Canada's Place in the Global Economy

[camouflauge]

I don't believe in endless growth, it doesn't make any sense at all in a World of finite resources. However, Reguly is correct that stimulus is needed if only to halt the shrinkage in economies and to get them over the short-term woes. Cutting to reduce deficits when economies are weak is simply stupid.

 

[SeaKingTacco]

I don't believe in endless growth, it doesn't make any sense at all in a World of finite resources. However, Reguly is correct that stimulus is needed if only to halt the shrinkage in economies and to get them over the short-term woes. Cutting to reduce deficits when economies are weak is simply stupid.

I think that you are committing the error of under-estimating just how large the resources of the planet are.  Additionally, not all economic growth springs from physical things.  I give you the example of the computer software, which alone is worth billions of dollars of economic activity.  Finally, do not under- estimate the human ability to adapt quickly to shortages and create new ways of creating things.

 

[Edward Campbell]

A pretty fair assessment, I think of what has just transpired in Brussels, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/international-news/eus-vicious-circle-economics-dooms-it-to-failure/article2265562/

I thinks Reguly is right: slow to no growth in Euirope and the USA (and parts of Asia, too) is making this the Great Recession. One result of the German's disciplinary theme will be slower growth - just what Europe doesn't need.

I also think Cameron got it right, albeit probably for the wrong reasons. The best way to avoid the train wreck is to not get on the train.

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is a counter-opinion regarding the impact and import of Prime Minister Cameron's decision to isolate Britain from its EU partners:

http://www.theglobeandmail.com/news/world/doug-saunders/the-day-britains-prime-minister-failed/article2266489/

The day Britain’s Prime Minister failed

DOUG SAUNDERS

LONDON— From Saturday's Globe and Mail
Published Saturday, Dec. 10, 2011

Forget economics. This was a political moment, and it will be remembered as the time the politicians failed.

Angela Merkel failed: The German Chancellor could have used her country’s nearly unanimous clout to confront the root causes of the euro crisis, which lie in inequalities of trade and a collapse in consumption, but instead chose to pretend it was a matter of overspending by Mediterranean governments, to be solved with future rules. Mario Draghi failed: The European Central Bank chief could have launched a bond-buying, expansionist rescue – in short, acted as if this were the emergency it very much is. But instead he stuck to a suicidally narrow interpretation of his mandate, pretending that inflation, rather than its opposite, is the threat.

But most of all, David Cameron failed. The British Prime Minister will be applauded by his more isolationist backbenchers for his decision to pull out of Friday’s euro-rescue treaty, making Britain probably alone among the 27 European Union countries in refusing to participate in the pooling of resources and common sacrifice necessary to put the continent’s finances back on track.

His withdrawal is a serious blow to Europe, the world’s largest single economy – making a collapse of investor confidence in the continent far more likely, and forcing the bloc into an imposed Franco-German solution rather than the sort of larger arrangement that Britain could have helped organize, if it had been constructive instead of destructive.

This is not a localized matter: All major economies, including Canada’s, are highly exposed to the euro; a fall could collapse banks in North America, too. This was the worst imaginable moment for nationalist isolation. Yet, that was what we got.

So it’s almost certainly a disaster for Britain. It’s hard to imagine a scenario where, in the wake of a 26-country agreement to create a fiscal and financial regulatory union with one dissenter, Britain doesn’t end up more isolated from Europe.

While Mr. Cameron’s Euro-skeptic MPs argue that Britain should withdraw into a trade-only relationship with Europe along the lines of Norway or Switzerland, they don’t understand: Britain’s trade ties with the continent are built on six decades of common laws, standards and regulations, all of which are now jeopardized. The British exemption could only result in less trade, not more.

The stakes are huge. This is a country, remember, whose annual trade with its 26 EU neighbours is between £140-billion and £185-billion, somewhere between 50 per cent and 60 per cent of all imports and exports. By comparison, it does £33.5-billion in business with the United States (15 per cent), £5.1-billion with China (2.3 per cent) and £3.6-billion with Canada (1.6 per cent).

