In conversation: Mark Carney

By Andrew Coyne - Monday, December 5, 2011 at 11:10 AM - 0 Comments

Blair Gable

He’s among the most respected voices anywhere on financial regulation and monetary policy, and the Canadian closest to the centre of efforts to solve the European debt crisis. Governor of the Bank of Canada since 2008, Mark Carney, 46, was also recently named head of the Swiss-based Financial Stability Board. He’s a leading figure in the struggle to shore up a fragile world economy.

Q: Let’s talk about Europe. You hear people saying we may be in the last days of the euro. What is the way out of this crisis?

A:Let me say two things. One, there are longer-term issues that absolutely have to be addressed. They have to rework the way the monetary union functions—fundamental questions of competitiveness in these economies—which require multi-year reform programs. Those absolutely have to be done for this thing to work in the medium term—and there’s no point saving it in the short term, if it’s not going to work in the medium term. But in terms of creating the bridge so there’s time to do all of that, we have long advocated that they create a mechanism—a firewall—that ensures that all eurozone countries can fund themselves at sustainable rates for the next two, three years. And that is a requirement that is at least on the order of a trillion euros.

Continue…

These days, no news is good. Period.

By Paul Wells - Friday, November 25, 2011 at 7:30 AM - 0 Comments

Tara Todras-Whitehill/AP

The other day, Martin Scorsese screened his new 3-D children’s movie, Hugo, for his daughter Francesca, who was turning 12, and 50 of her friends. Two thoughts occur:

It’s probably a good thing Scorsese didn’t have a daughter turning 12 the year he made Taxi Driver.

It’s official: you’re an inadequate parent.

“What? A pinata?! Daddy, I wanted 3-D Jude Law! Francesca’s dad gave her 3-D Jude Law!”

Continue…

Is the ‘Estonian miracle’ just smart management?

By Richard Warnica - Tuesday, November 15, 2011 at 11:20 AM - 0 Comments

Miracles are always more complicated than they first appear. Even the word itself—miracle—is a kind of hedge. It’s a guard against deeper scrutiny, a way of pointing to the wonderful without probing too deeply into the details. Such is the case with the economic miracle in Estonia. The tiny tiger of the Baltic is being hailed as the anti-Greece, both for its fiscal austerity and stoic acceptance of such. But the story of how this nation of 1.3 million crawled out of the 2008 crash, gained entrance to the eurozone and set itself on the path to, fingers crossed, prosperity is both messier and more pragmatic than “miracle” implies.

Beginning in 2009, the Estonian government undertook a policy of “fiscal retrenchment”—it tanked its own economy, basically, cutting spending and raising taxes even as the rest of the West indulged in a binge of Keynesian excess. Between 2000 and 2007, Estonian GDP climbed an average of eight per cent per year. In 2009, it tumbled 14 per cent. Unemployment hit 19 per cent that year, and wages, in the private and public sectors, were slashed, in some cases by as much as 40 per cent.

And for all this, the government was praised. There were no mass protests, no legislative walkouts, no rioters tearing up the cobblestones in the streets of Tallinn. “If you look at what the [polls] said in spring of 2009, before they made the cuts, and what they were in October, November, they actually went up,” says Ringa Raudla, a senior researcher in public administration at the Tallinn University of Technology. In March 2011, the same parties that implemented the austerity plan were re-elected to another term. “People actually supported cutting the budget rather than taking out loans,” Raudla says. Continue…

The crunch approaches

By Aaron Wherry - Tuesday, November 15, 2011 at 10:00 AM - 0 Comments

Government spending has increased and the future looks expensive.

In figures for government budgeting for the fiscal year to date, the PBO shows health care allocations up by $1.6 billion. That transfer will continue to increase at a six-per-cent clip every year for at least the next four years if the government sticks to its election promises.

Servicing charges on the public debt have also jumped $1.4 billion from the same period a year earlier because higher deficits are more than offsetting the benefits of low interest rates. Those costs, too, will continue to grow as long as the government keeps adding to its debt. And old-age security payments rose $1.1 billion from last year — partly because of a growing number of beneficiaries and partly because the benefit has been enriched.

