Canada's Place in the Global Economy

[Nemo888]

Europe is on borrowed time. Most of their money supply is artificial. Merely rehypothecated credit with negligible assets backing up these phantom Euros. The West stopped making wealth in the Reagan/Thatcher era. We chose to let bankers invent wealth instead. We cut the root of long term economic success and sought to exploit third world countries to do our work for us paying them with money our bankers invented.  How can you have a wealthy nation if you have no manufacturing? It will never work for long because the only way is to game the system and exploit another nation. Eventually they get wise and start charging you more and what usually happens is either financial collapse or invasion and colonization. We are not safe at all. Our banks have hundreds of billions of dollars tied up in this Ponzi scheme and no manufacturing base to fall back on.

Fixing the system now or later are the two choices. Shoring up a corrupt and self serving elite with more fractional reserve banking and shoveling taxpayer money onto their plates will not fix the structural problems. It will only make things harder to solve later.

 

[Kirkhill]

Fixing the system now or later are the two choices. Shoring up a corrupt and self serving elite with more fractional reserve banking and shoveling taxpayer money onto their plates will not fix the structural problems. It will only make things harder to solve later.

Will you give the Class Warrior rhetoric a rest, man?
Karl Marx is dead and buried and so is Das Kapital.

Those banks that you resent so much are holding my retirement.  I certainly have no interest in seeing them go titsup.  On the other hand, it would be true to say that I'm not overly thrilled when I see my Banker driving a better car than I can afford....but it was ever thus.  Just ask the Pharisees.

 

[Nemo888]

The bank holding most of my retirement funds, CIBC, used my money as an asset to gamble 72 billion in the European market using fractional reserve banking practices(off balance sheet, thanks lax London Exchange filing regulations) that are neither safe nor sustainable. For taking huge risks with my money they gave themselves huge bonuses and retained great profitability during the worst recession in 80 years. If they lost the bet  taxpayers would have to bail them out. When that happens words like plutocracy become important. A word invented by the same people who invented democracy as a cure for this social illness, not Karl Marx. I want to vote against retail banks being able to rehypothcate funds(Multiple parties using the same sketchy collateral to obtain credit.) in a near endless fashion to invent profitability. All the political parties are afraid of telling retail banks to be the safe, boring, risk averse ventures they were designed to be after the Great Depression. How many bubbles will it take before people get tired of this? A bit of belt tightening will not help when half of Europe's money supply evaporates. Retail banks need to be split off from commercial and investment banks or taxpayers will be left holding the bag for these rich douche bags yet again.

If you know that if you gamble and win you make millions in bonuses and if you lose taxpayers pay the bill (and you get millions in bonuses) what incentive is their to make sure people keep their investments? Looking good on paper for the next quarterly bonus is all that matters. Perverse incentives at their worst. If we split off retail baking they are no longer too big to fail and will, without further regulation, reduce their risky practices. Demanding Greece stay afloat so the entire system does not collapse is a temporary measure. The Greeks will not put up with this for for long. Best to regulate now before it is too late.

 

[ModlrMike]

Canadian banks were not bailed out. They did not receive taxpayer monies for bad loans. The government bought loans that it was on the hook for under CMHC anyways, in the process injecting cash into a system that was cash starved.

 

[Nemo888]

If the billions on margin in the LSE are not deleveraged and Greece defaults it is very likely they would have to be bailed out. That is my point.  LSE's off balance sheet rehypotecation is a ticking bomb similar to sub-prime. Some estimate 75% of the funds are without paper to back them. A conservative estimate could see 100 billion in Canadian assets evaporating if the LSE fell apart in a Euro bond crisis. I don't think the Canadian economy could come back from that. It would be nice to have retail banking fire walled from that eventuality. The idea of letting banks play the stock market was always a bad idea IMO. It did make investing so much more convenient though. Even I am tied up in this fiasco now.

