Harper and Flaherty's Conversion

Ottawa faces up to reality of deficits Here is the real reason that Harper and Flaherty had their economic conversion on the road to Damascus.

Budget officer questions projected federal surplus

OTTAWA - Canada's parliamentary budget officer is publicly questioning the projected budget surpluses of the Conservative government's recent economic statement and is asking for evidence to back up the predictions.
Kevin Page asked Finance Deputy Minister Rob Wright to turn over details on the projected spending reductions in departments and asset sales that the government has said will generate $10 billion in savings over five years. These are seen as key to the maintenance of a federal surplus.
Page's letter, sent on Dec. 3, has now been posted on the budget office's website. It asks for a reply this week.
He also asked for economic data and assumptions used for the 2008 budget and recent economic statement. Finance refused to give the data for the 2008 budget even though the numbers are routinely turned over to Bay Street forecasters. The assumptions, key to estimating the impact of economic volatility, used to be published by previous governments.
In his economic statement, Finance Minister Jim Flaherty projected a budget surplus of $100 million for 2009-10 based on the sale of about $2 billion in assets that he didn't identify.
Page tabled his office's assessment of Flaherty's economic statement last week, but the report got lost in the storm of the political crisis sparked by the Liberal-NDP coalition's attempt to topple the Prime Minister Stephen Harper's Conservative minority.

But as usual they will use a red herring to distract us from their complete failure to address this crisis earlier. Just as they used the opposition coalition as a red herring to seize power in Ottawa.

Canada's banks are being set up.
Prime Minister Stephen Harper has misplayed the financial crisis from the start. The lack of political leadership in this country is staggering. Now Mr. Harper – who dictates lines to his Finance Minister – has finally woken up to the fact 2009 will be one grim year for the domestic economy. '10 doesn't look too hot either. Someone will wear responsibility for a deep recession. The Conservatives are skating hard as they prepare to pin this one on the banks. The politicians will claim the banks hoarded capital, and refused to lend, and that sent consumers and corporations over the cliff. It's nasty, it's cynical, it's destructive and it doesn't happen to be true. But that's clearly going to be Mr. Harper's line.

And despite Flaherty threatening the banks, the Harpocrites have not addressed the increased service charges on credit cards the banks have made, the fact that interest on credit cards is as high as it was during the recession in the eighties, and that banks still charge usury rates on ATM fees.

Feeling the crunch
Rising card transaction fees may mean higher prices, retailers say

Restaurant industry supports cap on credit and debit card fees

RCC applauds Alberta Premier's call to Harper for limits on credit and debit fees

Suddenly the issue raised by the NDP is no longer pie in the sky. However unlike Stelmach, the NDP called for the elimination of ATM fees, not just a cap. And we need to see a reduction in usury interest on credit cards. Banks loaning millions to capitalist enterprizes will have less effect than reducing /eliminating service charges, reducing credit card interest and eliminating ATM fees.

New Brunswick Senator Pierrette Ringuette is calling for a federal probe and stronger regulations on fees charged by credit card companies .Canadians hold 64.1 million credit cards, and 80 per cent of them are issued by the two main players in the industry, Visa and MasterCard. Consumers already pay an average of over 24 per cent interest.Visa and MasterCard have about 80 per cent of the national credit card market. Credit card companies are, therefore, extremely wealthy and powerful. Is this a 'collusion' situation because of this 'quasi monopoly' situation?" Ringuette also raised the concern felt by business and retail lobby groups that rates for debit card transactions could increase. There has been concern that the Interac Association, the non-profit group which administers debit and direct payment, could change to a "for-profit" organization. If this happens, the retail council is concerned that the private corporation could be purchased by the credit card companies and therefore create an even greater monopoly over plastic in Canada.

The Canadian Imperial Bank of Commerce said it would tighten credit card lending through 2009, as it announced its fourth-quarter profit fell by 50 per cent from the same quarter in 2007 — mainly because of higher credit card delinquencies. Some banks have also raised credit card interest rates by five percentage points for customers who are late with their payments. Art Thornton, a bankruptcy trustee in Ottawa, says the changes will mean more business for him."It's going to increase the interest rates noticeably to people who can ill-afford to pay, and it's going to render them — in many cases — insolvent."

And this NOT the issue that Flaherty or Mark Carney are addressing when they challenge the banks to free up credit after bailing them out and reducing the Bank of Canada rate.

Hyer Questions Gov't on Credit Card Processing Fees
Friday, 28 November 2008
Ottawa, ON -- Thunder Bay Superior North MP Bruce Hyer was up in Question Period on Thursday. Hyer was questioning the government over the cost of credit card processing fees.Here is the transcript of the exchange in the House of Commons:

Mr. Bruce Hyer (Thunder Bay—Superior North, NDP): Mr. Speaker, small businesses create a huge percentage of all the job growth in Canada. We should be helping them, not hurting them.The Canadian Federation of Independent Business is demanding that this government act before the big banks' next big cash grab. Our small businesses are facing a 10,000% increase in their Visa and MasterCard merchant fees. Is this fair?Does the government believe that it is not its problem, or that it can just not do anything about it? Which is it?

Hon. Diane Ablonczy (Minister of State (Small Business and Tourism), CPC): Mr. Speaker, the member raises an issue of real importance to small business. As he knows, the Canadian Federation of Independent Business has been speaking with the players about this issue. The fact of the matter is that the banks in this country are competitive. They are free to put forward products to all of the customers they have, including small business.The Minister of Finance has written to the banks about this issue asking them to deal with it. We are awaiting their responses momentarily, and we believe we can work on it together.

