Tag Archives: recession

Will Saskatchewan Fall into Recession?

Will Saskatchewan experience a recession because of falling oil prices?

The Conference Board of Canada predicts this drop will cause Alberta to slip into a recession by the end of the year. Jeff Rubin, the author of “The End of Growth” and former chief economist of CIBC World Markets believes the dip in the sector could affect Saskatchewan as well, though not as seriously.

“I don’t expect Saskatchewan or Newfoundland to be as adversely affected as Alberta,” Rubin said.

“But it’s going to impact the economy, it’s going to impact tax revenues. Governments are going to be challenged in the sense that if they don’t challenge spending, they’ll see their deficits go off side.”

It could also affect property prices.

The Conference Board of Canada predicts that Alberta will slip into a recession before the end of the year. Rubin echoes that warning. He said Alberta could experience its worst recession since the late 1980s.

At the end of the day, Saskatchewan will be okay because we have what the world needs.  It may not be as great as it was in 2009 but we will be okay.  That being said, we are so reliant on commodity prices that these kind of dips are going to impact us forever with no way out.  In that way the new Saskatchewan under Brad Wall isn’t a lot different than the old Saskatchewan under Grant Devine or Roy Romanow.  Like the rest of the world, the global economy will always have a big impact on us for good or for bad.

Cam Broten has said before that he wants more eggs in more baskets.  I think we all do in Saskatchewan but man is it hard to do.  I posted before about Alberta’s struggles in diversifying their economy and the same thing has happened here.  I agree with diversification but we are a province of a million people and there are going to be times that the world economy conspires against us and makes it really hard.  This is one of those times.

When do you stop spending?

Jim Flaherty said today that he would spend to defend Canada from another recession

Under questioning from opposition MPs, Flaherty said for the first time that the Conservative government would move in with another round of stimulus spending if the world economy suffers a double-dip recession.

“We would obviously do what is needed” if there was a “dramatic deterioration” in the economies of the United States and Europe, he told the committee.

But for now, Flaherty said, the government is not changing its budget plan despite the turmoil on financial markets and debt crises in the United States and Europe. The plan calls for spending cuts of $4 billion a year to eliminate the annual federal budget deficit — now $32-billion annually — in a few years.

Pressed by opposition MPs about how Ottawa would react to a renewed global slowdown, Flaherty said he would change course and develop a pro-growth spending plan as the Conservatives did during the recent recession.

Here is my problem with this problem.  Do any of us think that the United States/Europe is going to fix their problems in the next recession.  I am not saying Flaherty is wrong but does this look like it’s going away.  Jeff Rubin points out that with global demand the way it is, as we come out of a recession, prices will increase and drive the economy back into it which means, how many of these recessions will we be able to afford to ride out until we are looking at Mulroney-esqe debt loads and Devine type deficits again.

We are looking at a default or massive bailouts for Greece, Italy, Spain, Portugal, and the too big to fail banks in Germany.  There is a dysfunctional governance system in the United States, and even China has some long term economic problems.  Does anyone think this next recession is going to be a quick one or we won’t be experiencing a triple or quadruple dip recession before this is all said and done?  No, me neither.

I know Jim Flaherty has been seeking out the advice of economic experts like former Calgary Flames captain Jim Peplinski but may the alternative might be figuring out ways to reinvent Canada’s economy to thrive in a world where recessions will be the norm, not the exception.

Is the Recession Finally Over?

According to Newsweek

The long-leading index—which goes back to the 1920s and doesn’t include stock prices but does include measures related to credit, housing, productivity, and profits—hits bottom and starts to climb about six months before a recession ends. The weekly leading index calls directional shifts about three to four months in advance. And the short-leading index, which includes stock prices and jobless claims, is typically the last to turn up.

All three are now flashing green. According to Achuthan, the long-leading index growth rate has been recovering since November 2008, the weekly leading index has been recovering since last December, and the short-leading index growth rate bottomed in February 2009. In sequence, each turned up, "and by April the three Ps had all been satisfied." Sure, corporate profits continue to disappoint, and the unemployment rate is climbing. But for ECRI, which navigates by relying exclusively on its instruments, that’s only a part of their picture. They’re the Spocks of the economic forecasting crowd—unemotional, uninvested in anything but the logic of what history and their dashboard tell them. "From our vantage point, every week and every month our call is getting stronger, not weaker, including over the last few weeks," says Achuthan. "The recession is ending somewhere this summer." In fact, it may already be over.

There’s plenty of ground for skepticism, in part because the news flow is still quite negative, especially when it comes to corporate profits. ECRI’s response? "Indicators are typically judged by their freshness, not their prescience. Since most market-moving numbers are coincident to short leaning, while corporate guidance is often lagging, it is no surprise that analysts do not discern any convincing evidence of an economic upturn."