 

[SeaKingTacco]

If the billions on margin in the LSE are not deleveraged and Greece defaults it is very likely they would have to be bailed out. That is my point.  LSE's off balance sheet rehypotecation is a ticking bomb similar to sub-prime. Some estimate 75% of the funds are without paper to back them. A conservative estimate could see 100 billion in Canadian assets evaporating if the LSE fell apart in a Euro bond crisis. I don't think the Canadian economy could come back from that. It would be nice to have retail banking fire walled from that eventuality. The idea of letting banks play the stock market was always a bad idea IMO. It did make investing so much more convenient though. Even I am tied up in this fiasco now.

Nemo,

You had a good point. Fractional banking bad. Over leveraging bad.  We get it. Reposting the same thing, over and over and over again does not make your point stronger or contribute much to the discussion.

 

[Fishbone Jones]

If the billions on margin in the LSE are not deleveraged and Greece defaults it is very likely they would have to be bailed out. That is my point.  LSE's off balance sheet rehypotecation is a ticking bomb similar to sub-prime. Some estimate 75% of the funds are without paper to back them. A conservative estimate could see 100 billion in Canadian assets evaporating if the LSE fell apart in a Euro bond crisis. I don't think the Canadian economy could come back from that. It would be nice to have retail banking fire walled from that eventuality. The idea of letting banks play the stock market was always a bad idea IMO. It did make investing so much more convenient though. Even I am tied up in this fiasco now.

Have you closed your accounts?

One can't be a true revolutionary (insert your favorite communist\ socialist here) and condemn "The Man" and it's "Institutions" while supporting it at the same time.

 

[a_majoor]

Nemo:

Transfer your banking, investments and RRSP to the local credit union.

Problem solved

 

[Edward Campbell]

More, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail on the potential benefits of a pipeline to West Coast ports - or the cost to Canada of obstructing such a pipeline:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/blocking-pipelines-to-bc-would-entail-loss-of-billions-study/article2272388/

Blocking pipelines to B.C. would entail loss of billions: study

CARRIE TAIT

Calgary— Globe and Mail Update
Published Thursday, Dec. 15, 2011

Canada will forgo billions of dollars in gross domestic product and government revenue if oil companies are unable to access markets off the Pacific coast, according to a new study.

Moving Canadian heavy oil to the West Coast, where it can be shipped to markets in California and Asia, could add up to $131-billion (U.S) to Canada’s GDP between 2016 and 2030, according to a new study prepared by researchers at the School for Public Policy at the University of Calgary. This translates to $27-billion in federal, provincial and municipal tax receipts, the academics calculated.

Politicians, the energy industry, and others supporting pipelines to the West Coast continually point to the predicted economic benefits for Canada if more infrastructure designed to carry oil westward were built. However, precise numbers have been scarce. The university’s report will give pipeline proponents tangible, independent, numbers they can use to support their arguments. But at the same time, price scenarios and forecasts are notoriously difficult to nail down.

The study expects 649,000 person-years of employment would be created if greater access to Pacific tidewaters materialized. It predicts Canadian heavy oil will be worth $6.65 more per barrel in 2016 in California, and up to $8.77 more per barrel in 2013, compared to oil sold in certain other markets. Oil reaching Asia will put an extra $10.30 per barrel in producers’ pockets in 2016, minus transportation costs, and $13.60 per barrel by 2030.

“Those higher prices for Canadian heavy oil would translate into massive increases in profits, jobs and government revenues. With the necessary governmental backing for new pipelines, oil producers with easy access to international markets could add up to $131-billion (U.S.) to Canada’s GDP between 2016 and 2030,” the report said. “Every single province and territory will realize fiscal and economic gains by supporting a healthy, globally focused national oil industry.”

The report adds: “The outcome in terms of GDP throughout the Canadian economy of exploiting the full range of this differential is non-trivial, approaching 1 per cent annually in an economy currently estimated at $1.57-trillion dollars.”

