The difference between Canada and the US in this recession

[kEiThZ]

After a bubble pops -- the standard of living naturally would go down some -- and no-one wants to admit it....

Exactly. That's the biggest difference between Canada and the US I think. We are willing to expect some short-term pain for long term gain and we have a realistic read on the relationship between those horizons. Most Americans (even their more literate classes) have yet to accept the fact that here on in, they will have to accept a significantly lower standard of living if they want their country to regain a stable positive long term trajectory. Large tax increases will be needed either by the end of Obama's first term or into his second term just to balance the books. If they actually want to start lowering their debt-to-GDP ratios to levels approximating that of Canada, they are going to need even higher taxes or significant spending cuts. I just don't see the appetite in the US public for those kinds of commitments. They would need the kind of public mentality that was there in the early 90s when Chretien got elected....with help from conservatives who were dissatisfied with the level of fiscal conservatism that the Mulroney/Campbell tories demonstrated. I don't see the US public as having matured to any where close to that level yet.

 

[jn_12]

My knowledge of political economy is really only based on two courses in the subject and residual information attained from my other political science classes, so excuse me if I'm a bit off base...

My understanding is that the US government isn't concerned about their deficit. To us and every in debt government in the world, that seems like a crazy idea, but there isn't a country in the world that has the same economic foundation as the US. Essentially what I'm getting at is that the debt that the country keeps building up has been funded by countries like Japan and China. It's in China's best interest to keep the American economy afloat as the US population is the greatest consuming of Chinese goods, especially when it comes to the higher end of the spectrum. So, China sends money and goods to the US, and is able to spur its own economy in the process. The US knows it will never have to pay back those loans because China will never call them on their debt. If they did, the US has the power to simply default and the entire global economic system collapses, which is in no one's best interest. The IMF and World Bank are basically American imposed institutions, so they're not about to impose structural adjustment on the American system like they would anywhere else (Canada, for example, was flirting quite close to having structural adjustment imposed on it in the 90s which is what spurred Martin's huge cuts)

I guess instead of giving money to the US, China could start throwing money at their fellow BRIC nations with hopes that it will create hyper-consumption, but that would probably be a risky move on their part. Until one of Brazil, Russia or India start showing signs that they can compete with American consumers, I can't imagine China would turn their back on the Americans.

This is a pretty simple analysis, and I'd probably have to go read through some text books to provide some more depth, but this is an argument that academics have been using for years now, so it's not "out there" whatsoever.

 

[kEiThZ]

^ It's not quite as clear cut as that. There has been a lot of discussion in American academic circles and the media about 'hitting a debt wall' which would effectively result in US T-bills and bonds becoming rated as junk which would subsequently lead the loss of reserve currency status for the US dollar. The debate, of course, is where that limit lies.

Right now, of course, nobody wants to rock the boat, because the recession is global and there are few countries that would want to make their situation worse by making major policy changes. However, that does not mean there aren't countries looking at ending the greenback's hegemony. Note China's recent suggestion to create a global reserve currency. The more the American's persist with their profligate ways, the closer they will get to that debt wall, and the more they will tempt other countries to start looking beyond the US dollar.

We all thought the Pound was infallible once too. The Americans would be wise to learn from the British experience.

 

[afransen]

My guess is that the debt crisis happened sooner than China anticipated. If it happened five years later, they would have been better positioned to cut the US loose.

 

[jade_lee]

My guess is that the debt crisis happened sooner than China anticipated. If it happened five years later, they would have been better positioned to cut the US loose.

China is raising interest rates ahead of the western world if only as a symbolic hint of what is to come. Housing bubble there as well!
As of today news on the street is that Canada will have a "structural deficit" and the thugs in Ottawa are speaking out of both sides of their mouths. Be prepared for delayed tax hikes and perhaps a budget that forces a spring election, you know an election that Canadians don't want. It appears like the new strategy is to give the current government enough rope to hang all of em.

"Flaherty and the CMHC can't publicly admit that there is a housing bubble in Canada because if they do, it will likely spark off a financial panic.

But the bubble itself was caused by the Tories who, following the banks in the US, dramatically and drastically loosened the CMHC's down payment and amortization regulations. When the credit crunch hit in 2008, Flaherty quietly tightened these regulations but in a very small way - hardly reversing the loosening of regulations.

