The horizon is not so far as we can see, but as far as we can imagine

Category: Canadian Economy Page 1 of 2

Out Of Control Anglo Immigration

It takes some deep work to make me anti-immigration. I figure people should have the ability to change countries: my mother did and so did all my ancestors, often multiple times.

But Canada’s managed it, and if I lived in Australia or Britain I’d feel the same way.

Let’s start with Canada

Yowsa! Something happened there, didn’t it?

A lot of people died during Covid. A lot of people were disabled due to Covid. That put upward pressure on wages and in a neoliberal economy, we can’t have that.

So Canada’s government decided to let in a flood of immigrants.

Result? Well, lower wages than otherwise, and…

Yeeha! One of Canada’s dirty secrets is that we have more homeless people per capita than California, with a lot worse climate.

And it isn’t just immigration:

Temporary workers, because we sure wouldn’t want to use Canadians or train them.

And hey, let’s pile on the pain with even more international students, who compete for housing too!

This is, obviously, deliberate policy. It’s bad for people who are already here, and immigrants are less thrilled than you might think, leading to record numbers of reverse immigration (immigrants going back home after finding out Canada isn’t the promised land.)

Australia’s the same:

Same student issues:

And yeah, same effect on the housing market, though it’s in a better place than Canada, which has probably the world’s worst housing bubble.

So then, Britain:

And, though it hasn’t had the same effect on housing in the US:

The difference in the US, which probably leaps out, is that it’s just a trend not a spike. it isn’t a clear deliberate policy choice, despite the squeals of Republicans. But it contributes to some of the same problems:

According to a Jan. 25 report from Harvard’s Joint Center for Housing Studies, roughly 653,000 people reported experiencing homelessness in January of 2023, up roughly 12% from the same time a year prior and 48% from 2015. That marks the largest single-year increase in the country’s unhoused population on record, Harvard researchers said…

…That alarming jump in people struggling to keep a roof over their head came amid blistering inflation in 2021 and 2022 and as surging rental prices across the U.S. outpaced worker wage gains.

Now there’s nothing wrong with immigrants, per se and no one who isn’t a native has any leg to stand on when screaming about immigrants to North America, Australia or New Zealand as intrinsically bad.

But when you have a homeless crisis and very tight and expensive rental and housing markets, obviously bringing in lots of new people is going to hurt the people who are already there who aren’t real-estate speculators and so on, and it’s obviously going to hit the poor, the working class and the middle class where it hurts, both on rent, housing prices and wages.

That means you’re going to increase racism, because people who can’t get an affordable place (and I can tell you that in Toronto, say, every low-end place has multiple applicants, and what is low end costs hundreds of dollars more than it did a few years ago) start blaming immigrants instead of hating their own ruling class, which is where the real blame belongs.

If you want racism, increase immigration without increasing housing. And that’s what Canada, the UK and Australia are doing.

And, of course, massive immigration’s primary purpose is to hold down wages, and you can’t expect people to be happy about making less than they would have otherwise. People know, because they see how many people apply for jobs they apply for,  they hear stories from their friends, and when immigrants are from visible groups, they can see it and hear it in the accents.

When all boats are rising, only true bigots mind immigration. But when people are struggling to find good jobs and a place to live, spiking immigration is an evil act.

Politically, its a hard place. In Canada, for example, immigration is up under the Liberal party. The Conservatives talk about cutting it back but look at that UK chart: that’s under a Conservative government. Will Canada be any different?

This is a ruling class issue: they aren’t hurt by a rising housing market and the more potential workers there are, the lower wages they have to pay. Older folks who own houses win, as housing prices go up. Immigration is good for elites and people who made it into asset markets. It’s good for insiders, that is, and bad for anyone out in the cold.

Since the people with power are insulated from the pain their decisions cause, my guess is that these policies will continue until there’s enough pain inflicted on elites to change their calculus.

A few riots where the mansions are might help with that, but Brits, Australians and Canadians aren’t the type.


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The Canadian Economy Under US Hegemony and Neoliberalism

Canada’s economy is substantially resource based: minerals, wood, agriculture, and, before the collapse, fish. (The Maritimes were originally colonized largely to harvest trees for masts, which Britain had run out of at home.)

Resource economies are boom and bust economies; resource prices are cyclical, and sometimes resources get replaced. Brazil had a huge rubber plantation industry at one point, before chemists figured out how to make synthetic rubber.