The crippling of that relationship – the rejection of a country of 60 million by a continent of 500 million – would be a noticeable loss for Europe’s exporters, but a near total one for Britain’s. As every British prime minister learns within days of taking office, almost everything depends on good relations with the European neighbours.

Within Britain, Mr. Cameron will get a warm response: Europe is unpopular with voters, and there’s constant talk of Mr. Cameron’s facing a challenge from his party’s anti-Europe starboard flank. That’s pretty implausible. While many Tory MPs call themselves Euro-skeptics (and who, these days, isn’t somewhat skeptical about the euro?), the caucus of MPs that actually wants Britain to pull out of the EU, the “Better Off Out” group, has only 10 members. Let’s presume there’s a similar number hiding in the closet. In a party with 306 seats, that’s hardly a challenge.

The idea that this was necessary to protect the City of London from European regulations also holds no water. The threats will be worse with Britain outside, as it won’t be able to veto them (and they can still be imposed).

The threat of an emergency financial services tax imposed by the EU was also non-existent: Britain already has such a tax, the only one in Europe (its stamp duty), and it hasn’t prevented the Square Mile from becoming the world’s premier trading destination.

Reports suggest Mr. Cameron had genuinely wanted a 27-country pact but froze at the prospect of facing voters with an agreement that didn’t offer exemptions to Britain. His country has always been the European exception, ever since Margaret Thatcher negotiated lower EU membership fees in 1984. In this case, Mr. Cameron knew full well he was trading a momentary political gain for a long-term loss.

“I think I did the right thing for Britain,” Mr. Cameron told the BBC on Friday, claiming that Britain could take or leave pieces of the EU – a cafeteria common market. No serious observer believed him. Nick Clegg, the Liberal Democrat Deputy Prime Minister, certainly didn’t: “Any Euro-skeptic who might be rubbing their hands in glee about the outcome of the summit should be careful for what they wish for.”

What’s saved the Western economies from total collapse in the past three years has been the heroic levels of international co-operation. There’s always been the threat of 1930s-style isolationism. We just never thought it would come from an intelligent free trader such as Mr. Cameron.

For the very reasons Saunders gives in the 2nd paragraph I remain convinced David Cameron was right to isolate Britain. Yes, there are risks; yes, it will make European recovery more difficult, but, on balance, given the pernicious nature of Merkel's diktats, Britain is better off "out." Not "out" of Europe, just out of the € mess and the even messier repair job.

 

[a_majoor]

A British look at how things might unfold:

http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013758/europes-blithering-idiots-and-their-flim-flam-treaty/

Europe's blithering idiots and their flim-flam treaty

By Ambrose Evans-Pritchard Economics Last updated: December 9th, 2011

What remarkable petulance and stupidity.

The leaders of France and Germany have more or less bulldozed Britain out of the European Union for the sake of a treaty that offers absolutely no solution to the crisis at hand, or indeed any future crisis. It is EU institutional chair shuffling at its worst, with venom for good measure.

It is risky to reach instant conclusions on a fast-moving story but it looks as if the EU may soon be reduced to a shell, with a new union forming among the core.

Much has been said about whether David Cameron handled this well or badly. I leave that debate to my colleagues. What strikes me as a former EU correspondent is how threatening this is to the EU Project itself.

A country – and a large one – may start to disengage for the first time. The aura of historical inevitability that has swept Europe towards ever closer union for half a century has been punctured. Yes, Croatia will soon join, as Sarkozy chirped triumphantly, but that is not quite the same thing (no offence meant to the South Slavs).

Utter confusion will ensue over the legal structures of the EU. For whom will the European Commission work? For whom the European Court? It will be chaos for a while. This is the nightmare that fonctionnaires have always feared.

And what for? All this upheaval for a mess of pottage, a flim-flam treaty? The deal is not a "lousy compromise", said Angela Merkel. Well, actually that is exactly what it is for eurozone politicians searching for a breakthrough.

