't we at least pretend we are sovereign?

Anyways, I'm now thinking of buying a house and lots of stock. Am I nuts??

Yeah, your nuts (I kid, I kid).

My take on it is as follows.

Some solid stocks as they exist currently have lost value over the last few weeks and may continue to be depressed for some time. However, most of them will come back although it might not be for awhile (months/years). If you are buying, you are buying for the long term, not likely to get a quick turn around. Same situation with real estate. I have been following the market for a year since I bought my house. It is reasonably accurate to say that the market has slowed but not stopped. Some house values are down but it is more in line to say that they generally have flattend out. That being said, there are still plenty of housing starts and realtor's aren't having to close up shop. If you have the $$$, in tight times, this is the moment where you can be the fox in the hen house. As long as you can see it through the rough, when the road gets smoother again, you will gain. As for house, the lowering of the prime interest rate means you should be able to get a mortgage for at least .5% lower than 4 weeks ago. Not a bad time to go house hunting if you are lucky enough to find a seller that has to sell right now. The times will give you some more bargaining power and scare off some buyers due to the uncertainty of the economic situation.

[bclions16]

Canadians with incomes less than $60,000 per year pay less in taxes than Americans. It is only those of us with higher paying incomes that are getting shafted. While the USA are said to pay 30% in income taxes and Canadians 35%, it doesn't tell the entire story. Canadians also have higher disposable incomes even today. We have nowhere near the costs of medical that the USA have and our home mortgage situation is fantastic compared to the USA debacle.

That's not quite accurate. My wife started a new job here (US) making less than she did in Canada, yet takes home a good bit more money now. And yes she has good heath care coverage provided. Also, remember while mortgage problems may be at an all time high, most are fine. And yes, that mortgage interest is tax deductible. So after paying tiny taxes, we'll still get much of it back.

You may not be factoring in state & provincial taxes, here in Washington there is no state income tax. Generally state income taxes are much lower than provincial income taxes.

I've heard people try to debate this before, but there is no question that the cost of living and taxes are far lower in the US than in Canada.

Now that's not to say there aren't big problems here, but if you're in a good industry this is a good place to be right now.

[Soundy]

That's not quite accurate. My wife started a new job here (US) making less than she did in Canada, yet takes home a good bit more money now. And yes she has good heath care coverage provided.

Provided by her employer though? Not all employers include such coverage... then what?

I've heard people try to debate this before, but there is no question that the cost of living and taxes are far lower in the US than in Canada.

That's not quite accurate either - you're answering one generalization with another. It depends more on the region you're in than the country. A friend of mine moved to Vancouver to Ottawa and then to Calgary several years ago... in Calgary, he was amazed at the low price he paid for a really nice house. Lots of stuff was cheaper, no provincial sales tax... he thought he was dreaming...

Then he started getting water bills. Not huge, but it was still something he'd never had to pay for here in Vancouver. And then winter hit, and the heating bills started coming in... and his car insurance, with private insurers... ouch!

In the end he found the total cost of living wasn't all that different from either Vancouver or Ottawa... similar amounts of money were going out, it just went to different places.

Heck, I could go live in our cabin up north and my initial costs of living would plummet: miniscule property taxes, heat the place with wood that I cut up myself, etc. Oh, but I'd be 10 miles from the nearest store, and 40 miles from any sort of major shopping, so fuel costs would skyrocket. And I'd need to buy gas for the chainsaw for that "free" firewood. And so on.

Of course, I could go anywhere in BC and do almost anything for work and not have to worry about who's going to pay my basic medical bills...

[bclions16]

That's not quite accurate. My wife started a new job here (US) making less than she did in Canada, yet takes home a good bit more money now. And yes she has good heath care coverage provided.

Provided by her employer though? Not all employers include such coverage... then what?

Yep, I get your point, but most of the skilled workforce do have employer provided health care here. Also, there is some level of heath care coverage for those without insurance. Nothing at all like Canada, but more health care is provided to Americans than most Canadians would want to believe. Really, in the US if you have skills and do just a modest bit of planning you'll generally do better than if you're in the same boat in Canada. Many (certainly not all) of the sad stories here could have been prevented with a little self discipline and planning. Sorry to sound harsh, but it's true. Of course there are huge gaps in opportunity here that don't exist in Canada. There are plenty of cases where people are screwed through no fault of their own, and that doesn't happen to nearly the same extent in Canada.

The more socialized system in Canada exists to "generally" protect the few, not the many. Most people never need government assistance, and it's those people in the US that have an advantage over the same group in Canada.

I'm also talking about the long term, not just looking at the current recession.

I've heard people try to debate this before, but there is no question that the cost of living and taxes are far lower in the US than in Canada.

That's not quite accurate either - you're answering one generalization with another. It depends more on the region you're in than the country.

Yes, it's a generalization. So I stand by my point, generally the cost of living in the US is far lower than in Canada.

A friend of mine moved to Vancouver to Ottawa and then to Calgary several years ago... in Calgary, he was amazed at the low price he paid for a really nice house. Lots of stuff was cheaper, no provincial sales tax... he thought he was dreaming...

Then he started getting water bills. Not huge, but it was still something he'd never had to pay for here in Vancouver. And then winter hit, and the heating bills started coming in... and his car insurance, with private insurers... ouch!

In the end he found the total cost of living wasn't all that different from either Vancouver or Ottawa... similar amounts of money were going out, it just went to different places.

Heck, I could go live in our cabin up north and my initial costs of living would plummet: miniscule property taxes, heat the place with wood that I cut up myself, etc. Oh, but I'd be 10 miles from the nearest store, and 40 miles from any sort of major shopping, so fuel costs would skyrocket. And I'd need to buy gas for the chainsaw for that "free" firewood. And so on.

Of course, I could go anywhere in BC and do almost anything for work and not have to worry about who's going to pay my basic medical bills...

Well I live near a major city and I do pay a water bill that I didn't in Canada. There's $40, but it's dwarfed by the four figure sum I save every month on my mortgage, AND then I'm getting money back for the 100% mortgage interest deduction.

So I still believe the cost of living is lower here, but I know my personal cost of living is a fraction of what it was in southern BC. And no, i didn't move here because of that, and I still think Canada is the best country to ever exist, yet I also understand that the US isn't quite as bad as Canadians think.