Resource economies tend towards corruption because the profits are so high during good times, and they tend to not develop industry for the same reason, but also because the currency rate tends to be too high to  allow exports of manufactured goods during boom periods — so any industry gets destroyed during the boom.

For about a hundred years, Canada had a simple solution to these problems. We had a manufacturing sector, and during boom resource times, when the Canadian dollar’s strength made manufactured goods too expensive, we just subsidized the manufacturing and slapped on tariffs.

This was a fair deal, because when resource prices went bust and the dollar went low, manufacturing would boom and the taxes from that would be used to support people who worked in resource extraction.

Combined with some simple industrial policy along the lines of “don’t export raw logs or raw fish,” this created a nicely self-balancing economy, and it did so from about 1880 until the 1980s.

Neoliberalism and idiotic trade deals like NAFTA and the WTO put paid to that. It became very difficult to subsidize industries or to insist that processing be done in Canada; we started shipping raw logs and fish to the US, and we stopped subsidizing manufacturing during resource booms, so Canadian manufacturing got gutted.

This was, well, stupid, and a lot of blame is on Canada, Canadians, and the Canadian system, though, to be fair, most Canadians voted for parties opposed to the Free Trade Agreement (which later became NAFTA), but because of vote splitting in a third-party first past the post system, it went through anyway.

But it’s also because the US is, well, powerful. Canada’s economy is a little smaller than California’s, and Canada is a satrapy. Back in the 50s, Canada had a world-leading aviation industry and created the best fighter jet in the world: the Avro Arrow. The US government put on the pressure, and Avro (the company) was put out of business. The prototypes were sunk in a lake.

The threat was that if Canada didn’t give up its aviation industry, the US would take away auto manufacturing, and that was a much larger industry.

If the US wants Canada to do something, Canada generally does it. There have been exceptions, especially under Pierre Trudeau in the 70s, and in the early 2000s Prime Minister Chretien did refuse to invade Iraq, but they are exceptions.

Anyway, Canada’s economy is now much more fragile than it used to be, because it’s much more integrated into the world economy and much less able to adjust cyclically or insist on keeping a significant manufacturing sector.

This isn’t unique, or anything. It’s the shape of the world economy overall, where countries, especially under neoliberalism, mostly aren’t allowed to have an independent economic policy. Canada was never autarchic; we were always a trading state, but we were able to more or less run our own affairs and insist that resources mined, chopped, or fished here be at least primarily processed here.

Nations which do not make what they need are at the mercy of those who do. The US got around this by maintaining control of making, growing, and digging things without keeping them in the US, until they made the mistake of letting China industrialize.

That has lead to the rise of China/US tensions, and a realization that neoliberalism is a two-edged sword.

More on that later. In the meantime, the reason most of the world’s nations are poor and have to do what the US wants when push comes to shove, is exactly because they were not, and are not, allowed separate industrial and economic policies.

Canada, the near neighbour and satrapy, actually still has a pretty good deal, better, in fact, than is given to American peasants.

But all of that will be changing over the next couple decades.

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Trump’s Policy on NAFTA Is Mostly Correct

Yeah, I know, Trump is wrong on everything.

But I agree with Thomas Walkom on NAFTA. The bottom line is that what Trump wants is what the left should want, and if it doesn’t, it isn’t the economic left.

And Trudeau’s pretty face and lovely abs don’t change that.

Trump wants to:

  • Raise the minimum North American content in autos from 62.5 to 85 per cent.
  • Have 50 percent of autos which qualify for NAFTA free movement be manufactured in the US.
  • Remove Chapter 11, which allows companies to sue NAFTA governments. (This has been horribly abused to stop environmental regulations)
  • A five-year sunset clause.

And Trudeau has said that if Chapter 19 doesn’t stay in, he’ll walk from NAFTA.(Chapter 19 allows us to take the US to court to see if domestic laws are applied. We’ve won such rulings and the US has just changed the law, as with softwood lumber.)

Frankly the changes that Trump wants to NAFTA are mostly good. The sunset clause simply means the deal must keep working, and it is far better than clauses which make it hard to leave deals.

Of course these changes aren’t all great, but they would lead to more jobs in all three countries, and I can’t see why that’s a bad thing. The bottom line is that countries not only have a right to say that access to their markets should benefit their citizens, they have a duty to do so.