Bank of Montreal Profit Rises on Consumer Banking

Canadian consumer-banking profit rose 20 percent to C$344 million from a year earlier as personal loans rose 21 percent and it added more mortgages. Commercial loans and credit-card revenue also rose from a year earlier.

Royal Bank of Canada reports fourth quarter and 2008 results

Canadian Banking net income was $2,662 million, up 5% or $117 million from last year, reflecting solid volume growth across all businesses and effective cost management, partially offset by margin compression and increased provisions for credit losses. Net income was up 13% over last year, excluding the impacts of a $326 million ($269 million after-tax) gain related to the Visa Inc. restructuring and a $121 million ($79 million after-tax) credit card customer loyalty reward program liability charge recorded in the fourth quarter of 2007.

Scotiabank Reports Fourth Quarter and Full Year Results

Canadian Banking's average assets grew by $21 billion or 14%, primarily in mortgages. There was also strong growth in personal revolving credit and other personal loans, as well as in business lending to both commercial and small business customers. Card revenues were a record $397 million in 2008, an increase of 8% from last year. International card revenues increased 11% due to strong growth in Peru, the Caribbean and Mexico. Canadian revenues were up 6% year over year, due mainly to higher transaction volumes. Credit fees of $579 million were $49 million or 9% higher than last year. There were higher acceptance fees in Canada, from both corporate and commercial customers.

It's time to 'shift to thrift'

A recovery in consumer spending will have to wait until Canadians pay down the excess credit card and mortgage debt accumulated in the past decade. Total personal debt nearly doubled between 2002 and the first half of 2008, when it stood at $1.2-trillion. The ratio of debt to disposable income rose from 98 per cent to 130 per cent over that period, while interest payments as a share of available income were virtually unchanged.
Canadians were besieged with advertising messages that promoted borrowing over those years. With credit so cheap and housing prices surging ahead, households took on a lot of risk. Now debt burdens look much too high.
We can take some comfort from the fact that the loans outstanding here are nowhere near as risky as mortgages in the United States. According to the Canadian Housing Observer, Canada has “a negligible subprime mortgage sector; [and] it is characterized by prudent underwriting.” And in Canada, mortgage insurance to protect the lender is mandatory for high-ratio loans.
But there is no insurance to protect the borrower when housing values decline or when someone in the family loses their job. If you ask people living in homeless shelters what sent them on a downward spiral, the common theme is a combination of losing their job, being unable to work because of injury or illness, and then losing their home.
This is a terrible price to pay for doing what was advertised as the smart thing to do.

Find blog posts, photos, events and more off-site about:

Canada,, banks,, banking,, BMO,, Bank of Montreal,, Banks,, Canada,, bank, Royal, Bank-Of-Nova-Scotia, banking-regulations, disclosure, Bank of Canada, dollar, Canada, deflation, loonie, exchange-rates, 1961,

Canada, Flaherty, politics, Conservatives,consumer spending, tax-credit, Stelmach, economy, government, Conservatives, Harper, recession, Conference Board of Canada, consumer confidence, Economy, asset-backed commercial paper ,, goldhomes, mortgages, housing, bubble,

Not A Technicality Anymore

So much for the spin that this is only a 'technical' recession. It is now official....

"While Canada's economy evolved largely as expected during the summer and early autumn, it is now entering a recession as a result of the weakness in global economic activity," the bank said in a statement.
It was the first clear admission by the bank that Canada is joining most major economies in sliding into recession, typically defined as two consecutive quarters of contraction, although Governor Mark Carney had hinted at it last month.

Funny but we have been in a global recession since September of last year, when the first British mortgage bank Northern Rock crumbled .

The past year has been one of collective denial by the powers that be.

And now they are suffering a collective flashback.

For example, the last time Canadian interest rates were as low as they are today was in 1958 when Canada was emerging from recession. The economy, valued at about $32-billion at the time, was carried higher by a huge investment boom throughout the mid-1950s. Growth rates reached as high 9% in 1955 and 1956.
Then the boom went bust. The unemployment rate, which was 3.4% in 1956 hit 7.2% in 1961; growth slowed to about 1% as business spending fell off a cliff.

SEE
Neo-Cons Have No New Ideas
Back To The Fifties
Here Come the Seventies
Wall Street Mantra

tags
Canada, Flaherty, politics, Conservatives,consumer spending, tax-credit, Stelmach, economy, government, Conservatives, Harper, recession, Conference Board of Canada, consumer confidence, Economy, asset-backed commercial paper ,, goldhomes, mortgages, housing, bubble, US, economy, oil prices, sub-prime mortgage, Wall Street, crash, recession,Bernanke, Inflation, Staglation, Stock-Market, US, Federal-Reserve-Chairman, Oil, gold, commoditiesSmoot-Hawley, protectionism, tariffs, Herbert Hoover, U.S., U.S. economy, Canada, Great Depression, John McCain, market crash, free trade, Republicans, recession,

Bank Rip Off

Gosh folks are surprised that Canada's Big Six banks are greedy and won't pass on the interest cut to you and me.

