To the Editor:
Should Canadians be worried about the global economy upsetting our national one?
At first, Canada looks pretty secure. Resource sales are holding firm. Manufacturing is more solid than you might think. Our banks continue to do wonders for their shareholders.
The Harper Government’s plan is to continue signing free trading agreements with as many countries and organizations as are willing to do so. We’re in negotiations all over the world, have concluded further agreements in Latin America, and are even investing now in needed infrastructure to keep goods moving over our border, with Canada providing not only its own share of money for the twinned bridge at Windsor-Detroit, but providing debt financing for the American contribution.
These are all important positives. But the world is becoming an increasingly shaky place.
Look, for instance, at the EU’s José Manuel Durao Barroso, President of the European Commission, trying to strong-arm Canada to pitch money into European bail-out funds. Yes, that was a play to ultimately get the U.S. to do so as well, but the reality in the Eurozone is that much more money will be needed.
After all, despite record low official interest rates, it still takes 7 to eight per cent to get anyone to bite down on Spanish bonds. Or Italian ones. Don’t even ask what it takes to get someone to lend to the Greeks.
In China, people without a hukou (a residence permit for a city) still live in a limbo state. Increasing numbers are returning to the countryside, due to a lack of work opportunities in the cities. Meanwhile the building of whole new cities – a staple of Chinese stimulus during the 2008 crisis – has been explicitly removed from consideration this time around. China is slowing as a result.
The same holds true for India as well as Brazil. The Russian numbers are suspect, and heavily influenced by energy sales, so let’s be nice and say only three of the four BRIC powerhouses have issues.
That’s showing up already in resource prices, in shipping numbers, in supply chains. Australia – one of the few other G-20 nations that escaped the worst of the 2008 financial woes – is already shifting to looser money, lower interest rates and stimulative spending, despite the boom brought on by Asian demand for Australian resources.
It – like Canada – also has the problem of some parts of their country doing well, while others are struggling a bit. It also has similar issues to ours in getting people to move to resource extraction communities with families, and share the same debates we do about temporary worker visas to close the gaps.
It’s clear, as well, that the Federal Finance Minister, who recently made yet another restriction on mortgage terms and conditions, has been worrying about whether there is a bubble effect forming in the Canadian real estate market.
A quick look around the Greater Toronto Area might make you worry about that, too. Toronto has more condos under construction than does New York City. Bubbles can be pricked by too much inventory entering the market just as easily as by tightening financing conditions – and, like Victoria and Vancouver before it, Toronto’s realtors are using deliberate underpricing of listings, auction-like bid conditions, and the like to sustain their “sold over asking” results.
Canada’s governments remain mostly unable to balance the books. Federally, a decade’s worth of debt reduction was wiped out (and more) in the two years of the Economic Action Plan. Some provinces, like Ontario, have at least six years of deficits ahead of them even on current plans.
That’s what should worry Canadians. Deficits and funding them.
The Americans are spending $1.40 for every $1.00 in tax receipts they bring in. European countries have similar profiles. Even without touring the other 220 odd countries around the globe, that’s a lot of demand for capital to buy bonds just for business as usual. Add the need to bail out banks again? Up go rates.
Canadians have already seen mortgage rates creep up when more has to be offered to fund the debt that underwrites lending. It’s not just the central bank rate that matters: supply and demand on the global scale does, too. Waiting in the wings is the “one wrong move” that starts a set of dominoes into motion again, just like 2008.
Yes, Canadians would be right to be worried. Too bad their leaders don’t seem to be.
Bruce Stewart, Toronto, ON.