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Dutch Disease

In light of the price of oil collapsing to $36/barrel ($80 is the break even point for most Oil Sands oil in Canada), I thought it was worth revisiting this article on Dutch Disease, originally published in May of 2012. I’ll have more on the Canadian economy and how oil prices are affecting everyone else soon.

It seems a lot of people don’t know what Dutch Disease is. Here’s the short:

Dutch disease is when you sell a lot of resources, which increases your currency’s value. So if you discover a lot of oil, or oil becomes a lot more valuable due to a shortage, but you can produce tons of oil from the tar sands, you can experience Dutch Disease.

The consequence of your currency being worth more is that products you manufacture cost more for anyone outside your country. So, if Americans want to buy Canadian goods, it costs them more when the US and Canadian dollar are trading at about even than when the Canadian dollar cost only 80 cents American.

If something costs more, people will buy less of it, or they will stop buying from you entirely and buy from someone else who is cheaper.

What happened to the Dutch is that their manufacturing sector collapsed. What Canada’s NDP leader Thomas Mulcair is saying is that Canada is suffering from Dutch Disease. He says we are losing manufacturing jobs due to the higher value on the Canadian dollar caused by all the oil from the oil sands we’re shipping out of the country, which raises value of the Canadian dollar.

I observed, many years ago, that the Canadian dollar had become a petro-currency. This is now inarguable.

It is also virtually inarguable that Canada is losing manufacturing jobs due to the higher dollar. It’s just arithmetic. Unless you think price has no effect on sales, you can’t argue otherwise without creating excessive contortions.

Does this mean that Canada is suffering from Dutch Disease? It depends where you put the margin. One study, funded by the federal government, found that:

“We show that between 33 and 39 per cent of the manufacturing employment loss that was due to exchange rate developments between 2002 and 2007 is related to the Dutch Disease phenomenon,” says the study.

I am unaware of studies covering the subsequent period, and I don’t know if the study was correct. Personally, I suspect it’s higher than that, but I haven’t run the numbers myself and I probably won’t (unless the Feds want to pay for my time).

But, again, the argument is simple enough. Unless you don’t believe in higher prices reducing sales, and reduced sales leading to job losses and company closures, you can’t really argue that the oil sands aren’t hurting manufacturing. It’s just that simple.

The next question is: “Should we do anything about it?”

Canada has traditionally had what is known as a “mixed economy.” When it comes to exports, we have both manufacturing and resource sectors, the latter of which oil is just one part. Resources experience boom and bust cycles. There is always another resource bust around the corner. Always. No resource’s prices stay high forever. When resources are doing well, they support our exports.When they’re doing badly, manufacturing takes up the slack.

As with any such oscillating economy, what should be done is that when one is booming, it subsidizes the other. We don’t want manufacturing destroyed during high resource price periods, because there will always be low resource prices in the future. So we tax the high resource prices and we subsidize manufacturing. When resource prices collapse, the manufacturing sector subsidizes the resource sector.

If we allow the manufacturing sector to become badly damaged, it cannot be easily rebuilt when resource prices collapse. Nations built entirely on resources are, and will always be, subject to economic collapse when the resource prices collapse, and, again, they always do–the only question is when.

Mulcair has also talked about value-add and that’s worth discussing. Shipping raw oil, raw logs, and unprocessed fish means you get the lowest prices possible and less jobs. Value-add means you refine the oil in Canada and sell it. You turn the logs into paper or 2x4s in Canada. You can smoke the salmon in Canada. This provides jobs and the end goods sell for more. It may be that processing “in-house” will increase the price slightly compared to outsourcing the processing to the US or China, but that costs less sales than it would for the equivalent manufactured item.

Why? Because resources are finite. There is only so much oil in the world at any given price point. There are only so many salmon, especially wild salmon. There are only so many trees, especially trees that are good for construction-grade timber.  Other countries will generally buy these resources anyway, because there is nowhere else to get the product. Sales may decline slightly, but profit often increases and so do the number of Canadian jobs.

When there is a bottleneck, as there is in oil production right now, especially, you can say, “No, we’re going to process it here.” If other nations don’t like it, tough. They aren’t going to stop heating their houses and driving their cars to their suburban homes. That is not happening.

So if you can extract a bit less oil, make more money overall, and have more jobs, why not do so? That’s what Mulcair means by “value-add.”

Finally, let’s move to cap and trade, which is what Mulcair wants to do with the tar sands. Cap and trade means you cap the amount of carbon emissions allowed by oil sands extraction, and you allow people to buy and sell the rights to make those emissions. You also tax those trades and emissions. You then use the money earned to subsidize manufacturing, research, and whatever else will support the future of the country when oil prices collapse, which, again, they will, because resource booms always end, it is an existential certainty.

