The Wall St. Journal today features a letter to the Fed signed by a number of prominent conservative economists and policy specialists attacking Ben Bernanke and the Fed for introducing a second round of quantitative easing. The critics claim that it is inflationary and counter-productive. They are wrong.
The current balance sheet of the Fed stands at almost 2.1 trillion dollars. These assets consist of Treasury bills,secured government debt instruments, federal and government sponsored enterprise mortgage backed securities, investments in foreign securities and other assets. The broadly defined money stock M2 stands at 8766 billion dollars. So the acquisition of 600 billion dollars of more government debt by the Fed financed solely from the broadening of M2 would amount to a 6.8 % increase over the coming months.Given that industrial capacity utilization currently stands at 74.7 % there is no threat of inflation.
Quantitative easing is designed to allow the Fed to create an accommodating monetary policy thereby keeping interest rates low and preventing interest rate crowding out while fiscal stimulus does its work. There is a need for substantial further fiscal stimulus but q.e. is also necessary and Bernanke is doing the right thing.
Monday, November 15, 2010
Saturday, November 13, 2010
G20 unemployment rates
The recently concluded G20 meetings in South Korea from the point of view of the media focused on the failure to secure an agreement about exchange rates and rebalancing export surpluses in some countries with chronic trade deficits in others. This remains an important area. But so too is the fact that most of the member countries who together account for 90 % of the world's GDP and 80 % of its trade are still suffering from high rates of unemployment. These rates are given below and what is striking about them is except for Australia, Brazil, Germany, Japan and South Korea and urban China the rates are very elevated.All rates except where indicated are for late summer or fall 2010.
Country Rate of unemployment
Argentina 8.7 %
Australia 5.4 (October)
Brazil 6.2 (Sept.)
Canada 7.9 (October) (7.6 Nov.)
China 4.3 (2010 est.)
France 10.0
Germany 6.7
India 10.7 (2009)
Indonesia 7.7
Italy 8.1
Japan 5.0
Mexico 5.7 (May)
Russia 6.8 (June)
Saudi Arabia 11.7 (males only)
South Africa 24
Republic of Korea 3.7
Turkey 10.5 (June)
U.K. 7.7
U.S. 9.6( 9.8 Nov.)
E.U. 9.5
Note that within the E.U. the following countries have very elevated rates of unemployment
Spain 20.8 %
Greece 14.5
Ireland 14.1
Portugal 10.7
Latvia, Lithuania and Slovakia also had rates above 10 %. In the EU 27 the total number of people unemployed exceeds 23 million people. It is also notable that youth unemployment for people under the age of 25 hoping to get started on their careers, the unemployment rates are above 20 and even 30 % in a number of European countries including 37 % in Spain, 25 % in Greece, 24 % in Ireland and 20 % in Portugal. There are over 6 million unemployed young people between the ages of 15 and 25 in the U.S., U.K,Italy, Spain and France.Lowering the rate of unemployment should be a top priority.There should be special programs targeted at people beginning their careers aiming to assist them and potential employers in engaging them for initial 6 month to one year contracts to gain both income and work experience.
So the picture is still that of world largely mired in excessive unemployment with several brighter spots where growth continues to be more robust and unemployment dropping.It is still a world desperately in need of more public sector stimulus.and private sector job creation. Austerity policies which have been foolishly adopted in a few countries and which risk being promoted in the U.S. and Western Europe are very definitely a very bad idea .
Country Rate of unemployment
Argentina 8.7 %
Australia 5.4 (October)
Brazil 6.2 (Sept.)
Canada 7.9 (October) (7.6 Nov.)
China 4.3 (2010 est.)
France 10.0
Germany 6.7
India 10.7 (2009)
Indonesia 7.7
Italy 8.1
Japan 5.0
Mexico 5.7 (May)
Russia 6.8 (June)
Saudi Arabia 11.7 (males only)
South Africa 24
Republic of Korea 3.7
Turkey 10.5 (June)
U.K. 7.7
U.S. 9.6( 9.8 Nov.)
