OTTAWA – Leader’s Ledger – It may be summer and a bit slower than usual in the Capital, but that did not stop it from being an interesting week. Bad economic news weighed heavy and kept people on our side of the fence busy trying to assess the damage and where things are heading.
The bad news came quickly and in bunches. Bond yields surged in Europe, the US was on the verge on defaulting on some its credit obligations, and economic and job growth stalled in Canada – yes our Canada. Each problem is unique in and of itself, but together they should be cause for concern to Finance Minister Jim Flaherty.
The first bad news came from Europe which has seen its share of economic problems of late. Portugal, Ireland, Greece, and Spain have caused some serious headaches for investors and bankers alike. Unfortunately, it would now seem that a much larger economy is also teetering on the brink – Italy. Italian bond yields, or the interest paid to bond holders, rose sharply in the last two weeks which means that the Italian government has to pay a lot more interest in order to attract money to finance its budget and its deficit. The fact that people are increasingly pulling away from investing in Italian bonds means that many investors do not believe they will see the money repaid, or at the very least want more interest as a bit of an insurance policy. If Italy cannot attract investment and defaults as those others have it will mean that credit around the globe become more expensive and less available which will hurt consumer spending, economic growth, and job creation – everywhere.
As if Italy wasn’t enough to worry about the United States was also teetering – albeit briefly – on the bankruptcy front. Unlike the Italian situation though, the problems in the US were entirely of its own making. A failure to find an agreement between President Obama, and members of the House and Senate to increase the borrowing limit for the US government almost resulted in the shutdown that government. The problem was made more complex when one remembers that there are now essentially three parties in US politics – Democrats, Republicans, and the Tea Party movement. The clear way forward for the US is the way that Bill Clinton took the country the last time a Democrat inherited a mess from a Republican – raise some taxes, cut some spending, and live within your means while paying down the debt. Unfortunately, moderation is apparently an artefact in US politics now so I don’t anticipate the US debt problem to go anytime soon, nor should Finance Minister Jim Flaherty.
As if there wasn’t enough to worry about outside of our borders, it seems that economic growth and job creation are actually stalling or falling backwards in Canada. The first blow within our own borders came on July 29th when Statistics Canada released a report that showed Canada’s GDP numbers for May, which refers to the market value of all final goods and services produced in a country. On that day, the report showed that the value of our goods and services, the net worth of our economy basically, shrunk by 0.3% for the month. The decline in GDP for May followed a break even month in April and a slight 0.3% increase in March. Needless to say that bit of economic news came as a surprise to financial analysts as our rate of growth fell behind the United States for this period and has caused banks to revise future growth forecasts downward. The second bit of bad news pertained to job growth for July, which came in at just 7,100; well short of the 15,000 that economists were predicting for the month and far short of the 36,000 that was the average for the three months previous. Declining growth and less job creation within Canada – especially when coupled with a possible global credit crisis should be a huge red flag for this Conservative government if they are truly on top of things on the economic front as they claim.
It was a rough week to be sure for the global and Canadian economy with many questions left to be answered. Are we headed for a double-dip recession? Are we already in one? The warning signs are everywhere – there is a global credit crunch looming and poor growth and job numbers at home – but can Jim Flaherty and the Harper Conservatives see them? No one knows for sure, but time will tell. On that note, let’s hope the answers to those questions are ‘no, no, and yes’ for everyone’s sake.
John Rafferty MP
Thunder Bay Rainy River
