Canadians from all walks of life are rightly worried about the economic health of the country in coming weeks and months. And as such, various suggestions are pouring in for Prime Minister Harper about what kind of budget should it be on Jan 27.
Meanwhile, to put to rest speculations about the likely deficit, yeah deficit there will be, official leaks to the media put the deficit figure at 64 billion over the next two years.
Now, let me weigh in on the directionality of the budget. Yeah, the budget should contain stimulus for growth of economy and so on, but my fundamental submission to PM Harper and Finance Minister Flaherty is: in as much as the Jan 27 budget will be geared towards creation of jobs, it must also focus on another critical aspect – towards prevention of job losses.
Reason is simple: if two new jobs are created but if at the same time two jobs are lost, the net result will be zero. Therefore, the budget must encompass steps that will help in job retention in sectors specific to provinces, like, farming, energy, fisheries, lumbar, etc. and for small and medium industries.
Just by focussing on one sector will be of little help. Let us say, auto sector is provided necessary succour and they continue to produce vehicles but if the people are not employed, if they don’t have the purchasing power to buy those vehicles, what good would have been achieved at the end of the day?
Therefore, in very concise terms: the budget and the government have to ensure that people who have jobs don’t lose them, and at the same time new jobs are also created. With creation of new jobs the currently unemployed will finds means to earn, consequently they will have disposable incomes which in turn will help in causing higher demand for goods and services. The usual economic multiplier will come in to play. This is what the economies in recession want to happen.
However, for the growth of demand it is absolutely necessary that there is adequate money supply in the market. At the moment liquidity is a problem as the banks are being too conservative regarding their lending policies. In other words, the Canadian Banks are opening the money supply valve slowly.
Bank of Canada reduced the overnight rate to 1.0% on Jan 20 thereby bringing cumulative easing to 350 basis points since Dec 2007. BoC is doing this to stimulate the credit market which is so very vital for sustainment and growth of durable and non-durable goods, and services.
But if you look at the interest rate table provided in Bank of Canada’s Monetary Policy Update of Jan 2009, you will find that the variable mortgage rate dropped till 17 July 2008 as the Prime Rate dropped. But all of a sudden on 23 Oct 2008 the variable mortgage rate went up even as the Prime Rate declined. Since then the banks have not passed on fully the benefit of overnight rate cuts to the consumers.
The consequence of this is evident, there is drop in sales of houses which in turn affected the demand, which led to less starts, which meant job losses and initiation of one of the many downward spirals strangulating Canadian economy.
Latest numbers (including December 2008 numbers) from the Bank of Canada indicate Canadian banks' residential mortgages stood at $452.5 billion, off by 0.7 per cent from November, extending a declining trend since July's peak as realtors reported sharp drops in home prices and sales volumes.
There is also news that some banks are quietly increasing interest rate on lines of credits too. When the market is crying out for more consumer demand, the banks are insidiously trying to dip in to the pockets of the consumers and snatch some more dollars!! It seems the banks are adopting a penny wise pound foolish policy.
Obviously this is a desperate but a stupid way to improve their revenue and the balance sheets which got screwed up because the banks were putting their funds blindly like gargantuan idiots in the disastrous mortgage lending frenzy initiated by Freddie Mac and Fanny May. These banks didn’t even bother to check whether the bubble they were putting the money in to was the right thing to do or not.
So, the important question is: why are banks not passing on the full benefit of cuts being effected by BoC in overnight rates? The variable mortgage today stands at 3.8% whereas it could have been easily anywhere around 1%+0.8=1.8%. Why the hell are banks not giving the benefit to the potential customers?!!
As per Bank of Canada’s Monetary Policy Update of Jan 2009, Canada is in recession, and its real GDP is 2009 is expected to contract by 1.2% (An aside: ‘decline’ is the word used in BoC’s document which is confusing, it is poor English; decline connotes a decrease relative to something – e.g. there can be a decline of 1.2% from, say, a previous figure of 3.5%).
BoC projects that Canada’s GDP will rebound in 2010. But how the hell can it rebound when the banks are making things difficult for people? Why can’t the BoC kick on the posterior of these banks and ask them to help in a ‘real’ and ‘effective’ manner in bringing the Canadian economy back on the rails?