It tarts up the old Stability Pact without changing the substance (although there will be prior vetting of budgets). This "fiscal compact" is not going to make to make the slightest impression on global markets, and they are the judges who matter in this trial by fire.

Yes, there is more discipline for fiscal sinners, but without any transforming help. Even the old "Marshall Plan" of the July summit has bitten the dust.

There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.

In short, there is no breakthrough of any kind that will convince Asian investors that this monetary union has viable governance or even a future.

Germany has kept the focus exclusively on fiscal deficits even though everybody must understand by now that this crisis was not caused by fiscal deficits (except in the case of Greece). Spain and Ireland were in surplus, and Italy had a primary surplus.

As Sir Mervyn King said last week, the disaster was caused by current account imbalances (Spain's deficit, and Germany's surplus), and by capital flows setting off private sector credit booms.

The Treaty proposals evade the core issue.

Did France and Germany really have to cause this rift by throwing in an assault on the City that has precious little do with the EMU crisis? Yes, I suppose they did.

Given that Merkozy cannot bring themselves to accept that Europe's debacle stems from the euro itself, from a 30pc currency misalignment between from North and South, and from an over-leveraged €23 trillion banking bubble that German, French, Dutch, Belgian regulators allowed to happen… given that, yes, I suppose they have to find a scapegoat.

They have to whip up a witchhunt against somebody, so why not Anglo-Saxon bankers? Nasty reflexes are at work. German and French politicians in particular should be very careful about inciting populist hatred against a group that makes such easy prey. We have been there before.

No doubt these dramatic events will be uncomfortable for Britain, but this will all be swept away by bigger events before long. The Europols have not begun to work out a viable solution to their deformed and unworkable currency union, and perhaps no such solution exists. The system will lurch from crisis to crisis until it blows up in acrimony.

By then, a separate cluster will have emerged (not the 10 "outs" against the 17 "ins", always a ludicrous concept), but rather a loose Anglo-Nordic-Swiss grouping that may not do so badly on the fringes and may begin to solidify into a seductively comfortable outer tier.

The mere existence of such a constellation might change the calculus of isolation for Spain should it finally tire of Franco-German dictates and depression, or should the Portuguese at last conclude that enough is enough.

Does France, for that matter, really want to be locked into a clammy embrace with an ever stronger Germany? The whole purpose of monetary union for Paris was to tie down a reunited Germany with silken cords. France now finds its own hands tied because of EMU, reduced to a humiliating side-kick.

But the vain and hysterical little man now in the Elysée will soon be gone. A leader will emerge once more with a "certaine idée de la France".

As for Britain, let us seize the moment of liberation, and enjoy it.

 

[Good2Golf]

I think Evans-Pritchard is heading in the right direction: the opportunity (looked at as a good thing) for Britain to strengthen diversification of economical ties elsewhere, while the big teeter-tottering of Franco-Germanic (lack of) stewardship of punitive economic policy and their symbiotically-reinforce strong-arming of the other 24 (25) "zoners" continues.  Yup, Scandanavian-Neutrals-Chinese-Indian-North American strengthening of ties really couldn't hurt Britain as this point - small short-term pain to "invest" in the non-Eurozone economies for the longer-term gain of a more resilient economy, less vulnerable to the Champs Élyssé and the Fifth Reich.

Regards,
G2G

p.s.  What the heck is Croatia thinking?  ???

 

[Edward Campbell]

I think Evans-Pritchard is heading in the right direction: the opportunity (looked at as a good thing) for Britain to strengthen diversification of economical ties elsewhere, while the big teeter-tottering of Franco-Germanic (lack of) stewardship of punitive economic policy and their symbiotically-reinforce strong-arming of the other 24 (25) "zoners" continues.  Yup, Scandanavian-Neutrals-Chinese-Indian-North American strengthening of ties really couldn't hurt Britain as this point - small short-term pain to "invest" in the non-Eurozone economies for the longer-term gain of a more resilient economy, less vulnerable to the Champs Élyssé and the Fifth Reich.