E.U. 9.5
Note that within the E.U. the following countries have very elevated rates of unemployment
Spain 20.8 %
Greece 14.5
Ireland 14.1
Portugal 10.7
Latvia, Lithuania and Slovakia also had rates above 10 %. In the EU 27 the total number of people unemployed exceeds 23 million people. It is also notable that youth unemployment for people under the age of 25 hoping to get started on their careers, the unemployment rates are above 20 and even 30 % in a number of European countries including 37 % in Spain, 25 % in Greece, 24 % in Ireland and 20 % in Portugal. There are over 6 million unemployed young people between the ages of 15 and 25 in the U.S., U.K,Italy, Spain and France.Lowering the rate of unemployment should be a top priority.There should be special programs targeted at people beginning their careers aiming to assist them and potential employers in engaging them for initial 6 month to one year contracts to gain both income and work experience.
So the picture is still that of world largely mired in excessive unemployment with several brighter spots where growth continues to be more robust and unemployment dropping.It is still a world desperately in need of more public sector stimulus.and private sector job creation. Austerity policies which have been foolishly adopted in a few countries and which risk being promoted in the U.S. and Western Europe are very definitely a very bad idea .
Friday, November 5, 2010
Keynes and Quantitative Easing
Nov.5, 2010, 11:22 a.m.
A number of Keynesian economists have been sceptical of quantitative easing as a useful supplementary technique because they believe that in a deep slump monetary policy is like pushing on a string and will be ineffectual because interest rates are already very low and the speculative demand for cash balances very high. What this translates into is the quasi hoarding of cash balances. What is needed they argue is much more fiscal stimulus to boost investment and job creation. Well in part, of course, I agree with them that additional fiscal stimulus is very necessary to boost aggregate demand sufficiently to push employers to hire more workers and to hire more directly through additional infrastructure investment undertaken by government.
But I also advocate quantitative easing to ensure an accomodating monetary policy. I have done so since my work on it in the 1980s. The point of quantitative easing is that it helps prevent any interest rate crowding out by ensuring that rates stay low while the fiscal stimulus is financed. In disinflationary and near deflationary slumps the risk of inflation is minimal.
But in addition it is useful to know that Keynes himself approved of this approach. In March of 1930 before the Macmillan Committee in the U.K. of which Keynes was both a member and also a major witness he argued in favour of this policy as follows.
''My remedy in the event of the obstinate persistence of a slump would consist, therefore, in the purchase of securities by the Central Bank until the long term market-rate of interest has been brought down to the limiting point....(with respect to the 1930s slump) the Bank of England and the Federal Reserve Board (should) put pressure on their member banks...to reduce the rate of interest which they allow to depositors to a very low figure, say 1/2 per cent...(and) these two central institutions should pursue bank-rate policy and open market operations à outrance.''
(See Report of the Committee on Finance and Industry (Macmillan report), 1931 Vol II, p.386. cited in Benjamin Higgins,'' Keynesian Economics and Public Investment policy'' in Seymour Harris,ed. The New Economics, Keynes' Influence on theory and public policy, N.Y.:Alfred A.Knopf, 1948, p.470 note 9.See also Peter Clarke, The Keynesian revolution in the making 1924 - 1936, Oxford:the Claredon Press, 1988.pp.150ff )
Later in the General Theory developed his ideas of fiscal stimulus further and appeared to give more emphasis to fiscal policy in the context of a multiplier enhanced stimulus. But monetary policy was always part of his tool kit and it should remain part of ours.
A number of Keynesian economists have been sceptical of quantitative easing as a useful supplementary technique because they believe that in a deep slump monetary policy is like pushing on a string and will be ineffectual because interest rates are already very low and the speculative demand for cash balances very high. What this translates into is the quasi hoarding of cash balances. What is needed they argue is much more fiscal stimulus to boost investment and job creation. Well in part, of course, I agree with them that additional fiscal stimulus is very necessary to boost aggregate demand sufficiently to push employers to hire more workers and to hire more directly through additional infrastructure investment undertaken by government.
But I also advocate quantitative easing to ensure an accomodating monetary policy. I have done so since my work on it in the 1980s. The point of quantitative easing is that it helps prevent any interest rate crowding out by ensuring that rates stay low while the fiscal stimulus is financed. In disinflationary and near deflationary slumps the risk of inflation is minimal.
But in addition it is useful to know that Keynes himself approved of this approach. In March of 1930 before the Macmillan Committee in the U.K. of which Keynes was both a member and also a major witness he argued in favour of this policy as follows.