Once upon a time, the Canadian Maritimes were a resource boom area. They sold fish, but, more importantly, they sold trees which could be made into masts, an incredibly valuable commodity. Today, with pardon to my Maritime brethren, the Maritimes are in semi-permanent depression.

This is the future that Alberta faces. They should want to be taxed, and they should want that money reinvested in other sectors, because those sectors are Alberta’s future long after the oil boom ends. And the massive environmental destruction is incurring massive costs with which future generations will have to contend, long after the boom days are gone.

Canada’s economy has worked, and we have not become Argentina (the country we would have been compared to before WWII) because of our mixed economy. It is worth protecting, and it is necessary to protect, if we want prosperity not now, but ten years, 20 years, or 50 years from now. If we care about our children, or even ourselves 20 years from now, we must deal with the effects that the massive exploitation of the oil sands is having on our economy and our environment.

Dutch disease is just arithmetic. It is real, and it can devastate the future of a country. Non-renewable resources are the epitome of found money, and what you do with found money is invest it in something productive–something that will yield a return, something which will support you once that found money runs out.

This is Canada, and this is our future we’re talking about. If we actually care about the children we claim to love, we’ll acknowledge the simple arithmetic of what a high dollar does, and we’ll act to mitigate the damage.

(Update: Antonia Zerbisias had an article in February on Dutch Disease studies which is worth reading.)

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How Harper and the Conservatives Broke the Canadian Economy

The Canadian economy, since about 1890 or so, ran as follows.

  • When commodity prices were low, we sold manufactured goods to the rest of the world and subsidized commodity producers so they weren’t wiped out.
  • When commodity prices were high, we relied on selling them, and we subsidized manufacturers so they wouldn’t go out of business.

A manufacturer who responds to a lower Canadian dollar by increasing production increases their costs. That means that when the dollar rises, their cost structure is too high for them to survive if they are not subsidized.

There are lots of ways to subsidize manufacturers, including directly, through tariffs, currency manipulation, and so on.

Commodity production doesn’t require as much subsidy, with some exceptions. There are projects which cannot easily restart, and primary processing (canning, pulp and paper mills, lumber mills, refineries, etc.) can have significant start time requirements. This means you don’t want them to go out of business. Fewer employees, with the government supporting the out-of-work employees is fine. Actual loss of capacity is not.

Meanwhile, unemployment insurance (now called EI) is generous to whichever part of the country is in recession due to the commodity price cycle, so people don’t leave and go to the high cost area unless there are actually jobs, while the areas with lots of jobs are less generous so that people who aren’t employable there even in good times are encouraged to go to places with lower costs of living.

This is a fairly simple balancing act, though it can be complicated in detail. It has been made more complicated by restrictive “trade” deals which outlaw many types of subsidies, but it is essential to ANY country with a large resource sector which also wants to have a significant manufacturing sector.

Harper ended this. He did not properly subsidize manufacturing. Those manufacturers who, during the last period of a low Canadian dollar, expanded production, were wiped out. This is bad not just because they were wiped out, but because it means current manufacturers know they shouldn’t expand if it increases structural costs during this drop in the Canadian dollar, because if they do, when the dollar rises again (and it will), they too will be wiped out.

Harper has managed, thus, to eliminate much of the stimulative affect of a low Canadian dollar on manufacturing.  Genius.

Also, being, in ideological terms, an American-style “conservative,” he used their methods for artificially inflating an economy: He encouraged a housing and stock market boom. Canada’s housing bubble did not burst in 2007/8, due to concerted government action. (We basically guarantee almost all mortgages.)

Such financial games create fake growth–they are based on increasing asset prices un-anchored to actual productive increases or income increases, and transfer money from the young to the old and the poor to the rich.

They work for a time, much as stimulants work on the human body, then the user crashes. The longer one stays stimulated, the worse the damage, and long-term abuse can destroy a person or country.

I should point out (as MFI noted to me privately) that the Canadian Conservative party is actually a radical party of the right. Conservatives preserve the old; the mixed economy strategy was over one hundred years old, and had worked during that time to make and keep Canada one of the most prosperous countries in the world.

Only a moron, and a radical, ends a successful strategy that has not yet failed nor showed signs of failing.