Regards,
G2G

p.s.  What the heck is Croatia thinking?  ???

Croatia? Thinking?

My guess is that they have visions fo DMs German largesse dancing in their heads.

 

[Kirkhill]

Nicholas Sarkozy is what I used to know as a "Chancer":  a man without principle who will accept any deal so long as it keeps him out of the frying pan for a while longer.  Also he is French.

Angela Merkel is German - raised in a Lutheran household - where "Ordnung muss sein" and  in a Communist environment of Five Year Plans.  She believes in her bones that it is possible to create a New Jerusalem if only people will obey.

Both of them have imbued 2000 years of antipathy amongst Franks, Saxons and Angles.

Neither of them have yet learned that despite the best efforts of the following leaders, centralized government in Europe is unsustainable:

Clovis
Charlemagne
Barbarossa
Charles Hapsburg
Louis XIII to XV
Bonaparte
Schickelgruber

And yet they persist....

Insanity.

 

[a_majoor]

They might not want our oil, but they are making it easy for the TSX to poach international capital if we work fast and offer much more attractive tax rates and transaction fees:

http://pointsandfigures.com/2011/12/12/doing-business-with-the-simpsons/

Doing Business With The Simpsons

Posted by Jeff Carter on December 12th, 2011

The Illinois legislature proposed a tax package that is designed to keep the $CME and $CBOE from leaving the state. Is it enough? Indiana governor Mitch Daniels has said that being next to Illinois is like living next door to the Simpson’s.

The bill they will pass will tax roughly 27% of exchange transactions. The rationale for taxing them is the transactions initiate and take place within state borders. That assumption is incorrect. While 15% of the exchanges transactions take place using open outcry on the floor, most of those transactions initiate from all other points in the world. If I were a floor trader, I’d be ticked at Democrats in Illinois. They just gave CME and CBOE an extra incentive to try and close the floors.

The second concept being tossed about is that CME and CBOE shouldn’t be given tax breaks because they are profitable. Does that mean we only give tax breaks to companies that are poorly run and losing money? Profitability of a company shouldn’t ever be a consideration for a tax break.

The core problem is that Illinois is one of the most expensive places to do business in the nation. The Democratic tax increase last January has cost the state many businesses, and it has lost thousands of jobs. The migration of companies from high tax/high cost states has accelerated in the last decade. The American south is rising again.

Meanwhile, taxes are killing jobs. In another study, the Illinois Policy Institute finds that Illinois was enjoying a jobs recovery until the tax hike passed this year. Then the job numbers headed south in a hurry, and payrolls shrunk by 89,000 in the six months following the revenue grab. The Illinois jobless rate is 10.1%, well above the 8.6% national rate.

Many on the right are ticked. They don’t favor a carve out for big companies. Dealmaking perpetuates the crony capitalism culture that is dominant in Illinois. Do you want to be beholden to your elected official? The left is mad too, since they incorrectly see high taxes as a path to prosperity. The left is against profits, and think that just because the government built some infrastructure, they’re entitled to all money.

Will CME or CBOE move? It depends. They will total up the cost of moving. Then figure in costs from lost network effects and disruption of operations and balance it against the cost of staying. But if I were them, I’d also try to figure out a way to calculate the cost of the political risk of my tax break going away. The exchanges are in an international competition for capital. The cost of operating a business in Illinois is expensive not just because of taxes, but because of all the rules and regulations that accompany them. It’s not fun to try and operate a business when there is a knife being held to your throat.

 

[camouflauge]

I think that you are committing the error of under-estimating just how large the resources of the planet are.  Additionally, not all economic growth springs from physical things.  I give you the example of the computer software, which alone is worth billions of dollars of economic activity.  Finally, do not under- estimate the human ability to adapt quickly to shortages and create new ways of creating things.