''My remedy in the event of the obstinate persistence of a slump would consist, therefore, in the purchase of securities by the Central Bank until the long term market-rate of interest has been brought down to the limiting point....(with respect to the 1930s slump) the Bank of England and the Federal Reserve Board (should) put pressure on their member banks...to reduce the rate of interest which they allow to depositors to a very low figure, say 1/2 per cent...(and) these two central institutions should pursue bank-rate policy and open market operations à outrance.''
(See Report of the Committee on Finance and Industry (Macmillan report), 1931 Vol II, p.386. cited in Benjamin Higgins,'' Keynesian Economics and Public Investment policy'' in Seymour Harris,ed. The New Economics, Keynes' Influence on theory and public policy, N.Y.:Alfred A.Knopf, 1948, p.470 note 9.See also Peter Clarke, The Keynesian revolution in the making 1924 - 1936, Oxford:the Claredon Press, 1988.pp.150ff )
Later in the General Theory developed his ideas of fiscal stimulus further and appeared to give more emphasis to fiscal policy in the context of a multiplier enhanced stimulus. But monetary policy was always part of his tool kit and it should remain part of ours.
Wednesday, November 3, 2010
BHP Bilton bid for Potash Corp blocked by Federal Government
November 4, 2010
The Canadian Minister, Tony Clement, with responsibility for foreign Investment review has acted wisely to block the bid of BHP Billiton, an Australian controlled mining company from taking over the Potash Corporation of Saskatchewan in a hostile takeover bid that would have transferred the share ownership and control outside of Canada and North America.This action which gives the company thirty days to revise its proposal and submit a new one for consideration will be very popular in the province of Saskatchewan where the resource is based and where the vast majority of the citizens favour rejecting the bid.
Foreign investment in Canada's precious storehouse of key natural resources is bound up with the country's history as a staple producing country that grew out its colonial history to be a significant middle power on the world stage in the twentieth and twenty first century. Canadian resources are a matter of pride to Canadians and it does not take much to arouse populist sentiment about who is to control and husband them. As the free trade and laissez- faire approach of the past decades has faltered it is not surprising to see these nationalist sentiments become more popular. The position of the Saskatchewan government in opposing the deal had the backing of its sister prairie provinces Manitoba and Alberta and the Government of Quebec which has its own strong tradition of national pride with respect to Provincial resources. Canada still seeks to partner with other countries in terms of trade and free flows of goods and services but like Europe, the U.S., Latin America and Asia there will be from time to time expressions of nationalist interest with respect to certain investments and resources. The fact that the Federal government is also a minority government who feared losing many of the 13 federal parliamentary seats it holds in Saskatchewan if it approved the deal undoubtedly also played a role in the decision
The Canadian Minister, Tony Clement, with responsibility for foreign Investment review has acted wisely to block the bid of BHP Billiton, an Australian controlled mining company from taking over the Potash Corporation of Saskatchewan in a hostile takeover bid that would have transferred the share ownership and control outside of Canada and North America.This action which gives the company thirty days to revise its proposal and submit a new one for consideration will be very popular in the province of Saskatchewan where the resource is based and where the vast majority of the citizens favour rejecting the bid.
Foreign investment in Canada's precious storehouse of key natural resources is bound up with the country's history as a staple producing country that grew out its colonial history to be a significant middle power on the world stage in the twentieth and twenty first century. Canadian resources are a matter of pride to Canadians and it does not take much to arouse populist sentiment about who is to control and husband them. As the free trade and laissez- faire approach of the past decades has faltered it is not surprising to see these nationalist sentiments become more popular. The position of the Saskatchewan government in opposing the deal had the backing of its sister prairie provinces Manitoba and Alberta and the Government of Quebec which has its own strong tradition of national pride with respect to Provincial resources. Canada still seeks to partner with other countries in terms of trade and free flows of goods and services but like Europe, the U.S., Latin America and Asia there will be from time to time expressions of nationalist interest with respect to certain investments and resources. The fact that the Federal government is also a minority government who feared losing many of the 13 federal parliamentary seats it holds in Saskatchewan if it approved the deal undoubtedly also played a role in the decision
Monday, November 1, 2010
Nov. 1, 2010 U.S. mid term elections tomorrow
Tomorrow, November 2, 2010 may see a major shift in political fortunes in the U.S. in their mid term elections.
