FROLITICKS

Satirical commentary on Canadian and American current political issues

Aug 22

Both Canada and the U.S. have something in common: Dismal Economic Outlooks

by bcurry

When I was studying economic theory in college, one phrase kept leaping out at me: “Economics is the dismal science.”  This was partly due to the fact that I could never really be convinced that the discipline of economics was anything but a science.  Instead, I preferred to think of the reality of economics being continuously influenced by political policies and institutional structures, including those in the international sphere.  Control over the world’s economies is much more institutionalized than ever before.  The current economic situation in North America really highlights this perspective, especially given the reaction of bodies such as the U.S. Federal Reserve Board and the Bank of Canada in dealing with the post-pandemic world.

In Canada, one is coping with the highest levels of inflation since 1995.  The U.S. is seeing the highest levels of inflation since the early 1980s.  On top of which, we’re getting economic data that is fluctuating quite rapidly, so it’s very hard to get a precise read on where the economy is at any point in time.  The additional fear now is that both these monetary bodies are increasing the prime rates in order to tackle this hyperinflation at a time when the economy is attempting to get back on its feet after the disastrous pandemic period — thus the concerns about a potential recession in both countries and around the world.

Now, you don’t have to be an economist to know that something’s wrong.  Filling up your gas tank, buying a home and purchasing groceries just got incredibly more expensive!  Governments blame much of the distress on post-pandemic supply chain problems and global fuel-food shortages due to the Russia-Ukraine war.  On top of which, there are suddenly skilled labour shortages in most countries, leading to increasing wage levels and low unemployment rates.  The current situation has particularly been led by Boomers, many of whom have chosen to retire.  An April paper by economists at the Federal Reserve Bank of Richmond found that “the pandemic has permanently reduced participation in the economy.”  Due to the lack of and high cost of child care for example, many women are financially unable to return to the labour market.  In order to fill many jobs, countries are having again to look to immigration policies as a possible solution.

Recent blow-out jobs reports may have quieted claims that the U.S. is in a recession, but it did not end the mystery about the state of the economy or resolve questions about where it is headed.  Should a recession evolve in the U.S., past experience would suggest that Canada is not far behind.  Similarly, both federal governments are under the gun to do something about inflation — a major political issue.  However, as most analysts state, the current economic situation is something completely new and unprecedented in light of post-pandemic elements and the current global situation with respect to supply chains, especially in Europe.

Higher interest rates as a result of Federal Reserve Board and the Bank of Canada benchmark interest rate increases to control the hyperinflation will have an immediate impact on lowering economic growth.  Consumers feeling the hit will most likely have to cut back on expenditures, including the purchases of homes due to the subsequent rise in mortgage rates.  Whether or not we are on the brink of a major recession is still up in the air.  There is no sector of the economy that hasn’t been affected during this so-called recovery period. 

However, how about longer-term predictions?  As the famous British economist, John Maynard Keynes, once said: “In the long-run, we are all dead.”  He further noted that aggregate demand does not necessarily equal the productive capacity of the economy.  Instead, it is influenced by a host of factors —sometimes behaving erratically — affecting production, employment and inflation.  As of today, this definitely appears to be the case.  All any of us can do is hope to survive during the foreseen continuing turmoil within the markets and the economy in general.  In the spirit of economics as a ‘dismal science’, most economists for are not overly optimistic about improved short-term growth. 

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Jun 19

Worldwide Crises Appear To Want To Come In Bundles of Threes

by bcurry

There’s nothing like stating the obvious. 2020 has been a crazy year so far.  Humans are facing the greatest health and economic crises since the influenza outbreak of 1918-19 and the great depression of the early thirties.  In the meantime, the global issue of climate change is still on the table.  To complicate matters, recent shootings by police of black and indigenous people in the U.S., Canada and elsewhere has led to a resurgence of “black lives matter” and the need for examination of systemic racism by governments and corporations. Despite fears over the on-going coronavirus pandemic, protests against anti-black racism emerged around the world.

As with the recent growth in support of tackling climate change issues, there has obviously been a major change in support for dealing with systemic racism and in particular the use of force by police and the authorities against marginalized groups. The spread of COVID-19 has particularly negatively affected various marginalized groups in proportion to their statistical share of the general population.  The economic lockdown of many sectors has also disproportionately affected those same groups as indicated by unemployment and poverty stats.  Vulnerable seniors in long-term care have unfortunately been the most affected by the pandemic as evidenced by the fact that in many states and provinces they represent around ninety percent of the related deaths.  This is a clear negative outcome of the inadequate warehousing of and continuing poor health care for seniors that took place over the last fifty or sixty years.