Okay, you have a good point and examples there. I think I maybe wrong on my viewpoint

 

[Edward Campbell]

Here, from the Globe and Mail's website is an interesting talk by historian Niall Ferguson. He lists six "killer apps" (ideas) that made Western civilization the ruler of all the world:

1. Competition;
2. Science;
3. The rule of law;
4. Modern medicine;
5. The consumer society; and
6. The work ethic.

Now Ferguson is a "celebrity academic," who makes a lot of money going from podium to podium (for many thousands of dollars per talk) saying interesting and somewhat provocative things. But he is a good historian, especially where economic matters are concerned and he is, also, what the great liberal philosopher Isaiah Berlin would have called a fox - a thinker who jumps, quickly, from idea to idea (as opposed to a hedgehog who sticks to one "big" idea). His fox like thinking means that he can, often - not always, connect seemingly random dots and get a picture.

The video is worth four minutes of your life. Is his conclusion, in his new book Civilization, that we are the last generation of Westerners who will be "on top of the world" correct? I don't know but I don't think so - we may have to share the pinnacle with China and India but they are unlikely to push us off until most of you - who are twenty or thirty somethings - are much older than I am, now and, heaven forbid, even older than Old Sweat  .

 

[Brad Sallows]

Perhaps it is subsumed by "rule of law", but I would add "7. Trust beyond the family/tribe/ethnic community."

I expect China to do what it always does when its internally derived "empire" (ie. China) becomes unmanageable: dissolve into civil war.

I have no idea whether India has established a sense of collective identity sufficient to damp the strains of its historic divisions.

 

[a_majoor]

More for anyone who believes that low taxes and regulations don't create economic growth (lots of interactive graphics at link:

http://www.telegraph.co.uk/news/interactive-graphics/graphic-of-the-day/8903077/Graphic-How-bureaucracy-is-slowing-Europes-recovery.html

Graphic: How bureaucracy is slowing Europe's recovery
Regulations and poor administration have held back Portugal, Ireland, Italy, Greece and Spain's economies, illustrated here using Doing Business data.

By Conrad Quilty-Harper

7:00AM GMT 21 Nov 2011

The Doing Business project, carried out by the World Bank, measures the time and cost of common business activities.

Data from the most recent report shows how doing business in Portugal, Ireland, Italy, Greece and Spain is more difficult, expensive and slower than in stronger, neighbouring countries.

For example, Germany's process for obtaining a new commercial electricity connection is very efficient. It takes just over two weeks from signing a contract with a utility company to getting connected. In Ireland and Italy this same task takes over six months.

Exporting and importing a standardized cargo of goods by ocean transport also takes significantly longer in Italy, Greece and Portugal compared to other European countries.

Italy judicial system is highly bureacratic and very slow. It takes nearly three years to resolve a commercial dispute there, compared to only a year in Germany and France.
 
Looking at the average time it takes to get construction permits, electricity connected, contracts enforced and goods exported shows the disparity between poorer European countries and their stronger neighbours.

 

[Kirkhill]

Britain Isolated:

Angela wants Britain back
http://www.telegraph.co.uk/news/worldnews/europe/eu/8956074/Angela-Merkel-regrets-Britains-veto-of-EU-treaty.html
Guessing that she doesn't like the idea of being left alone in the room with Nicholas Sarkozy....

As well the Bundesbank, her own coalition partners and her constitution are saying she can't do what she signed on for.

Michel Barnier wants Britain back
http://www.telegraph.co.uk/finance/comment/8954542/Michel-Barnier-we-want-just-one-single-market-in-Europe-including-the-UK.html
Short form: Please don't run away.  We need you to protect us from the Latin spendthrifts.  I'll protect you.  Haven't I always?

Ireland wants Britain back (both Fine Gael and Fianna Fail - and that's good for a laugh).
http://www.ft.com/intl/cms/s/0/c663af18-24ac-11e1-bfb3-00144feabdc0.html#axzz1gOMtsvIH

Sweden, Finland, Hungary, Poland and the Czechs are unclear as to the routes they will follow and thus no safe bets for Merkozy.  They are going to hang on until:
a) there are words on the treaty and not just a blank sheet of paper
b) March 2012 when those magic words are due to appear.