Mid term elections are traditionally with one or two exceptions harsh times for incumbent administrations. The President doesn't face re-election for another two years but a third of the Senate and all the members of the House of Representatives face re-election. If the polls are correct then the Republicans re-energized by their ultra right wing immoderate base of Tea Party people are going to be the big winners. They are expected to win as many as 50 plus additional seats in the House thereby gaining a majority there and possibly as many as seven or eight seats in the Senate cutting substantially into the current Democratic party senate majority. Despite a major last minute push by President Obama aided by former President Bill Clinton and Presidential First Lady Michelle Obama and hundreds of 1000s of volunteers across the country it still seems from the polls that the Republicans are poised to make major gains tomorrow, perhaps of historic proportions.
One of the most interesting and key races is between Harry Reid the majority Democratic leader in the Senate who is seeking his fifth term having first been elected to the Senate in 1986 after having been a member of the House from 1983 to 1987 and a former Lieutenant Governor of Nevada and a right wing Tea party supported Republican Sharron Angle who is a former member of the Nevada State Assembly and a teacher. Angle is supported by Phyllis Schlafly and a range of neo-cons and assorted tea baggers. She is a very controversial figure in Nevada politics renowned for her battles with a former governor of the state over taxation and the Nevada constitution. Some more moderate Republicans consider her too extreme and are instead supporting current Senator Harry Reid. Nevertheless, Angle has raised some 21.5 million dollars to support her campaign and currently has a narrow lead among likely voters in the polls despite refusing to talk to most of the mainstream media during the campaign. Because Nevada suffers from 14 % unemployment and has many conservative voters Reid is vulnerable.
Reid, on the other hand, has the backing of key figures in state politics and business dominated as it is in Nevada by the casinos and entertainment industry. Reid has an amazing life story of rising from humble and difficult circumstances to his commanding position in the Senate. He is also a Roosevelt style liberal Democrat who has backed progressive legislation throughout his career although he is apparently a social conservative on issues like abortion and same sex marriage. He has a reputation for being a tough hardscrabble grass roots based political fighter who is well organized with a strong political machine and knows how to get his voters out. He lacks somewhat in charisma but he makes up for that in his command of the intricacies of elections and governance. If he loses it will be a major defeat for the Democrats.
If he is able to turn back the tide of Tea Party Republicans and hold on to his seat this will bode well for the remainder of Obama's first term. There are excellent pieces by Nicholas Lemann in the October 25 th New Yorker on Reid versus Angle and on the lessons to be drawn from his potential defeat and the Republican gains by Robert Kuttner in the Huffington post. The polling data on Nevada and the mid term election in general is well displayed in the New York Times. Finally, the New Republic has a very interesting guide to election night and the key races to watch as bell weathers of what is to come by the end of the count.
Nov. 3, 12:41 am CNN has just announced that
Harry Reid will defeat Sharron Angle in the Senate race in Nevada. His margin of victory 51 to 46 %. This is a major victory for the Democrats in an otherwise very bleak night for the House of Representatives and the Democratic party. It appears that the Republicans will capture 52 plus seats in the House but fortunately will be denied a comparable result in the Senate races.The Democrats will preserve their majority status in the Senate with a smaller margin than in 2008 but a majority nonetheless. Democratic senators like Harry Reid and Barbara Boxer in California have won re-election despite the Republican tide. They did so because they had strong grass roots support and a well organized machine to bring out the vote. Interestingly in both states the unemployment rate was far above the national average. So the basis of their victories need to be carefully analysed for clues that they will give to what might be an appropriate strategy in the future.
In California Jerry Brown a former Governor from decades before has won the governorship once again by decisively defeating his Republican opponent who spent a fortune on her unsuccessful campaign.
Nov.3, 3:34 p.m. both Harry Reid (Nevada)and Barbara Boxer(California) won solid victories in their Senate races and they join Democrat victors in Delaware and Connecticut against large spending Tea Party backed opponents to ensure that the Democrats preserved their majority in the Senate 51 to 47 with two more contests to be resolved in Colorado and Washington where there is a good chance that the Democrats will win both of these seats.(They did win them so the count is now Democrats 53 Republicans 47 in the Senate.) The House of Representatives so far has ended up with the Republicans taking a near record number of 60 seats from the Democrats and installing a Republican majority 239 to 185 with 11 seats still to be decided. So as President Obama has stated the Democrats got shellacked.
