Friday, 11 July 2014

Many rivers to cross

Off in the next few days for a cruise along the Rhine, Main and Danube rivers. No more posting here until early August.

Manufacturing's death spiral

Just what the Bank of Canada didn't need....data released today showed that the Canadian economy shed 9,400 jobs in June.  Particularly after the very strong employment numbers recently released in the US, economists had been expecting StatsCan to announce a 20,000 job increase for the month. Today's numbers mean that Canada has added just 72,000 jobs, or just about 0.4%, over the past year. Considering all the bragging out of the Federal Government about how well Canada has performed compared to the rest of the developed world,, this is a shockingly low number.

One of the key takeaways from the data is that the Ontario manufacturing sector continues to crumble. Employment in that sector fell by 13,000 in June, to the lowest level seen since 1976. That contributed to an overall loss of 35,000 jobs in the Province, by far the worst showing anywhere in Canada.

What's going on here?  It's now beyond any reasonable doubt that the free trade deals with the US and Mexico, while they may have been beneficial for the country as a whole, completely knocked the props out from under the manufacturing belt that once stretched from the GM plants in Oshawa, via the steel mills of Hamilton, to the John Deere factory in Welland and the Chrysler assembly plants in Windsor, with much else in between.

Right from the start there were warnings that the branch plant nature of much of the sector would likely result in jobs shifting to the US over time.  This has indeed happened, and the subsequent addition of Mexico to the free trade zone has compounded the problem. The rapid emergence of Asia as a global manufacturing powerhouse has only made things worse.

Ontario has simply failed to re-orient itself in the face of these huge challenges.  Although there are some promising signs in the high tech field, these have been on nothing like the scale needed to offset the massive loss of jobs in the old metal-bashing trades.  The relative weakness of the Canadian dollar over the past year or so has done nothing to stem the decline.

It all looks a bit similar to the UK.  Just as the prosperity of London, with its financial might and its overpriced housing, overshadows the structural problems besetting much of the rest of the country, so the success of Toronto, also based on banking and housing, is becoming ever more detached from the seemingly intractable difficulties in other parts of the Province.  

It's not likely to get any better. Free trade with Japan and Korea will hammer a few more nails into what's left of the automobile sector.  Among the "domestic" producers, Chrysler recently caused conniptions in political circles by refusing government financial help with an upgrade of its Windsor minivan factory -- very possibly to make it easier to close the plant altogether at some future date.

There isn't a whole lot that politicians or the Bank of Canada can do about this. It's clear enough now that Ontario manufacturing's problems have next to nothing to do with the exchange rate -- they're structural. As The Boss wailed in "My hometown", "these jobs are going, boys, and they ain't coming back".  It looks as if the Ontario of the future will be based on financial services, construction and tourism -- not the worst possible scenario, but not one that affords a whole lot of flexibility in tough times.

Tuesday, 8 July 2014

Water wrongs

I've posted here before about a fantastically irritating woman called Maude Barlow.  She styles herself as the Chair of something called the Council of Canadians, of which she is the founder and, to all intents and purposes, the only significant member. She's what's called an "activist", which means she likes telling other people what to do (or more often, what not to do) but is unwilling to seek elected office. She's a busybody.

When I last wrote about Ms Barlow, she was railing against plans for a west-to-east pipeline to carry Alberta crude oil to refineries in Quebec and Atlantic Canada.  She's implacably opposed to oil sands development, so you'd naturally assume she's in favour of alternative forms of energy, right? Don't be so sure: today she pitched up in the op ed pages of the Toronto Star, arguing against plans for a wind farm north of Toronto.

Said wind farm is to be built on an area known as the Oak Ridges Moraine. This used to be a wilderness area north of Toronto, atop a large aquifer. Truth to tell, as far as preserving the Moraine from development goes, the train left the station years ago.  Toronto's unending urban sprawl has seen large tracts of the area covered by housing, shopping malls and all the rest of the signs of Canadian civilization.  However, Maude has been persuaded to join a local campaign against the wind farm, on the basis that it poses a threat to Ontario's water supplies.