The EU (Merkozy) want/need Britain to pony up another 30 Billion Quid to save the Euro (And why not? All 26 other people at the meeting agreed that Britain should kick in, even as Cameron walked out the door.  : )
http://www.telegraph.co.uk/news/8956313/Britain-resisting-EU-pressure-to-contribute-30bn-to-IMF.html

And Britain has a veto on whether or not the other lads get the keys to the clubhouse to have meetings at which Britain is excluded.
http://www.independent.co.uk/opinion/commentators/john-lichfield/john-lichfield-if-cameron-ups-ante-on-the-euro-things-will-get-very-nasty-6276629.html

And even Wee Eck, Alec Salmon, Leader of the Scottish Nationalist Party, is having to pull a Party Quebecois stunt and tell the Scots that if they go independent they will get to keep the Pound....  ;D
http://www.guardian.co.uk/commentisfree/2011/dec/14/alex-salmond-snp-europe

Meanwhile Nick Clegg has admitted that he can't quit the Coalition - It would be the death of the Liberal Democrats.
The voters like what Cameron did.
http://www.telegraph.co.uk/news/worldnews/europe/8956748/Europe-Voters-liked-the-veto-now-they-want-more.html


All in all David Cameron's isolating veto is looking a lot better now than it did last week.

Now then all you Continentals......about that Transaction Tax and Human Rights Opt Outs.......



Meanwhile the Eurocrisis continues, Sarkozy is behind in the polls with a May 2012 election ahead of him and Angela is looking at solving the problem some years down the line.



More to follow.

 

[Good2Golf]

Talk about 'double-speak'!  Bernier takes the cake with this one:

...Above all, we should realise that a single European market needs a single rule book. This is not just my personal view: it is the stated policy of all EU countries, including the UK. In fact, the UK led the call for a single rule book. We should create the basic same rules for banks and financial institutions. This will make our financial system safer, and make it easier for institutions to operate across the EU and benefit from the size and scale of the single market. This is clearly in the interests of the UK's financial sector.

This cannot mean that one size fits all. The principle proposed by the Commission is to implement banking rules for all, but to allow considerable discretion for national supervisors. We have said it before: we believe our proposed rules means the UK can fully implement Vickers. What we don't understand is what more the UK wants. But, as long as the outcome maintains the single rule book, we are ready to find flexibilities.
...

WTF?  ???

[We [EU] all must follow the same rule book, but we'll give you [considerable] flexibility in which rules you have to follow.]


Oh, you mean like 'exceptions', those things that the UK was looking to secure to ensure greater security of the monies that the UK would contribute to ECB activities?  :

 

[Kirkhill]

They go to school to learn to speak like that - specifically "The College of Europe" - one of Nick Clegg's Alma Maters.

Nick's a very modern Brit.

Dutch Mother.  Spanish Wife.  Home in France.  School in Brussels.  Member of the European Parliament.  Aristocratic connections.  And Dad's half-Russian.

In fact he would make an excellent leader of the Liberal Party of Canada.

 

[Edward Campbell]

They go to school to learn to speak like that - specifically "The College of Europe" - one of Nick Clegg's Alma Maters.

Nick's a very modern Brit.

Dutch Mother.  Spanish Wife.  Home in France.  School in Brussels.  Member of the European Parliament.  Aristocratic connections.  And Dad's half-Russian.

In fact he would make an excellent leader of the Liberal Party of Canada.

You weren't paying attention    they tried that ... look at where they are now.

 

[a_majoor]

Third times the charm?  >

 

[GAP]

You weren't paying attention    they tried that ... look at where they are now.

Nah.....they just picked the wrong one....they should try the same pattern again.......right away....

