HawthorneVillager.com

Julian Beltrame
THE CANADIAN PRESS

OTTAWA–It's going to get worse.

As bad as the past few months were, even the rosiest of economic forecasts shows on average Canadians will get poorer in 2009, and many – perhaps as many as 200,000 additional workers – will lose their jobs as the economic recession deepens.

The economic tsunami that was well below the surface as 2008 began hit Canada's shores with a crash in the fall and is only now washing deeper inshore swallowing an economy that once appeared impregnable – having withstood both the Asian financial crisis a decade ago and the 9-11 fallout in the United States.

Prime Minister Stephen Harper described it best in a recent television interview in which he perhaps tellingly did not reject out of hand the possibility of a depression – a deep economic downturn in which output shrinks by 10 per cent or more.

"I've never seen such uncertainty ... I'm very worried about the Canadian economy," he said, before explaining governments had learned survival lessons from the 1930s depression they are applying to the current situation.

But as Merrill Lynch's Canadian chief economist David Wolf put it: "Given the events of the past few months how can you rule anything out? Even us bears have been surprised at just how aggressively things have unravelled."

A key lesson of the Great Depression – and a reason economists believe the damage can be contained shy of D-terrain – is that governments must not sit idly by as the cancer spreads.

The U.S., Europe, China and others have already stepped to the plate with Ruthian stimulus packages worth trillions of dollars in total, and Harper has suggested spending measures in the $20-billion range are being prepared for the Jan. 27 budget, at a price of a huge deficit.

As well, Ottawa and Ontario announced Saturday that $4 billion will go into jump-starting the battered Canadian auto sector, with more likely to come as part of a North American industry restructuring.

The measures aren't necessarily going to be popular with Canadians, although they are likely a minimum condition for preventing a Liberal-NDP coalition, with the backing of the Bloc Quebecois, from seeking to dump the government once Parliament resumes in late January.

A Canadian Press Harris/Decima poll conducted in mid-month found only 39 per cent support for stimulus spending if it means Ottawa will go into deficit.

For policy makers, the deficit ship has long since sailed.

Even sober-minded economists don't see much to shout about in keeping government books in the black if it means the rest of the country sinks. If everyone else is too scared to spend their last dime, governments had better, they reason.

"Unfortunately it's necessary. Things could be very ugly if policy makers don't step in to support the economy, in certain cases specific industries," said Bank of Montreal deputy chief economist Douglas Porter.

"It still going to be the weakest year since `91," agreed Dale Orr, managing director of IHS Global Insight. "The second half will be better than the first, thank goodness, but we'll need another year after that before we're back to the economy returning to potential."

i suggest everyone read the article written by Peter Schiff on the other thread

Flaherty, who is preparing a budget for Jan. 27, sounded grim about Canada's prospects in 2009, saying "economic conditions continue to deteriorate."

The Canadian Taxpayers Federation was expected to urge Flaherty to balance the 2009-10 budget and provide tax relief. Flaherty was also to meet with other business leaders and Montreal Mayor Gerald Tremblay.

With files from Les Whittington

a bowl of cherries


Boeing annual plane orders fall by half
Nissan to cut British workforce by 1,200
TD Ameritrade to buy online brokerage
Walgreen to cut 1,000 jobs in 2009
No need to cut benefits to GM retirees: Wagoner
Macy's to shutter 11 stores
MDS reports goodwill writedown
Jean Coutu Group records loss
Britain's fraud office probes Madoff case Suncor
December oil production on target
Whitehall pushes G20 peers for stiffer market controls
Energy prices slashed to ease economic crisis
Retailer to shed jobs, shut stores to cut costs
Bankruptcies drop in November, up for year
Recession expected to hit bottom mid-year
Kruger cuts newsprint output as demand falls
Wireless firms ordered to upgrade 911 system
Enterra to cut 2009 capital spending plans
Private job losses hit 693,000 in December
Job programs aim to help college grads

Credit Where Credit is Due by peter schiff


This week, in a speech before the London School of Economics, Fed Chairman Ben Bernanke offered a perverse economic theory in his quest to gather support for never-ending Wall Street bailouts; “This disparate treatment, unappealing as it is, appears unavoidable. Our economic system is critically dependent on the free flow of credit, and the consequences for the broader economy of financial instability are thus powerful and quickly felt.” In other words, credit is the lifeblood of our economy, and the continued operation of credit providers is an issue of national security.

In truth, not all economies run on credit. But over the last decade, the United States became a bubble economy that needed unlimited credit to keep from collapsing. In a legitimate economy, it is not credit that fuels spending and investment, but simply income and savings. It’s too bad our Fed chairman does not understand the difference.