But there are still some saving graces for Democrats in the performance in the Senate and in the survival of a number of Democratic congressmen and women who were able to resist the surge toward the Republicans in a number of districts across the country. These include members in the northeast but also members in places like Wisconsin, Iowa, Minnesota,Missouri, Alabama, Georgia, Mississippi, Arkansas, Virginia, West Virginia, North and South Carolina, Oklahoma,Ohio,Florida, Michigan, Indiana,Texas, New Mexico, Arizona and of course the west coast states of California, Washington and Oregon. This is probably the high point of Republican fortunes. Once the uncompromising Tea baggers get to Washington they will face some hard choices that are likely to tarnish their pristine reputation. The reality is if they wish to get things done they also will have to compromise and they have told their supporters they never will. The next two years will be very interesting.
www.newyorker.com/reporting/2010/10/25/101025fa_fact_lemann
http://www.huffingtonpost.com/
http://www.tnr.com/
http://www.tnr.com/article/politics/78890/a-lost-generation?page=0,0 (This is an excellent piece by John Judis that is sharply critical of the Obama inner circle strategy and is rather pessimistic about the future consequences of these choices. It is well worth reading and thinking about.
The key problem in the next two years will be the fact that the pace of the recovery so far is too slow and too minimal to ensure a solid and steady drop in the rate of unemployment. Because the Tea Party people and many Republicans are opposed to government financed intervention to accelerate growth they will make it extremely difficult for the President and the Congress to pass appropriate additional stimulus measures that will be capable of creating faster growth and reduced unemployment. Simply slashing business taxes may be helpful but it is not likely that on its own this will be sufficient particularly if the Tea party and Republicans insist on immediate deficit reduction. The two goals are incompatible in the short run. )
Mid term elections are traditionally with one or two exceptions harsh times for incumbent administrations. The President doesn't face re-election for another two years but a third of the Senate and all the members of the House of Representatives face re-election. If the polls are correct then the Republicans re-energized by their ultra right wing immoderate base of Tea Party people are going to be the big winners. They are expected to win as many as 50 plus additional seats in the House thereby gaining a majority there and possibly as many as seven or eight seats in the Senate cutting substantially into the current Democratic party senate majority. Despite a major last minute push by President Obama aided by former President Bill Clinton and Presidential First Lady Michelle Obama and hundreds of 1000s of volunteers across the country it still seems from the polls that the Republicans are poised to make major gains tomorrow, perhaps of historic proportions.
One of the most interesting and key races is between Harry Reid the majority Democratic leader in the Senate who is seeking his fifth term having first been elected to the Senate in 1986 after having been a member of the House from 1983 to 1987 and a former Lieutenant Governor of Nevada and a right wing Tea party supported Republican Sharron Angle who is a former member of the Nevada State Assembly and a teacher. Angle is supported by Phyllis Schlafly and a range of neo-cons and assorted tea baggers. She is a very controversial figure in Nevada politics renowned for her battles with a former governor of the state over taxation and the Nevada constitution. Some more moderate Republicans consider her too extreme and are instead supporting current Senator Harry Reid. Nevertheless, Angle has raised some 21.5 million dollars to support her campaign and currently has a narrow lead among likely voters in the polls despite refusing to talk to most of the mainstream media during the campaign. Because Nevada suffers from 14 % unemployment and has many conservative voters Reid is vulnerable.
Reid, on the other hand, has the backing of key figures in state politics and business dominated as it is in Nevada by the casinos and entertainment industry. Reid has an amazing life story of rising from humble and difficult circumstances to his commanding position in the Senate. He is also a Roosevelt style liberal Democrat who has backed progressive legislation throughout his career although he is apparently a social conservative on issues like abortion and same sex marriage. He has a reputation for being a tough hardscrabble grass roots based political fighter who is well organized with a strong political machine and knows how to get his voters out. He lacks somewhat in charisma but he makes up for that in his command of the intricacies of elections and governance. If he loses it will be a major defeat for the Democrats.