Kevin Page questions the government’s fiscal plans going forward. Of course, the Conservatives are openly dismissive of Mr. Page at this point.

On health care, the government has apparently considered a transfer formula based on age.

The Canadian hired to save the world

By John Geddes - Monday, November 14, 2011 at 9:40 AM - 0 Comments

Sean Kilpatrick/CP

Upbeat stories to spin were in short supply at last week’s G20 summit at Cannes. The host, French President Nicolas Sarkozy, narrowly avoided disaster on his home turf when the destabilizing prospect of a Greek referendum on the country’s debt crisis faded. U.S. President Barack Obama remarked on how European decision-making in the face of economic calamity struck him as “laborious” and “time-consuming,” before heading back to Washington, where laborious, time-consuming efforts to cope with America’s deficit continue. Prime Minister Stephen Harper, though, claimed bragging rights on the Riviera thanks to the naming of Mark Carney, the governor of the Bank of Canada, to head an increasingly powerful body called the Financial Stability Board. “His appointment,” Harper said, “is both a tribute to his personal qualities and a reflection on Canada’s superior performance in monetary, fiscal and financial-sector policy areas.”

Carney’s emergence as the international poster boy for everything admirable about the Canadian economy is among the more improbable stories of the Harper era in Ottawa. It’s not that he’s Ottawa’s first appointed public servant to outshine the elected politicians. Former auditor general Sheila Fraser, after her 2004 report on the sponsorship affair that rocked the then-ruling Liberals, became the face of honesty in government. Retired general Rick Hillier’s outspoken pride in Canadian troops made him, as chief of defence staff, the voice of patriotism. But Carney offers nothing like Fraser’s down-to-earth quality or Hillier’s entertaining populism. He’s a Ph.D. economist and former investment banker, and seems like one. His star quality counts for more in elite circles than among Canadians in general. Still, during this prolonged stretch of anxiety over when the next recession might hit, a figure who embodies sophisticated economic leadership is an invaluable political commodity.

As Harper’s comments in Cannes confirmed, Carney’s skills and Canada’s strengths are now being sold as a combo pack. And Carney is highly marketable. At just 46, he’s unusually young for a central banker, and cuts an athletic figure. (He ran the Ottawa marathon in three hours and 48 minutes last spring.) His bio comes complete with a Canadiana prologue any political mythmaker might envy. Born in the Northwest Territories, where his father was school principal in remote Fort Smith, he’s said one of his earliest childhood memories is the smell of the furs his mother bought for making parkas.

Continue…

Mark Carney: A central banker for a volatile age

By Andrew Coyne - Monday, November 14, 2011 at 9:40 AM - 0 Comments

Chris Wattie/Reuters

At 46, Mark Carney manages to look both younger and older than his years. This is fitting, as his approach to the economy combines a commitment to old-fashioned central bankerly verities—sound money, prudent risks—with a modish flexibility as to how these are to be secured.

That has been an unavoidable necessity in what we should perhaps now refer to as his day job, as governor of the Bank of Canada. Gone are the days when central bankers could simply focus on keeping the so-called monetary aggregates—M1, M2, all the gang—to a fixed annual growth rate, as monetarists had advised. While this approach had succeeded in reining in the Great Inflation of the 1970s and ’80s, it eventually fell victim to Goodhart’s law, named for a former adviser to the Bank of England: namely, that the moment you target any particular measure of the money supply it loses its usefulness—because people in financial markets find ways to innovate around the constraint. Central bankers have since had to steer by a variety of other measures, even as the overall objective—stable prices—has remained unchanged.

