Will Canada get hit by the increasing economic instability in Europe?

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On Cross Country Checkup: economic storm 

As the debt crisis in Europe spreads from Greece to Italy, the Canadian government is forced to trim its own expectations. 

What do you think? Is Canada going to get sideswiped by increasing economic instability in Europe? Are you taking precautions?

With host Rex Murphy. 

Guests and Links      Mail       Download mp3 (right click and choose 'Save Target As')     




Introduction

All week the news from Europe has been troubling. The troubles go back a lot further than this week, but recently just as some sort of resolution appears for Greece, the debt crisis spreads to Italy, bringing about the downfall of Italian prime minister Berlusconi. Some experts and observers have warned that one ultimate consequence could be the end of the Euro, or even worse the demise of the European Union.

What are we to make of such turmoil and grand projections?

Here in Canada, the Minister of Finance Jim Flaherty released an economic update, partly in response to the news from Europe. His message was that things are relatively calm this side of the Atlantic, but if Europe goes into recession then Canada's economy will be affected. He said, "Canada's key economic threats are not of our own making," adding that the economic uncertainty, principally in Europe, is a drag on the economy.

Mr Flaherty then announced the government would ease off on its determination to balance the budget by 2014 and make 2015 the target date. He also offered a reduction in the planned increase in payroll taxes for Employment Insurance and will set aside extra money for unforeseeable shortfalls in revenue.

With Europe in trouble and the US economy still stuck in neutral, can Canadians avoid a similar fate? Economists say Canada is in good shape but if its markets in the US and Europe stall, then Canada's economy will inevitably slow.

We want to hear what you think? Are you looking at this news and making any changes to your own planning? Whether you have a business or a household to manage, we want to hear what kinds of decisions you are considering now. Have you decided to spend less, or put off that big purchase you were planning to make? Do you try to save more and pay down personal debt?

If you have a business, do you choose not to hire that extra employee? Do you decide to reduce the amount of inventory you carry? Do you put on hold any plans for expansion? Or are you looking for other markets?

Maybe you're a student trying to pick a career direction ...have you decided to opt for something a bit more secure? If you're unemployed, where do you think your best bets lie? If you're employed, how secure do you feel?

Today with all the bad news from abroad we want to do a 'checkup' on how this news is affecting Canadians. Give us a call.

Our topic today: "Will Canada get hit by the increasing economic instability in Europe? Are you taking precautions?"

I'm Rex Murphy, on CBC Radio One, and on Sirius satellite radio channel 159, this is Cross Country Checkup.


Guests

  • Jay Bryan
    Business and Economic Columnist for the Montreal Gazette.

  • Jason Kirby
    Business writer and national editor at Macleans.

  • David Yager
    Chairman of HSE Integrated and columnist for Oil Weekly.

  • Heather Cruickshanks
    Owner Cruickshanks Sheet Metal Ltd and Member of Nova Scotia Apprenticeship Board.

  • Megan McArdle
    Senior editor for The Atlantic who writes about business and economics.





Links

CBC.ca
Speech by the Honourable Jim Flaherty, Minister of Finance, to the Calgary Chamber of Commerce

Globe and Mail

National Post - Financial Post
Montreal Gazette




E-mail

 

Canada will indeed be hit by the increasing economic instability and it will be exacerbated by Canadians' own fiscal practices. Canadians have record personal debt, municipal governments face huge infrastructure deficits, provincial governments  have growing debt and the federal government is spending billions on military hardware.
 
George Kynman
St. Andrews, Manitoba 

 

This is not the time for government to keep spending and they are big spenders. Who needs 30 more members of parliament to sit on the benches like bumps on a log? Might be small potatoes but could help food banks.

Shirley Blackwell

 

Hello,

I am a 60-year-old single woman in Alberta. The last few years have made a large difference in how I see job security and personal finances and I believe the European crisis cannot help but have some effect on all our lives in the coming years. The insecurity at governmental levels, as well as for the average person, is probably as high as it has been at any time in the last three years.

For myself, I have downsized my life in ways I would not have imagined even five years ago. I have recently moved to downtown Calgary, near my work, sold my car, and now focus almost entirely on saving for what may soon be forced retirement. For now, I do have permanent work, but I think there will be more pressure on people my age to move over for younger people. If that happens before I turn 65, it will have a huge detrimental result for how I can live in the future. Without being able to predict how long I will have to live on a very small pension, I have to be primarily concerned with saving. No doubt I am not alone in this, and a lot of people in my age bracket, especially women, will probably contribute much less to the ongoing economy than we might have.

That said, I consider myself lucky to be working, and to have the means to save. I hope at least to not be a drain on my own children, but also on everyone else in the work force in future.

Miriam Juniper
Calgary, Alberta

 

The derivatives industry is thriving on these roller-coaster times. Those who know when to sell/buy these intangible stocks can and, I suspect do in anyway they can, manipulate or even cause the political decisions that are being.

I have heard it is a $700-trillion industry and that the financial lobbyists are doing all possible to ensure that it continues to be a very secretive market. Transactions cannot be analyzed or understood by open market investors since the transactions are not made on the stock market.