Bank slashes key rate to 1958 level
Six Canadian Banks Fail to Match Central Bank Cut (Update6)
Big banks keep slice of deep rate cut
Big 6 lag behind central bank's lead
Bah humbug to banks’ greedy actions on rates

Why I am shocked, shocked I say, shocked that the media and pundits expected these greedy bastards to act like good corporate citizens. After all the last time Carney cut the interest rates, only a month ago, they didn't pass them on. And despite Flaherty and Harper bailing them out to the tune of $75 billion, the banks increased interest rates and service charges on credit cards and have refused to loan money to credit agencies like GMAC and Ford Credit. When you give these guys money with no strings attached they use it to increase their profit and to pay off their bad debts and criminal activities.Of course Mark Carney knows this he used to work for Goldman Sachs. Flaherty knows it too. When the bank and commerce committee met to review credit card and bank card user fees and interest rates they got the cone of silence from the bankers.Truly this is a case of throwing good money after bad.
And while they will claim they are looking after the interests of their shareholders remeber who that is , why you and me of course with our mutual funds, our CPP and other public pension funds who are institutional investors in the banks. In fact we own them.
Time to socialize the banks along with the auto industry under workers control, the only solution to this crisis of capitalism is socialization of capital.


SEE:
Back To The Fifties
UBScandal
Pension Rip Off
Credit Card Rip Off
Canada's Billion Dollar Rip Off
Bank Union
Service Charges


Find blog posts, photos, events and more off-site about:
criminology, corporate-crime, white-collar-crime, sociology, hedge funds, scandal, criminal-capitalism, workers, employees, theft, crime, layoffs,, Canada,, banks,, banking,, BMO,, natural gas,, Bank of Montreal,, Banks,, Canada,, bank, Royal, Bank-Of-Nova-Scotia, banking-regulations, disclosure, Bank of Canada, dollar, Canada, deflation, loonie, exchange-rates, 1961, Diefenbuck

Back To The Fifties

Deflation in Canada in the late 1950's led the Bank of Canada to create the floating Dollar. Now it's sinking.

Biggest inflation rate fall since 1959 raises deflation concerns
Economists fear deflation because consumers and businesses are more likely to delay purchases hoping that prices will fall further, slowing economic activity and business investments.
But more importantly, CIBC World Markets economist Avery Shenfeld said deflation often appears as the final nail in the coffin of a dying economy.
"Typically the only way you get deflation is if you've had a massive recession that has high unemployment rates and a lot of economic slack, so the conditions in which you get deflation are certainly not welcome," he explained.
One factor that may offset the potential for deflation is a recent drop in the value of the Canadian dollar. After starting the year near to parity with its American counterpart, the loonie, as the Canadian currency is popularly known, fell below 80 United States cents this week.

SEE:

Here Come the Seventies

Find blog posts, photos, events and more off-site about:
Bank of Canada, dollar, Canada, deflation, loonie, exchange-rates, 1961, Diefenbuck

Super Bubble Burst

As Eric Janzen in the February issue of Harpers Magazine warned this is a super bubble that just burst.

A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression. Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid “raising or pretending to raise a transferable stock.” For a century this law did much to prevent the formation of new speculative swellings.

The housing bubble has left us in dire shape, worse than after the technology-stock bubble, when the Federal Reserve Funds Rate was 6 percent, the dollar was at a multi-decade peak, the federal government was running a surplus, and tax rates were relatively high, making reflation—interest-rate cuts, dollar depreciation, increased government spending, and tax cuts—relatively painless. Now the Funds Rate is only 4.5 percent, the dollar is at multi-decade lows, the federal budget is in deficit, and tax cuts are still in effect. The chronic trade deficit, the sudden depreciation of our currency, and the lack of foreign buyers willing to purchase its debt will require the United States government to print new money simply to fund its own operations and pay its 22 million employees.


But unlike the South Sea Bubble or the Tulip Bubble, or even the Dot Com Bubble this one has brought capitalism to its global knees.

Bank of Canada Governor Mark Carney underscored the deteriorating situation when he said Canada’s business conditions will worsen alongside other industrialized countries next year and the Canadian economy may slip into a recession for the first time since 1992.
“We are predicting very marginal growth in 2009,” Carney said in an interview with Bloomberg News, when asked if he thought a recession might happen. “By definition that’s close to negative growth, and if we have a balanced forecast you can see it going either side, so it’s a possibility."
Carney cut the Bank of Canada’s key interest rate to 2.25 per cent last month and said the world’s eighth-largest economy would shrink this quarter and stall in the first three months of 2009, just skirting the two quarters of contraction that most economists call a recession. He has said further rate cuts may be needed to prop up economic growth.
In Brazil, Flaherty also said the world is facing what appears to be a runaway economic downturn. He noted that the International Monetary Fund continues to lower its growth forecasts month by month. The IMF now predicts the major industrialized Group of 7 countries will fall into a recession next year - with the exception of Canada, which is forecast to post a minuscule 0.3 per cent growth.

For the leading spokespeople of capitalism to say they didn't see it coming well thats laughable. It could be excused as Hegelian black humour if the mouthpieces of capital were not so sincere in denying the obvious; recession and the dreaded follow through; depression.

Hegel remarks somewhere that history tends to repeat itself. He forgot to add: the first time as tragedy, the second time as farce.