It is pretty darn clear that simply resorting to deficit budgets is not going to suffice unless it is backed to the hilt by the banks that showed utter callousness and incompetence which resulted in their funds getting entangled in toxic assets (consequently the banks had to resort to massive write-offs).
PM Harper and Finance Minister Flaherty have to do whatever it takes to get the Canadian banks to fall in line with BoC’s measures. If that requires adopting extraordinary measures, cracking the whip, so be it – whether through any ordinance or whatever it is. When President Obama can go to extraordinary lengths, why can’t Canada, which, fortunately, is not in such a deeper hole as US is? It is time Canadian leadership showed that it is not made up of sissies!!
Saturday, January 24, 2009
Sunday, January 18, 2009
THANK YOU, MR. IGNATIEFF, FOR YOUR POSITIVITY ON OIL SANDS – ALBERTANS AND CANADIANS APPRECIATE IT!!
Canada’s Federal Liberal party leader Michael Ignatieff has come out with some very sensible views on oilsands – an issue on which his predecessor (Stephane Dion) had championed a revenue-neutral carbon tax which, oilpatch observers were worried, would have inflicted disproportionate damage on Alberta's carbon-based economy, and consequently on Canadian economy.
Dion’s party fared poorly in Federal elections last year and along with him went out of the door his thought-less policy too.
In an interview to a radio station on 16th Jan, Ignatieff admitted that any policy that comes from Ottawa can't jeopardize the oilsands - which is one of the only industries propping up the Canadian economy right now. "When you're in St. John's airport and you see a guy in cowboy boots and a cowboy hat getting on the plane you know what the oilsands mean to the entire Canadian economy," Ignatieff reportedly said.
The present Liberal leader admitted his party made mistakes with energy policy in the past, including the national energy plan. He said his goal was to develop environmentally and socially sustainable policies for the oilsands.
While speaking to a newspaper last week, Ignatieff went on to insist the federal government must consider offering the oil and gas sector a stimulus package in its Jan. 27 budget, comparable to the multi billion-dollar bailout of the Ontario-based auto industry. "The West should be rightly angry if we assisted only Central Canada," Ignatieff told the newspaper. "We can't put money into the auto sector in Central Canada without considering the legitimate concerns of the B.C. forest industry and the Alberta oil industry. There has to be regional fairness in the stimulus package."
Ignatieff’s views clearly go above partisanship, beyond petty politics; they are patriotic, pro-Canada. Ignatieff’s pan-Canada outlook got further articulated when he said that while oilsands has its environmental challenges, oilsands are a lucrative tool, both financially and politically, that increases Canada's stature around the globe and allows the country to stand its ground on several policy fronts against the U. S.
The above bodes well for not only for Alberta but the whole of Canada. His views are now more or less along the lines of views held by Alberta’s Premier Ed Stelmach, and Canada’s Prime Minister Steven Harper. These statements will no doubt be providing much needed hope to the people of Canada who can now justifiably look towards political stability in Ottawa.
Canada’s federal budget will come up for voting on Jan 29, and Harper’s minority government needs support of at least one opposition party to survive the voting. Harper has indicated that he will listen to Ignatieff’s suggestions on the upcoming budget with an open mind.
If Harper can accommodate some of Liberal party’s suggestions, he can undoubtedly rest assured that Liberals won’t let his government fall. That will mean stability in Ottawa, and political stability is what encourages the potential investors, including the big oil companies, who are currently sitting on the fence in wait-and-watch mode.
It is important to note that the sudden slow down in investment in oilsands projects was not prompted by slumping oil prices alone; in fact, it is farcical to believe that any short-term drop in oil prices should have disrupted many oil companies' investment plans, as it did; oil companies which are run by people of decent dose of competence base their decisions on the WHOLE life span of the project. The life span of oilsands projects range from 20-40 years, even more.
It does not require much intelligence to grasp that given the aggressive production cutting stance taken by OPEC countries (plus drop in non-conventional oil production), and stimulus packages announced by the G-7 countries, China and India, the aggregate demand of oil will start picking up by Q3 of this year. Coupled with the impact of production cuts, by the end of 2009 price of oil is expected to be any where between 60-100 dollars per barrel, probably more likely upwards of $70. The price of oil will remain on an upward looking curve thereafter.
