Seven Days: A week in a life of Stephen Harper

By macleans.ca - Thursday, April 22, 2010 at 11:20 AM - 2 Comments

Adrian Wyld/ CP

A week in the life of Stephen Harper
Within four heady days the Prime Minister had accepted embattled junior minister Helena Guergis’s resignation; welcomed Nickelback singer Chad Kroeger to 24 Sussex Dr.; caught the band’s Ottawa concert with son Ben; then jetted down to Washington for a nuclear summit with Obama. Such is politics—being, to quote Nickelback, a Leader of Men. By week’s end, will the PM be a political Rockstar, or will he have Something unsavoury—a foot, an apology?—in [his] Mouth?

Good news

A new chapter
The online book juggernaut Amazon was granted approval this week to open a distribution centre in Canada. Canadian booksellers decried the move, arguing that allowing the foreign-owned retailer threatens to undercut Canada’s cultural industry. But Amazon says it will invest $20 million in Canada, including $1.5 million on cultural events and awards, and promote more Canadian books internationally. More importantly, the move stands to benefit both Canadian publishers and Canadian consumers with better prices and more options. A little competition is nothing to fear.

Northern tiger
In the Bank of Canada’s latest quarterly business survey there was plenty of cause for optimism. Canadian executives say they plan to hire more workers, boost investment and raise prices to meet growing demand for their goods in the next year. Meanwhile, the Office of the Superintendent of Bankruptcies reports that bankruptcies fell in January for the fourth straight month, while the country’s trade surplus widened in February to its highest level since the beginning of the recession. This all comes on top of solid GDP growth. No doubt about it—Canada’s roaring recovery is here to stay.

Bottoms up
Workers at a Carlsberg brewery in Copenhagen went back to work this week after a five-day strike over company plans to cut back their free beer rations from three bottles a day to one, which must be consumed at lunch in the company cafeteria. Workers agreed to sit down with management and come up with a temporary solution to the dispute. No matter how this brouhaha is resolved, the new drinking policy  may not be such a bad idea. A recent study from the Harvard School of Public Health found that having one or two drinks a day can reduce the risk of heart disease in young adults.

The family guy
What started as a golf tournament—all but consumed by the prodigal return of the adulterous Tiger Woods—ended with the triumph of devoted family man Phil Mickelson, who won his third green jacket at the Masters. While Woods had been away from golf dealing with a sex scandal fallout, Mickelson faced his share of distractions too. Both his wife and mother were diagnosed with breast cancer a year ago, and he dedicated his victory to them and his family. Mickelson’s win provided a welcome narrative shift and a nice break from talk about Tiger, who was back to his old habits on the course, yelling and flipping clubs in anger, even pouting over his fourth place finish. Sometimes, nice guys do finish first.

The Bad news

Alberta grit?
Dave Taylor, the former Alberta Liberal leadership contender, has quit the party to sit as an independent, saying he’s “lost confidence” in his one-time rival David Swann’s “abilities as a leader” and calling the party “invisible” and “irrelevant.” If the Alberta Liberals ever had a chance to grow the party, now would be it: Danielle Smith’s Wildrose Alliance seems poised to cut the Progressive Conservative vote under Ed Stelmach’s moribund premiership, leaving an in for the Grits. Well, don’t count on it. Long encumbered by backbiting, this is yet another instance of bad Alberta Liberal party politics. That’s bad for democracy in a province that, with 40 years of Tory rule, has become a one-party state.

All news fit to bleep
Since the New York Times began broadcasting video of its morning news meeting across the Internet, some of its highest-ranking editors have been seen to utter inaccuracies. On just the feed’s second day, executive editor Bill Keller said that Britain had thrown “the head of Mossad,” Israel’s intelligence service, out of the country “in retribution for the Israelis having assassinated a Hamas militant in Dubai.” But the Brits hadn’t accused Israel of the hit, and the Times hadn’t confirmed whether the diplomat they’d ejected was the Israeli London spy chief. “This is why I went into print rather than TV,” Keller wrote to his paper’s ombudsman, explaining today’s accelerated news delivery: “The deadline is always.”