According to Ms Barlow and her co-author, the Moraine is "the rain barrel of southern Ontario". At this point, if you're not familiar with the geography of the region, you might want to consult a map. If you want to find the Moraine, you'll need a very detailed one, but even a very large-scale map will make it quite apparent that southern Ontario is replete with fresh water. Lakes Erie and Ontario border the province to the south, and Lake Huron/Georgian Bay to the west. Drive about a hundred kilometers north of Toronto and you'll find yourself entering a region of lakes, literally thousands of them, stretching all the way up to the Arctic Circle.

Given these facts, calling the Moraine the region's "rain barrel" is absurd, but typical of the kind of exaggerations that Maude Barlow always falls back on to make her points.  There's no excuse for thoughtlessly damaging the Moraine -- though I'd say the houses and malls have already taken care of that -- but there's no reason it can't withstand a little bit of careful development.

The little bio of Maude Barlow at the end of the article notes that she served as a senior adviser on water to the UN General Assembly. In that case you'd think she'd know that it's unlike other resources, because you can't use it up. There's still the same amount of water on Earth that there's been since the planet cooled after the Big Bang. That doesn't mean there are no issues with water:  we need to ensure that there's enough potable water in the right places, as task that's getting more difficult by the year.  But we're never actually going to run out if it.

Ms Barlow proposes four principles for a new "water ethic". Let's just look at a couple. "Water is a human right and must be more equitably shared".  Sounds fair, but it's actually a totally hypocritical statement when Ms Barlow makes it.  As I've already noted, Ontario is blessed with abundant fresh water supplies. At the same time, large tracts of the western United States are facing long-term water shortages. Time for some equitable sharing, then? You can bet your firstborn child that if any Canadian politician dared to suggest such a thing, the first person to screech in protest would be Maude Barlow, for whom implacable anti-Americanism is a core principle.

Or how about this "principle": "water has rights, too". Wow -- who knew? Does all water have the same rights, or is it different for fresh and salt? Next thing you know it'll be getting itself a lawyer, or maybe making plans to take part in next year's Pride Parade.

Thursday, 3 July 2014

Words fail me!

A recent opinion poll named Tony Blair as Britain's most-hated Prime Minister ever.  And it's unlikely that this will help repair his reputation: he's taking on a new role as an economic adviser to Egypt's new strongman President el-Sisi.  As one of the readers commenting on this report in The Guardian put it, "haven't these people suffered enough?"

When Blair was PM, he took next to no interest in economic matters.  He left that part of the job to Gordon Brown, and we all know how well that worked out.  Now he's clambering between the sheets with a regime that came to power after a military coup against an elected government, a regime that has become an international pariah thanks to the jailing of a group of journalists on transparently trumped-up charges.

But none of this seems to matter to Blair, the venal, mendacious, hypocritical, money-grubbing, influence-peddling, warmongering....oh! It looks as if words don't fail me after all!

Wednesday, 2 July 2014

The uncomfortable loonie

Many analysts have been calling for the Canadian dollar to fall to something like 85 cents (US) this year.  Instead, after flirting briefly with levels below 90 cents, the currency has rallied strongly in recent weeks, and today briefly traded above 94 cents, before slipping back a little.  Exporters, as well as the Bank of Canada, are reportedly "uncomfortable" with these developments.

Many people are attributing the sharp reversal to the rise in oil prices, as a result of the conflict in Iraq. That may be a contributing factor, but it can't be the whole story.  The loonie began to rally well before ISIS hit the front pages. It's more likely that markets are taking notice of the sharp rise in Canadian inflation over the past twelve months.  When Bank of Canada Governor Stephen Poloz took over the top job in mid-2013, he routinely expressed his fear that full-blown deflation might be on the horizon.  Instead, CPI has accelerated from 0.7% at this time last year to 2.3% currently, above the Bank's 2 percent target rate. This has inevitably led to speculation about when the Bank might have to start raising interest rates.

If this is indeed making Gov. Poloz uncomfortable, it's because he has no good options available to him. Cheap money has done little to revive the economy, which continues to wallow along, so raising rates to head off the rise in inflation is not a palatable choice.  With the Federal government sticking to its austerity program in order to unleash a wave of personal tax cuts just ahead of next year's election, there's no prospect of a fiscal boost to take some of the weight off of monetary policy.