So, the price of oil was not so much of a concern for the likes of Shell, TOTAL or Statoil et al. It was the uncertainties on policy level of both Canada and the new US administration regarding oilsands that impelled these companies to adopt more circumspect approach. Unless these companies are sure of policies on oilsands – of both Canada and US – and sure of a stable government in Ottawa ,which has a balanced view on oilsands, the oil companies would remain on the fence.
It may be mentioned for the benefit of those not familiar with Canadian politics that leader of an opposition party, known as NDP, had gone on record to say that given the chance his party will stop all oilsands projects. Such intellectually-challenged people were willing to cut their noses to spite their faces. Their political aspirations got better of whatever amount of intelligence they have to ignore the vital importance of a resource, like, oilsands to Canada as a whole – on economic and political fronts.
However, Liberal party’s aforementioned views on oilsands will certainly help Harper’s folks in formulating bi-partisan policy on environment, including policies relating to carbon capture. Once there is clarity on Federal environment policy, again, that will provide necessary confidence to the investors to finalize their investment decisions in regard to oilsands projects.
It is hoped that taking cue from Ignatieff, leaders of other Canadian opposition parties will set aside petty-minded politics and rally together to do what is in the best interest of the country. They will do well to remember there is much to gain, nationally and politically, in a prosperous Canada rather than in an economically and politically weak Canada.
Dion’s party fared poorly in Federal elections last year and along with him went out of the door his thought-less policy too.
In an interview to a radio station on 16th Jan, Ignatieff admitted that any policy that comes from Ottawa can't jeopardize the oilsands - which is one of the only industries propping up the Canadian economy right now. "When you're in St. John's airport and you see a guy in cowboy boots and a cowboy hat getting on the plane you know what the oilsands mean to the entire Canadian economy," Ignatieff reportedly said.
The present Liberal leader admitted his party made mistakes with energy policy in the past, including the national energy plan. He said his goal was to develop environmentally and socially sustainable policies for the oilsands.
While speaking to a newspaper last week, Ignatieff went on to insist the federal government must consider offering the oil and gas sector a stimulus package in its Jan. 27 budget, comparable to the multi billion-dollar bailout of the Ontario-based auto industry. "The West should be rightly angry if we assisted only Central Canada," Ignatieff told the newspaper. "We can't put money into the auto sector in Central Canada without considering the legitimate concerns of the B.C. forest industry and the Alberta oil industry. There has to be regional fairness in the stimulus package."
Ignatieff’s views clearly go above partisanship, beyond petty politics; they are patriotic, pro-Canada. Ignatieff’s pan-Canada outlook got further articulated when he said that while oilsands has its environmental challenges, oilsands are a lucrative tool, both financially and politically, that increases Canada's stature around the globe and allows the country to stand its ground on several policy fronts against the U. S.
The above bodes well for not only for Alberta but the whole of Canada. His views are now more or less along the lines of views held by Alberta’s Premier Ed Stelmach, and Canada’s Prime Minister Steven Harper. These statements will no doubt be providing much needed hope to the people of Canada who can now justifiably look towards political stability in Ottawa.
Canada’s federal budget will come up for voting on Jan 29, and Harper’s minority government needs support of at least one opposition party to survive the voting. Harper has indicated that he will listen to Ignatieff’s suggestions on the upcoming budget with an open mind.
If Harper can accommodate some of Liberal party’s suggestions, he can undoubtedly rest assured that Liberals won’t let his government fall. That will mean stability in Ottawa, and political stability is what encourages the potential investors, including the big oil companies, who are currently sitting on the fence in wait-and-watch mode.
It is important to note that the sudden slow down in investment in oilsands projects was not prompted by slumping oil prices alone; in fact, it is farcical to believe that any short-term drop in oil prices should have disrupted many oil companies' investment plans, as it did; oil companies which are run by people of decent dose of competence base their decisions on the WHOLE life span of the project. The life span of oilsands projects range from 20-40 years, even more.