That American families now routinely rely on credit to make every-day purchases is a habit that needs to be broken and not encouraged. What we need in America is more restraint and less indulgence. For example, Americans in the current economy should not go into debt to buy new cars. Given the level of debt that weighs down the typical family, Americans should defer such purchases until they have paid down existing debt, or replenished their savings to the point where they can afford to pay cash. Until that time, Americans should continue driving their old cars. In the meantime, the untapped savings could be made available to local businesses that would use it to finance badly needed capital investments.

But such a drastic reversal in financial culture represents the kind of change that no one in the outgoing or incoming Administrations appears willing to consider. By providing perpetual support to lenders who have bankrupted themselves through bad loans, the government merely guarantees that bad economic behavior will continue.

Credit is indeed vital to an economy, but it does not constitute an economy within itself. The important thing to remember is that credit is scarce, and is limited by the stock of savings. Savings loaned to one individual is not available to be loaned to another until it is repaid. If it is never repaid, the savings are lost. Loans to consumers not only crowd out more productive loans that might have been made to business, but they have a far greater likelihood of ending in default. In addition, while business loans increase our capital stock and lead to greater productivity, loans made to consumers are merely spent, and do not create conditions that will make repayment easier. When businesses borrow to fund capital investments, the extra cash flows that result are used to repay the loans. When individuals borrow to spend, loans can only be repaid out of reduced future consumption.

One of the reasons we are in such dire straits is that consumers have already borrowed and spent too much. Many did so based on the false belief that ever-appreciating real estate would ultimately provide the means to repay their debts and finance their lifestyles. Now that reality has finally set in, why should the spending spree continue? The fact that a GDP comprised of 70 percent of consumption is currently contracting should not surprise anyone. In fact, such a contraction is long overdue and the government should not do anything to interfere.

In trying to perpetuate the illusion, the government wants to revive the spending spree that has led us to this disaster. But how can such actions possibly help? How will more debt improve the economy? Wouldn’t our circumstances be vastly improved if we paid off some of our debts and replenished our savings? Wouldn’t we be in better shape if instead of buying more stuff we concentrated on producing it?

The unpleasant reality is that years of bad monetary and fiscal policy have over encumbered our economy with debt and undermined our industrial capacity. The sooner we can begin to repair the damages, the sooner we can right the ship. If instead we merely administer more of the same, the ship will sink in a sea of inflation.

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets"

Investment Outlook
Bill Gross | January 2009

Andrew Mellon vs. Bailout Nation


2008 was the year when the United States led the charge of bailout nations, lending and literally guaranteeing trillions of dollars of private liabilities in an effort to avoid the advent of another Great Depression. Nothing, with the possible exception of George Bush’s IQ was the subject of greater debate. To begin with, the rescue plan itself was controversial even amongst its implementers: Congress voted against it, then a week later voted for it; Treasury Secretary Paulson designated it “TARP” (short for “Troubled Asset Relief Program”), then a month later did a 180°, refusing to buy subprime mortgages and asserting his right to change his mind because the facts themselves had changed. But the broader question reached beyond politics and into the realm of the dismal science itself. Was it necessary and productive to mutate 21st century American-style capitalism into a thinly disguised knock-off of the New Deal?

Better, some thought, to have followed the advice of early 1930s Treasury Secretary Andrew Mellon: “Liquidate labor, liquidate stocks, liquidate the farmers – purge the rottenness from the system.” The Mellons of the world argued that bailouts were akin to pouring gasoline on a fire, adding trillions of dollars of new debt to a domestic and global economy that had broken down because of, because of, well, because of – too much debt.

Wall Street, the Fed, and Newport Beach took the other side. Those steeped in economic history felt that the Great Depression and more recently the “lost decade” in Japan had both experienced a “liquidity trap,” a monetary black hole where lenders, savers, and ultimately consumers were frightened into stuffing their money into a mattress rather than circulating it in classic capitalistic fashion. Sensing a freezing of credit markets following the default of Lehman Brothers, policymakers decided it was better to become a bailout nation than a sunken ship.

The debate, of course, can never be resolved. You can’t prove a negative nor recreate history to show what might have been. What we do know, however, is that even with U.S. and indeed global bailouts, almost every major economy entered recessionary territory in 2008 and that the “D” word, while unmentionable in official policy circles, was nevertheless on the tip of their tongues and at the forefront of their contingency plans. As we closed the year, “quantitative easing” was the publically acknowledged future policy of the Federal Reserve, which in short meant “buy assets, support Wall Street, and in the process, hope that some of it might trickle down to labor and the farmers.” Ben Bernanke is no Andrew Mellon. There may be rottenness in the system, but our Chairman surely doesn’t believe in starving a cold, or pneumonia for that matter. The Fed’s willing accomplice was the United States Treasury and the FDIC, extending not only $350 billion of TARP money but literally guaranteeing three quarters of the liabilities of U.S. banks. For those who fear nationalization of our financial system, the destination seemed just over the horizon.