 

[a_majoor]

Say it ain't so:

http://www.marketwatch.com/story/this-slump-wont-end-until-2031-2011-12-14?reflink=MW_GoogleNews&google_editors_picks=true

This slump won’t end until 2031
Commentary: Our predicament parallels Long Depression of 1870s
By Matthew Lynn

LONDON (MarketWatch) — In retrospect, it wasn’t hard to see that the markets were becoming dangerously unstable. Germany had just adopted a new monetary system, and Europe was being flooded with cheap German money. Greece had signed up to a monetary union with Italy and France but was struggling to hold it together.

Financial markets had been deregulated. New technologies were transforming production and communications, allowing money to move across borders at lightening speed.

And a massive new industrial power was flooding the world with cheap manufactured goods, blowing apart old industries.

When it all fell apart in an almighty crash, it was only to be expected.

A prophesy for London, New York or Berlin in 2012? Not exactly. It is a description of Vienna in 1873. In that year, in one of the great crashes of all time, the Austrian markets triggered collapses across Europe, swiftly followed by an equally spectacular collapse in New York. It was the start of what economic historians call the Long Depression, a prolonged period of volatility, unemployment and slumps that lasted an epic 23 years, only coming to an end in 1896.

I have been researching that episode for my new e-book ”The Long Depression: The Slump of 2008 to 2031.” The parallels with our own time are fascinating. German unification, and the adoption of the gold standard, had led to a boom in that country, and cheap German money had flooded Europe. Greece had just joined the Latin Currency Union, an ill-fated attempt to merge currencies across Europe. Banking had been deregulated, which was partly why so much German money was invested on the Vienna bourse. The telegraph created instant communications, allowing the European crash to spread to New York. The U.S. was industrializing, transforming the global economy as much as China has transformed the present era’s economy in the past decade.

All those factors came together to create an almighty bubble, followed by an even worse crash. The slump that followed — although it is hard to measure these things precisely — lasted more than two decades. If the slump following the crash of 2008 is anything like that one, then this one is going to last until 2031.

The Long Depression: The Slump of 2008-2031 by Matthew Lynn.

True, historical parallels are never precise. We won’t replay the Long Depression of 1873 to 1896 exactly, nor will this slump necessarily last as long. It is, however, a far more instructive episode than the Great Depression of the 1930s. And there are five key lessons we should learn from it.

First, depressions can last a very long time, and when their origins are in a debt bubble they should be measured in decades not years. For a century or more, depressions have been relatively short, sharp episodes. They are like having a tooth pulled, rather than a chronic sickness — painful, but over quite quickly. But it doesn’t have to be that way. In the U.K., for example, this is already the longest recession since records began — in the sense that output is still below its 2008 peak. It is more enduring than the depression of the 1930s. That is true of many other countries, as well. If, as seems likely, Europe, and perhaps the U.S., slips back into recession in 2012, it will be clear to everyone we are witnessing something far longer than the conventional economic textbooks allow for.

Second, this depression is structural. The Long Depression of the 19th century had its roots in financial speculation, technological change, and the arrival of a massive new player in the global economy. Our current depression likewise has its roots in three huge crises coming together at the same time. We have a debt bubble that had been building up over three decade and which burst spectacularly in 2008. The dollar is in long-term decline as a reserve currency, and as the anchor for the global monetary system, but there is still not much sign of what will replace it. And in the euro, the biggest single economic bloc has created the most dysfunctional monetary system in human history, threatening financial collapses on an unprecedented scale. Think of it as the world economy’s suffering a heart attack, then a stroke, then getting picked up by an ambulance that crashes on the way to the hospital — it is hardly surprising the patient isn’t in good shape.

Three, it’s uneven. The Long Depression of the 19th century was a sustained period of lower growth compared with what came before and what came afterward. Germany, for example, grew 4.3% annually between 1850 and 1873 and then at 4.1% between 1896 and 1913. But in the Long Depression years, it only managed a growth rate of just over 2% a year. It was similar in other countries. The markets remained volatile, with repeated booms and busts, regularly collapsing back into recession. They did grow occasionally, just as Japan has sometimes grown in what is now its second decade of slump. But the growth is never sustained.