Simmering down
Protests against Thailand’s coalition government turned violent last weekend, killing 21 and threatening to send the country spiralling into crisis. In Kyrgyzstan, meanwhile, 83 people were killed during an anti-government uprising that saw the president flee the capital. The incidents leave dark stains on two countries with histories of political instability. But there are signs the worst may be over. In Thailand, the head of the army ruled out using further force to stop protesters. Kyrgyzstan’s president said he would resign if his safety and his family’s safety could be guaranteed. Cooler heads must prevail.

Fat food
This week, KFC introduced the Double Down sandwich, a savoury creation consisting of two deep-fried chicken fillets rather than a bun, and with bacon, cheese and sauce as filling. All told, it contains an alarming 1,380 mg of salt (more than half the recommended daily allowance). Then again, if you’re the type who’d eat this beast, you probably don’t care too much about your health anyway.

How to stop the next financial meltdown

By Andrew Coyne - Tuesday, April 6, 2010 at 9:23 AM - 40 Comments

Blair Gable/Reuters

Born of the Great Depression, the Bank of Canada has found new relevance, 75 years later, in averting another. As Canada emerges, surprisingly strong, from what many had feared would be at least a Great Recession, the governor of the bank, Mark Carney, credits its interventions in large part for sparing us the worst of the financial crisis.

In an interview to celebrate the bank’s 75th birthday, Carney said one of the lessons of the near-collapse of global finance was the crucial part that central banks play in the smooth running of financial markets, especially in a panic. “The need for a lender of last resort, and not just a lender but a liquidity supplier of last resort, was made absolutely clear by the crisis.”

The corollary lesson: markets are not always self-correcting. Having worked in capital markets for many years at Goldman Sachs, Carney says he acquired “both a respect for [markets] and a skepticism of them. You know, I’m not a market fundamentalist. There are periods of excess in both directions in financial markets and it’s important to recognize that.”

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An economy under the weather

By Chris Sorensen - Thursday, March 18, 2010 at 3:00 PM - 1 Comment

Photograph by Kevin Lamarque/ Reuters

During the first week of the 2010 Games, Vancouver’s winter weather—or more precisely, lack of it—was a hot topic. In the end, though, the spring-like conditions proved no match for a determined army of snow-shovelling workers. But while Olympic organizers were able to temporarily wrestle Mother Nature into submission, the bright minds charged with running the giant U.S. economy weren’t nearly so lucky.

In the United States, harsh winter storms pounded the densely populated eastern seaboard in February, and are blamed for taking the steam out of the country’s economic recovery. Washington, for example, was buried under more than half a metre of snow during a blizzard dubbed “Snowmageddon,” which disrupted the entire region and was followed by an encore performance less than a week later. The storms disrupted government and air travel and caused many Americans to stay home instead of going to work or to the mall, putting a dent in everything from consumer spending to employment. “This February marked the first time in recorded history that each of the 50 states had measurable snowfall in the same day,” according to UBS, a Swiss bank. “It is therefore likely that this unusual weather played at least some role in the recent string of weaker-than-expected [U.S.] economic data”

It has been a different story north of the border—and not just in Vancouver. In Toronto, the country’s financial centre, bankers and lawyers have gone nearly the entire winter with nothing but bare concrete under their leather-soled dress shoes. Meanwhile, GDP numbers shot through the roof in the fourth quarter and talk has suddenly turned to taming the recovery, instead of stoking it. Bank of Canada governor Mark Carney will likely hike interest rates to cool any overheating, but praying for a few more snowflakes couldn’t hurt.

The runaway economy

By Chris Sorensen - Thursday, March 4, 2010 at 3:00 PM - 9 Comments

When Thomas Hoenig took over as president of the Federal Reserve Bank of Kansas City nearly two decades ago, his 85-year-old neighbour gave him a 500,000-mark German banknote to remind him of Germany’s experience with runaway inflation following the First World War. “He told me that in 1921, the note would have bought a house,” Hoenig said during a recent speech to a U.S. budget commission. “In 1923, it would not even buy a loaf of bread. That note is framed and hanging in my office.”