Two main projects are focused on shipping Canadian crude to the West Coast: expansion of Kinder Morgan Inc.’s existing Trans Mountain pipeline; and construction of Enbridge Inc. (ENB-T36.06-0.06-0.17%)’s controversial Northern Gateway pipeline.

The federal government is a strong supporter of shipping to the West Coast, but opponents argue the potential for pipeline leaks and tanker spills make the projects unworthy. Further, green groups are pushing to block the pipelines in hopes that this will slow oil sands production, which is expected to double to three million barrels per day by 2020. At Canada’s forecast rate of oil production growth, existing pipelines in all directions could reach capacity as early as 2014, the industry calculates.

That, $131 Billion over 14 years or nearly $9.5 Billion new dollars of income every year, is a fair chunk of change. It does not seem reasonable that a few thousand people in isolated, welfare dependent first nations should be allowed to stand in the way of 650,000 person years of employment - many of them for first nation members. But I don't think they, the first nations, will stand in the way for too long. I am confident that their leadership is venal and can be bought.
 

 

[Retired AF Guy]

More, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail on the potential benefits of a pipeline to West Coast ports - or the cost to Canada of obstructing such a pipeline:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/blocking-pipelines-to-bc-would-entail-loss-of-billions-study/article2272388/

That, $131 Billion over 14 years or nearly $9.5 Billion new dollars of income every year, is a fair chunk of change. It does not seem reasonable that a few thousand people in isolated, welfare dependent first nations should be allowed to stand in the way of 650,000 person years of employment - many of them for first nation members. But I don't think they, the first nations, will stand in the way for too long. I am confident that their leadership is venal and can be bought. 

Personally, I think the leadership may have already been bought - by foreign charities like the Tides Foundation and environmentalist groups. The key players here are not the band chiefs/councils, but the band members. If the provincial/federal governments are smart, they are the people I would appeal to, not the chiefs. Come up with a program that gives them jobs and security and an improvement in life, and protection of the environment and they could have a winner.

 

[Nemo888]

Even better build a refinery on the coast and ship fractionated product. I always wonder why we don't upsell our natural resources more. It is also possible to use nuclear power to extract the oil from the tar sands.  Make a liquid heavy metal thorium reactor to boil water. Not a huge technological hurdle. Solves so many problems. Nuclear weapons proliferation, CO2 emissions, the waste material decays very quickly so it is very safe by comparison, etc. We need to be bold IMO.

 

[Nemo888]

I am pretty pissed still. I only found out about this level of risk a few days ago. Still in shock. Not retiring like some of those Nortel employees sounds like a nightmare. Did they ever get screwed.  I am wondering where to find a safe place to invest. Gold is already out of reach IMO. The best things I could come up with is stock in something recession proof like Walmart, corporate bonds, or in something to do with repossession/bankruptcy agents if things start to go south again. The worse things get the more people will shop at Walmart. So much depends on the government's reaction to the other shoe dropping it is  hard to decide. Investing in independence is looking attractive. An antenna instead of cable, solar panels, a wood stove and perhaps going in with a neighbor on a rototiller. A few people need to take a risk averse path just in case.

 

[a_majoor]

1. Invest in things like a "Victory Garden" and rain barrels
2. Try to avoid debt instruments as investments. Exception, if you are directly lending money to a mortgage where you can assess the risk. (Note, even the Canadian housing market is considered by some experts to be overvalued by as much as 25%)
3. Commodities will still have value, but not as much as before if the economy crunches and demand falls
4. People with nerves of steel might consider taking short positions on vulnerable stocks
5. Get marketable skills or stockpile marketable "stuff"; during the hyperinflation of the 1970's in Argentina, people would stockpile anything they could get their hands on on payday, houses full of shoes, appliances and cars parked in the yard to trade with.

Other ideas are in many of the "economy" threads.

 

[Good2Golf]

...I am wondering where to find a safe place to invest. Gold is already out of reach IMO...

You mean you don't have at least $1600 in savings?