The lesson of that experience, that policy does not consist in simply issuing a set of rules, but rather exists as a continuing process of interaction between the regulators and the regulated, appears to inform Carney’s views on the causes of the financial crisis, and how to prevent another—a subject that will be his focus in his new, part-time job as chairman of the Financial Stability Board, the international body tasked with coordinating and overseeing the reform of global banking regulations. In speeches and interviews the governor has given, a number of related themes and concerns emerge. Among them:

Continue…

Invest in yourself— it pays dividends

By the editors - Wednesday, November 2, 2011 at 12:50 PM - 0 Comments

Photograpy by Cole Garside

Let’s talk about investments. Stocks? A reliable pipeline stock like Enbridge Inc. is up only 2.5 per cent over the past year. Bonds? Canada Savings Bonds are paying 0.5 per cent in the first year. Real estate’s a roll of the dice, and some people are calling for a crash. I’m not even going to get into collateralized debt obligations since, like the leaders on Wall Street who navigated us into the 2008 financial toilet, I don’t understand how they work.

There is one sure bet, though, and no one understands it better than you and your parents. It’s an investment in your own education. That sounds corny, but listen to the numbers: the annual return on a university education in Canada is at least 10 per cent. That’s 9.9 for men, 12.1 for women. As the brilliant and frugal Ben Franklin (his raised eyebrows on the U.S. 100 dollar bill a steady rebuke to our spendthrift ways) said a few hundred years ago: “If a man empties his purse into his head, no man can take it away from him. An investment in knowledge always pays the best interest.” With this in mind, we suggest you think of Maclean’s 21st annual university rankings issue as a comprehensive guide to the important business of investing in yourself.

The connection between a university education and a satisfying and successful working life is not speculative. University graduates have the highest employment rate in Canada and are much more likely to find full-time jobs. A degree is an insurance policy against the vagaries of the global economy. In the 2008 recession, says Statistics Canada, degree holders were less likely to be laid off, and more likely to be hired back promptly if they were laid off.

Continue…

Why Ontario is poised to become Canada’s Greece

By the editors - Monday, October 17, 2011 at 8:50 AM - 99 Comments

Frank Gunn/CP

October has been an unusually busy month for provincial politics.

Prince Edward Island, the Northwest Territories, Manitoba, Ontario, Newfoundland and Labrador, and the Yukon have all had elections in the past two weeks. Alberta’s ruling Progressive Conservatives recently picked a new premier in Alison Redford. And next month Saskatchewan will head to the polls. While every election is important, one in particular should give all Canadians pause for thought.

Ontario Premier Dalton McGuinty’s re-election last week, albeit with a minority, was an impressive display of campaigning. And yet what makes McGuinty’s return significant is not his politicking skill but his responsibility for Ontario’s ever-expanding debt. Traditionally known as the engine that drives Canada, Ontario is in danger of becoming the Greece of Confederation—if Greece happened to account for more than a third of Europe’s economy.

Continue…

So what does Jim Flaherty do now about the economy?

By John Geddes - Monday, October 10, 2011 at 10:50 AM - 2 Comments

Chris Wattie/Reuters

Economic necessity made Jim Flaherty a big-spending finance minister, but he takes pains not to talk like one. Back in August—with the Greek debt crisis escalating and U.S. political gridlock on budget policy frightening investors everywhere—Flaherty was pressed by NDP finance critic Peggy Nash to consider pumping some federal cash into the vulnerable Canadian economy. “That actually is the problem—too much spending,” he told her at the House finance committee. “It’s exactly what we should not do.”

A few weeks later, heading to Marseille, France, for an anxious meeting of the G7 finance ministers, Flaherty was again asked about proposals for governments to ease off on deficit reduction. In the face of a deteriorating global economic outlook, the classic policy response would be an injection of stimulus. But Flaherty recoiled at the notion. “We want to stay the course,” he said.

The steady-as-she-goes message, though, didn’t stop unease from deepening. That prompted Flaherty, Prime Minister Stephen Harper and Bank of Canada governor Mark Carney to hold a rare photo op meeting to show they were on the case. And Flaherty noticeably softened his previously hard-edged anti-stimulus, pro-deficit-cutting rhetoric. “If we get a shock from outside our country,” he told reporters recently, “we’ll have to be responsive, and we’ll be flexible and pragmatic.” The substantial wiggle room implicit in those words served as a reminder of how abruptly Flaherty shifted, in late 2008 and early 2009, from predicting no recession and no deficits, to having to acknowledge a punishing recession and preside over unprecedented deficit spending to combat it.

