It's the economy!

None of our political leaders seems to get the message that Canadians want action to shore up the economy

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The Gazette, Sunday, October 5, 2008

It's not the economy, stupid, it's the stupid economy. Except that, at the English-language debate the other night, none of the leaders seemed to get it.

Well, consider this: In the month of September, the Toronto Stock Exchange was down by 21 per cent, and a 20-per-cent correction is considered a bear market.

Last week alone, the TSX suffered its two worst single days ever, down 800 points or about eight per cent on Monday and again on Thursday. Never mind a month, the Canadian equities market nearly entered bear market territory in a week.

In the next few days, millions of Canadians will receive their monthly investment portfolio statements, just in time for the election. Many won't even bother to open them. Many more might need smelling salts to revive them.

All of them will be going into the polling asking themselves this ballot question: Who can they trust with their money? As the global sell-off approaches panic in capital markets, Washington is finally stepping in with a $700-billion rescue package for Wall St. This follows on the heels of a liquidity crisis in capital markets that has brought the U.S. financial system to the verge of ruin.

In the last month, Freddie Mac and Fannie Mae, which hold $6 trillion in mortgages on about half the homes in America, have been slapped into trusteeship. Washington has bailed out AIG, by taking an $80-billion ownership position in the insurer. Lehman Brothers, the venerable investment banking firm, has gone under from one day to the next. Merrill Lynch, famously bullish on America, sold itself to Bank America in the middle of the night. Goldman Sachs and Morgan Stanley, the last two big investment banks standing on Wall St., have reorganized as bank holding companies. Short selling has been banned on a long list of stocks in New York, including BMO and TD, two Canadian financial institutions.

And all because, as it turned out, there is actually no such thing as a free house.

A liquidity crisis has resulted in a full-scale crisis of confidence.

And if the United States is catching pneumonia, can Canada be immune from at least catching a cold? Not on the stock market anyway, and it is the leading indicator of investor confidence.

So what did the leaders bring to their discussion of the economy in Thursday night's English-language debate? Well, Stephen Harper, whose Conservative Party had asked, in light of the crisis in capital markets for an extended segment on the economy, was very reassuring when he said the fundamentals of the Canadian economy were sound.

Gosh, that's what John McCain was saying two days before he suspended his presidential campaign two weeks ago.

Harper is right up to a point. There is no mortgage-default crisis in the Canadian housing industry, and none in the offing. The Canadian financial services industry is regulated under more stringent rules. The investment banks are all owned by the larger commercial banks, which have a stronger asset base and strict loan loss provisions. Canada's fiscal framework is in a virtuous cycle of surplus and debt reduction, unlike the U.S. where the Bush administration has just ended the fiscal year with a $500- billion deficit and will leave office in January having added several trillion dollars to America's national debt.

That's all true. But America is our biggest customer, accounting for at least 80 per cent of all our exports, which in turn account for a third of our economy. The U.S. retail auto market, which takes about 90 per cent of our auto production, is at a virtual standstill. There's a huge credit squeeze that has yet to work its way through the system.

It would be good if the prime minister had a plan, say, an early recall of Parliament with a fall financial statement.

As for the other leaders, they had nothing to offer, either.

Stéphane Dion, the man who would be prime minister, would call a meeting about calling a meeting, within a month of taking office.

Jack Layton would cancel $50 billion of corporate tax breaks and give it to Canada's working families. Presumably in time for Christmas. That should create confidence in markets.

Elizabeth May says the reason our dollar is overvalued is because we are selling iconic Canadian companies to foreigners. Huh? Let's have a Foreign Investment Review Act.

And Gilles Duceppe? Well, he flew to Toronto on Friday to speak to the Economic Club. He wants to stop giving tax breaks to big oil.

There have been quite enough insults to Canadians' investments in the last month. But all this is just insulting to the voters' intelligence.

If anyone has a good idea, get back to us. Meantime, we'll all be reading our September statements.

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