In effect, Flaherty has "subprimed" the CMHC. There are at least a few financial analysts who have been quoted calling the CMHC the largest subprime lender in the world. And because the CMHC is a crown corporation, if Canada's housing bubble bursts, then the public is on the hook. It's no different than the United States except we've cut out the middle-man: the private banks.

This is the unwritten story of why Canada has weathered the crisis: keeping asset investments inflated.

The other largely ignored and unwritten story is the bailout of Canadian banks early last year to the tune of at least $80 billion via none other than the CMHC.

It's a fiction that Canadian banks have been prudent and wise. They did need a bail out because they did invest in subprime and asset-backed commercial paper.

And now the Tories are presiding over an "instant" $50+ billion debt and we all know that social spending cuts and wage repression are around the corner (you wonder why there are so many public sector strikes lately? It's preparing for a larger attack on wages and benefits to reduce costs).

We could avoid all this if we taxed the banks and major corporations - who are all, largely, still making enormous profits while receiving bailouts and ongoing subsidies at the same time. THAT is the bottom line and why Canada is in deep trouble in the long run."

2006 Flaherty changed the lending rules 0% and 40 years then quietly in 2008 changed to 5% and 35 years (he should have Left (of center) things as they were but these republicans could not help themselves enough it appears)

 

[quants]

I hope today's housing markets in both Canada and China are not like the one in US in 2006 but increasingly I am convinced they are.

the housing bubble in US was created by the cheap funding due to the securitization while the current housing price increase in Canada and China are mainly because of the low interest rate in Canada and huge loosen credit in China.

China is raising interest rates ahead of the western world if only as a symbolic hint of what is to come. Housing bubble there as well!
As of today news on the street is that Canada will have a "structural deficit" and the thugs in Ottawa are speaking out of both sides of their mouths. Be prepared for delayed tax hikes and perhaps a budget that forces a spring election, you know an election that Canadians don't want. It appears like the new strategy is to give the current government enough rope to hang all of em.

"Flaherty and the CMHC can't publicly admit that there is a housing bubble in Canada because if they do, it will likely spark off a financial panic.

But the bubble itself was caused by the Tories who, following the banks in the US, dramatically and drastically loosened the CMHC's down payment and amortization regulations. When the credit crunch hit in 2008, Flaherty quietly tightened these regulations but in a very small way - hardly reversing the loosening of regulations.

In effect, Flaherty has "subprimed" the CMHC. There are at least a few financial analysts who have been quoted calling the CMHC the largest subprime lender in the world. And because the CMHC is a crown corporation, if Canada's housing bubble bursts, then the public is on the hook. It's no different than the United States except we've cut out the middle-man: the private banks.

This is the unwritten story of why Canada has weathered the crisis: keeping asset investments inflated.

The other largely ignored and unwritten story is the bailout of Canadian banks early last year to the tune of at least $80 billion via none other than the CMHC.

It's a fiction that Canadian banks have been prudent and wise. They did need a bail out because they did invest in subprime and asset-backed commercial paper.

And now the Tories are presiding over an "instant" $50+ billion debt and we all know that social spending cuts and wage repression are around the corner (you wonder why there are so many public sector strikes lately? It's preparing for a larger attack on wages and benefits to reduce costs).

We could avoid all this if we taxed the banks and major corporations - who are all, largely, still making enormous profits while receiving bailouts and ongoing subsidies at the same time. THAT is the bottom line and why Canada is in deep trouble in the long run."

2006 Flaherty changed the lending rules 0% and 40 years then quietly in 2008 changed to 5% and 35 years (he should have Left (of center) things as they were but these republicans could not help themselves enough it appears)

 

[kettal]

This has major implications for Canada. The Ontario budget showed the marginal tax rate on new investment reducing about two-thirds of the rate of the US. I am hoping that this is the beginning of a trend of Canada maintaining a solid competitive edge on the US. As it stands, Canada and Ontario in particular are going to become some of the most attractive jurisdictions in North America to invest in the years ahead. Does anyone think this trend might reverse? I would also ask, what can be done to maintain that edge in the long run?

Keithz I'd like to believe this, but the future is very scary as health care is taking more and more out of our budget with no signs of slowing down, and nobody has a solution.

 

[GenerationW]

the future is very scary as health care is taking more and more out of our budget with no signs of slowing down, and nobody has a solution.

Some have said there is only one solution -- time, as in 30 or so years from now when most of the baby boomers will have died off.

 

[kettal]

They won't die if we keep giving them these health care treatments!