 

[Nemo888]

Gold may already be in bubble territory IMO. Even the prices on gold mining and production companies have already spiked. Though you could easily see 2000$ an ounce if things crashed I don't think it is the best thing to invest in right now. If that reaches 3000$/oz I have another back up plan. My dad still has a claim on some gold producing land in BC. But with only about 2 grams of flake for a days work it's not worth working. Gold only sells for 50$ a gram right now. At 100$ a gram that could be a nice semi retirement.

 

[Kirkhill]

On the subject of gold: My education continues.

I have come out in favour of a return to the Gold Standard.  I have changed my mind.  And not for the first time. 

Watching what is going on in Europe has been my education.

What Germany is doing to the Eurozone is effectively holding the Eurozone to a Fixed Standard of Exchange, roughly equivalent in effect to a Gold Standard.

This morning France is moaning that their economy is in better shape than the UK's and that the UK's credit rating should be cut before France's is cut.  Arguably they have a point.  (But they are wrong.....They are French.  > ) 

The difference is that Britain can continue to write IOUs to the world denominated in their own tender.  In some sense each Pound Sterling could be looked at as a stock option in UK PLC.  People will continue to put their money into Pounds just so long as they believe their money is safe there.

On the other hand the Euro is a stock option issued by the Eurozone.....whoever and whatever that entity is, whatever their rules might be and if it continues.  Right now 300 years of the Bank of England looks better than 10 years of the ECB as a bet.  (And the Swiss Franc continues on unperturbed).

If Germany has its way then the Euro will become as good as  gold.  But that will only happen if Hungarians decide they are Italians, Lombards decide they are Danes and Hessians decide they are Lyonnais and accept one federal government as we do here in Canada.  (The Scots seem in danger of shooting themselves in the foot if they continue to play Silly Bugger and follow the PQ line.... but that's another story.  The Bank of England predated the Union and I have no doubt it will survive the Union).

In the absence of a European Federal Government, or in the event of a Bundesbank Federal Government, the Europeans might as well revert to the Gold Standard, or the Rimbi, or the Beloved Yankee Dollar.  They will have comparable control over their economies.

The difference, as I see it, between being on a Fiat Currency or being tied to the Gold Standard (or the Euro) is the difference between being able to write cheques and sign mortgages versus being held to Cash on the Barrelhead payments.

The Canadian Dollar may have swung from 105 Yankee Pesos to 65 and back again during my time in Canada, and some years life looked better than others, but all things considered I'd prefer to relive the last 40 years with the same decisions Canadian Governments have made (good and bad) than face the future most Europeans are looking at.

When it comes done to it - decentralization and trust win the day. 

That is true whether you are betting on your neighbour to repay the mortgage that you personally hold, whether you are looking at outfits like Walmart or Electrical Appliance manufacturers because people always need "stuff" regardless of the denomination of the currency (a 1000 dollar stove is a 100,000 penny stove and a penny used to buy you 4 farthings back when a farthing bought you 4 lbs of brown bread - ca 1256 London), or whether you are looking at investing in a country.

Canada, as a country, has good neighbours internally, has lots of stuff to sell, has an ability to convert that stuff into other stuff that sells better, has great institutions like the Government and the Bank of Canada - and still has the ability to write its own IOUs and have them accepted internationally.

Ultimately, for all those reasons, I am standing pat.

As Bruce Bairnsfather's "Old Bill" said: "If you know a better 'ole, go to it!"

I don't know a better hole right now.

;D

 

[Brad Sallows]

That's why the blocks go up - money, "squeeze".

 

[Kirkhill]

I'm not an economist but I'm enjoying learning how to play one just now.... 
The Daily Telegraph posted this comparison between France and the UK

Graphic Comparison  Scroll Down to 15.15


Re-Edit:  Third time's the charm.