This is the self-inflicted tragedy afflicting Canada today. Let us hope that the Conservatives are not re-elected (due to our first-past-the-post system).

We accept Democracy because it creates legitimacy. It is a way of saying, “That was fair, even if I don’t agree.” This does not meant that democratic methods always produce optimal or even good results. Canada, Britain, and Australia are all discovering this, as are many other countries.

There are many reasons for this, but in the next post, I will discuss is how constituencies for policies and parties really work.

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Fourteen Points on the World Economy as the US GDP Drops .7 Percent

So, while it generally takes two quarters for a recession to be so-called, it may be that the recession is here.

Let us recap the non-recessionary period:

  • The percentage of people employed in the US never recovered;
  • More than the total amount of growth went to the top four percent or so, with most of that going to the top one percent and most of that going to the top .1 percent;
  • The stock market had a huge bull market, even though the economy wasn’t working for anyone but the top few;
  • Outside America, the “south” of Europe never recovered in any meaningful way, and most European nations generally did badly for most of their citizens;
  • Various resource nations did well for a time, but their success was based on demand from developed nations or, more commonly, from China;
  • Chinese demand collapsed some time ago;
  • China has been printing more money than either Japan or the US; much more;
  • Japan’s “unconventional monetary policy” has been a roaring failure–if its intention was to get the Japanese economy going again;
  • The collapse in oil prices last year helped the US briefly, but because the rest of the world has rolled off a cliff and because those gains couldn’t go widespread, it was only briefly (this is as I predicted at the time);
  • Canada’s economy was hurt badly by the oil price crash, and because the mixed economy has been critically injured, there is very little else to hold up the economy;
  • Both Britain (or London…almost the same thing) and Canada have huge housing bubbles, and those bubbles, with the addition of financial games, are all that holds those economies together at this point;
  • Britain never actually recovered either, for the majority of its citizens–just a large enough minority to elect Cameron;
  • Australia has tied itself massively to resource extraction on the back of Chinese demand. There is no meaningful Australian economy whose fate is not tied to China.
  • India’s development is hollow neo-liberalism, and has seen an actual decrease in per capita calories. It is consumptive and limited to a few key areas.

Let me put this another way: The developed world is in depression. It has been in depression since 2007. It never left depression. Within that depression, there is still a business cycle: There are expansions, and recessions, and so on. Better times and worse times.

While cheap solar is a big deal, it is not yet deployed sufficiently to break the “widespread demand will crash the economy through oil price increases” problem, and this is exacerbated the by the deadlock rich elites have on most of the world’s politics and economic policies, since it is not in their interest to solve problems, but only to become more rich.  Not that solving problems is something they mind, if it makes them richer and keeps everyone else poor.

The world still has very few problems we couldn’t solve if we acted on them in a productive way (though some, like climate change and the great die-off, are beyond the point of no return for catastrophic damage), but that’s largely irrelevant while public policy remains in the hands of oligarchs. There is some reason for hope, as left-wing parties rise in Europe, but those green shoots are still nothing but green shoots.

I suggest that my readers who are able to make money do so now, you may soon find that you can’t. This is especially important if your employment is precarious.  Take care of yourselves, and take care of each other, unless you are lucky enough to live in the few rich, social democratic states left, you cannot expect much aid from your governments.

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World Economy Heading for Recession

That seems most likely to me. China has been stalling out for some time, Japan’s “stimulus” didn’t work, Europe has been suffering under austerity for years (despite some minor good news), the other emerging economies are doing badly, the petro-states have been hammered by the drop in oil prices and now the US job market has fallen off a cliff after a few months of excellent results.

Those results were driven almost entirely by the drop in oil prices, but were unsustainable with most of the rest of the world economy in the doldrums.  Low oil prices should be generally good for everyone but oilarchies, but their effect is muted (in comparison to past decades) by the oligarchical and oligopolistic nature of our economy.  Put simply, there are too many barriers to entry for new businesses to arise and even lower oil prices don’t put enough money into ordinary people’s hands to create enough new demand for long enough.

In an economy where individual sectors tend to be controlled by a few companies, and where those companies are already awash with money, more money means little; those with pricing power will simply take it away and add it to the stockpiles of money they already aren’t using for anything productive.

The standard solution to the situation we’re in now would either be to implement very high corporate and individual marginal taxation (if private actors won’t spend, take the money from them) and/or to break up oligopolies and/or to heavily regulate them so that they aren’t sopping up all the excess cash in the economy.  (Why are app stores still allowed to take 30%, for instance?)