Continue…

Don’t let the depression get you down

By Scott Feschuk - Monday, October 10, 2011 at 10:10 AM - 3 Comments

Getty Images; Photo Illustration by Taylor Shute

During a recent lecture in Ottawa, a prominent British commentator offered his assessment of the global economy. Martin Wolf referenced debt loads, bailout funds and all that—but permit me to distill his message to its essence: EVERYBODY RUN FOR YOUR LIVES!!

Indeed, by the time Wolf was done speaking of likely default in Europe and a potential worldwide depression, it felt as though nomadic Huns were poised to smash through the walls and make off with our animal skins and womenfolk. His vision of the future made The Road sound like a buddy comedy.

Wolf is by no means alone. These are prosperous times for pessimism. Pretty much every day now we wake up to news that the Hang Seng is down three per cent, which is a bummer because hearing “Hang Seng” used to be so much fun, in that it sounded like a bounty hunter from Star Wars. When it comes to retirement, many of us have given up on the dream of Freedom 55 and now grudgingly accept the reality of Freedom Andy Rooney, wherein we position ourselves behind a desk and keep working until we’re 92.

Continue…

Reality will bite back in Ontario

By Richard Warnica - Friday, October 7, 2011 at 2:34 PM - 8 Comments

Blair Gable/Maclean's

The Twitterati in my home province of Alberta made a lot of hay this week over a headline in The Globe and Mail that presented the election of Alison Redford, a centrist former justice minister and now provincial premier, as an evolutionary step forward for the knuckle draggers of the Prairie politic. “Alberta steps into the present,” the headline read, to which the easily offended replied, “So where were we before, the past?” Albertans have an almost reflexive sensitivity to criticism from the East. It’s a bit like what the rest of Canada feels for the U.S., a mix of smug superiority and desperation to be noticed. But Albertans should relax. Ontarians seem to think worse of each other than of anybody else. And their politics, well, they’re nothing to brag about.

Take last night’s election. It was, in many ways, an odd campaign. In a province where health care eats up $46 billion a year, more ink was spilled on cross-dressing than on doctors’ salaries. Indeed, it seemed at times as if the parties had made a pact to avoid dealing with most of what a provincial government actually does. Health care? Untouchable. Education? Just keep the kissing booths out and we’re fine. Continue…

Can Canada avoid another recession?

By macleans.ca - Wednesday, September 28, 2011 at 4:42 PM - 5 Comments

What’s the use of saving money?

By Jason Kirby and Chris Sorensen - Tuesday, September 27, 2011 at 9:30 AM - 38 Comments

Getty Images; Photo Illustration by Taylor Shute

Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.

That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover—particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”

Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history. For that matter, over the last 10-year period, following the 9/11 terrorist attacks, the Bank of Canada’s benchmark interest rate stayed above four per cent for just six quarters (in 2006 and 2007), while the average headline rate of inflation over that time was 2.1 per cent.

Continue…

It’s time for the truth about taxing the rich

By the editors - Monday, September 26, 2011 at 10:00 AM - 23 Comments

Jake Wright/CP

President Barack Obama’s endorsement of the “Buffett rule” for taxation has Republican legislators crying “class warfare” this week. Warren Buffett, the super-rich sage stock-picker of Omaha, Neb., has taken centre stage on the U.S. political scene by pointing out how outrageous it is that he pays a lower effective tax rate than his secretary. “Last year my federal tax bill—the income tax I paid, as well as payroll taxes paid by me and on my behalf—was $6,938,744,” Buffett wrote in the New York Times in August.