Problem

France UK
Income = GDP BUSD 2676 2480
Assets 7500 11485
Assets at Risk 24.3% 14.4%
Risk 1823 1654

Debt 2285 2083
GDP at Risk 80% 79%

GDP Growth 1.60% 0.90%
2011 Income 2719 2502
GDP if Default 2718 2502
Impact on GDP 67% 66%

Impact on Economy Roughly Equal




Solution 1 - Sell More

Exports Current 509 665
Export Growth -0.30% 1.50%
Exports Future 507 675

Years of Export Income  to Offset Risk 3.6 2.5

UK can offset the Impact with Export Revenues in only 66% of the time (decreasing)
France will take 50% more time than Britain (increasing)




Solution 2 - Work Harder



Labour 28.21 31.45
Hours per Year 8,760 8,760
Labour Hours Per Year 247,120 275,502

Unemployment 9.70% 8.30%
Workers 25.5 28.8
Hours per Worker 1533 1674
Hours Worked 39,051 48,278

Average Taxes 49.80% 33.80%
State Hours 19,447 16,318
Personal Hours 19,604 31,960
Leisure Hours 208,069 227,224

Controlled Work Hours 46,405 Unlimited
Opportunity Hours 7,354 227,224


The French Government already demands 689 hours of labour from every employable citizen compared to 519 demanded by the British Government (or 33% more)

The French Government limits the number of hours a citizen works to 1645 per year meaning the  citizen is limited to only 956 productive hours for personal consumption

Of the 956 hours of personal consumption 695 are already being worked.

That leaves only 261 hours per citizen of additional capacity or 7,354,000,000 Labour Hours.


By contrast the British economy has 227,224,000,000 untapped hours of labour as there is nothing to prevent every British citizen working all their leisure hours if they so choose.
That means Britain has 31 times more untapped capacity than France.

Of course France could change its laws - but the Unions won't have it.  And to be fair, you'll never get all those Brits working that hard -  But Britain has a much higher level of available capacity.

Hiring Hurdle (Min Wage) 1365 1139
Workers Hired               100 120

In addition, with the Minimum Wage provisions, France's being higher, business men in Britain can afford to engage 120 workers for every 100 workers that French business men can engage... If they can find people willing to accept the minimum wage.

Summary

Britain has equivalent exposure to risk but greater opportunity to sell or work its way out of the crisis.

 

[a_majoor]

The UK MOD starts making plans for the Eurozone meltdown:

http://www.telegraph.co.uk/news/uknews/defence/8957513/Eurozone-crisis-poses-military-risk-warns-defence-chief-General-Sir-David-Richards.html

Eurozone crisis poses military risk, warns defence chief General Sir David Richards
Defence chiefs are drawing up plans to cope with the potential military fallout from the eurozone crisis, according to General Sir David Richards.

General Sir David Richards, the Chief of the Defence Staff
By James Kirkup, Deputy Political Editor10:37PM GMT 14 Dec 2011 711 Comments

It is understood that Armed Forces planners are looking at the possibility that a new global financial crash could undermine the defence forces of key British allies.

The head of the Armed Forces warned that economic issues pose a “strategic risk” to Britain.

Senior British commanders and officials are concerned that US plans to cut defence spending will be followed by other allies in Europe and elsewhere.
Reductions in allied military capabilities could put a greater burden on Britain’s stretched forces in Afghanistan and elsewhere, it is feared.
The military planning work has come to light after The Daily Telegraph disclosed last month that British embassies in the eurozone have been told to prepare emergency plans for the demise of the euro and the possible civil disorder that could follow.

Senior ministers are increasingly convinced that the break-up of the single currency is a real possibility. Economists suggest that the failure of the euro could cause EU economies, including Britain’s, to shrink by up to eight per cent.

Gen Richards, the Chief of the Defence Staff, said economic issues present the biggest threat to Britain and its interests in the world.
“I am clear that the single biggest strategic risk facing the UK today is economic rather than military,” he told the Royal United Services Institute

“Over time, a thriving economy must be the central ingredient in any UK Grand Strategy. This is why the eurozone crisis is of such huge importance not just to the City of London but rightly to the whole country and to military planners like me.”