Since we refuse to do any of those things, and since we only print money to give to rich people and corporations (thus pooling money at the top, doing little for widespread demand), the western economy (which includes Japan) remains stagnant. You may get a few good months here and there, but that’s all you’re going to get.

Labor Force Participation Rate Graph

Labor Force Participation Rate Graph

Let’s discuss some individual countries and regions. First, take a look at the above labor force participation rate graph. It shows the number of people either looking for work or who have work.  Can you tell that there were a few good months?  That’s how good the American economy is after your few good months. It didn’t really improve much, it just went horizontal.

You need a few years of such job results to make a difference.  And that’s before we get to the fact that most of those jobs were low-paying and that all of the gains of the last economic cycle have gone to the top three to five percent of the population (depending on how you slice it).  And the top 1% has done better than 3%, the top .1% better than the top 1% and so on. This is your economy on unconventional monetary policy.

Japanese monetary base and inflation to early 2015

Japanese monetary base and inflation to early 2015

Ah, unconventional monetary policy. In Japan they call it “Abenomics.”  The idea was to get inflation going in the Japanese economy–get the Japanese to spend and bring Japan out of its 30 year slump. The chart to the right shows how well it has worked.

But don’t think that money has been “wasted!” Abenomics may have done nothing for ordinary people, but it’s helped a lot of rich people become richer. That money went somewhere. In Japan’s case, a ton of it will have gone overseas, with foreigners borrowing for low costs in Japan and then speculating with that money elsewhere for higher gains (or so they hope).

Unconventional monetary policy is, and always has been, about giving money to the rich, wealthy, and corporations. At first, it was about bailing them out after the financial collapse. Now, it’s just about giving them money, lots of money, in a way that the hoi-polloi can’t access.

This brings us to Europe and austerity. Austerity is a wonderful thing, if you’re rich. Public assets are put on the selling-block which you normally could never buy and they are put there for cheap. You get to own more of the economy, your relative wealth increases. While it’s true that one might be richer in a generally prosperous economy, you must remember, this isn’t about absolute wealth. It’s about relative wealth. Better to be somewhat poorer and able to lord it over everyone else, than be richer in a world where the peons don’t have to kowtow to your every whim or don’t have to live miserable, want-filled lives. If the price is a lot more poverty, that doesn’t affect you in any meaningful way.

Not all peons suffer, of course.  A lot of Germans do very well in the current regime.  As the South of Europe suffers under austerity, they’re doing great. The worse the southern economies are, the better for Germany, since it reduces the price of the Euro, increasing German exports. If everyone in the Euro area was doing well, Germans wouldn’t be doing nearly so well. If the price is suicides, widespread poverty, homelessness, and so on, that’s certainly a price Germans are willing for Italians, Spanish, Greeks and Portuguese to pay.

Meanwhile in Canada, there is a housing bubble which kept on going from the point where the US bubble collapsed. Better, inflated prices are guaranteed by the Federal government, so when the bubble bursts, it can cause maximum damage to public finances. With oil prices falling, and with Canada now a petro-state (as I noted almost a decade ago) due to deliberate government policy, those housing prices are looking less and less sustainable.

In the UK, we also have London’s housing bubble (which is to say, the majority of the actual economy of the UK, if you want to call a housing bubble and financial services an economy, which UK politicians do).  This shouldn’t be a surprise, since the UK hired Canada’s ex-central banker to come to the UK and do what he did to Canada: Blow a nice big bubble. The UK hardly has any other economy besides real estate and financial ponzi schemes, so we’ll see how that works out for them.

In general, understand this: The world bailed out bankers and brokers and traders  and they went back to doing what they were doing before. Blowing bubbles. There are CDOs out the wazoo, there are stock market bubbles, there are real-estate bubbles in various places (they just tend to be more localized now, but they’re still huge).

The economy will NEVER be good for everyone until this is changed, but that doesn’t precisely mean this is unsustainable. The elite’s had one fundamental realization and it was this:

“We can print as much money as we want and as long as we make sure it doesn’t get into ordinary people’s hands it won’t blow up the economy.”

Many people expected that unconventional monetary policy would cause general inflation. It hasn’t because the money stayed in the hands of a very few people and major corporations. It did cause massive inflation in the things rich people buy, but not general inflation.

