From all, to all

Unfortunately, without a majority, the Conservatives are between a rock and a hard place. They cannot carry through with their own plans for the economy because the coalition threatens to takeover. So they have to spend like drunken sailors to keep the coalitionists happy, or the coalitionists will do that for them when they overthrow them.
These days I’m a conservative supporter, but in a way would like to see this coalition thing run its course – overthrow the government, spend like crazy, get screwed by the Bloc, anger most of the Canadian population, and then in the next election let voters return a majority for the Conservatives (this all seems like a very predictable path).
I really hope the Conservatives keep this coming budget within reason and semi-dare the coalition to make their move. Even with Iggy at the helm, you just know they would love to dump Harper if only for their own greedy satisfaction… can they resist?
Interesting times for sure…

Here is the question on stimulus…..if you do the high speed train thing, or bridges etc…..what pay does the contruction industry pay for welders, general laborers etc? Does it come anywhere near the price the automakers pay currently…assuming thats what all of these people are going to do.

The answer is no they dont. So if a wage adjustment is what there going to get hwy dont they take it on the job they already have and keep the business going? A 20% wage cut on Candian Autoworkers is worth between 750 million and a billion annually. That gets you 1/4 to a 1/3 of the way to the rescue package (this year)…..bondholders have to contribute and overhead also has to be cut.

Windpower? What are we going to ship all the money to Denmark to Vestas who make the turbines.

The high speed train….do you have ANY IDEA how much that will cost? The issue is that you have to build an underass or overpass for every single road crossing, let alone seperate land and track. Is it for freight or people only….or both? Not against it jsut like to see a proper business plan rather than Bombardier’s wet dream.

If the Auto industry can put forward a credible plan, that shows transition to sustainability, not a happy path plan, then it might be worth it since the credit environment isnt in its normal state or range right now. But outside of that, what the heck are we doing?

China, and the undervalued Chinese Yuan is the issue. China will have to raise its standard of living by letting the Yuan rise, that is answer but that means some Chinese unemployed. The Chinese government is a little afraid of that, but it is going to happen anywya if they cant sell to anyone else. Might as well let the locals generate more demand locally.

The purpose of ‘stimulus’ isn’t to create demand or anything. It is simply an increase of the money supply to create inflation. The indebtedness of corporate and private (and government) in Canada will decrease as the value of their debts decrease due to inflation.

So let’s think about this. Housing prices have dropped already, double digits. By next march, probably 30-40%, more in some markets. That is in 6 months.That deflation is scaring the living daylights out of banks and mortgage vendors, because they don’t know how much houses are actually worth, so how do you figure your equity.

Commodities have dropped 50% in one year.

So, to create inflation that will decrease the debt load, how much inflation do we need? 10%? That would make housing prices reach last year’s prices in 3-4 years. Commodities in 5 years.

This is pure madness. Utter foolishness got us here, and more madness is not going to fix anything. It will make it worse.

Anyone who mentions Japan as a model for what we are seeing is deluded. Japan had it’s downturn during a worldwide boom. They refused to let bankrupt firms go bankrupt. Their real estate bubble made ours (or the US’) look like a picnic.

The only thing that can be done, but it won’t, is to write down the debt. Bankruptcy, reorganization. A real tough 2 years, and at the end of it a working economy with manageable debtloads, lean well run organizations with cost structures that allow profit during slack times. Government also needs to shave and cut and get real. Then Canada will be the northern tiger, the only economy able to jump at the increasing opportunities. Everyone else will be saddled with more debt and dysfunctional structures that they refused to let fall.

This is an ugly mess of our own creation. We have gotten used to spending more than we can afford, from top to bottom. We penalize ownership, penalize asset accumulation. We have government obligations that demand 5% economic growth and still can’t keep up.

We’ve hit the wall. Backing up for another run at it will only make it worse.

Expect to see economists being absolutely and utterly wrong this time around. Come to think of it, that will be the only non-surprise.

Derek

Jim R
Dec 15, 2008 13:36

Very interesting and insightful observation.