Karl Marx, The Eighteenth Brumaire of Louis Bonaparte (1852)

SEE:

And Then There Was One

Concessions Don't Work

Find blog posts, photos, events and more off-site about: US, Auto, GM, Delphi, UAW, Pensions, layoffs, workers, bankruptcy, Chapter11,MGuinty, GM, Buzz, Hargrove, Camaro, Oshawa, Ontario, CorporateWelfare, Canada, cars, automobilie, production, taxes, taxcredit, investment, environment, hybrid, self-valorization,, self-management,, workers control,, autoworkers,, Buzz Hargrove,,CAW, Big Three Auto,, libertarian socialism, automobile, Frank Stronach, Magna, business unions, auto parts, workers, layoffs, plant-closings, workers-control, unions, labour, Canada, Great Depression, John McCain, market crash, free trade, Republicans, recession, asset-backed commercial paper ,, goldhomes, mortgages, housing, bubble, US, economy, oil prices, sub-prime mortgage, Wall Street, crash, recession,October Surprise, Inflation, Staglation, Stock-Market, US, Federal-Reserve-Chairman, Oil, gold, commoditiesSmoot-Hawley, protectionism, tariffs, Herbert Hoover, U.S., U.S. economy, Canada, Flaherty, tax cuts, corporate tax cuts, politics, Conservativestaxes, tax-credit, budget, economy, government, Conservatives, Flaherty, HarperSalaries, Canada, wages, Economy,

Deja Vu

Stephen Harper, Jim Flaherty and Mark Carney assured us that the economic fundamentals in Canada are sound, despite the current meltdown of international finance capitalism. Wearing Bush/McCain like rose coloured blinders they refuse to admit that Canada faces a pending recession and the government will likely incur a deficit. Something Harper and Flaherty denied during the election campaign. Instead they say steady as she goes.

Of all the leaders, Harper was most determined to stay the course.
"What leaders have to do is have a plan and not panic," he said. Revising the plan
based on new data was considered to be a sign of panic, not prudence.Harper, in
the dying days of the campaign, proclaimed that he would not run a deficit,
raise taxes or cut spending. That may be a difficult circle to square, and those
words may come back to haunt him.

Wait I have heard this before...why in 1929 when then PM William Lyon Mackenzie King said he would stay the course.....

October 24, 1929 went down in history as "Black Thursday". On that day, stock prices plummeted on the New York Stock Exchange, creating a domino effect on world stock markets. It signaled the beginning of the Great Depression.

Canada was one of the hardest hit by the economic crisis. The country relied heavily on its exports. Pulp and paper, wood and wheat represented two-thirds of Canadian exports and accounted for much of the country's prosperity.

Governments in Canada were slow to respond to the desperate economic and social conditions. Until the Great Depression, government intervened as little as possible, letting the free market take care of the economy. Social welfare was left to churches and charities.

When the Depression began William Lyon Mackenzie King was Prime Minister in 1930. He believed that the crisis would pass, refused to provide federal aid to the provinces, and only introduced moderate relief efforts.


Although unemployment was a national problem, federal administrations led by the Conservative R.B. BENNETT (1930-35) and the Liberal W.L. Mackenzie KING (from 1935 onwards) refused, for the most part, to provide work for the jobless and insisted that their care was primarily a local and provincial responsibility. The result was fiscal collapse for the 4 western provinces and hundreds of municipalities and haphazard, degrading standards of care for the jobless.


The Depression altered established perceptions of the economy and the role of the state. The faith shared by both the Bennett and King governments and most economists that a balanced budget, a sound dollar and changes in the tariff would allow the private marketplace to bring about recovery was misplaced.



Library and Archives Canada / C-000623
Bennett Buggy in the Great Depression in Canada


October 1929 – Stock Market Crash: Markets Suffer the Worst Losses in Canadian History
In the late 1920s, Canada’s economy and stock exchanges were booming. From 1921 to the autumn of 1929, the level of stock prices increased more than three times. But these heady days came to a swift end with the stock market crash on Black Tuesday, October 29, 1929, in New York, Toronto, Montréal and other financial centres in the world. Shareholders panicked and sold their stock for whatever they could get.
Overnight, individuals and companies were ruined. It was estimated that Canadian stocks lost a total value of $5 billion on paper in 1929. By mid-1930, the value of stocks for the 50 leading Canadian companies had fallen by over 50% from their peaks in 1929.
The stock market collapse affected all investors—individuals who had been persuaded to buy shares as well as speculators looking to make a fast dollar. Despite the market crash, 1929 was a good year for banks, mines, manufacturing and construction in Canada. All reported record profits at year-end.
Although the crash was sudden and deep, there were signs that it was coming. Earlier in 1929, stock prices had been volatile. Economic slowdowns in May and June hinted that the booming economy was heading for a recession. Export earnings were declining and the price of wheat plummeted.
Economists and historians are still debating what caused the crash. At the time of the crash, Canada had no monetary policy or central bank, so there was little government intervention in the market. (See 1934—Bank of Canada.) Canadian firms had healthy profits and did not expect the boom to end. Corporate profit expectations were inflated. Canadian corporations took advantage of the bull market to issue new stock, which overheated the supply. Banks gave out easy and cheap credit, and let people buy stocks on margin: buyers paid only a fraction of the share price and borrowed the rest. Speculation was rampant: bidding drove up the value of stocks as much as 40 times the companies’ annual earnings. Investors seemed to pay less attention to corporate earnings than to how much their shares would appreciate in value.
The economy could not sustain its rapid growth and the bubble burst. Investors lost confidence in the market. In the United States, the government was blamed for not controlling the speculative frenzy. Because Canada’s economy was so closely tied to that of the United States, the New York crash brought down Canadian markets, too.
It is widely felt that the stock market collapse started a chain of events that plunged Canada and the Western world into the decade-long Great Depression, which ended only with the outbreak of the Second World War.