“That sounds like a lot of money,” he added. (It certainly does to us.) “But what I paid was only 17.4 per cent of my taxable income—and that’s actually a lower percentage than was paid by any of the other 20 people in our office.” Like most Americans in his elite income category, Buffett pays little more than 15 per cent on what he makes because most of it takes the form of capital gains, which the U.S. taxes at that low rate.

Buffett takes glee in telling the American masses what they want to hear in a time of frighteningly high unemployment that looks increasingly invulnerable to the everyday tools of U.S. fiscal and monetary policy. Rich folks like me, Buffett says explicitly, really are avoiding sacrifice. “My friends and I have been coddled long enough by a billionaire-friendly Congress,” he wrote in the Times. He wants rates on income from all sources increased for individuals with million-dollar incomes, and still more for those raking in $10 million.

Continue…

The wrong medicine

By Aaron Wherry - Monday, September 26, 2011 at 9:46 AM - 4 Comments

Douglas Porter quibbles with the Prime Minister’s prescription for economic woe.

“We could be making some of the same mistakes. Certainly, there are echoes of 1937,” agreed Douglas Porter, deputy chief economist at the Bank of Montreal. Last week, Prime Minister Stephen Harper and British Prime Minister formed an unusual alliance of debt hawks, coming down firmly on the side of stricter austerity as the way out of the crisis – at least in Europe … 

Mr. Porter said Mr. Harper’s call for global austerity is “precisely the wrong medicine at this time.” Government bond yields in Canada, and in most other countries, have sunk to multi-year lows in recent days. That’s a sign that financial markets are stressed about economic growth prospects, not government deficits or inflation, according to Mr. Porter. “Governments shouldn’t be aggressively cutting spending when the economy is gasping for air,” he said. “That’s certainly the wrong prescription.”

‘We’re not quite staring down the barrel. But the pattern is clear’

By Aaron Wherry - Thursday, September 22, 2011 at 6:04 PM - 7 Comments

The prepared text of British Prime Minister David Cameron’s speech to Parliament this evening.

Mr Speaker, Mr Speaker of the Senate, Mr Prime Minister, Hon Members of the Senate and Members of the House of Commons…

Je vous remercie du grand honneur que vous me faites en m’invitant a m’exprimer devant ce parlement historique.

I want to begin, in this place, by paying tribute to Jack Layton and I offer sincere condolences to Olivia and his family. His energy and optimism were above politics, and I know he will be missed by all those who serve here.

One of the things I am finding about this job is that whichever countries I visit, members of the Royal family have got there first.

Continue…

About that world debt

By Aaron Wherry - Friday, September 9, 2011 at 3:08 PM - 1 Comment

Scott Clark and Peter DeVries have some questions for Jim Flaherty ahead of the next meeting of G7 and G8 finance ministers.

President Obama has said that he wants a balanced approach to solving the US deficit and Debt problem. This would require both expenditure cuts and tax increases. Mr. Flaherty has said that he would never raise taxes to deal with a deficit problem.  Lower taxes are needed for growth. This sounds very Republican if not Tea Party. What advice will Mr. Flaherty tell the Secretary of the Treasury regarding taxes to reduce the US deficit?

The Prime Minister claims great success for his leadership at the G-20 in getting countries to commit to reducing their deficits in half by 2013.  What has happened to that commitment?

Do you agree with Warren Buffett that the rich should pay more taxes?

By macleans.ca - Wednesday, August 17, 2011 at 12:56 PM - 19 Comments

What it takes to get back to AAA

By Erica Alini - Tuesday, August 9, 2011 at 5:50 PM - 7 Comments

By cutting the U.S. credit rating on Friday, Standard and Poor’s may well have pushed the world economy closer to a dreaded second dip into recession. Of course, downgrading the world’s largest economy is bound to have serious consequences, but Washington’s humiliation is not a first. Many of today’s AAA-rated countries have less-than-perfect credit histories. In fact, seven of the 15 nations on the AAA list of both S&P’s and Moody’s either lost their top score for a period, or had to work their way up there from lower ranks.