Still, while such a transformation is, to put it mildly, undesirable, the policies are necessary. As outlined in these pages, the U.S. and many of its G-7 counterparts over the past 25 years have become more and more dependent on asset appreciation. Under the policy-endorsed cover of technology and somewhat faux increases in financial productivity, we became a nation that specialized in the making of paper instead of things, and it fell to Wall Street to invent ever more clever ways to securitize assets, and the job of Main Street to “equitize” or, in reality, to borrow more and more money off of them. What was not well recognized was that these policies were hollowing, self-destructive, and ultimately destined to be exposed for what they always were: Ponzi schemes, whose ultimate payoffs were dependent on the inclusion of more and more players and the production of more and more paper. Bernie Madoff? As with every financial and economic crisis, he will probably go down as this generation’s fall guy – the Samuel Insull, the Jeffrey Skilling, of 2008.

But Madoff’s scheme has a host of culpable look-alikes and one has only to begin with the mortgage market to understand the similarities. Option ARMs or Pick-A-Pay home loans allowed homeowners to make monthly payments that were so small they did not even cover their interest charges. Two million mortgagees either chose or were sold this Ponzi/Madoff form of skullduggery, believing that home prices never go down and that shoppers never drop. One can add to this the trillions in home equity/second mortgage loans that extracted “savings” in order to promote current instead of future consumption, and one begins to realize that Bernie Madoff and our cartoon’s Wimpy had company all these years.

What about the shabby performance of the rating agencies? Were they not equally at fault for perpetrating a giant charade that was bound to end in tears? Of course: Aaa subprimes structured like a house of straw; Aaa monoline insurers built like a house of sticks; Aaa credits like AIG, FNMA, and FHLMC where only a huff and a puff could expose them for what they were – levered structures dependent upon asset price appreciation for their survival. Ponzi finance.

the second great depression is upon us, there will be no re inflating of anything, other than our fat asses sitting and watching and waiting for Obama nation to throw more fuel on the fire


goodluck boys, cash is still king

for the month
dow down 7%
tsx down 3%

more of the same coming as the looting continues down in the States

The World Won't Buy Unlimited U.S. Debt: Peter Schiff's Editorial in The Wall Street Journal


Barack Obama has spoken often of sacrifice. And as recently as a week ago, he said that to stave off the deepening recession Americans should be prepared to face "trillion dollar deficits for years to come."

But apart from a stirring call for volunteerism in his inaugural address, the only specific sacrifices the president has outlined thus far include lower taxes, millions of federally funded jobs, expanded corporate bailouts, and direct stimulus checks to consumers. Could this be described as sacrificial?

What he might have said was that the nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future. These creditor nations, who already own trillions of dollars of U.S. government debt, are the only entities capable of underwriting the spending that Mr. Obama envisions and that U.S. citizens demand.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

As absurd as this may appear on the surface, it seems inconceivable to President Obama, or any respected economist for that matter, that our creditors may decline to sign on. Their confidence is derived from the fact that the arrangement has gone on for some time, and that our creditors would be unwilling to face the economic turbulence that would result from an interruption of the status quo.

But just because the game has lasted thus far does not mean that they will continue playing it indefinitely. Thanks to projected huge deficits, the U.S. government is severely raising the stakes. At the same time, the global economic contraction will make larger Treasury purchases by foreign central banks both economically and politically more difficult.

The root problem is not that America may have difficulty borrowing enough from abroad to maintain our GDP, but that our economy was too large in the first place. America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce, it is inevitable that GDP will fall.

Neither the left nor the right of the American political spectrum has shown any willingness to tolerate such a contraction. Recently, for example, Nobel Prize-winning economist Paul Krugman estimated that a 6.8% contraction in GDP will result in $2.1 trillion in "lost output," which the government should redeem through fiscal stimulation. In his view, the $775 billion announced in Mr. Obama's plan is two-thirds too small.

Although Mr. Krugman may not get all that he wishes, it is clear that Mr. Obama's opening bid will likely move north considerably before any legislation is passed. It is also clear from the political chatter that the policies most favored will be those that encourage rapid consumer spending, not lasting or sustainable economic change. So when the effects of this stimulus dissipate, the same unbalanced economy will remain -- only now with a far higher debt load.