1929 - 1939 —The Great Depression.
The Roaring Twenties saw boom times in Canada. Unemployment was low; earnings for individuals and companies were high. But prosperity came to a halt with the stock market collapse in New York, Toronto, Montréal and around the world in October 1929. The crash set off a chain of events that plunged Canada and the world into a decade-long depression. It was the beginning of the Dirty Thirties.
The Great Depression caused Canadian workers and companies great hardship. Prices deflated rapidly and deeply. Business activity fell sharply. There was massive unemployment—27% at the height of the Depression in 1933. Many businesses were wiped out: in Canada, corporate profits of $396 million in 1929 became corporate losses of $98 million in 1933. Between 1929 and that year, the gross national product dropped 43%. Families saw most or all of their assets disappear. Governments around the world, including Canada’s, put up high tariffs to protect their domestic manufacturers and businesses, but that only created weaker demand and made the Depression worse. Canadian exports shrank by 50% from 1929 to 1933.

THE CAUSE OF THE DEPRESSION
Many Canadians of the thirties felt that the depression wasn't brought about by the Wall Street Stock Market Crash, but by the enormous 1928 wheat crop crash. Due to this, many people were out of work and money and food began to run low. It was said by the Federal Department of Labor that a family needed between $1200 and $1500 a year to maintain the "minimum standard of decency." At that time, 60% of men and 82% of women made less than $1000 a year. The gross national product fell from $6.1 billion in 1929 to $3.5 billion in 1933 and the value of industrial production halved.
Unfortunately for the well being of Canada's economy prices continued to plummet and they even fell faster then wages until 1933, at that time, there was another wage cut, this time of 15%. For all the unemployed there was a relief program for families and all unemployed single men were sent packing by relief officers by boxcar to British Columbia. There were also work camps established for single men by Bennett's Government.
The Great Depression, also known as The Dirty Thirties, wasn't like an ordinary depression where savings vanished and city families went to the farm until it blew over. This depression effected everyone in some way and there was basically no way to escape it. J.S. Woodsworth told Parliament "If they went out today, they would meet another army of unemployed coming back from the country to the city." As the depression carried on 1 in 5 Canadians became dependent on government relief. 30% of the Labour Force was unemployed, where as the unemployment rate had previously never dropped below 12%.

It was estimated back in the thirties that 33% of Canada's Gross National Income came from exports; so the country was also greatly affected by the collapse of world trade. The four western prairie provinces were almost completely dependent on the export of wheat. The little money that they brought in for their wheat did not cover production costs, let alone farm taxes, depreciation and interest on the debts that farmers were building up. The net farm income fell from $417 million in 1929 to $109 million in 1933.


Canada suffered a major depression from 1929 to 1939. In terms of output it was
similar to the Great Depression in the United States. However, total factor productivity
(TFP) in Canada did not recover relative to trend, while in the United States TFP had
recovered by 1937. We find that the neoclassical growth model, with TFP treated as
exogenous, can account for over half of the decline in output relative to trend in Canada.
In contrast, we find that conventional explanations for the Great Depression - monetary
shocks, terms of trade shocks and labor market and competition policies – do not work
for Canada.

Our conclusion is that the reason that Canadian output per adult was still 30 percent below
trend in 1938 was that productivity failed to return to trend.

Relative to trend, consumption fell more in Canada, and remained below that of
the United States throughout the 1930s. Investment in Canada fell to 15 percent of its
trend value by 1933, and recovered very slowly in both countries (remaining roughly 50
percent below trend in 1939). Government purchases in the two countries followed a
similar pattern during the downturn, before diverging in the late 1930s when U.S.
government spending remained above trend, while in Canada it fluctuated about trend.

U.S. government output increased more relative to trend
than Canadian government output. A large part of the difference in government
expenditure can be attributed to different government policies towards providing
unemployment relief. In the United States, the government relied much more heavily
upon make-work projects (government relief projects) than in Canada. The fraction of the
workforce employed by the government doubled in the United States, while increasing by
less than 50 percent in Canada. The increase in U.S. government employment was mainly
due to public works, as nearly 7 percent of U.S. employment in the late 1930s was in
relief projects. Relief workers were never more than 1.5 percent of the total number of
employed people in Canada.

Canada was the first country to leave the gold standard, suspending gold
shipments in January 1929 (Bordo and Redish (1990)). Despite the suspension of
convertibility, the Canadian government took steps to prevent depreciation of the dollar,
motivated in part by a wish to maintain access to American capital markets to refinance
Dominion debt (Shearer and Clark (1984)). As a result, the government maintained the
advance rate at its 1928 level throughout 1930, despite the fall in world rates. This policy
was ultimately abandoned in 1931. Despite this, the Canadian dollar did depreciate
relative to the U.S. dollar by approximately 15 percent between 1929 and 1931, before
recovering to its 1929 level in 1935.

The “debt-deflation” view of the Great Depression asserts that deflation and high
private debt levels contributed to the Great Depression by reducing borrower wealth and
constraining lending. Haubrich (1990) argues that the debt crisis was much less severe in
Canada than in the United States. He argues that there is little evidence to suggest that the
debt crisis caused the Great Depression in Canada.

A common view is that banking crisis played a significant role in transforming the
1929 downturn into the Great Depression. For example, Bernanke (1983) states that “the
financial crisis of 1930-33 affected the macroeconomy by reducing the quantity of
financial services, primarily credit intermediation” (p. 262). As has been pointed out by
numerous authors, however, Canada did not experience any bank failures.

Can the usual explanations of the Great Depression account for the Great
Depression in Canada? Our answer to this question is no. As we show, money shocks,
policy shocks and terms of trade shocks cannot account for the 10-year depression.
Explanations based on these shocks fail because their effects are quantitatively too small
to explain the Great Depression.