Young people today are also bearing the brunt of dealing with climate change, the downturn in the economy, systemic racism and future employment changes. As a member of the boomer generation, I do not envy their multitude of challenges.  As a society, we must recognize that the younger generation will require all the support that can be provided, regardless of the costs.  Once we are through with the various impacts of the pandemic, if ever, societies will have to seek out a “new normal”.  This will take a concerted effort on the part of individuals, communities, organizations, governments, international bodies, and many others.  Changes are inevitable.

Unfortunately, uncertain times as these can be overwhelming for people. Often, there is a desire to return to the way it was in the past — a form of “unrealistic nostalgia”. There will no doubt be opposition to far-reaching societal change.  If there is one thing that these crises have done is to force us to recognize the urgent need for real changes.  Simply talking about the issues is not longer acceptable, especially for future leaders.  Recent collective reactions to all three crises, including the emergence of global movements, are clear evidence of the growing desire for action and real change.

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Feb 28

Canada is very likely heading into a major recession, especially in light of COVID-19

by bcurry

Canada’s growth slows to its weakest pace in almost four years as economic woes bite. Statistics Canada has now revised the third quarter annualized growth down to 1.1 per cent from an initial 1.3 per cent. In addition to recent rail and pipeline shutdowns and the slowdown in oil and gas and mining sectors, the Canadian economy is going to have to brace for the effects of COVID-19.  For example, Chinese tourists to Canada accounted for 7.3 per cent of our tourism receipts. Exports of iron, copper, lobsters and lumber are also at risk due to weaker demand from China. No one knows for sure how long the COVID-19 outbreaks will last and how severe it will be in North America. Given China’s current COVID-19 closures, global supply chains are being seriously impacted here and in Europe. Like the SARS outbreaks in 2003, some experts expect that COVID-19 could last anywhere from seven to eight more months.

The immediate economic impact this week has been on the stock markets with the Canadian TSX and the U.S. Dow losing its greatest amounts in one week since the Great Recession of 2008. With trillions of dollars loss in one week, nothing like this has been seen before and we are no longer simply talking about the expected stock market correction in Canada and in the U.S.

Over the past year, I have been warning of a possible recession because the very weak underlying factors around manufacturing and consumer spending. Instead, corporations have been using profits to pay shareholders and buy back company shares, instead of reinvesting in capital, R & D and labour.  Now, multinational enterprises like Apple, Hyundai and Samsung are seeing their Chinese supply chains shut down resulting in expected reduced future earnings.

The question for North American industries is what will happen should the COVID-19 virus spread to manufacturing plants and the service industries for example. COVID-19 is here and all one can do is to prepare for any possible pandemic.  Remember that the only way to contain the virus is through quarantine and isolating affecting individuals.  Should one employee test positive, an entire establishment may have to be closed and employees would be required to go into self-quarantine.  No one wants to exaggerate the threats, but one has to realize that the economic situation in Canada is already weak. COVID-19 could be the one major event to trigger a major recession in the coming months. Both Canadians and Americans need to be prepared for such an outcome.

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Jun 2

Now Trump Has Gone Too Far With His Tariff Strategy

by bcurry

U.S. Vice-President Pence just visited Ottawa this week to discuss the ratification of the proposed new North American free trade agreement, which includes Mexico. In order to encourage Canadian ratification of the agreement, the U.S. just lifted its tariffs on Canadian and Mexican steel and aluminum products. Tariffs that should never have been implemented to begin with given the President’s use of ‘national security’ as a justification.  No sooner had these tariffs been lifted, President Trump’s administration placed new tariffs on Mexican imports.  Only this time, Trump is using these tariffs to try to force the Mexicans to do something more about stopping Central American refugees from crossing into the U.S.  Most would agree, including some of Trump’s own advisors, that this tactic will have little effect with respect to the border issue.

Instead, the new tariffs on Mexican products will cause as much economic harm to the Americans as it will to Mexicans. Many goods, including vehicles assembled in Mexico and agricultural goods, will cost American consumers even more. Combined with the recent increases in tariffs on Chinese imports, Americans can be expected to pay even more for consumer products of all kinds.  Remember, at one time about eighty percent of Walmart’s sales inventory involved cheaper Chinese imports.