The Armed Forces are facing painful cuts and the loss of tens of thousands of personnel, but Gen Richards said that such austerity was necessary.
“The country’s main effort must be the economy. No country can defend itself if bankrupt,” he said.

He used his speech to raise questions about the ability of European economies to sustain their armed forces. He asked: “What impact will fiscal restraint and slow recovery have on European defence capabilities?’’

Gen Richards also noted that America, which is facing deep defence cuts, has said it will switch the focus of its main military effort from the Atlantic to the Pacific and south-east Asia.

That means “less emphasis on Europe and her problems,” he said. Gen Richards also accepted that Britain’s defence cuts carry risks, but insisted those risks were acceptable.

“It will mean taking risk. But managing risk is ultimately what we do and none of us in the Armed Forces are discomforted by the challenge,” he said.
The Armed Forces will need to “combine realism with imagination”, he said.

 

[a_majoor]

Rebuild the Anglosphere? Aye!

http://blogs.telegraph.co.uk/news/danielhannan/100124393/a-generational-chance-to-recast-britains-foreign-policy/

Daniel Hannan is a writer and journalist, and has been Conservative MEP for South East England since 1999. He speaks French and Spanish and loves Europe, but believes that the European Union is making its constituent nations poorer, less democratic and less free.

A generational chance to recast Britain's foreign policy
By Daniel Hannan Politics Last updated: December 16th, 2011

The Anglosphere is a better prospect than the EU

Britain has stumbled accidentally upon an epochal opportunity. David Cameron is plainly sincere when he says he went into the Brussels summit hoping for a deal. Most British commentators (including me) were in despair over the extent to which he had watered down his demands. He wasn't asking for powers back; he wasn't asking for an exemption or protocol (as the French have on cultural issues, the Danes on second home ownership, etc). All he wanted was an assurance that the single market wouldn't be distorted in ways that were detrimental to the City of London. Far from being a concession, this would have represented a confirmation of the status quo.

Yet, unbelievably, even this tiny fig-leaf was too much for Nicolas Sarkozy and his federalist allies. Faced with a choice between propping up the euro through the EU Treaties and lashing out at London, they lashed out.

The prime minister thus finds himself, without having intended it, with a generational chance to recast our foreign policy. Philip Blond argues that Britain should become the leader of the non-euro states, and there is certainly some mileage in providing a counterweight to the FU. This was, broadly speaking, our policy during the 1960s, when we built up EFTA – which, to this day, remains immensely wealthier than the EU. (Interpolation; This isn't something I have seen before. If the EFTA is so much wealthier, then it seems a clear choice to go with the winner...)

That, though, is only the beginning. Having negotiated a looser form of association with the FU, Britain should raise its eyes to more distant horizons. Our place is not with the declining and irritable nations of the Old World, at least not entirely; we should also be exploiting our relationship with the developing markets, in particular those in the Anglosphere.

Now here's the good news. To the extent that he can pursue any kind of meaningful foreign policy within the EU, that is precisely what the PM has so far been doing. A couple of months ago, on the occasion of his address to the Canadian parliament, I noted that David Cameron's instincts on foreign policy were, in a rather undogmatic way, reassuringly conservative:

This government is perhaps the first since Anthony Eden's to take seriously our relationship with those distant lands to which we are soldered by history and habit, by sentiment and outlook, by blood and speech. David Cameron's foreign policy focus has so far been impeccable. His chief diplomatic energies have been directed at Australia, New Zealand, Canada, Pakistan and, in particular, India. In Europe, his priority has been the Nordic and Baltic states whose outlook most resembles our own; and, at the other end of the continent, Turkey. He is, in short, doing the best he can within the unhappy constraint of EU membership.

Now, in a benign and unlooked-for development, that constraint might be lifted. We might just be about to reassume the global vocation which our fathers took for granted.