If he is able to turn back the tide of Tea Party Republicans and hold on to his seat this will bode well for the remainder of Obama's first term. There are excellent pieces by Nicholas Lemann in the October 25 th New Yorker on Reid versus Angle and on the lessons to be drawn from his potential defeat and the Republican gains by Robert Kuttner in the Huffington post. The polling data on Nevada and the mid term election in general is well displayed in the New York Times. Finally, the New Republic has a very interesting guide to election night and the key races to watch as bell weathers of what is to come by the end of the count.
Nov. 3, 12:41 am CNN has just announced that
Harry Reid will defeat Sharron Angle in the Senate race in Nevada. His margin of victory 51 to 46 %. This is a major victory for the Democrats in an otherwise very bleak night for the House of Representatives and the Democratic party. It appears that the Republicans will capture 52 plus seats in the House but fortunately will be denied a comparable result in the Senate races.The Democrats will preserve their majority status in the Senate with a smaller margin than in 2008 but a majority nonetheless. Democratic senators like Harry Reid and Barbara Boxer in California have won re-election despite the Republican tide. They did so because they had strong grass roots support and a well organized machine to bring out the vote. Interestingly in both states the unemployment rate was far above the national average. So the basis of their victories need to be carefully analysed for clues that they will give to what might be an appropriate strategy in the future.
In California Jerry Brown a former Governor from decades before has won the governorship once again by decisively defeating his Republican opponent who spent a fortune on her unsuccessful campaign.
Nov.3, 3:34 p.m. both Harry Reid (Nevada)and Barbara Boxer(California) won solid victories in their Senate races and they join Democrat victors in Delaware and Connecticut against large spending Tea Party backed opponents to ensure that the Democrats preserved their majority in the Senate 51 to 47 with two more contests to be resolved in Colorado and Washington where there is a good chance that the Democrats will win both of these seats.(They did win them so the count is now Democrats 53 Republicans 47 in the Senate.) The House of Representatives so far has ended up with the Republicans taking a near record number of 60 seats from the Democrats and installing a Republican majority 239 to 185 with 11 seats still to be decided. So as President Obama has stated the Democrats got shellacked.
But there are still some saving graces for Democrats in the performance in the Senate and in the survival of a number of Democratic congressmen and women who were able to resist the surge toward the Republicans in a number of districts across the country. These include members in the northeast but also members in places like Wisconsin, Iowa, Minnesota,Missouri, Alabama, Georgia, Mississippi, Arkansas, Virginia, West Virginia, North and South Carolina, Oklahoma,Ohio,Florida, Michigan, Indiana,Texas, New Mexico, Arizona and of course the west coast states of California, Washington and Oregon. This is probably the high point of Republican fortunes. Once the uncompromising Tea baggers get to Washington they will face some hard choices that are likely to tarnish their pristine reputation. The reality is if they wish to get things done they also will have to compromise and they have told their supporters they never will. The next two years will be very interesting.
www.newyorker.com/reporting/2010/10/25/101025fa_fact_lemann
http://www.huffingtonpost.com/
http://www.tnr.com/
http://www.tnr.com/article/politics/78890/a-lost-generation?page=0,0 (This is an excellent piece by John Judis that is sharply critical of the Obama inner circle strategy and is rather pessimistic about the future consequences of these choices. It is well worth reading and thinking about.
The key problem in the next two years will be the fact that the pace of the recovery so far is too slow and too minimal to ensure a solid and steady drop in the rate of unemployment. Because the Tea Party people and many Republicans are opposed to government financed intervention to accelerate growth they will make it extremely difficult for the President and the Congress to pass appropriate additional stimulus measures that will be capable of creating faster growth and reduced unemployment. Simply slashing business taxes may be helpful but it is not likely that on its own this will be sufficient particularly if the Tea party and Republicans insist on immediate deficit reduction. The two goals are incompatible in the short run. )
Wednesday, October 27, 2010
Bank of Canada rates rise;US jobs disappoint.