So the recession was caused a drastic rise in the price of oil and when the recession hit, the demand of oil dropped, the price went down and that in turn helps with the economic turn around.  This of course causes an increase in demand for oil which will drive up the price of oil again.  That’s great if you are a Saudi oil prince or are Ed Stemach but not so great for the rest of us who have to pay for it.  My question is that are we heading into a cycle where we escape a recession only to head right back into one because of high oil prices… that is until we change our economy away from carbon based fuels.  The Wall Street Journal talked about the phenomenon and the possibility of W or a double dip recession.

Double-dip recessions are rare, and not well defined. It is common for a period of shrinking GDP to be punctuated by at least one positive quarter, as occurred in 2001, but the imprecision of GDP and frequent revisions means that at the time, it didn’t feel like much of a rebound occurred. An exception is 1980-1982 which the official score keeper, the National Bureau of Economic Research, considers two recessions but some say should be considered one, punctuated by a year of growth.

During the 1990s, Japan also experienced several periods of expansion often driven by aggressive public works spending that fizzled as asset prices fell further, eroding the banking system’s capital and suffocating the supply of credit. It’s too soon to forecast the same for the U.S. whose underlying growth is higher thanks to a growing population, and whose financial system is (on the surface at least) better capitalized. Nonetheless, widespread declines in real estate collateral values may make this cycle be different from most post-war recessions.

Even if this is over, it doesn’t look like we are in the free and clear yet.

14 Days

For the first time in 14 days, I am enjoying some time off of work.  We had planned to go to the lake this weekend but with the wind-chill (yes, I just said wind-chill in April), it was going to be –15 degrees Celsius out last night which didn’t sound like a lot of fun.  When I walked outside to go to work on Friday, I noticed a bird sitting on the edge on our bird bath which I filled on Thursday.  The bird bath was frozen solid and the bird was trying to figure out why it had come north so soon.

Instead we chilled out around town and took in the Saskatoon Symphony Orchestra Book Sale and am getting some yard work done around here.  We have two or three days worth of work to do at the cabin and then we are done for a couple of months. 

Of course our schedule was altered a couple of weeks ago when we hit a pot hole and did a lot of damage to the front of the Honda Accord.  We cracked a couple of CV joints and then did some damage to the axle and front end in general.  The total bill is about $800 and then I had a little of engine work to be done as well.  The garage questioned if we wanted to keep it or if we should auction it off so we don’t have to look the buyer in the eyes but we decided to fix it.  On top of that I decided to add some new tires to the van and the car which is another $800 but that is part of owning vehicles.  One of the women I work with, her son owns a tire shop in Saskatoon that everyone I work with goes to.  Instead of dipping into savings, we decided to pay for it out of our operational cash which means less of everything for a couple of months.   The vehicles have been good to us and we haven’t put any money into it at all so it’s time.

Of course it means that we have to cut back in some areas which means that we are cutting back on the cabin.  We had hoped to buy a new gazebo for the cabin this spring but I think that is being pushed back into June when Wendy starts back to work.  Our other big capital project at the cabin is a front deck but it will be under $200.   The plan was to paint, put up the gazebo and the deck by the end of May.  It isn’t going to happen and will be September before it is all said and done which is fine.  It’s 3/4 of a tank of gas every time we go out.  Right now that is a lot cheaper than it was last year but every little bit helps.

When the talk of the long recession started (see The Great Recession blog for a lot of links) I started getting a little obsessive about protecting our savings.  It took some long discussions with Wendy but she bought into the plan as well.  Being in Chicago and not seeing a single HELP WANTED ad reminded me how isolated we are in Saskatoon from the bad times but that can change.  I am not sure how long it will be until we are on the other side of it but until we get there, I will be working at keeping my costs down and debt at zero.  It will mean a few less shorter trips to the lake and a few more longer ones.

Are you prepared?

Tom Sine of Mustard Seed Associates sent along this link to an excellent article he wrote for Christianity Today about churches preparing for the recession.  He describes the situation pretty well.

Shelters all over the U.S. that provide food and housing for the homeless report that demand is soaring and resources are shrinking. States and municipalities are cutting social services to the poor as demand is increasing because tax revenues are declining due to the recession.

He also gives a call to action

Followers of Jesus, during times of crisis, don’t abandon neighbors, but share their resources with them.

Find some time to read the entire article, it’s worth reading regarding of your theological or political world view.

The rich become poor, the poor disappear

Barbara Ehrenreich has a great post on why the bailout needs to include more than the bankers

If that sounds politically unfeasible, consider this: When Clinton was cutting welfare and food stamps in the 90s, the poor were still an easily marginalized group, subjected to the nastiest sorts of racial and gender stereotyping. They were lazy, promiscuous, addicted, deadbeats, as whole choruses of conservative experts announced. Thanks to the recession, however – and I knew there had to be a bright side – the ranks of the poor are swelling every day with failed business owners, office workers, salespeople, and long-time homeowners. Stereotype that! As the poor and the formerly middle class Nouveau Poor become the American majority, they will finally have the clout to get their needs met.