Recent headlines in The New York Times (May 31, 2019) read: “Things Were Going Great for Wall Street. Then the Trade War Heated Up.” Basically, the article notes that up to now the U.S. economy was going fairly well. However, since the introduction of further tariffs on Chinese goods, the benchmark index of the stock exchange ended down 6.6 percent in May, its first monthly decline of the year and its worst drop since an ugly sell-off at the end of 2018. As well, stock markets in trade-dependent economies such as Canada, Japan, South Korea and Germany also saw steep losses in May. In addition, government bond markets have been sending some of the strongest warning signals.

I have been warning for some time that we could be heading for another major global recession if the U.S. continues its protectionist policies. The President’s use of economic threats and a trade war appears to be unravelling. Many economic indicators in the American economy are showing a growing weakness, despite the current low unemployment rate and high corporate profits. As indicated in the above article, investors are becoming increasingly fixated on any signs that growth is flagging. Consumer debt is high and consumer spending is on the decline in both Canada and the U.S. It just may be that Trump’s tariff strategy has gone too far. There is little doubt that ordinary Americans and Canadians will pay the price under his economic policies.

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Apr 3

Getting Closer to a World Economic Recession

by bcurry

One does not have to look too far or to be an economist to understand that there is the real danger among the world’s economies of a near future recession. On the one hand, you have the negative results of the U.S. tariffs on China, Europe and Canada. On the other hand, Brexit is already damaging the British economy, and the possibility of a no-deal with the European Union is a definite chaotic possibility.

Meanwhile, Japan’s economic growth is stumbling, particularly as trade with one of its biggest customers, China, is in trouble. China is the biggest driver of global growth, so its slowdown — or fear of it — is stoking concerns about the prospect of a worldwide recession. Japanese consumer electronics and automotive companies that depend on their fast-growing neighbour — China — are now slashing profit forecasts and considering idling factories.

Donald Trump’s administration, in the meantime, is all over the map. There appears to be no end in sight in the trade negotiations with China.  American and Canadian farmers — especially those with seed crops like canola — are already feeling the pinch as a result of losing the once profitable Chinese market.

While a global recession may not be as horrendous as that in 2005, the fact is that governments and central banks today have fewer tools to deal with it. Governments in North America and Europe have run up enormous debts in recent years.  Consumers also have run up huge debts over the last decade in light of extremely low borrowing interest rates.  Moreover, there is little wiggle room for governments to respond proactively.  The growth in Gross Domestic Product (GDP) is declining everywhere. National unemployment rates are still low, but for the wrong reasons.  While there are too few skilled workers for those trades and professions needed in our modern economies, people are being forced to take lower skilled and lower paying jobs in the retail and service industries.  Average wages for the middle class have not increased adequately when inflation is taken into account, while family debt loads continue to go up.  Given that they drive over 70 percent of annual GDP growth, don’t expect consumers to help get us out quickly of the next recession. As politicians like to say, people are going to have to tighten their belts!  The question is — for how long?

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Sep 21

Are We Heading Towards Another Global Recession?

by bcurry

After following numerous financial experts and economists aligned with various reliable sources, it has become clear that there is no real agreement or consensus on what will happen to the global economy in the next year. Ten years after the great recession, everyone agrees that the economies of most countries have bounced back, but are still somewhat tenuous.

But then comes along President Trump and his protectionist policies, including tariffs on products from China, Canada and the E.U. The trade war with China is especially dangerous. We must not forget that the continuous upsurge in the Chinese economy and their fiscal-monetary policies helped many economies to recover after 2008.  However, the Chinese economy’s growth has slowed down and trade is less a factor than it was 10 years ago.

Domestic corporate, government and consumer debt has climbed in most industrialized countries, including in the U.S. and Canada. Much of the debt increase has of course resulted from the continuing low-interest rates for borrowing used to stimulate economies, but potentially at a considerable future cost.  At the same time, any significant growth in wages has not occurred, leaving many people to rely on debt to maintain current standards of living.  The richest people have greatly benefited from capital tax policies and by corporations who have preferred to benefit their shareholders.  Most companies have also paid out big executive bonuses rather than reinvesting profits into their firms and R&D.  In the U.S., executive compensation now represents more than 400 percent of the average worker’s annual wages.

As if in some kind of self-denial, stock markets have continued to climb despite a number of recent ominous economic signs. Given that we are in unknown territory with little room for manoeuvrability, even central banks appear to be at a lost as to what to do next.  Most experts agree that there needs to be a major market correction given that the value of many stocks is out of whack with reality.  In addition, the economies of E.U. countries are still in turmoil, especially with Britain’s decision to leave the Union and other members possibly following suit. Moreover, all you and I can do is sit and wait and hope for the best.  After all, we don’t have the power of the American President to influence the global economy.

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