Hoenig openly admits that invoking historical reminders of hyperinflation might seem overly alarmist in an era when inflation—a rise in the cost of living caused by heightened demand for products or the rising cost of producing them—has ceased to be a major concern for most North Americans. Central bankers have made fighting excess inflation, usually anything more than two per cent to three per cent, among their chief priorities in recent decades (some inflation is generally viewed as a good thing because it signals economic growth). But as the economy comes back to life after an extraordinary period that saw governments—particularly in the United States—resort to unprecedented fiscal and monetary measures to keep the world’s economies from imploding, suddenly there’s renewed concern about inflationary pressures. (Already, Canada saw a surprise jump in its inflation rate in January.) With all that extra money sloshing around in the system—inflation is sometimes thought to be caused by too many dollars chasing too few products—some are worried that the cure prescribed for the downturn could quickly become the recovery’s disease.

While unwanted inflation can be reined in by hiking interest rates, central bankers seem intent on keeping interest rates low to help speed economic recovery. People like Hoenig, meanwhile, say they are worried that a massive buildup of U.S. government debt could also lead to calls for the central bank to print more money to help pay it down sooner, which could also have long-term inflationary effects.

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Are taxes the only way out of the deficit?

By Andrew Coyne - Tuesday, January 26, 2010 at 10:51 AM - 48 Comments

The Great and the Good have come down from on high, and delivered their decree: there shall be tax hikes. The deficit that was once our friend is now our enemy, no longer “stimulative” but “structural.” The spending spree that gave us that deficit cannot be reversed, or not altogether. If the deficit is to be slain, it must therefore be by raising taxes. Thus sayeth the elders, including former Bank of Canada governor David Dodge, two former deputy ministers of finance, and Jeffrey Simpson.

Well, maybe. What is certainly true is that the fiscal forecast, once an unbroken line of surpluses as far as the eye could see, has darkened considerably. Not only is the deficit headed for $56 billion this fiscal year, but it will still exceed $11 billion even four years from now. And that’s on the government’s cheery numbers. The parliamentary budget officer forecasts the 2014 deficit at $19 billion—after four years of (assumed) steady economic growth. Just in time for the next recession to blow it sky-high again.

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Econowatch

By Jason Kirby - Friday, October 30, 2009 at 8:30 AM - 4 Comments

Forget what economists have told you about how stimulus programs are supposed to function during a recession. You can learn a lot more from watching a master illusionist at work.

Take America’s US$8,000 tax credit for first-time homebuyers. Like any stimulus measure meant to jolt the economy out of recession, the tax credit was always more about smoke and mirrors than economic theory. When Washington created the program eight months ago, its aim was to conjure the illusion of stability in the housing market. Until the free fall in house prices could be halted, a broader economic recovery could never take hold. Continue…

Econowatch

By Jason Kirby - Friday, October 23, 2009 at 8:30 AM - 3 Comments

As tongue-lashings go, it was rather sedate. When the Bank of Canada left its overnight interest rate at 0.25 per cent on Tuesday, it took the opportunity to send a message to currency markets. If the loonie continues to approach parity with the American greenback, it will “more than fully offset” the recent signs of recovery.

Those would hardly be fighting words—normally. Except this isn’t the normal world. It’s the rarefied realm of central banking, where economists hang on every intonation for hints of future policy changes. In that context, the warning came like a blow to the solar plexus. It worked, too, for now. After climbing nearly 18 per cent this year, the Canadian dollar fell two cents immediately following the central bank’s statement, to US95.3 cents. Continue…

Inside the meeting that saved the world

By Andrew Coyne - Tuesday, October 13, 2009 at 1:45 PM - 30 Comments

The meeting was not going well.

On Friday, Oct. 10, 2008, finance ministers and central bankers from the Group of Seven leading industrial economies had gathered in Washington for their regular fall meeting. The circumstances, of course, were anything but routine. Four weeks after the collapse of Lehman Brothers, the 158-year-old Wall Street institution, the financial world was in a state of escalating panic. With banks toppling one after the other, stock markets in a death spiral, credit markets all but disabled, the meeting had taken on crucial significance.