What’s at Stake?

Several people sent me this link about what is at stake with the United States running $1 trillion deficits.

The non-partisan Congressional Budget Office has also said the U.S. budget deficit will swell to a record $1.186 trillion in fiscal-year 2009 and come in at $703 billion in the 2010 fiscal year, which begins October 1, 2009.

The actual budget gaps for both years may be significantly wider as Washington prepares to jolt the economy with stimulus spending that could total $775 billion over two years.

The following are several scenarios that could result from runaway budget deficits:

FALLING U.S. CREDIT RATINGS:

United States EconomyA string of trillion-dollar deficits could undermine investors’ faith that the U.S. government always pays its debts and put in danger the country’s triple-A credit ratings. This could lead foreign investors to shun U.S. Treasuries, the bonds the government sells on the open market to finance its borrowing. Treasuries are currently expensive by historic standards since the financial and economic turmoil of the past year has boosted their global appeal as a safe-haven investment. Serious danger to U.S. credit ratings could send the debt market downward and burst what some are calling a bond-market bubble.

SKY-HIGH INTEREST RATES:

A loss of faith in U.S. government bonds would send interest rates throughout the economy soaring since Treasuries serve as the benchmark for loans in the private sector. A rout in that market would dramatically lift the cost of borrowing for buying homes, cars and paying for university education. If it happens any time soon, this in turn would jeopardize the Federal Reserve’s efforts to stabilize the ailing economy.

Note: This is why I locked in mortgage…

DUMP THE DOLLAR:

A crisis of confidence in U.S. debt would devastate the dollar. The world’s reserve currency, the greenback is used globally by countries and companies to pay for a wide range of basic commodities, most notably oil. If investors dumped U.S. debt, they could do the same with the dollar. A dollar crisis might end its status as the preeminent currency of world commerce, deeply undermining its value and further raising the cost of borrowing for the United States.

SOARING INFLATION:

A plummeting dollar and sky-rocketing interest rates could push the inflation rate through the roof. The United States imports far more than it exports and would be hard pressed to pay for oil and manufactured goods it buys from abroad with the greenback’s value withering. Currently, though, rapidly falling prices, or deflation, appears to be a much more imminent problem than the more distant prospect of inflation.

FALLING GLOBAL STATUS:

A dollar and debt crisis would undoubtedly undermine the global standing of the United States, much of which is based on the fact that it is the world’s largest economy. If the United States lost the international reserve currency and the faith of global investors, little else might be left and the beacon of free-market capitalism might also dim.

Don’t Check Up

Don't Check Up As a NASCAR fan, you lose perspective over how many job losses hit the sport this year but there has been 700 highly educated mechanic, fabricators, and engineers who have been laid off.  Don’t Check Up is a job search website just for NASCAR employees who have been let go during the recession.  The back story is here.

The site is part of an unemployment task force, founded by former Lowe’s Motor Speedway president Humpy Wheeler and the North Carolina Motorsports Association, that attempts to assist displaced workers as well as keep them in the state.

“We’ve actually been working with the biotech industry, which has connections to fabrication jobs. Things in the medical device industry are real similar to racing, with the precision and time constraints and all that,” said Shawn Stewart, marketing and membership director of the NCMA. “We’re trying to promote these workers and what kind of value they might bring to a company that’s non-motorsports. Either they stay in another career path or come back to racing, but either way, if those jobs don’t come back, they’re still in the area and still employed.”

Stimulus Packages From Around the World

Since all our countries (sans Germany) are offering stimulus packages these days, I thought I would see how they stack up against each other.  The American one is by far the biggesest while Iceland’s economy took the hardest hit.  Many economists believe a lot of the figures being announced involved a mixture of truly new money and recycling of existing commitments, so it remains hard to evaluate the impact.

Japan :: The Finance Ministry’s draft budget suggested a spending increase of 6.6 percent to 88.5 trillion yen ($990.9 billion) for the next fiscal year — the biggest ever figure in an initial proposal.  The world’s second-largest economy fell into a recession in the third quarter, and the signs since then point toward more misery ahead. The latest outlook by the Cabinet Office projects Japan’s economy to shrink this fiscal year and manage only flat growth the following year.  The budget proposal said general spending will rise to 51.7 trillion yen ($578.9 billion) in the year starting April, even though tax revenue is projected to fall 13.9 percent to 46.1 trillion yen ($516.2 billion).  As a result, Japan will see its primary budget deficit jump to more than 13 trillion yen ($145.6 billion) from 5 trillion yen ($56 billion) this year, and will boost bond issuances by 31.3 percent to cover the revenue shortfall. – Source: IHT