Our findings in this paper tell us where to go next. Future research into the Great
Depression in Canada should focus on models in which changes in the level of trade
affect the level of productivity. Such models are consistent with the fact that Canada’s
TFP and trade both declined from 1929 to 33. Beginning in 1934, trade began to slowly
recover, and so did TFP. This also matches the fact that the only large shock that hit
Canada but not the United States was trade, while the main difference in macro
performance is the behavior of productivity.

Journal of Economic Literature Classification Numbers: E30, N12, N42.
Key Words: Great Depression, Canada, productivity, terms of trade, deflation

Community Voices
GWINNETT COUNTY: Depression days brought to mind
By Rick Badie
The Atlanta Journal-Constitution
Saturday, October 25, 2008
Elwood Hart lived in Canada during the Great Depression. He considers himself lucky. A Salvation Army was next to the family’s home in Hamilton, Ontario.
“Maybe it was a bowl of soup or a bologna sandwich, but I got something to eat,” said Hart, now a Lawrenceville resident. “If it weren’t for that, I don’t think we could have ever made it. We weren’t living in the United States, but the situation was the same all over.”
Comparisons and contrasts are being drawn between the current economic crisis and the Great Depression. Conventional wisdom says this is the worst financial crisis since the Great Depression. Generally, experts say the odds of a full-blown depression are nonexistent. Let’s hope they are right.
Not many of us were around between 1929 and 1939, so we can’t compare the impact of that period’s economic crisis to today’s turmoil. Hart is now in his mid-80s, so his take on what he saw then and what he sees now carries weight.
We met years ago at the Gwinnett County Veterans War Museum, where his military career is on display. He served with the Canadian Army in Normandy during World War II. With the U.S. Army, he saw two tours of duty in Korea and Vietnam. He received an honorable discharge in 1967.
As for the Great Depression, “I remember it well,” Hart said. “People don’t realize what it was like back then.”
He remembers people lining up at food banks to get a hunk of cheese and powdered milk. He remembers stuffing newspapers in his shoes because they were way too big. And he remembers a white pet rabbit that just disappeared one day.
“I got up one morning and asked my dad where my rabbit was,” Hart told me. “He said, ‘It’s down your stomach. You had it for dinner.’ You ate anything you could get back then. There was no waste of clothes or food. Today, when I throw out trash, wild animals won’t find any food. I don’t throw it away.”
But how does that compare to today’s economic woes, particularly among everyday people barely making it?
Every Monday, Tuesday and Wednesday morning, Hart drives to a local Publix to load his car with day-old breads, cakes and pastries. When he pulls up to the Salvation Army, where the goods are doled out, people are waiting.
“It’s gotten so bad right now that there are twice as many every day as there were a couple of months ago,” he said. “In fact, it’s so bad that, a lot of time, me or some of the women in the church have to stand there. We have a sign that says everyone is to get two loaves of bread and a pastry. If you don’t watch them, they will fill up on all they can get. That’s why I say things are getting bad, similar to the 1930s, I tell you.”
As a brass collector, Hart routinely visits Goodwill stores in search of treasures. He said he’s seen a noticeable uptick in the number of people buying clothes. And at his church, clothes donations have fallen off considerably.
“It’s not that bad yet now,” Hart said.
“But it’s getting there.”

SEE:

No Austrians In Foxholes
CRASH
Black Gold
The Return Of Hawley—Smoot
Canadian Banks and The Great Depression
Bank Run
U.S. Economy Entering Twilight Zone


Tags
asset-backed commercial paper ,, goldhomes, mortgages, housing, bubble, US, economy, oil prices, sub-prime mortgage, Wall Street, crash, recession,Bernanke, Inflation, Staglation, Stock-Market, US, Federal-Reserve-Chairman, Oil, gold, commoditiesSmoot-Hawley, protectionism, tariffs, Herbert Hoover, U.S., U.S. economy, Canada, Great Depression, John McCain, market crash, free trade, Republicans, recession, Harper, Conservatives, Cabinet, Government, politics, Flaherty, Budget, GST, politicsCanada, Surplus, Economy, Taxes, EI,

His Majesty Requests

His Majesty the RH Stevie Harper the First requests the presence of Canada's First Ministers,at 24 Sussex, two years after getting elected and with no consideration for the Premiers own First Ministers Conference.

Harper has summoned Canada’s premiers and territorial leaders to his official residence at 24 Sussex Drive Friday night. Harper’s office said the meeting is part of the ongoing discussions that the prime minister maintains with first ministers.

Right ongoing discussions...uh huh... what by email and phone, certainly there has been no FORMAL meeting between the PM and the Premiers since his election in 2006. Despite their demands for one. So much for Harpers much touted new, open, accountable, federalism.

Premiers left out in the cold

The Gazette

Published: 12 hours ago

Prime Minister Stephen Harper, who has made it his policy to have as little as possible to do with reporters, seems to have taken the same position about the premiers.

His office announced last week that Harper will meet the provincial and territorial leaders over dinner at 24 Sussex Drive this Friday night. It's easy to imagine Harper starting to yawn and stretch just as the dessert dishes are cleared, saying "well, guys, it's been a long week ..."

The premiers, and especially Ontario's Dalton McGuinty and our own Jean Charest, have been asking for months for a meeting with Harper.

In recent decades, first ministers' meetings became frequent and an accepted part of Canadian governance, almost a separate level of government.

But the newly-elected Harper had one such a meeting in February 2006, also on a Friday night, and hasn't convened the group since.

It's almost as if he considered the premiers to be a bunch of poor relations who have nothing to offer except begging and grumbling.

And he is only calling the meeting now because of the perceived downturn in the Canadian economy. Daddy is going to tell the kids that it's belt tightening time again. Since the Harper believes in reducing federal interference in provincial affairs, the coming recession will have to be shouldered by the provinces on their own. Watch for it.