Around the world, investors were looking to governments for salvation—only they could provide the kind of rock-solid assurances that might put a floor under the markets. A strong, united statement from the G7, and there was some hope of restoring sanity to the situation. A weak statement, or worse, a failure to agree, and the entire world financial system might well tip over the edge. Continue…

Econowatch

By Steve Maich - Friday, August 7, 2009 at 9:00 AM - 3 Comments

Ladies and gentlemen, the recession is over. Or at least it seems to be winding down. Unless it isn’t. The past few weeks have been a little dizzying for those not accustomed to the wildly contradictory messages common in the world of economics.

What is a poor citizen supposed to think when Bank of Canada governor Mark Carney comes out one day and says the recession is all but over, and then Finance Minister Jim Flaherty (backed by a passel of big bank analysts) emerges a day later to throw cold water on the idea.

Is the recession over or what? As is so often the case in the world of economics, the answer is “yes and no.”

Carney and Flaherty were speaking honestly and accurately about two separate but related realities. Carney was referring to the technical definition of a recession, and the news there is encouraging. All signs suggest that Canada’s economy is growing again, and will likely grow more toward the end of the year. Commodity prices have rebounded, housing has stabilized and job losses are slowing. That means that the pressure will soon be on for Carney to squeeze off the easy money tap, to keep inflationary pressures at bay. Continue…

Things are looking up for Toronto's condo market

By Colin Campbell - Tuesday, May 5, 2009 at 3:13 PM - 5 Comments

The multitude of construction cranes that now dot Toronto’s skyline seem to point upwards as if oblivious to the harsh economic times unfolding below. Floors keep getting stacked onto condo project after condo project, adding to the number of new units that are unsold, and will likely remain that way for many months. It’s a trend that has led many in this city to look up and wonder not just who’s going to buy all these new condos, but whether a crash in the once-heated condo market is now all but inevitable.

A report this week from TD Economics says “no.” The inventories of new condos, while significant, are not as bad as one might think, nor is the impact the recession is having on the economy of the Toronto area. The market is certainly caught up in the downturn, but the kind of underlying circumstances that have caused all-out meltdowns in U.S. cities do not exists here, it says. Toronto’s condo market is in the midst of a “cyclical downturn rather than a drawn out structural downturn,” it states. Continue…

Confidence man

By John Geddes - Tuesday, March 17, 2009 at 5:09 PM - 24 Comments

Central bankers aren’t often looked to for a steady supply of lively quotes. They’re usually so worried about spooking financial markets that they couch every phrase in monetary mumbo-jumbo and economic escape clauses. But Mark Carney, who took over as governor of the Bank of Canada early last year, has a punchier way of expressing himself.

About those reckless lenders who got the world into its current economic mess, he has observed that they were too easily distracted by “opera or the ski slopes of Davos.” Concerning the naysayers who doubt that stimulus policies will restore growth, he’s lectured that “the laws of economics have not been suspended.” And to those who say he’s too much of an optimist, Carney recently rebutted, “We don’t do optimism, we don’t do pessimism. We do realism at the Bank of Canada.”

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Is Mark Carney the only Canadian capable of saving capitalism?

By John Geddes - Wednesday, March 11, 2009 at 2:14 PM - 12 Comments

Declaring that the international economic mess amounts to “first stress test of globalization,” The Financial Times of London has published a list of the leaders who are supposed to save capitalism.

I find the FT’s “Fifty Who Will Frame the Way Forward” list compulsive reading. (But then I also can’t resist browsing through lists of Best Movie Comedies and Best Rock Guitar Solos.)

It’s no surprise that the FT’s “guide to people who will shape debate on the future of capitalism” assigns U.S. President Barack Obama its top slot. Who else?

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What a recession feels like

By Philippe Gohier - Sunday, January 25, 2009 at 11:41 PM - 1 Comment

For many, life during the recession of the early ’90s is a distant, rapidly fading memory. And for anyone under 40, it’s the equivalent of a natural disaster in a far away place: You know it happened, and you know that it made many people’s lives miserable, but there’s no visceral connection to it, all of which makes it hard to truly grasp what life was like in the midst of it—and, by consequence, what might await Canadians this time around.