June 4, 2010
Once again the Bank of Canada has shown how eager it is to fight a mythical beast. Inflation is nowhere to be seen, unemployment remains stubbornly high yet the Bank recently announced a 25 basis point rise in interest rates joining the Bank of Australia among leading economies as the only countries to risk raising interest rates. The bank did admit this rate rise was no guarantee of further rate rises but the rise is premature and Liberal leader Michael Ignatieff was right to criticize it as unnecessary and premature. The latest unemployment numbers show that unemployment remains elevated at 8.1 % with the rates in our two largest metroplises Toronto and Montréal well above this.In fact in most of what normally is associated with the heartland of the Canadian economy and its manufacturing and financial centre, unemployment is very high. Look at this list of urban centres and their unemployment rates for May and the previous month.(The percentage to the right is the previous month's unemployment rate)
city Unemployment rate Previous month.
Toronto 9.5 % 9.5 %
Montréal 8.8 9.0
Vancouver 7.5 7.5
Windsor 12.7 12.6
Oshawa 9.6 9.6
Ste.Catherine's8.8 9.3
London 8.6 8.8
Calgary 7.7 7.6
Sudbury 8.9 9.7
Edmonton 7.4 7.6
Tois Rivières 9.1 9.4
St.John's 7.3 7.3
Saint John 7.1 6.9
Abbotsford 7.9 6.9
Halifax 5.8 6.1
Winnipeg 5.7 5.4
Victoria 5.9 6.5
Source: Labour force survey, Statistics Canada
These cities account for close to 50 % of the Canadian population and include our 3 most important metropolises. The unemployment rates, except for possibly Halifax, are way too high to justify a rise in interest rates, even one as small as 25 basis points. What is the justification ? the strong growth in the first quarter of 2010 while welcome has yet to translate into a rapid fall in unemployment. The Canadian dollar dropped slightly on the announcement but it has since strengthened to 9523 cents U.S. this strong Canadian dollar will continue to make it harder for our export industries particularly if U.S. employment growth continues to be sluggish.
In the U.S. where the Fed so far has wisely resisted the foolish temptation to raise interest rates prematurely
todays job numbers were a disappointment. there was a total rise of 431,000 jobs in May and the unemployment rate dropped from 9.9 to 9.7 %. but 4111, 000 of those jobs were temporary jobs associated with the census. Stock markets were disappointed. The recovery is happening but it is still painfully slow.
Once again the Bank of Canada has shown how eager it is to fight a mythical beast. Inflation is nowhere to be seen, unemployment remains stubbornly high yet the Bank recently announced a 25 basis point rise in interest rates joining the Bank of Australia among leading economies as the only countries to risk raising interest rates. The bank did admit this rate rise was no guarantee of further rate rises but the rise is premature and Liberal leader Michael Ignatieff was right to criticize it as unnecessary and premature. The latest unemployment numbers show that unemployment remains elevated at 8.1 % with the rates in our two largest metroplises Toronto and Montréal well above this.In fact in most of what normally is associated with the heartland of the Canadian economy and its manufacturing and financial centre, unemployment is very high. Look at this list of urban centres and their unemployment rates for May and the previous month.(The percentage to the right is the previous month's unemployment rate)
city Unemployment rate Previous month.
Toronto 9.5 % 9.5 %
Montréal 8.8 9.0
Vancouver 7.5 7.5
Windsor 12.7 12.6
Oshawa 9.6 9.6
Ste.Catherine's8.8 9.3
London 8.6 8.8
Calgary 7.7 7.6
Sudbury 8.9 9.7
Edmonton 7.4 7.6
Tois Rivières 9.1 9.4
St.John's 7.3 7.3
Saint John 7.1 6.9
Abbotsford 7.9 6.9
Halifax 5.8 6.1
Winnipeg 5.7 5.4
Victoria 5.9 6.5
Source: Labour force survey, Statistics Canada
These cities account for close to 50 % of the Canadian population and include our 3 most important metropolises. The unemployment rates, except for possibly Halifax, are way too high to justify a rise in interest rates, even one as small as 25 basis points. What is the justification ? the strong growth in the first quarter of 2010 while welcome has yet to translate into a rapid fall in unemployment. The Canadian dollar dropped slightly on the announcement but it has since strengthened to 9523 cents U.S. this strong Canadian dollar will continue to make it harder for our export industries particularly if U.S. employment growth continues to be sluggish.