It was never clear how much a first ministers meeting on the slowing economy could accomplish. But the Prime Minister has gone out of his way to diminish the prospect of results at this Friday's gathering, and has ensured minimal coverage of the event with his offbeat scheduling. In a two-page letter written to the premiers and obtained by The Globe and Mail, Stephen Harper outlines plans for a four-hour discussion on Jan. 11 at his Ottawa residence, from 5 p.m. to 9 p.m.

But what Harper and David Dodge believe is a coming crisis for the loonie and the Canadian economy due to the American recession may not be the economic reality. After all as G.B.Shaw once said; "If all economists were laid end to end, they would not reach a conclusion. "

Loonie's rise may continue in '08, say experts

Even a 12-per-cent depreciation in the U.S. dollar, if it were sudden and disorderly, would hurt Canadian exporters directly, who would be paid in a deeply depreciated currency for many of their products, which are priced in U.S. dollars, and it would hit Canada's economy indirectly through a serious contraction in the U.S. economy, Canada's primary export market.

It would take a concerted effort by the world's major central banks to deal with such a crisis, Iacobacci says.

The problem is that they don't appear to have a strategy for dealing with such a crisis, he adds.

"You need to prepare in advance," he says, suggesting the central banks need to determine in advance what amount of support for the currency would be needed in and how it would be delivered.

But even if a run on the U.S. dollar is not be in the cards, a further appreciation in the Canadian dollar may be.

"I'm back to being quite bullish on the Canadian dollar," says Dennis Gartman, U.S. author of the influential financial newsletter that bears his name and is read by traders around the world.

Gartman, who two years ago predicted the loonie would reach parity with the U.S. greenback, says the Canadian dollar is poised to rise even further, but on its own merits, and not because of a run on the greenback, which he suspects is already oversold on world exchange markets.

"It's time once again to say the major trend is in favour of the Canadian dollar to rise, and not just relative to the U.S. dollar, but to rise even more relative to the euro," he says.

In fact he expects the loonie will be one of the strongest performing currencies this year.

"Has anything changed fundamentally that was driving the Canadian dollar higher relative to the euro and the U.S. dollar? The answer is no," he says. "Canada has the things that the rest of the world needs."

"You've got wheat, you've got canola, you've got base metals, precious metals, and most importantly you've got energy," he notes, adding Canada also has water, suggesting that over time that will become an increasingly precious commodity.

While Gartman won't make a prediction on how high the loonie will go, he "bet it makes a new high relative to the U.S. dollar ... ."

"I think we'll see Canada versus U.S. dollars higher than the best levels that were seen in November," he says, indicating it will at least top the $1.10 US, breached in 2007, and set a record high against the euro as well.

However, he also expects the Canadian currency will eventually retreat back to parity against the greenback.

There are others who predict the loonie's retreat will come sooner and go further.

The federal export promotion agency, in its latest forecast says: "We expect to see it below 90 cents US by the end of 2008. "

The reason is that a global economic slowdown will ease demand for Canadian export commodities and in turn reduce the speculation, that drove the loonie to new highs in 2007, it says.

SEE:

Loonie Beats Dollar Benefits Who

Loonie Flashback

If It Ain't Broke

Harper The Autocrat

Find blog posts, photos, events and more off-site about:
inflation,, Canada,, jobs,, Keynes,, Canada,, unemployment,, loonie, workers,,,David Dodge, Bank of Canada,
Harper, Emerson, softwood, US, NAFTA, free-trade, trade, loonie, dollar, retail sales, petro-buck, Canada,
dollar,, Canada,, jobs,, layoffs,, profits,, workers,, loonie, workers,,,David Dodge, Bank of Canada,

Canadian Banks and The Great Depression

I found this informative post at Market Oracle which made reference to a little known fact about how Banks in Canada and the U.S. faired differently during the great depression.

The comments from Market Oracle about Americas current Housing Bubble crash, once again remind us that American Exceptionalism includes massive market failures due to speculation.

Greed is as American as apple pie.

A Letter from a former Banking President Discussing the Housing Bubble

an article that came out in the Saturday Evening Post in November of 1932 from a former bank president in New York, three years after the crash, highlighting the economic situation of a post bubble world.

“This is a shameful and humiliating exhibition. It is uniquely bad. Across the border in Canada, there was not a single bank failure during our period of depression, and one must go back to 1923 to find even a small one. Nowhere else in the world at any time, were it a time of war, or of famine, or of disaster, has any other people recorded so many bank failures in a similar period as did we. We were not experiencing a war, a famine or any other natural disaster. All the economic tribulations we have undergone in the past three years have been man-made troubles, and Nature has continued to shower us with an easy abundance – more, indeed, than we have known how to distribute with economic wisdom.”

Of course the banks in Canada foreclosed on Western Farmers, during the depression and used the land bank to shore up their wealth. Until the creation of Canada's National Bank the commercial banks issued dollars and currency from which they made their profit. Canadians were big savers after WWI but without deposit insurance found their savings wiped out during the depression.

According to the Department of Finance, two small regional banks failed in the mid-1980s, the only such failures since 1923, which is the year Home Bank failed. There were no bank failures during the Great Depression.

The Canadian recovery from the Great Depression proceeded slowly. Economists Pedro Amaral and James MacGee find that the Canadian recovery has important differences with the United States In the U.S. productivity recovered quickly while the labor force remained depressed throughout the decade. In Canada employment quickly recovered but productivity remained well below trend. Amaral and MacGee suggest that this decline is due to the sustained reduction in international trade during the 30's.