So the rich, and the politicians and central bankers they own, aren’t worried about the various bubbles because they handled them in 2007 and 2008, and they’re sure they can handle them the same way if they burst again. These bubbles may never all burst at the same time again, because if they show signs of doing so, the elites can always just have the central banks print money and buy up assets before they even become distressed.

As long as there is no actual price discovery (and how can there be), there is no real threat to the only part of the economy that matters: The economy of the people with enough money buying up politicians.

Everyone is addicted to this game, even China, which has printed unbelievable amounts of money (more than Japan, America and Europe combined) and has used it to create vast amounts of unused and unusable housing and other boondoggles. China, granted, wants much of the benefits to get to ordinary people (because the Chinese are still willing to riot extremely violently and the Communist party’s leadership knows their lives are on the line), but they’re still playing the late-capitalist game of credit pumping, rather than the mercantilist game which built the Chinese economy. That makes sense, in a way. As China’s customer-economies stagnate, it becomes harder and harder to create widespread growth for the most populous country in the world through simple exports.

The correct strategy would be to start decoupling and move to a domestic market, and in a sense, the Chinese have tried that, but they’ve bungled it on boondoggles. Capitalism of the variety we do today is terrible at redistribution and redistribution is what the Chinese economy needs, in a huge way, in order to boost widespread demand.

So that, my friends, is your world economy on austerity and unconventional monetary policy.  As I predicted right after Obama put out his worthless “stimulus” program in early 2009, for most people, the economy will not recover for at least a generation. It will only recover then if the population is willing and able to rebel, peacefully or violently. If not, we are in for decades of stagnation and decline, exacerbated by the absolute certainty of catastrophic climate change.

And so it goes…

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Falling Oil Prices Are Mostly Bad News

Yes, it’s nice to play less for gasoline and heating fuel, but while some of the decline in oil prices are a result of the new unconventional oil supplies which have come on line, much of it is that the world is going into recession—demand is down from every major economy.  That’s not good.

Yesterdays’ post showed what happened in the US job market over the last 6 years.  It never recovered for most people.  Remember, in terms of business cycle that was the recovery and the boom.  Those were the good times.

As for oil, the drops are to many conventional oil producers advantage if they can sweat them out. Much of the unconventional oil which came online is not viable below $80/barrel. The viability numbers you see for countries like Saudi Arabia are not their profit break even numbers, pumping Saudi oil costs less than $10 a barrel, rather they are what the Saudi government budget needs.  But the Saudis can handle a few years making less if it send their competitors into bankruptcy.

Remember that in the late 90s oil was under $20 a barrel.  I would want to see oil under $40 a barrel, with excess supply, to expect an economy as good as the late 90s one was.  Remember also that this is not the first time this “run a shitty economy until new sources of oil come on line” play has been tried—while the details were different, this is exactly what Carter, Reagan and the Fed of the late 70s and early 80s did. Temporize waiting for the new oil supply.

But while new oil did eventually come online, notice also that the economy never really got good ever again: you have about 4 good years in the late 90s and the rest is crap (again, for ordinary people.  The wealthy did very well).

Finally, those fools in places like Canada (my home and native land) who thought the good times would never end and that letting the mixed economy (aka. manufacturing) die, are about to reap the whirlwind.

All Commodity Booms End.  No exceptions.  Always.

Repeat that until it sinks in.

The old Canadian economy ran as follows: during times when commodity prices were high the Canadian dollar went up making our manufactured goods uncompetitive, but we used the money from selling commodities to subsidize manufacturing.  During times when commodity prices were low, the profits from manufacturing were used to subsidize the the resource producing areas of the country.

Harper, that feckless provincial incompetent and neo-liberal ideologue, has broken the Canadian mixed economy, which existed before him for over 100 years.  This is probably because he’s an economist, meaning he was indoctrinated to believe neo-liberal dogma.  Or perhaps he’s just a fool, hard to say.

The only Federal leader who understands the Canadian mixed economy is NDP leader Mulcair (Justin Trudeau, while has nice abs, is not very bright, unlike his father, who was a genius.)

It might not be too late to rebuild Canadian manufacturing during the oncoming recession.  My fellow Canadians, think carefully about who you vote for, especially those of you in Southern Ontario. Your housing values will not stay where they are if Canada’s entire economy is based on boom and bust commodity cycles and there are no jobs except in resource extraction, flipping burgers and finance.  Mulcair tried to warn you, years ago.

Learn.  Or reap the consequences.

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