Four, good things are still happening. It isn’t all doom and gloom. In the Long Depression, some countries were largely unscathed. New technologies and industries were being created. The telephone was invented, and the foundations of new industries based on the petrol engine and electricity were put into place. The people who got it right still made huge fortunes, and the workers in the right industries prospered. Overall, however, times were hard. And you had to position yourself carefully.

Five, it won’t be fixed easily. The parallel with the 1930s is dangerous, because it has convinced bankers and policy makers that if you can just pump up demand, everything will be OK. It won’t.

Sure, demand is important — there is no point in letting it collapse. But this won’t be over until all three structural problems get fixed. Debt needs to be paid down to manageable levels, a new reserve currency needs to be created, and the euro needs to be put out of its misery. None of these are simple tasks, and none will be done quickly.

The global economy will eventually get back to normal growth. But the truth is, it is going to be a long, hard haul — and a lot of work needs to be done it get back on track.

Matthew Lynn is chief executive of Strategy Economics, a London-based consultancy. His latest book ‘The Long Depression: The Slump of 2008-2031’ is published by Endeavour Press.

The checksum is the popping of the Japanese property value bubble at the end of the 1980's. One moment the Japanese were supposed to take over the world, then the bubble popped, but the Japanese government tried to prop up the banking system. Banks saddled with billions in non performing loans and property assets worth a fraction of the purchase value stumbled along for two lost decades while the central bank manipulated interest rates trying to goose the economy...sounds familiar?

Canada is in a unique position, our debt is alarming but still small enough we could actually pay it off, through a combination of spending cuts and tax cuts to power the economy into a higher economic growth mode. Cutting subsidies to business will save $30 billion a year, even just eliminating Crown Corporation would save over $8 billion; twice what the Government is looking for in austerity cuts today. Tax cuts provided Ontario with an additional $20 billion in revenue by the end of the Mike Harris era, and Saskatchewan today is growing rapidly now that the dead hand of the NDP government is gone (the resource boom helps, but remember Sask did not benefit from the oil boom of the 1980's like Alberta did, despite having a similar basket of resources. Saskatchewan's oil stayed in the ground while Alberta's flowed). If each province could generate an average of $3 billion/year extra in revenues that would pretty much eliminate the deficit; spending cuts would take care of the debt...

 

[Kirkhill]

Talk about 'double-speak'!  Bernier takes the cake with this one:

WTF?  ???

[We [EU] all must follow the same rule book, but we'll give you [considerable] flexibility in which rules you have to follow.]


Oh, you mean like 'exceptions', those things that the UK was looking to secure to ensure greater security of the monies that the UK would contribute to ECB activities?  :

You know G2G, on re-reading that I think I finally get it.

It goes to the heart of something I suspected a long time ago.

Consider:  The National Electrical Code.  There is one rule book.  There are many inspectors.  Just because you follow the rule book to the best of your understanding, and one inspector in Ontario agrees with you, there is no guarantee that other inspectors will also agree with you in BC, for example.

This is normal.

But.

In Europe there is a cultural divide based on this. 

The Northerners expect rules to be followed.  Therefore they make few rules and tie themselves to them.  Inspectors have a limited role.

The Southerners, like M. Michel Barnier, consider rules to be totems.  They are evidence of civilised thought.  There should be lots of them thereby demonstrating how civilised the organization is. 

Now, as to following the rules, that is another matter.  The rules are so complex that nobody can understand them let alone follow them. Trying to unravel and interpret them is a job best left to the professionals.

And so professionals spend their days perusing books of rules and adding to them.

Meanwhile, your average southerner, on discovering that he can't predict when he will run afoul of the rules, and the local inspector, reverts to Plan B.

He goes directly to the inspector, and finds out how much it will cost to allow him to do what he wants to do.  Everything is negotiable.

Meanwhile bureaucrats occupy themselves talking to each other and generating more rule books that nobody ever reads and nobody in the real world ever pays attention to.

M. Barnier should be complimented for being so clear.  :