It took the outbreak of World War II to pull Canada out of the depression. From 1939, an increased demand in Europe for materials, and increased spending by the Canadian government created a strong boost for the economy. Unemployed men enlisted in the military. By 1939, Canada was in the first prosperity period in the business cycle in a decade.

The Depression also led governments to be more present in the economy. It brought about the creation in 1934 of the Bank of Canada, a central bank to manage the money supply and bring stability to the country’s financial system.

Hard to imagine now, but not too long ago paper money in Canada was issued by commercial banks. That was before 1934, when the Bank of Canada Act established a central bank with the sole right to issue paper money. It was just one of the many roles the Bank of Canada would take on.

Creating a central bank was one of the first major things Canada did on its own after becoming more independent of Great Britain in 1931 (with the Statute of Westminster). But the Bank of Canada was not established just to assert our independence. Instead, Prime Minister R.B. Bennett was frustrated that there was no way for Canada to settle international accounts with England. A central bank could do that.

The time was ripe to set up a central bank. During the Great Depression, Canadians had criticized and mistrusted the commercial banking system. They had doubts about the efficiency of Canada’s financial structure. Pressure also came from outside our borders to create a central bank to help settle international accounts. There was no independent agency issuing notes or managing government banking.

The creation of the Bank of Canada was the result of protests against the banks by Western farmers in particular those from Alberta! Like the Wheat Board farmers demanded and got a Central Bank.

At the same time that the Canadian
government was doing nothing on the monetary
front, the chartered banks were repaying their
borrowings from the government under the
Finance Act.63 The resulting monetary contraction
exacerbated the economic downturn. The banks
became increasingly cautious about their own
lending activities as the economic environment
deteriorated. Banks may have also repaid their
borrowings under the Finance Act in response to
earlier criticism for having borrowed so extensively
prior to the stock market crash (Fullerton 1986, 36).
While the extent of the economic downturn
in Canada was undoubtedly made worse by
these monetary developments, the monetary
contraction helped to strengthen the Canadian
dollar, which reached US$0.90 by the spring
of 1932.

The government finally reduced the
Advance Rate to 3 per cent in October 1931 and
to 2.5 per cent in May 1933. (See Chart C2 in
Appendix C.)64 In the autumn of 1932, it also used
moral suasion to force the banks to borrow under
the Finance Act and reflate the economy
(Bryce 1986, 132). This easing in monetary policy
led to some temporary weakness in the Canadian
dollar, which briefly fell as low as US$0.80. The
weakness was short-lived, however.

Following the U.S. decision to prohibit the export of
gold in April 1933 and similar efforts in the United
States to reflate, the Canadian dollar began
to strengthen.65 The Canadian government’s
decision in 1934 to expand the amount of Dominion
notes in circulation by reducing their gold backing
to 25 per cent did not have much impact on the
Canadian dollar.

In the economic circumstances of the time,
and given similar developments in the
United States, this move was viewed as appropriate
and elicited little market reaction (Bryce 1986, 143).
The Canadian dollar returned to rough parity
with its U.S. counterpart by 1934 (Chart 3) and, at
times, even traded at a small premium. With the
U.S. dollar depreciating against gold and the pound
sterling, the Canadian dollar returned to its old
parity with sterling.

Not surprisingly, as the 1930s progressed
with little sign that the Depression was ending,
pressure began to mount on the government to do
something. In addition to concerns about the
adequacy of the Finance Act, there was also
widespread public distrust of the banking system,
largely because of the high cost and low availability
of credit.

Farmers, especially those in western
Canada, who were suffering from a sharp fall in
both crop yields and prices, were particularly
critical of banks and consequently very supportive
of the formation of a central bank. They hoped
that a central bank would be a source of steady and
cheap credit.

With effective nominal interest rates on farm loans in
excess of 7 per cent, real interest rates were very high
—about 17 per cent in 1931 and 1932, owing to
sharply declining consumer prices.

In July 1933, the government set up a
commission with a mandate to study the
functioning of the Finance Act and to make
“a careful consideration of the advisability
of establishing in Canada a Central Banking
Institution . . . .” (Macmillan Report 1933, 5).66
Lord Macmillan, a famous British jurist and known
supporter of a central bank, was chosen by Prime
Minister Bennett to chair the commission.
The other members were Sir Charles Addis, a
for mer director of the Bank of England;
Sir William T. White, the former wartime Canadian
Finance Minister and banker; John Brownlee,
Premier of Alberta; and Beaudry Leman, a
Montréal banker.

Public hearings began on 8 August 1933,
and the final report was presented to the government
less than seven weeks later on 28 September. While
the commission voted only narrowly in favour of
the establishment of a central bank, its conclusion
was never really in doubt. The two British
members of the committee, joined by Brownlee,
voted in favour of a central bank, a position
supported by both the Conservative government
and the Liberal opposition.

When we look back at the monetarist policies put in place during the Depression and those in effect today one gets a disturbing sense of Deja Vu.


SEE:

Social Credit And Western Canadian Radicalism

Historical Memory on the Eve of the Election

Calgary Herald Remembers RB Bennet

Origins of the Capitalist State In Canada

Rebel Yell

A History of Canadian Wealth, 1914.

Radical Capitalists Not So Radical

Find blog posts, photos, events and more off-site about:
homes, banks, bank failures, Great Depression/a>, Bank of Canada, banking, mortgages, housing, bubble, US, economy, Canada, sub-prime mortgage, Wall Street, crash, recession,