To describe the Bank of Canada’s economic forecast for 2009 as grim would be an understatement. The Bank expects the recession to peak sometime in the next six months, with no tangible rebound until 2010. “Our exports are down sharply,” Bank of Canada Governor Mark Carney told reporters last week, “and domestic demand is shrinking as a result of declines in real incomes, household wealth and confidence.” In all, Canada’s GDP will shrink by 1.2 per cent in the coming year, he predicts. And yet, there was a sprinkle of good news amidst the bad: 2010 could turn out to be a banner year, with growth projected to settle at an “above potential” 3.8 per cent. In the meantime, 2009 will bring both the best and the worst of the recession. The wave will crest but it will also break—just like it did in 1992.

So what was Canada like in 1992? In a word: unemployed.

After steady increases in 1990 and 1991, the unemployment rate hit an eight-year high in 1992: a whopping 11.2 per cent for the year and a peak of 11.8 per cent that November. (An economic think tank suggested the rate would have topped out at 13.7 per cent had 345,000 people not given up altogether on their search for work.) Making matters worse, those who lost their jobs had few prospects for a quick turnaround: the average unemployment spell across the country was 22.6 weeks, a hefty 23 per cent increase from 1989. Ontario—and especially its crucial manufacturing sector—was among the hardest hit, accounting for more than 70 per cent of the country’s job losses. In all, 123 manufacturing plants shut their doors in 1992, leaving 250,000 highly-paid workers out of a job. One restaurant owner in Kitchener was overwhelmed with job applications after posting an want ad for a full-time cashier—at $6.50 an hour. “When you have 290 people apply for one position,” he said, “it makes you wonder what’s happening.” By the time the recession was officially over, 1.6 million Canadians were out of work and another 2 million were on welfare.

At the time, many blamed free trade for those staggering unemployment numbers. A Gallup poll taken in the summer of 1992 found that only four per cent of Canadians supported Canada’s free trade agreement with the U.S. and an overwhelming majority opposed its expansion into NAFTA. On both sides of the border, politicians opposed to the agreement gained significant traction. Jean Chrétien’s Liberals were handed a crushing parliamentary majority in 1993 partly on a promise to re-negotiate NAFTA. (The federal government would later consecrate the deal without pressing for any notable changes.) But no political figure benefited from the debate more than Ross Perot, whose quixotic campaign for the White House was epitomized by a plea to voters to listen to the “giant sucking sound” symbolizing flight of U.S. jobs toward Mexico.

Most of all, though, the wave of unemployment prompted a massive loss of confidence in the Canadian economy. An Angus-Reid poll of residents in 16 countries found Canadians were among the most pessimistic in the world: only 68 per cent expected the economy to improve in the next decade, while 27 per cent figured things would get worse; 60 per cent said they were struggling to get by and 65 per cent were afraid they wouldn’t be able to support themselves in their old age. Even those whose businesses were making money during the recession were aware of just how grim the prospects were for the majority of people. An industrial auctioneer interviewed by Canadian Press in late 1992 said he was making record profits selling off the remnants of failed businesses, but conceded that it was coming at a heavy price: “The last recession cut out the fat. This is cutting out the heart.”

Many of the same trends are re-emerging this time around. Last month, Canada’s consumer confidence level continued its three-month slide, dropping even lower than it did during the early ’90s. “I think what we have on our hands right now,” says Pedro Antunes, the director of national economic forecasting at the Conference Board of Canada, “is very much confidence-led decline.” According to the Conference Board’s report, Canadians have not only seen their financial situation worsen over the past six months, they expect things to become worse still in the near future. Another poll taken earlier this month found 23 per cent of Canadians are worried for their jobs and 33 per cent believe they wouldn’t be able to find work should they be laid off.

Meanwhile, the debate over NAFTA has made a brief reappearance and there are fears—unfounded, so far—that Barack Obama’s presidency could mean a return to protectionist trade policy south of the border. On the employment front, Canada’s job numbers have gotten tangibly worse over the past year. The unemployment rate, currently at 6.6 per cent, hit a three-year high in December—and there are worrying signs it will soon climb much higher, led by a steady decline in Canada’s, and especially Ontario’s, manufacturing sector. (TD Economics predicts Canada could shed as many as 251,000 jobs before the year is over.)

