Boom and Bust

Yep that's the prediction being made by some chicken little economists.

History shows boom could turn into a bust

Economist: Rate hikes key

The sixth commodity boom since 1972, it is about 60% longer in duration and more than double the amplitude the average of the last five booms.

Booms that peaked in 1981, 1990, 1997 and 2001 were each followed by large price reversals. In the last three booms, which had averaged 40 months, prices gave back 60% of their gains on average within just 16 months.

There was one major exception. Prices stabilized for a lengthy period after the peak in 1974, largely because the government controlled oil prices.

In four of the five cycles, the peak in commodity prices occurred within a few months of the peak in monetary conditions. The economy then experienced a recession or sharp slowdown.

Which leaves the Bank of Canada between a monetarist rock and a hard place. Raise interest rates and hasten a cooling off of the market prices? Or leave well enough alone. The latter of course is anathema to the interventionists at the bank, though common sense to the rest of us and the market. Dollar surges on jobless report

Canadian Labour Congress/Jobs: Labour to the Bank of Canada, 'Don't Slam the Brakes!'

Employment is at the highest level since 1974. Commodity prices are at the highest level since 1974. Inflation is lower than in 1974

In 1972 the Arab Oil embargo led to increased oil prices and increased employment and wages. 1974 the markets crashed and led to the long recession of ten years and increasing interest rates and declining employment. Wage and Price controls were introduced followed in the eighties with the high interest rate policies of the Tories. All for naught. Things got worse until oil and the markets were regulated.

Canada Mortgage and Housing Corporation: Strong Labour Market Fuels Housing Sector

Canadian economy booms with gains in consumer spending

With current worker productivity (surplus value) increased three times higher than wages, despite the failure of Canadian capitalists to invest in productive technology, the market boom is being driven not by production or manufacturing by by consumer growth in the housing and extended credit card debt.

Soaring dollar helps fuel record jobs boom

Canada's shopping, hiring spree sends unemployment rate to 31-year low

The high dollar has also kept inflation under wraps, letting interest rates stay lower in Canada than in the United States, economists noted. And lower interest rates have led to a building bonanza across the country -- meaning lots of jobs in construction, real estate, financing and home-related services. "We would expect services to do well with the higher dollar, and concomitant with that, lower interest rates," said Philip Cross, chief of economic analysis at Statscan.

Economy employment surge 'off the charts'

96,700 new jobs in May: Central bank could feel pressure to raise ratesStatistics Canada said the jump drove unemployment down 0.3 percentage points lower to 6.1%, the lowest level since 1974.

After cooling earlier in the year, wages increased 3.8% in the month from 3.1% in April, driven by a scorching 7.3% rise in Alberta.

The Canadian dollar, hammered in recent days by the plunge in commodity prices, staged its biggest one-day bounce on the report in nearly two years. It rose 1.6% to US90.45 cents.

"I feel kinda whiplashed," said David Wolf, Canadian economist at Merrill Lynch. "On the face of it, it's gargantuan. It's off the charts."

"Arguably for the Bank of Canada what's really important here is the unemployment rate at 6.1% and the fact the wage measure popped right back up to almost it's cycle high,

The breakdown of job creation matches up with what has been happening in the economy.

The largest gains were in finance, insurance, real estate and leasing -- industries which have been feeding off the real estate boom and previously soaring stock markets.

CANADIAN COMPETITIVENESS:
A Decade after the Crossroads

The growth of the Canadian economy in the last ten years has been fuelled primarily by a higher proportion of employed persons in the workforce and longer working hours, especially in the second half of the decade. In contrast, capital investment experienced a declining growth rate, and multifactor productivity growth was strikingly low.

In the traded goods sector, the decline in relative productivity[10] combined with the fall in worldwide commodity prices during the 1990’s precipitated the dramatic fall in the Canadian dollar. It traded at 87 cents US at the release of Canada at the Crossroads, but fell by mid-1998 to a trading range of 63-69 cents US.[11] The fall in the exchange rate eroded the living-standard of Canadians further.

While some laud the lower Canadian dollar as enhancing competitiveness by decreasing the relative prices of our exports, the true effect is exactly the opposite. A low Canadian dollar dulls the incentive for upgrading and competing on any basis other than lower price. In addition, in the Canadian context, the low dollar makes investment in upgrading more expensive. Approximately 70% of Canada’s installed machinery and equipment is imported.[12] Consequently, the low dollar during the 1990’s made machinery and equipment imports dramatically more expensive, which is likely to have contributed to a fall in the growth rate of capital stock per worker, thus making labour productivity growth still more difficult to achieve.

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