Recession will come to Canada in 2013.

Oh Carney. What a wacky guy. He seems convinced we will only enter a recession if the US falls off the fiscal cliff. Err, I’m sorry, not a “recession,” but a “near-recession.” Central bankers don’t like to use the word “recession” in their predictions, because that serves as a confession that they are not “managing” the economy effectively.

If the fiscal cliff is resolved, he says, Canada will surge with the resultant economic relief!

So… is it the case that Canada’s only economic threat is idiots in the US Congress? (That’s redundant — I should just say “US Congress.)

Sorry, Carney. That is nonsense.

What about recession in Europe? Asia? Not to mention the general problems of the US, out biggest trading partner.

First there is Europe. The European recession is spreading, evidenced by slowing price inflation and rising unemployment (at 12% for the Eurozone). This deeply aggravates the existing European crisis. Even Germany, the ‘good’ (cough cough) part of Europe, is grinding into economic slowdown. Its central bank predicts a pathetic 0.4% for next year. It could very easily be less. As long as everyone over there relies on Keynesianism to solve their problems, they will never escape the financial death spiral.

Japan is in a recession. Other Asian export markets are slowing down, because the weight of China’s economic distortions are turning into a brutal yoke and necessitating slowdown there.

And what of the US? The perception is that if “something” is done about the fiscal cliff, everything will be rosy. Shockingly, the US is still considered a safe haven. But foreigners are not scooping up US debt like they used to. China is reducing its exposure; Japan’s purchases are slowing. Bernanke’s surprise announcement to expand the Fed’s balance sheet by an additional $45 billion a month to buy US debt is a telltale sign that he understands the problem, at least to some extent. Yet I do not believe that Bernanke’s action will deflect the recessionary pressures coming from both sides.

Then there is Canada. Everyone here thinks we are special. “Well, if the world goes into recession, we will be okay — we’re CANADA!” they say. The myths spawned during the 2008 financial crisis have sunk deep into the nation’s collective unconscious. Canadians feel invincible. That is dangerous. So the debts continue to grow. Harper continues growing the government, thinking it’s perfectly acceptable to do so because Canada is not as bad as other countries (ignoring the fact that it is still bad).

I frequently speak with executives in the oil industry. There are big deals being made, plenty of excitement as usual. But I’ve noticed people seem strangely oblivious to even the prospect of slowdown in 2013. We are largely a resource based economy, so if the entire world is slowing down, they are not going to buy as much of our stuff. It’s a fairly easy prediction to make. Myanmar and Laos are not going to make up for lost demand from China. Canada’s slow growth will drop mid-to-late 2013 unless some new crisis speeds the world’s decline. Canadians should get ready for this. Hold cash. Get ready to use it when prices fall.


Austrian economics in Mainstream Canadian Newspaper…!

I thought it was crazy enough to see the Canadian War Street Journal National Post to have a columnist calling out the Bank of Canada for its counterfeiting operations. The influence of Austrian economics hangs over this article like a halo.

Now shades of the Austrian School are back at National Post.

Peter Foster comes out citing Austrianism on the topic of monetary growth and inflation leading to malinvestment. Hayek’s name is dropped. Contra Keynesianism, which he calls a systemic failure, producing only debt and inflation and no real economic solutions. This is not too exciting by itself — this Peter Foster guy is nothing special as a commentator, other than his general favor of markets over governments. But the fact that it gets reference in a publication like this is interesting however.

I discovered Austrian economics in 1998, sort of by accident. You would have never, I mean NEVER seen a reference to Austrian economics in a mainstream paper back then. Austrianism was just … a complete non-issue. Fortunately, Austrian economics has become more mainstream, due in large part to the Mises Institute and Ron Paul’s 2008 presidential campaign in America, and outspoken fellow travelers of the Austrian school on the financial news networks, such as Peter Schiff and Marc Faber.

The more people discover the Austrian school of economics, the more people will become impervious to the dogmas and deceptions that have made them blind to how the market makes them free and the government enslaves and impoverishes them.

Canadian university budgets: standing at the edge of the abyss.

The Globe & Mail reports that Canadian universities face a budget nightmare brought on by pension shortfalls. Article highlights:

… Most faculty and staff have defined benefit pensions, which promise a set retirement income based on service and salary. But those funds suddenly cratered when markets crashed in 2008, most losing 15 to 30 per cent of their value. …

Two years ago, Dalhousie University’s $726-million pension plan lost 16 per cent of its value, leaving a $129-million solvency deficit – the amount that needs to be added so that if the university suddenly folded, it could honour the plan. …

The University of Toronto’s pension fund was the hardest hit, losing 29 per cent in 2008. As a result, the school expects to owe an extra $50-million a year on top of $100-million it already contributes from a $1.5-billion operating budget. Since an arbitrator recently ruled against a proposed premium hike for faculty and librarians, cuts to services are the likely solution again. …

Saskatchewan is in the midst of a three-year moratorium on solvency payments, while Manitoba and Quebec universities already enjoy permanent exemptions. So does Alberta’s UAPP, which the employers and employees run jointly, making employees “part of the problem, part of the solution,” Mr. Gupta said. But because UAPP lost 20 per cent in 2008, its employees now fork over nearly 2.4 per cent more of their salaries than they did two years ago.

Canadian universities are public institutions. The bloated pensions in the public sector are the product of the bubble mentality. When times were good, fund managers did not anticipate anything but steadily rising returns. They did not anticipate 2008. Now all the lavish promises of myriad pension plans seem unrealistic, to say the least. To keep these generous promises, universities will have to cut services for students who are already paying too much for their schools.

The article mentions about $2.06 billion pension deficits among select plans. And this is merely a snapshot of nine different institutions. In a small country like Canada, $2 billion is serious money. The final price tag will ultimately be much higher. And university pensions are just a snippet of a more general problem — unrealistically generous pensions in the public sector will become a cancer on Ottawa’s budget.

As with most western democracies, Ottawa is bound to obligations that it will be unable to meet without default, either through repudiation or Bank of Canada money printing. Ottawa is on the hook for $208 billion in public pensions, which is $65 billion more than Ottawa’s crony accounting previously suggested. This says nothing of the CPP, which will not withstand future demographic burdens, and is made up of 33% per cent fixed income, mostly government bonds, which will be decimated by the mass inflation that is sure to come. Then there are the obligations of individual provinces to various unions which are likewise unsustainable.

When the private pensions of Chrysler and GM were bust, governments intervened. University staff do not have the votes that inefficient auto workers have. But over time, as more pension funds are threatened, Ottawa’s nationalization of different retirement accounts is a very real possibility. This would be done in the name of the general welfare, of course. A government guaranteed return, say at the rate of Canada’s long-term bond, would be more reliable than the ups and downs of capital markets.

This is already reality in some parts of the world. This radical idea even gets serious consideration in the US.

Why would a government want to do this anyway? Two reasons: 1) It can help defer the bankruptcy for the CPP and federal employee pensions; 2) it confers control over Canadian capitalism because common stock carries voting rights. Think about how the US government got the president of GM to step down.

These dangers are not immediate, but they must be considered as you prepare for the future. The main lesson — whether you are a government employee sucking blood from the economy, or a productive worker whose blood is getting sucked — you cannot count on government promises for retirement.


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