If you have opened a newspaper, turned on a newscast, or listened to any recent Canadian/United Nations financial reports lately you will have heard that the global economy and as an extension of such, the Canadian one, have many warning bells coming. The recession (though declared flatlined by Canadian authorities in the spring of this year) continues and is expected to do so for some time. International trade has been and will continue to be affected. Currencies are having drastic fluctuations. As a result, gold has hit all time highs. With the US Fed likely to have to print more greenbacks (and further devalue their currency), murmurings are being heard of a new dollar standard to replace the US Dollar. But it surely won't be the Euro where after shocks continue to abound from sunk/sinking national bailouts.
When money gets tight, the smart thing to do is to cinch the belt line, find areas to sacrifice and toe the budget. People the world over are having to make tough decisions and reduce their spending. But Canadians have bucked the trend of increasing their savings and decreasing their debt loads, instead taking advantage of low interest rates to perpetuate their interest spendings. While our brethren to the south have decreased their debt load we have instead managed to surpass their level of debt and in so doing posted new record levels. Astonishing. The creepmeter has already been going off about a potential housing bubble building in parts of this country. Ballooning household debt, most often placed up against property value, only furthers to create a Freddy Kreuger scenario. The Canadian government had taken a pot shot in 2009 of hedging off an increase in debt by increasing the capitalization requirements for mortgages, especially those on properties not occupied by their owners. But bankers were quick to contact their customers to advise them to set up credit lines on their properties to the max available before the new laws went into place. This way mortgagors could tap their revolving line of credit whenever they needed despite the new rules. In a worsening economy (a decrease in average after tax income is one of the main culprits being fingered, though at a decrease of only 1.5% it can hardly be solely reliable for a 6.7% increase in debt) higher debt only causes a greater crash.
So why are we bucking the smart trend of preparing for a bitter storm? Instead of warning bells we are being cajoled into believing, rather erroneously, that Canada is beyond all that. We have heard the praises of Canada's banking system sung out around the globe. It wasn't OUR fault that everyone else had such low levels of capitalization for their banking systems! It wasn't us who caused the bad investments in the housing market, putting people who couldn't afford them into houses they would one day be unable to pay for. But perhaps we DID do that. As a long time banker I saw many people who did not fit into the bank models of affording homes still find financing. Mortgage brokers bend and manipulate guidelines and incomes to put people into debt they may not be able to afford. And the big banks find ways to work with them. The argument goes that with interest rates so low people can afford more. And in time, their incomes should go up. But incomes are not going up. And interest rates will. By the time that mortgage terms mature from their record setting lows, rates will have climbed. And when they do, they will likely have to go up in big chunks in order to stem an eventual inflation. Of course, each quarter per cent that rates increase causes the amount of interest to be paid on debt to increase. Resulting in higher payments and longer terms. If income doesn't increase (with indicators stating they will remain stagnant for some time) but interest costs do then people will have less to live off of. If they have less to live off of they will be forced to spend less. If commerce ceases then the whole system is fucked. This is why we have been lead by our government to believe that we are sitting pretty. The Canadian government has been following a spend your way to happiness approach. Record levels of military spending, infrastructure development, and other stimulus spending were meant to spur the economy. The reasoning goes that if people just keep spending then we can spend our way out of this doldrum. Obviously this is a flawed logic. For a short term cold streak it could work, go into temporary debt and just pay everything off later. And we were assured that it would be a short term situation. But as the world economy staggers and even falls we are surely being sucked right into the whirlpool. Even if we HAD been away scott free our reliance on world trade puts us in a very precarious situation. As other economies falter the Canadian economy will follow. Free trade was meant to open up new markets in order to stem against regional market fluctuations. But with an inherent reliance on trading partners, when the whole of the world is sinking then so too will relatively healthy regional members.
It appears to me that the Conservatives have been incorrect on this soft world economy from the get go. They initially believed that this would be short lived, even stating in 2008, after the recession had hit, that they would have balanced budgets throughout. Interestingly it was only through the coalition of the majority of seats in the house that they were spurred to react to the softening marketplace. They then predicted that they would return to balanced budgets by 2013. This has now been delayed to 2015. And yet, even with the economic package meant to spur spending, indicators are that those measures which are working surely won't have us back in any pretty position anytime soon. It is far time that Canadians and their government pull the wool from their eyes and realize that we are in the midst of a continued recession which, while not hitting us as hard as say Ireland, Iceland, California, and others, will have long lasting effects on our way of life. As such, it is time that we started to think beyond the box on new measures we can take to go beyond the limits of a free trade, commerce based, economic system with its inherent flaws.
be careful, you might hear something
you don't want to hear
be careful you might say something
that you really mean
you say 'take things easy,
go and have some fun'
but my mind is hazy
about times i've spent alone
so be careful, you might feel something
you don't want to feel
be careful, you might learn something
you don't want to know
stop yawning, stop yearning
and wake up
what you wanna do is wake up
tell me, what you wanna do
what you wanna do, what you wanna do
what you wanna do is wake up
wake up, wake up!!!
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