In today’s Canadian business environment there are alarm bells going off signaling a five alarm fire, but the politicians aren’t listening.One has to wonder why.For the most part they seem indifferent toward the economic crisis in the United States.This writer believes it is because they are relying too heavily on statistics provided by Stats Can, and at that, they are being selective about the ones to which they are paying attention.If so, this is a mistake of the highest magnitude.
There is one very telling statistic that should have sent red flags up the pole months ago and that is the Productivity Statistic which shows Canada’s output efficiency is falling, badly.Still, the economists and politicians are relying on Unemployment, Interest Rates and Inflation as well as a few others, as the primary indicators. Even the inflation stat has exceeded the elastic limits set by the Bank of Canada.All of this leads toward trouble for Canadians, some of which has yet to reveal itself.
First off, it is impossible to ignore the collapsing markets in the US and abroad.I am ignoring the TSX because it is essentially a follower board to the NYSE.What has happened on Wall Street has decreased values of stocks and funds in a massive sell off.So what, you might ask.
The problem is two fold.First, millions of Canadians have investments in mutual funds and other equity vehicles.They have taken a serious hit, so the value of those pensions has suddenly decreased resulting in billions of dollars of loss.This is not chicken feed and in the end could have significant impact on those looking forward to a comfortable retirement.Equally critical of course are the investments made by The Canada Pension Plan.
Secondly, and of no less importance, are our banks.Those are the ones that are so well financed and secured in Canada.Well, deposits may be secure but they are vying for business in the same markets as the American banks.If credit dries up there, the impact on Canadian banks will be unmistakable.Contrary to government claims, all is not well with Canada’s economic fundamentals.They are ignoring the big picture.
The net result of both these situations is sure to be a severe recession in Canada.Already business is finding increased difficulty in acquiring credit; credit it needs to operate.This is a fact, not bad management.The bad management occurred over the past eight years at 1600 Pennsylvania Avenue in Washington DC.Those policies have been picked up and continued at 24 Sussex Drive in Ottawa.Canadians are finding it more difficult to acquire credit for mortgages and the purchase of other big ticket items.
The automotive sector is bleeding from almost 400,000 job losses in the past 5 years, and it is a trend that is far from complete as the Big 3 scramble to reinvent themselves in a changing marketplace.The energy sector is just as vulnerable, as Futures Markets for energy have nosedived to 65% of their peak values earlier this year.This means less government revenue, and coupled with tax cuts and increased spending, it is hard to imagine the Canadian Government can hold its present course without going into deficit budgets.
The increases in economic pressures in Canada are bubbling away beneath the surface and it seems that only one political party; the Liberals, are paying attention.The fact that no party can stop them is critical to understand.Government action can only relieve some of those pressures.
Canadians need to brace themselves for job losses, interest rate increases, possible tax increases combined with deficit budgets.The net effect on Canada is unavoidable as the economy is sure to grind to a snail’s pace.
The pressures on the real estate markets will be inevitable as housing prices could retreat from their current values.Housing starts are sure to fall as well.For those with mortgages, the net effect of interest rate increases and declining values will be a double whammy as homeowners will be paying a mortgage on property that has declined in value.
For Canadians who have the option for self direction, investment changes toward government bonds would be a good idea.Government will always be able to raise money through taxes to meet their obligations.The interest rates may not be high, but the money will be relatively secure in the longer run and will see growth.Any growth is better than a loss.Certainly, the markets will come back but it will be a long and painful process.Protection of current savings will be more important than the risks associated with trying to grow them over the next few years.
Getting out of high interest credit should be a priority for anyone who is concerned about living within their means.Switching your credit cards to lower rate lending instruments, or simply calling your credit card company and asking for a lower rate are two options available.
With the inevitable rise in interest rates, locking in to fixed rate mortgages will protect family income from fluctuations if hard times should be encountered.Belt tightening should begin now, not later.Should this writer be wrong, then some accumulated savings will be realized.Taking no action now could prove disastrous.
Canadians who feel that government intervention will protect them are sure to be the worst off.Only being proactive with your money will minimize the damage that is quite likely to happen.Failure to do so could well position yourself as another bankruptcy statistic in the future.