It does not require much intelligence to grasp that given the aggressive production cutting stance taken by OPEC countries (plus drop in non-conventional oil production), and stimulus packages announced by the G-7 countries, China and India, the aggregate demand of oil will start picking up by Q3 of this year. Coupled with the impact of production cuts, by the end of 2009 price of oil is expected to be any where between 60-100 dollars per barrel, probably more likely upwards of $70. The price of oil will remain on an upward looking curve thereafter.
So, the price of oil was not so much of a concern for the likes of Shell, TOTAL or Statoil et al. It was the uncertainties on policy level of both Canada and the new US administration regarding oilsands that impelled these companies to adopt more circumspect approach. Unless these companies are sure of policies on oilsands – of both Canada and US – and sure of a stable government in Ottawa ,which has a balanced view on oilsands, the oil companies would remain on the fence.
It may be mentioned for the benefit of those not familiar with Canadian politics that leader of an opposition party, known as NDP, had gone on record to say that given the chance his party will stop all oilsands projects. Such intellectually-challenged people were willing to cut their noses to spite their faces. Their political aspirations got better of whatever amount of intelligence they have to ignore the vital importance of a resource, like, oilsands to Canada as a whole – on economic and political fronts.
However, Liberal party’s aforementioned views on oilsands will certainly help Harper’s folks in formulating bi-partisan policy on environment, including policies relating to carbon capture. Once there is clarity on Federal environment policy, again, that will provide necessary confidence to the investors to finalize their investment decisions in regard to oilsands projects.
It is hoped that taking cue from Ignatieff, leaders of other Canadian opposition parties will set aside petty-minded politics and rally together to do what is in the best interest of the country. They will do well to remember there is much to gain, nationally and politically, in a prosperous Canada rather than in an economically and politically weak Canada.
Saturday, January 10, 2009
HOW CANADA CAN TURN THE CURRENT CHALLENGES IN TO OPPORTUNITIES!!
Canadians, potential investors (and probably to some extent its southern neighbour) are waiting with bated breath to see what happens in Ottawa on Jan 29 when the budget will be put to vote. The current Prime Minister Stephen Harper, of Progressive Conservatives (PC), is leading a minority government. If for whatever reasons the main opposition parties - Liberal, NDP and Bloc Quebecois - don't like the budget presented on Jan 27, they can pull the government down by voting against it.
Now, let us step sideways and look at some key aspects currently confronting Canada. First, Canada is also in the grip of recession as are the other G-7 countries; the good news, however, is that Canada's economic woes are least as compared to any other G-7 country. Albeit, Canada's economic problems are less compared to its G-7 peers but they are not trivial either.
The unemployment figures released on 9th Jan paint a grim picture, and coupled with current contractionary tendencies of the economy (exacerbated by recessionary perception in the minds of the Canadians) the future doesn't portend encouraging signs.
When a country passes through tough times, if you had to pick up one thing that is needed to pull the country out of trouble what would you choose? Without doubt, the answer would be: 'real' leadership. It is a well known fact, to even non-academicians, that right leadership is fundamental to devising necessary strategy/suite of actions, convincing the people of the country to embrace the same and implementing it in timely and proper manner.
This is where current Prime Minister Stephen Harper is now called upon to show his mettle as a true leader. History is beckoning him to step up to the plate and do whatever is necessary, in the interest of the nation, to take Canada out of this present economic upheaval and put it back on the path of sustained economic growth. Fall of PC govt on Jan 29 has a potential for another election. That will certainly not be a welcome thing for the Canadians; the nation can ill afford a period of instability at this stage.
So, whichever way you look at from, the present challenge is, in fact, the right opportunity for PM Harper to deliver and carve a niche for himself in the Canadian history. People say of Harper, based on their past experience, that he is prone to stubbornness, often short sighted, less open-minded, afraid of facing the nation (prefers to disappear at the time of crisis), poor negotiator, untactful, impulsive, unable to grasp the big picture, and so on.
But this is the ideal opportunity for Harper to prove people wrong. Can he do it? Sure, why not? But to do that he has to overcome some mental blocks and fixations. If you watch his body language, his choice of words on critical/difficult issues one often finds him exhibiting lack of confidence, lack of substance and trying to cover that up with sheepish smile. And, in the process of overcoming his lack of confidence, on many occasions Harper ends up overdoing his policy action. This has been a major weakness in his style of functioning.