The basis of the problem, as far as I understand, is that the person who is interested in the value of the intangible derivative is not the same person who benefits from the rule set upon which the derivative is based.

Initially derivatives were used by farmers to hedge against the risks of market prices for their products. In those cases the farmers' interest in the value of the derivative (hedge) was directly linked to his interest in the value of the product he would be selling. This connection has been cut in the present derivative industry situation. That is what happened in the 2006-2008 U.S.A. housing market where those individuals/banks/investors who gained were those who bet on earning profits off of the misfortune of manipulated public who thought they could have a home. As the public defaulted on their mortgages the investors who made bets that this probability was high reaped huge sums.

Until the public becomes more informed about the manipulation of the markets and the media by the few individuals and families who run the super-rich unknown economy we will continue to waste time analyzing the symptoms of a degenerating system.

Thanks,
Paulette Lachance
Montreal, Quebec

 

Hi Rex,

I'm just back from the G20 summit in France where I was helping organize a side summit on youth entrepreneurship. The contrast could not have been greater between a Europe that was deep in depression and uncertainty, and the optimism of young people who want their businesses to succeed. In one of the sessions, a senior European banker said, "we need you young people to rescue Europe from our depression," and by "depression" he meant its lack of optimism.

Surrounded by young Canadians there, I was struck by how optimistic we are as a country, how we readily begin thinking of solutions when confronted by a problem, how practical and non-ideological we can be when we put our minds to it. These are things that Europe desperately needs right now, things from which our economy and society benefit.

Love the show,
Alex Gill
Montreal, Quebec

 

Rex,

I am a mortgage broker in Calgary and I can say categorically that we do not have a mortgage problem in Canada. You mentioned this early in today's program and I don't know whether you were referring to the real problem in the U.S. or the imagined problem in Canada. 
 
At the very bottom of any downturn we had here, our mortgage default rate was four tenths of one per cent. In other words, every 250th house was 90 days or more behind on mortgage payments. This compares to a historical rate of 25/100's of one per cent, or every 400th house. By contrast, ten per cent of the houses in the U.S. were in this predicament at one point.
 
I do not believe we have a significant economic problem in Canada at the moment, apart from the more or less daily attempts by the Conservative government and the media to scare people.

Dave Cunningham
Calgary, Alberta


 

As a senior citizen living on a government pension, I am struck by the fact that all of the civilized world is fixed on the subject of money. It seems everyone wants more, more, more. My pension is all I have, and if it were to be reduced, where would I live? How could I live and afford rent, food, medicine or basic survival?
 
Phyllis Carter
Montreal, Quebec

 

Thanks for doing this subject. I don't think it's reasonable to think that Canada is going to avoid this crisis. I am hoping you can give me your thoughts about buying a house in the next year.

I have a fairly secure job, but I imagine that increases will be cut back, if they exist at all in the near future. I have worked hard to be almost debt free. I have some equity in my townhouse. If this black hole hits Canada, what will house prices do?

I thought that now would be a time to buy as much house as I can reasonably afford and wait for it to appreciate so in five or ten years from now I will be able to enjoy a lower mortgage payment. I think house prices are set to fall due to debt load and future job losses.

It seems to me it might be better to sit tight and wait this financial crisis out. What are your experts and listeners thoughts please?

Thanks,
Betty Davidson
Ottawa, Ontario

 

I spend about two hours a day staying educated on the U.S. and Europe situation. I spend zero hours on the Canadian business mainly because it is such a small and slow-moving market compared to the U.S. or Europe.

I am a Canadian citizen, however since 2009 all of my stock market portfolio has been invested in United States closed ended funds paying monthly dividends. My wife and I are self made and employees of U.S. based corporations and we live and work in Canada. I am very thankful that I live in Canada but once again it is a very small slow-moving market compare to Europe and the U.S. I am not worried about the Europe crisis or how it will affect Canada. We pay taxes as Canadian citizens, to support our infrastructure. As soon as the people in Italy, Greece and the US understand that paying taxes is a important part a healthy economy, things will change.

Barry Thompson
Richmond, British Columbia

 

Banking is a major concern. Countries are going bankrupt to the private banks.  Why don't the governments buy back the banks? The Bank of Canada used to be the Bank of Canada, in that it loaned money to the government for projects, both federally and provincially, and the province could then loan to municipalities.  There is no reason not to do this. In fact, it is the mandate of the Bank of Canada.  Imagine if the government could set its own interest rate. We wouldn't have the humungus deficts we are facing now.

Jon Phillips
Pine Falls, Manitoba

 

We create our own future, and listening to all the negativity is really scary.  We don't have to be Pollyannas, but if everyone focuses on negativity then everything will just keep on getting worse. While being responsible, we can start making a point of spending our money on Canadian goods, or supporting Canadian service industries, and that in itself will make a significant impact on the economy. China is doing very well because we buy a lot of sometimes useless goods from them. Mostly the large corporations do well from those purchases, not the everyday Canadian. Small businesses keep the economy going so please try to make a point to support them. It will help.