The bounce in the exchange rate may help to reduce inflationary pressures very marginally, but it's likely that the next few months will see CPI stuck above the 2 percent target, while the weakness in the economy keeps the Bank twiddling its thumbs on the sidelines.  And all the while, personal debt will continue to hover at levels comparable to those seen in the US just before the financial crisis.  If you had Stephen Poloz's job, you'd be uncomfortable too.

Friday, 27 June 2014

A bad mix

I'm currently reading a really awful book*, "Empire of Debt", by Bill Bonner, the founder of the Daily Reckoning website.  Much of it is gibberish, the writing style is overwrought and at times it veers alarmingly close to outright racism.  I'm only persisting with it because it gives me a bit of insight into what passes for thought among the US libertarian fringe.  They're the kind of people who agree with Margaret Thatcher that "there's no such thing as society", and they probably think that the Tea Party are a bunch of communists. Bonner holds just about everyone in the utmost contempt: Abe Lincoln, President Roosevelt (both of them), Ronnie Reagan, Alan Greenspan and a whole panoply of lesser lights come in for sustained abuse.

Bonner's right about one thing, though: if central banks make money essentially free, as they have for the last half decade and more, rational people will stop saving and start borrowing. And if you further convince those people that a house is not just a place to live, but a foolproof treasure trove of wealth that will ensure a comfortable retirement, then you'll just about guarantee that house prices will spiral into the stratosphere. Which is, of course, what happened in the US prior to the 2008 crisis, and is still happening in the UK and Canada.

Canada's main financial regulator, the Office of the Superintendent of Financial Institutions (OSFI) is worried about this.  One of its head honchos gave a speech in Toronto this week warning that the level of home prices poses a serious risk to the entire economy.  Although he made reassuring noises about the strong capital base of the major Canadian banks, he also offered the less comforting statistic that sixty percent of Canadian bank lending is real estate-related.

That's right: the main impact of the ultra-easy monetary policy pursued by the Bank of Canada in recent years has been to create an unproductive and potentially hazardous housing bubble.  It hasn't boosted business investment, as Mark Carney regularly noted when he railed against the "dead money" sitting on corporate balance sheets.  It hasn't even boosted home building in any material way, except for shoebox condominiums in Toronto and Vancouver.  It's just inflated the value of the existing housing stock, making large numbers of homeowners unjustifiably smug about their "wealth" while excluding millions of others from the market altogether.

Back when I was still living in the UK, I wrote a couple of times that the policy mix there was wrong: what was needed was a bit less fiscal rigor and a bit more monetary discipline.  The same is true in Canada today. Well, less fiscal rigor is on the horizon: the federal Tories are quite open about the fact that they will introduce a big tax cut just before next year's general election.  Will we also get some monetary tightening?  There is a growing number of people (count me as one) who feel that the Bank of Canada is altogether too relaxed about the recent rise in CPI.  But there's no sign that Governor Stephen Poloz will raise rates any time in 2014, and once next year rolls around, he may shy from doing anything to frighten the horses in the run-up to the election.  It's starting to get just a little bit worrisome.  



* My excuse, and I do feel I need one, is that I bought it at a charity stand in the local mall. 

Riverbend

OK, so maybe I'm the last person in the blogosphere to know about this, but....I just found out this week that the wonderful Baghdad Burning blogger, Riverbend, posted again on her blog in April last year. Her harrowing and often heartbreaking story of life in Baghdad appeared almost daily between the Bush-Blair invasion of 2003 and 2007, when she and her family fled to Damascus and she abruptly stopped posting.

If you want to understand what's going on in Iraq right now, and particularly if you want to stoke your righteous anger at Dick Cheney and Tony Blair as they deny any responsibility for the current mess, you need to read the very extensive archive on Riverbend's blog site.  It's still my favourite blog of all time.

It seems Riverbend and her family have moved on from Syria to an unnamed, third Arab country. It so happens that I'm writing this on the first day of Ramadan, so, Riverbend, whoever and wherever you are, as-salaam aleykum, and happy Eid.