If any other country were to face these conditions, unpalatable measures such as severe government austerity or currency devaluation would be the only options. But with our currency's reserve status, we have much more attractive alternatives. We are planning to spend as much as we like, for as long as we like, and we will let the rest of the world pick up the tab.

Currently, U.S. citizens comprise less than 5% of world population, but account for more than 25% of global GDP. Given our debts and weakening economy, this disproportionate advantage should narrow. Yet the U.S. is asking much poorer foreign nations to maintain the status quo, and incredibly, they are complying. At least for now.

You can't blame the Obama administration for choosing to go down this path. If these other nations are giving, it becomes very easy to take. However, given his supposedly post-ideological pragmatic gifts, one would hope that Mr. Obama can see that, just like all other bubbles in world history, the U.S. debt bubble will end badly. Taking on more debt to maintain spending is neither sacrificial nor beneficial.

dow 6000 soon ladies and gents

America will soon be faced with a major decision...do they socialize the profits, with one large national bank and wipe out the few remaining larger players, bank of america and citi, and as we head towards dow 6000, the PAIN WILL BE FELT EVERYWHERE.

dont count on a recovery plan anytime soon, because frankly, the size of the problem is just to large to comprehend

and who would finance hollywood anyways? CHINA? yah right
suadi arabia?...doubt it,,,

AL247, how are those commodities doing?

i have heard figures somewhere in the range of 10-20 trillion dollars that would be needed to recapitalize the banks due to falling home prices,,,,which will continue to fall by the way


so all is not well in tinsel town.....

so i wonder, does Obama make it past the first yr alive followed by civil war? revolution? call it what you will

the market senses turmoil and its not good....goodluck and stay in cash...

the market is speaking loud and clear, obviously the government has it wrong, if a free market capitalistism based economy is to be maintained, then the "market" will take care of the excesses

Depression, Revolution are just 2 terms being talked about in the last few days,

privatizing the profits and socializing the losses are in no way free market capitalistic views.

Let the market "we the people" decide and unfortunately, there will be more pain and time needed for a resolution....

goodluck and stay in cash

i still expect dow 6000, might not get there but it sure feels like it...

wb

ol skool, great charts...i hope every appreciates the magnitude of the problem...the financial collapse of the U.S. IS UPON US and its so true that there will NOT be a V bottom ANYTIME SOON,

Just like everyone around us thought it was "contained" , they are now suggesting that as soon as the banking issue is resolved, that we will be off to the races. Dont think so. This will take yrs to resolve...

PRICES in the market dont come down to these levels for a reason

goodluck

AL247 IF HE'S READING, how are those commodities doing?

who buying? lol

wonder if he still has a job ??? i could always use a hand sniffing that glue my friend

ciao

I’m with you guys on the belief that this recession is going to be worse than people think, and the ‘rebound’ will be a protracted crawl, not a bounce…but let’s not go overboard. No US state is threatening to leave the union. The references to the 10th amendment relate to states objecting to the federal government micromanaging the states, and overstepping their bounds. Remember, America is a republic. The states should have more power over their affairs the federal government.

And the federal government is not going to collapse. Give me a break. They have too many tools available to self preserve. There will be some serious turmoil in the years ahead, but 20 years from now the world will not look much different than it does today.

I agree with you, and I believe the path they will chose is predictable. Governments always choose inflation over collapse. The US will continue to borrow from China until China stops or runs out of money. At that point, the US will gladly screw them and just inflate their debit away. I’m not saying it will be pretty, but it won’t be Armageddon.





Nonsense. The great depression was as bad as it gets, and there was no civil war. If things get truly ugly, there will be turmoil no doubt, but it will be done democratically. New parties may emerge (think reform and Ross Perot in 1991), protectionism could take root, and certainly the current administrators will be out of jobs. Hopefully the end result is a change for the better. It will not dissolve the union.




I agree a 14,000 DOW is 15-20 years away, but this is not a paradigm shift. It’s called a secular bear market, and it last happened from around 1965-1982. This one will last until the baby boomers are all dead and stop sucking the life out of the economy via social security. Until then, the government will raid their savings via inflation, higher taxes, etc. In 20 years social security costs will evaporate, and the government will return to surpluses, beginning the next secular bull market.

month of FEB performance worst since the great depression....thats right



dow down 15%

nasd and s&p similiar numbers..

tsx down 7%

stay in cash,,obamanomics will not work, spending what you dont have is just adding fuel to the fire

ol skool great charts....a picture is worth a thousand words

goodluck