So how does a country climb back to a AAA rating? In one of three ways, it seems–and not all of them involve austerity: Continue…

S&P sends U.S. political leaders a message

By John Parisella - Monday, August 8, 2011 at 5:59 PM - 34 Comments

Last Friday, the Standard & Poor’s rating agency made history by ratcheting the U.S. credit rating down a notch from AAA to AA+. (The two other major rating agencies, Moody’s and Fitch, kept the U.S. at AAA.) The Obama administration argued S&P overestimated the U.S. debt by over $2 trillion. And though S&P recognized the error, it argued the debt ceiling deal was inadequate to maintain an impeccable credit rating.

Politicians from both the Democratic and Republican parties have blamed one another for the decision by S&P. GOP presidential candidate Michele Bachmann attributed the downgrade to President Obama, while Obama advisor David Axelrod blamed the Tea Party for toying with a default to force spending cuts. Continue…

Who really won the U.S. debt debate?

By John Parisella - Tuesday, August 2, 2011 at 2:30 PM - 22 Comments

I followed the debate over the debt ceiling in the U.S. from Europe, where the commentators were perplexed about why the U.S. government would risk a default for the sake of purely partisan politics. With the deal done and a possible catastrophe is averted, the discussion has shifted to who won and who lost.

Conservatives like columnist Charles Krauthammer have supported raising the debt ceiling all along while acknowledging the work done by Republican negotiators. Others, such as Utah Senator Mike Lee, a leading Tea Party activist, and most GOP presidential hopefuls, opposed it. Respected liberal economist Paul Krugman wrote in the New York Times that President Obama had surrendered. So, who actually won? Was there a winner?

Clearly, this was a manufactured crisis, as raising the debt ceiling has never stirred so much down-to-the-wire confrontation in the past. President Reagan raised it 18 times and he is the darling of the Republican right to this day. Continue…

The rhetorical deficit

By Aaron Wherry - Tuesday, August 2, 2011 at 10:10 AM - 46 Comments

Tabatha Southey considers the rhetoric of public debt.

It’s easy to alarm people over a deficit. It’s a high number and people are forever being told that it’s theirs and their children’s debt and specifically how much of it is theirs, per capita. But no one ever tells them how much highway they own, per capita, or what section of the Grand Canyon is theirs. It’s a very one-sided, frequently opportunistic way of expressing the situation.

The consequences of playing a game around the largely artificial debt ceiling are very real. This is politics triumphing over economics, but without the triumph.

The centre in crisis

By Aaron Wherry - Friday, July 29, 2011 at 5:13 PM - 47 Comments

Bob Rae draws lessons from the U.S. debt crisis.

The deep partisanship that has marked the crisis in the United States Congress has some lessons for Canadians.  Polarisation is not the “new normal,” as New Democrats and Conservatives are preaching.  It corrodes the body politic and takes us away from the simple truth that most people want a moderate, intelligent politics that’s based on facts, evidence, good values and compromise … we need to understand that most goals in politics, as they are in hockey or soccer, are scored from the centre.  That’s where the action is, and that’s where most Canadians are. But not the dead centre where it’s safety first and always ‘on the one hand and the other hand,’ but rather an action-filled, resilient, and lively centre that is not afraid of ideas, debate, and looking at issues afresh.  And that’s where the Liberal Party needs to be as well.

Ideological purity and governance

By Aaron Wherry - Friday, July 29, 2011 at 12:00 PM - 7 Comments

In light of the U.S. debt crisis, Fareed Zakaria compares the American system to parliamentary governance.

Some political scientists long hoped that American parties would become more ideologically pure and coherent, like European parties. They seem to have gotten their wish – and the result is abysmal.

Here’s why: America does not have a parliamentary system like Europe’s, in which one party takes control of all levers of political power – executive and legislative – enacts its agenda and then goes back to the voters. Power in the United States is shared by a set of institutions with overlapping authorities – Congress and the presidency. People have to cooperate for the system to work.

See previously: Debt and responsibility