Carole Eriksson
Woodstock, Ontario

 

Canada has a primary economy based upon exports of energy and natural resources. With the Euro crisis, there will be a small effect on energy exports, and the same goes for natural resources from agriculture and mining to lumber. We should be focussing on exporting finished goods rather than natural resources. Lets export refined oil, furniture and construction materials and finished minerals as possible. I think Canada will only suffer a slight hit.

Peter
Milton, Ontario

 

Rex,

I fear that the undermining of our own economy has been underway for some years now. Both by design and by accident. I don't imagine a classic giant evil conspiracy by any means here, but rather a whole bunch of separate interests who are both co-operating and competing to whatever degree makes sense to them at any given time. Sometimes it works to their benefit, sometimes it doesn't. The side effects still nail the rest of us whatever happens to the people
who trigger them.

Anyway, I think we're going to be targeted for further "Shock Doctrine" treatment by the government of the day in order to contain our hopes and expectations for our own futures. I am also of the mind that Paulette Lachance has called it right regarding the derivatives market. Again, the side effects of that mess are continuing to echo across the planet as we've seen.

More as it occurs to me... or indeed to anyone else.

Yours with respect,

Dwight Williams
Orleans, Ontario

 

Are we fiddling while Rome burns? As 1927 marked a crisis in capitalism, so too do we face a real challenge today. How do we build an economic structure that does not require rampant consumerism, and therefore rampant debt, for it's survival? We have not yet begun to face the real nature of this dilemma and its true implications. Our economic system has no clothes.

Steve
Toronto, Ontario

 

I'm  very surprised Rex took sides when talking with the Calgary oil writer. He said something about the opponents of the pipeline thinking all will be right with the world when the pipeline south is cancelled. How can you speak for someone else, Rex? I think the pipeline is a stupid idea since it continues to encourage environmentally expensive energy. By cancelling the pipeline we encourage the development of alternative energy. The skies aren't going to open but we will at least be moving in the right direction.

Geeze, Rex!
Gerald Perkins
Salt Spring Island, British Columbia

 

Awesome. Dave Yager mentioned that Fort MacMurray won the greenest city in Canada award. This was a story on the comedic CBC program This is That. You should have Pat Kelly and Peter Oldring on the show to explain how that news story came about. I'll spare you the time. The news item about Fort Mac was a total spoof on online polls. So now to hear Dave Yager quoting a totally fictitious news item makes me question his credibility and ability to sort through reality and spin.
 
John McCaskill
Calgary, Alberta

 

The mess we call the global economy resembles a Ponzi scheme. As long as it continues to grow, the scheme survives. As the global economy sputters the scheme is revealed. What is being revealed is that humanity as a whole is living beyond its means and that the disparities between us are a recipe for trouble. When even the most successful economy (the U.S.A.) has debt burdens and wealth disparity like it does, then surely it is time to question the very nature of this economy. We seem to have forgotten that the economy is only the process, not the goal. It is time to assess the global economy based on its success at meeting the needs of humanity, food and shelter would be a good start.

Neil Smith
Vancouver, British Columbia

 

As I was growing up in the '80s and '90s I can remember Kim Campbell's gaff of saying that the current generation would not have it as good as the previous.  From my understanding she was saying that during the economic slowness that was created in the years after the  1987 crash that was created by a collapse in mortgage backed securities. I would say to all the current generation that things will get better. Take a deep breath and worry less.

Ron Thomas
Vancouver, British Columbia

 

Rex, the root of the problem is/was easy credit. In a true free market, interest rates reflect the balance between savers and borrowers. Unfortunately, every nation on earth is now using fiat money, and the problem with this is that money supply growth is a function of borrowing, which in our system is actually money creation, and is not restricted to the quantity of money actually saved.
Without government and central bank interference, the desire for additional borrowing would be tempered by the increase in interest rates necessary to induce savers to save more.

Governments love the first effects of the economic activity generated by borrowing for consumption. However, the longer term effects are negative and outweigh the short term benefits. Borrowing for consumption is, in fact, creating current economic activity at the expense of future activity. And that future activity is reduced not only by the consumption which was brought forward but also the cost of the debt service.

When spending is funded by debt, and the interest rate is at artificially low rates (set by central banks), individuals and governments will get in over their heads. If rates normalize, which they must at some point, servicing the debt can become impossible, as now demonstrated by Greece, and increasingly, Italy. 
Canadians should not be smug, thinking we have so far dodged a bullet. Our debt to GDP ratio (274%, recent report by McKinsey), when counting personal, business and government debt, is very close to that of the United States (289%) and only marginally below that of Italy, which is just over 300%. Spending has to drop to sustainable levels, individually, corporately and nationally.

As for Greece, Italy et al, they will ultimately default. It may be disguised by money printing (either once out of the EU or by the ECB), but that is paying with debased money, which is still default.

Greg Strebel
Quesnel, British Columbia

 

First thing, We need to stop listening to the economists that were wrong for years leading up to the day before the start of the collapse. The students of the Austrian school of economics and praxeology have been predicting this for decades. Also remember, to bail out the Greeks or the Italians is not to do them any favors, but to save the losses of the ones who made the malinvestment of lending to them in the first place.

Clyde Nichols
Squamish, British Columbia

 

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