In the U.S. where the Fed so far has wisely resisted the foolish temptation to raise interest rates prematurely
todays job numbers were a disappointment. there was a total rise of 431,000 jobs in May and the unemployment rate dropped from 9.9 to 9.7 %. but 4111, 000 of those jobs were temporary jobs associated with the census. Stock markets were disappointed. The recovery is happening but it is still painfully slow.
Spain, debt and the chicken little squad
May 29, 2010
The chicken little squad of debt doomsters has now moved on from Greece and Portugal to Spain. Spain with a population of 45 million finds itself in a difficult spot because of the severe impact of the 2007- 2008 financial crash which hit its construction sector hard.Spain had been experiencing a boom, perhaps even a bubble in home construction. The Mediterranean coast , a region that I know reasonably well from several lengthy tourist visits ,has had a number of property booms and busts over the years.This one is particularly severe and overall industry has also suffered a big downturn. Unemployment which had fallen for Spain to historic lows of under 9 % has more than doubled to 20 %. Hardship for the Spanish population has been widespread. There are 4.6 million people currently unemployed in Spain.The left of centre government has enacted an austerity program in response to demands from the financial interests that buy Spanish bonds.I think that this austerity will not help because it will prolong the high unemployment but the bond raters perversely might like it.
But let us examine the Spanish debt and deficit situation more carefully than the hysterical headlines in the business press. First of all the debt to GDP ratio is under 60 %, hardly the stuff of calamity. The deficit which reached 11 % of the GDP in response to the crisis in the years preceding it was very much smaller and even in the middle of the past decade a small surplus.Revenues have suffered a shock and expenditures have risen dramatically in response to the crisis.
I have just spent the last hour going through the Spanish Finance ministry's data bases and the results are far from the gloomy assessment of some of the headline writers in the financial press. Unemployment is clearly far too high and real estate will probably be depressed in value for sometime(although there may now be some good long term investments available in what is one of the more beautiful warm countries in Europe) but I would bet that Spain will recover as Europe recovers. The risk of default on their debt given the backing of Europe provided the ECB does its job and an irrational spike in interest rates is avoided is very unlikely.
Unemployment in Spain 2001 to 2010
2001 10.6 %
2002 11.5
2003 11.5
2004 11.0
2005 9.2
2006 8.5
2007 8.3
2008 11.3
2009 18.0
2010Q1 20.0
Source: Spanish Ministry of Economy and Finance
The chicken little squad of debt doomsters has now moved on from Greece and Portugal to Spain. Spain with a population of 45 million finds itself in a difficult spot because of the severe impact of the 2007- 2008 financial crash which hit its construction sector hard.Spain had been experiencing a boom, perhaps even a bubble in home construction. The Mediterranean coast , a region that I know reasonably well from several lengthy tourist visits ,has had a number of property booms and busts over the years.This one is particularly severe and overall industry has also suffered a big downturn. Unemployment which had fallen for Spain to historic lows of under 9 % has more than doubled to 20 %. Hardship for the Spanish population has been widespread. There are 4.6 million people currently unemployed in Spain.The left of centre government has enacted an austerity program in response to demands from the financial interests that buy Spanish bonds.I think that this austerity will not help because it will prolong the high unemployment but the bond raters perversely might like it.
But let us examine the Spanish debt and deficit situation more carefully than the hysterical headlines in the business press. First of all the debt to GDP ratio is under 60 %, hardly the stuff of calamity. The deficit which reached 11 % of the GDP in response to the crisis in the years preceding it was very much smaller and even in the middle of the past decade a small surplus.Revenues have suffered a shock and expenditures have risen dramatically in response to the crisis.
I have just spent the last hour going through the Spanish Finance ministry's data bases and the results are far from the gloomy assessment of some of the headline writers in the financial press. Unemployment is clearly far too high and real estate will probably be depressed in value for sometime(although there may now be some good long term investments available in what is one of the more beautiful warm countries in Europe) but I would bet that Spain will recover as Europe recovers. The risk of default on their debt given the backing of Europe provided the ECB does its job and an irrational spike in interest rates is avoided is very unlikely.
Unemployment in Spain 2001 to 2010
2001 10.6 %
2002 11.5
2003 11.5
2004 11.0
2005 9.2
2006 8.5
2007 8.3
2008 11.3
2009 18.0
2010Q1 20.0
Source: Spanish Ministry of Economy and Finance
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