On thinning ice … Disappointing exports, stalled investment and fiscal austerity leave the overstretched consumer as Canada's only hope for growth … WHEN the world financial system collapsed in 2007, triggering a global recession, Canada recovered faster than any of the other members of the G7 group of large developed countries. Its banks remained solid, while low interest rates encouraged consumers to borrow and spend. But five years on, consumers are showing signs of flagging. The economy is set to expand by a paltry 1.6% this year. So the authorities are casting around for another source of growth. The trouble is they cannot seem to find one. – Economist
Dominant Social Theme: Now it's Canada's turn to plunge into recession. This is not looking good. How did this happen?
Free-Market Analysis: So Canada, the bright light of Western industry along with Australia, is now showing signs of wavering. The Canadian miracle is growing long in the tooth.
We've already written about this but it occurs to us that the presentation of the impending collapse is being reported in the same way as all the Western economic collapses: with wide-eyed astonishment.
At some point this sort of astonished rhetoric must begin to grow stale, even, well … unbelievable. We are supposed to slap our collective forehead and ask, "How could this be happening?" But, in fact, we already know.
You do, too. Central banking monopoly money stimulation has taken down Western economies from Europe to the United States and beyond. And after a full century of central banking mayhem it is impossible to believe that the leaders of this failed economic environment can have any doubt left about its destructive tendencies.
Given the general awakening of understanding on the Internet about monopoly central banking, we figure it may only be a matter of time before faith in the system drains away completely and something else emerges, hopefully competitive currencies and a free-banking gold and silver standard.
In the meantime, countries and economies continue to collapse like so many raggedy scarecrows subject to a high wind. That wind is the result of monetary inflation. We are not surprised about Canada. Here's more:
Government, both federal and provincial, is trying to curb deficits swollen by stimulus spending. Companies are restrained by uncertainty prompted by Europe's woes and the stand-off over fiscal policy in the United States, Canada's main trading. Exports have still not returned to their pre-recession peak.
As for consumers, after 11 consecutive years in which household spending has exceeded disposable income, they are deeply in hock. Just over a year ago, Craig Alexander, chief economist at Toronto-Dominion Bank, predicted the debt build-up "is going to end in tears". The ratio of household debt to disposable income has continued to edge up (see chart 1). An increase in unemployment (from 7% at the moment) or a rise in interest rates could push some households into bankruptcy and puncture a housing bubble inflating in several Canadian cities.
Jim Flaherty, Canada's finance minister, has repeatedly warned of the threat household debt poses to the economy. He has made it harder for risky borrowers to get mortgages; he publicly upbraided two banks that recently dropped their rate for five-year, fixed mortgages below 3%.
Yet in his budget on March 21st, Mr Flaherty did little to encourage business investment or exports to take the place of consumers in supporting growth. Rather, his focus was on eliminating the federal budget deficit—currently at 1.4% of GDP, low compared with most G7 economies —before the next general election in 2015. His plan, which relies on spending restraint and unusually high revenue growth, is seen by many as wishful thinking.
Mark Carney, the outgoing governor of the Bank of Canada, has also been ringing the alarm on household debt. Yet the bank has kept its benchmark rate at just 1% since September 2010. This month it signalled that the rate is likely to remain there.
House prices are still rising everywhere except Vancouver, but housing sales and housing starts have dropped. Analysts are divided on whether this signals the beginning of a crash, or just a pause before a new burst of activity in the coming months, which are traditionally the housing market's busiest.
Rather than a housing bubble, what is needed is a rebound in business investment and an increase in exports. Neither is taking shape. Canadian firms have been piling up cash faster even than their counterparts south of the border. Investment is expected to rise by just 1.7% this year. When Mr Carney and Mr Flaherty tried to jawbone businesses into investing some of this money last year—Mr Carney called it dead money—they were met with angry retorts. The budget extended a scheme letting manufacturers write off purchases of machinery and equipment more quickly. But this might not have much impact until the world economy looks more settled.
Notice how this article NEVER mentions central banking policy or loose money generally. This is the Keynesian approach to monetary analysis. The great man dealt at length with the result of a credit crisis in his incomprehensible and dishonest book General Credit, but he never got around to mentioning how such crises are actually manufactured.
The proximate cause of Western troubles is money printing. Carney knows it, as well. These individuals are being dishonest when they try to strong-arm Canadian firms into "investing." No one in his right mind would "invest" in the current puffed-up environment. So much money has been printed and so many failing enterprises are supported by central bankers and government officials terrified the "system" might collapse (it already has) that it is likely impossible to tell a solvent company from an insolvent one.
Canada's inevitable destiny is the rational outcome of an irrational system. And the protests and jawboning of those directly involved are increasingly fooling fewer and fewer. When the system you lead constantly performs in exactly the opposite way from what you have predicted eventually people will catch on. And this Internet era makes that almost a surety.
Will Australia be next? Who then is left standing? It seems certain globalist factions actually want a Western industrial collapse because that will make it easier for East and West to merge within the context of one industrial and monetary policy. Is that a conspiratorial interpretation? Well … we say, "Be careful what you wish for."