But he can right his this weakness. He need not feel weak-kneed, nor find his confidence somewhat less. Why? Because, after all, he led his party to be the largest single party in the parliament in the recent elections. Surely that is indicative of his ability to connect with people in most parts of Canada, his ability to articulate, and to get good grasp on various issues.
So, instead of being diffident, sheepish, apologetic on key issues, he needs to go out there full blast in confidence and take the bull by the horn - understand what the problems are, what the possible options are, what the challenges in implementing them are, and what needs to be done politically and nationally to implement them.
After grasping all that, Harper needs to rise above the fear of failure (this is fundamental to succeed in life) and go about his business of showing what true leadership is and stand tall amidst his political peers. Once he is not afraid to fail and at the same time puts national interest to be paramount he would be able to deal with any Layton, Ignatieff, Duceppe and come out trumps. And, best of all, the Canadians will back him up in his efforts to pull the country out of the morass.
It will not be so simple as stated above, but once Harper plays on the front foot with confidence (and full grasp of the situation/solutions) he will automatically be able to come out with necessary tactfulness, negotiation skills, political savvy required to implement what is best for the country in the present moment.
His actions will, however, have to demonstrate that he is above petty politics, he knows what is good for Canada, he is clearheaded, honest, not bumbling and that he is most suited to be the captain of the team. The more he will succeed, the more will his confidence grow and he will keep firing on all cylinders. Gradually, his path will appear more smoother, with less hurdles.
Meanwhile, there is good news that Mr. Obama has decided to visit Canada after taking over as President of US. This provides a gilded opportunity to Canada to forge stronger partnership with US on various fronts - energy, trade and defence. But to be able to do so Harper has to first survive the vote on budget. If Harper can be the decisive Prime Minister the country needs him to be, surely he can not only survive the vote, he can further strengthen his position.
If PC's continue to lead the country after the budget vote, Harper will get the opportunity to meet with and to convince Obama about the strategic importance of Canada-US relations, about oilsands' relevance to US (and the steps Alberta is taking to address environment related concerns), clear confusions regarding NAFTA, cooperation on defence related matters. But Harper would do well not to carry any past baggage (i.e. close ties with outgoing president Bush etc) or raise any thorny issue like Arctic sovereignity etc.
One of the drawbacks of Canadian leaderships' 'thinking' in last 50-60 years has been that on international level it was not expansive enough, and not contextually politically savvy. (An aside: On national level the 'thinking' seemed to have been debilitatingly overshadowed by Anglo-philic predilections.) In any case, it is a golden opportunity for Harper to show that his policies are entirely Canada-centric, pragmatic, streetsmart on all issues - be it environment, Islamic radicalism, natural resources, economic world order or anything else.
A strong and vibrant Canada is also in the interest of USA, and world in general. Canada's journey towards becoming a strong and vibrant nation can be sure and certain provided Steven Harper gets his act correct. He probably is aware that he will be judged by history by his performance at this critical and historic juncture.
Mr Harper, opportunity is there for you to get your name etched in golden letters - but to do that you will have to rise to the occasion and grab it!
Now, let us step sideways and look at some key aspects currently confronting Canada. First, Canada is also in the grip of recession as are the other G-7 countries; the good news, however, is that Canada's economic woes are least as compared to any other G-7 country. Albeit, Canada's economic problems are less compared to its G-7 peers but they are not trivial either.
The unemployment figures released on 9th Jan paint a grim picture, and coupled with current contractionary tendencies of the economy (exacerbated by recessionary perception in the minds of the Canadians) the future doesn't portend encouraging signs.
When a country passes through tough times, if you had to pick up one thing that is needed to pull the country out of trouble what would you choose? Without doubt, the answer would be: 'real' leadership. It is a well known fact, to even non-academicians, that right leadership is fundamental to devising necessary strategy/suite of actions, convincing the people of the country to embrace the same and implementing it in timely and proper manner.