USA :: Well, according to some sources, to put the bailout dollar amounts into proper historical perspective.   The current Credit Crisis bailout is now the largest outlay In American history. Crunching the inflation adjusted numbers, we find the bailout has cost more than all of these big budget government expenditures – combined:

• Marshall Plan: Cost: $12.7 billion, Inflation Adjusted Cost: $115.3 billion
• Louisiana Purchase: Cost: $15 million, Inflation Adjusted Cost: $217 billion
• Race to the Moon: Cost: $36.4 billion, Inflation Adjusted Cost: $237 billion
• S&L Crisis: Cost: $153 billion, Inflation Adjusted Cost: $256 billion
• Korean War: Cost: $54 billion, Inflation Adjusted Cost: $454 billion
• The New Deal: Cost: $32 billion (Est), Inflation Adjusted Cost: $500 billion (Est)
• Invasion of Iraq: Cost: $551b, Inflation Adjusted Cost: $597 billion
• Vietnam War: Cost: $111 billion, Inflation Adjusted Cost: $698 billion
• NASA: Cost: $416.7 billion, Inflation Adjusted Cost: $851.2 billion

TOTAL: $3.92 trillion

Bailout Cost: $4.6165 trillion dollars.  Of that $4.6 trillion dollars, $1.6 billion went to U.S. bank executive bonuses.

Plus, many economists are predicting another $400 billion in stimulus money once Barack Obama comes to office in January.

Source: BoingBoing

European Union :: In comparison to the American bailout, it is pretty small at $260 billion (1.5% of GDP) but this is on top of IMF interventions in some nations and on top of national efforts as well.   The British government earlier this week announced it would provide a 20 billion pound ($30 billion) fiscal stimulus, centered on a 13-month reduction in the value-added tax charged on most goods and services to 15% from 17.5%.   Germany has announced a package it says will spur investments worth as much as 50 billion euros. France is also mulling measures.  – Source: Marketwatch  For what it is worth, the IMF doesn’t think $200 billion is enough money.

Iceland :: The good news is the small Icelandic economy which was devastated by the credit crunch is recovering according to the IMF.  The economy is still a mess with a $1 billion deficit and Iceland’s key interest rate is currently at 18 percent, the highest in Europe.  The IMF has already paid out some 827 million dollars to Reykjavik, and the rest will be paid out in eight intervals of 155 million dollars provided Iceland meets its quarterly IMF reviews. The government has meanwhile forecast that the public debt would increase from 29 percent of GDP at the end of 2007 to just over 100 percent of GDP at the end of 2009. The IMF said at the end of October it expected the island’s economy to contract by a massive 10 percent next year.  Check out the Financial Times for more indepth news on Iceland’s economy.

Canada :: $30 billion over the next four years.  The Prime Minister doesn’t want to spend that money but the political reality may force him.  While the Canadian banks are doing well, they are hoarding cash right now and not making loans to businesses who need them.  There is also some debate over on how to create the stimulus.

Russia :: The financial crisis is presenting Russia’s ruling elite with the most serious challenge to its power in a decade. The Kremlin has responded by offering a bailout package and economic stimulus measures between them worth over $200 billion.  Russia’s sovereign debt was downgraded by Standard & Poor’s for the first time in 10 years on Dec. 8, stocks have lost about 70 percent of their value since May, and the central bank has spent $160.3 billion in a bid to support the rouble. – Source: Reuters

China :: A stimulus package estimated at 4 trillion yuan (about 570 billion U.S. dollars) will be spent over the next two years to finance programs in 10 major areas, such as low-income housing, rural infrastructure and transportation. Source: Xinhua

Argentina :: $3.8 in stimulus plus government intervention in pension funds and a $21 billion public works program – Source: New York Times

Australia :: 1% of GDP or $10 billion Source: Scoop

A Recession Survival Guide

Like many of you, Wendy and I have had some up and down times financially.  We built our lifestyle while I was working at both Lakeview and Lakeland Churches and when I quit Lakeview, I wasn’t sure what I wanted to do but at the same time I needed the flexibility to keep working at Lakeland Church on the weekends.  It meant a significant drop in revenue for us.  Later on I struggled with some health issues for a year.  Heart and nerve problems that were extremely painful which made it really hard to move let alone work.  Our finances took a beating.

We pulled through and looking back, things were not that bad, we just had no money for extras.  When I started working at the Salvation Army Community Centre, the default browser on most computers is Internet Explorer and therefore the default homepage was set to MSN.com.  While I don’t like MSN for search, I really started to appreciate their articles on personal finances and I wish I had learned this stuff a decade ago. I thought I would link to some of the ones that I thought would be helpful.

No one knows how long this recession will last but many are predicting that the currect economic slump will be with us for a while.  I post more links to the Recession Survival Guide over the next while.  Let me know what suggestions you have in the comments below.