Financial Times columnist Martin Wolf expects 2009 to be the year the underlying institutions that make up the global economy undergo a seismic shift. “Some entertain hopes that we can restore the globally unbalanced economic growth of the middle years of this decade,” Wolf wrote in a recent column. “They are wrong. Our choice is only over what will replace it. It is between a better balanced world economy and disintegration.” Should Wolf’s predictions prove true, it could very well signal an end to the boom-bust cycles that have characterized the economy for the better part of the last century and a half. But if the final year of the last severe recession is a reliable indicator, twelve months of massive unemployment, knee-jerk protectionism, and widespread panic may, in the end, not change much at all.

Carney likes the look of 2010. This year, not so much.

By John Geddes - Thursday, January 22, 2009 at 12:36 PM - 8 Comments

The sleekly confident style of Mark Carney, the Bank of Canada’s youthful governor, was the featured act this morning in Ottawa. He’s emerging as one of the most interesting new figures on the federal scene, and the political implications of what he had to say about the economy are considerable.

Carney, 43, was appointed last year by Prime Minister Stephen Harper, reportedly on the strong recommendation of Finance Minister Jim Flaherty. Given the gruesome economy the government is now coping with, getting the made-for-TV technocrat on the case turned out to be a good call.
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Watching Mark Carney on television

By Aaron Wherry - Thursday, January 22, 2009 at 11:42 AM - 0 Comments

Strangely reassuring.

Wearing a nice suit, and wearing it well, is probably not to be underestimated.

Big banks keep cuts for themselves

By Jason Kirby - Thursday, December 18, 2008 at 11:30 AM - 4 Comments

Every Canadian bank claims to be a “leader.” But the decision by the Big Five not to match the Bank of Canada’s interest rate cut last week—for the second time in recent months—has left angry Canadians fuming that the banks should try following for a change.

The surprise move by Bank of Canada Governor Mark Carney to chop the key lending rate by 75 basis points to 1.5 per cent, the lowest in half a century, was meant to provide a jolt to the increasingly moribund Canadian economy. But in the days after the cut, Canada’s largest banks trimmed their prime rate by just half a percentage point, to 3.5 per cent. It was the same story in October, when the banks refused to match the B of C’s half percentage point cut. In that case, the banks wouldn’t budge until Ottawa offered to take $25 billion worth of mortgages off their hands. (Ottawa has since upped its mortgage purchase program to $75 billion.)

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Will foreclosures hit Canadian homeowners?

By Jason Kirby - Thursday, December 11, 2008 at 3:35 PM - 6 Comments

The Bank of Canada says that’s a very real possibility. In its Financial System Review today, the Bank warns there’s a growing risk many Canadians could lose their homes if the financial crisis worsens further.

With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and a record-high debt-to-income ratio, a severe economic downturn could result in a substantial increase in default rates on household debt

The fact is foreclosures are already on the rise. Continue…

Bank of Canada cuts rates, but will the Big Five follow?

By Colin Campbell - Tuesday, December 9, 2008 at 10:15 AM - 7 Comments

The Bank of Canada slashed its interest rate by 0.75 per cent today. The new lending rate, 1.50 percent, is the lowest in 50 years. The move came with dire warning that the Canadian economy “is now entering a recession as a result of the weakness in global economic activity.” Interestingly, for the second time in two months, Canada’s big banks, like TD and CIBC, have so far refused to fall in line, cutting their rates only half a percentage point. Canada’s bank have been reluctant to follow-through with the rate cuts, given the high costs of financing in these troubled times. The last time this happened, in October, the commercial banks received a gentle scolding from the prime minister, who said he was “disappointed” the commercial banks weren’t passing on the rate cut. Can we expect stronger language this time around from a PM who’s in a much more delicate position politically?

Update: Bank of Montreal, Royal Bank and National Bank are also refusing to play along, and opting for a 0.50 per cent cut.

Not a campaign event, we hope

By John Geddes - Wednesday, October 8, 2008 at 8:43 PM - 6 Comments

Finance Minister Jim Flaherty will talk to the media tomorrow morning at 8 a.m. on Parliament Hill about process surrounding meetings with the International Monetary Fund and G7 countries. Something to do with the spot of bother on the stock exchanges. And the banks. And the jobs outlook.

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