This is where current Prime Minister Stephen Harper is now called upon to show his mettle as a true leader. History is beckoning him to step up to the plate and do whatever is necessary, in the interest of the nation, to take Canada out of this present economic upheaval and put it back on the path of sustained economic growth. Fall of PC govt on Jan 29 has a potential for another election. That will certainly not be a welcome thing for the Canadians; the nation can ill afford a period of instability at this stage.
So, whichever way you look at from, the present challenge is, in fact, the right opportunity for PM Harper to deliver and carve a niche for himself in the Canadian history. People say of Harper, based on their past experience, that he is prone to stubbornness, often short sighted, less open-minded, afraid of facing the nation (prefers to disappear at the time of crisis), poor negotiator, untactful, impulsive, unable to grasp the big picture, and so on.
But this is the ideal opportunity for Harper to prove people wrong. Can he do it? Sure, why not? But to do that he has to overcome some mental blocks and fixations. If you watch his body language, his choice of words on critical/difficult issues one often finds him exhibiting lack of confidence, lack of substance and trying to cover that up with sheepish smile. And, in the process of overcoming his lack of confidence, on many occasions Harper ends up overdoing his policy action. This has been a major weakness in his style of functioning.
But he can right his this weakness. He need not feel weak-kneed, nor find his confidence somewhat less. Why? Because, after all, he led his party to be the largest single party in the parliament in the recent elections. Surely that is indicative of his ability to connect with people in most parts of Canada, his ability to articulate, and to get good grasp on various issues.
So, instead of being diffident, sheepish, apologetic on key issues, he needs to go out there full blast in confidence and take the bull by the horn - understand what the problems are, what the possible options are, what the challenges in implementing them are, and what needs to be done politically and nationally to implement them.
After grasping all that, Harper needs to rise above the fear of failure (this is fundamental to succeed in life) and go about his business of showing what true leadership is and stand tall amidst his political peers. Once he is not afraid to fail and at the same time puts national interest to be paramount he would be able to deal with any Layton, Ignatieff, Duceppe and come out trumps. And, best of all, the Canadians will back him up in his efforts to pull the country out of the morass.
It will not be so simple as stated above, but once Harper plays on the front foot with confidence (and full grasp of the situation/solutions) he will automatically be able to come out with necessary tactfulness, negotiation skills, political savvy required to implement what is best for the country in the present moment.
His actions will, however, have to demonstrate that he is above petty politics, he knows what is good for Canada, he is clearheaded, honest, not bumbling and that he is most suited to be the captain of the team. The more he will succeed, the more will his confidence grow and he will keep firing on all cylinders. Gradually, his path will appear more smoother, with less hurdles.
Meanwhile, there is good news that Mr. Obama has decided to visit Canada after taking over as President of US. This provides a gilded opportunity to Canada to forge stronger partnership with US on various fronts - energy, trade and defence. But to be able to do so Harper has to first survive the vote on budget. If Harper can be the decisive Prime Minister the country needs him to be, surely he can not only survive the vote, he can further strengthen his position.
If PC's continue to lead the country after the budget vote, Harper will get the opportunity to meet with and to convince Obama about the strategic importance of Canada-US relations, about oilsands' relevance to US (and the steps Alberta is taking to address environment related concerns), clear confusions regarding NAFTA, cooperation on defence related matters. But Harper would do well not to carry any past baggage (i.e. close ties with outgoing president Bush etc) or raise any thorny issue like Arctic sovereignity etc.
One of the drawbacks of Canadian leaderships' 'thinking' in last 50-60 years has been that on international level it was not expansive enough, and not contextually politically savvy. (An aside: On national level the 'thinking' seemed to have been debilitatingly overshadowed by Anglo-philic predilections.) In any case, it is a golden opportunity for Harper to show that his policies are entirely Canada-centric, pragmatic, streetsmart on all issues - be it environment, Islamic radicalism, natural resources, economic world order or anything else.
A strong and vibrant Canada is also in the interest of USA, and world in general. Canada's journey towards becoming a strong and vibrant nation can be sure and certain provided Steven Harper gets his act correct. He probably is aware that he will be judged by history by his performance at this critical and historic juncture.
Mr Harper, opportunity is there for you to get your name etched in golden letters - but to do that you will have to rise to the occasion and grab it!
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