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Alan Schweber

Europe woes affecting Canadian growth rates

As Italy appoints Mario Monti as their new Prime Minister, investors and European governments are coming to grips with the precarious situation of the euro’s solvency.While interest rates on Italian bonds inched pass the 7% redline on Tuesday, the ECB and Italian leadership corresponded to quell a new currency run on the euro. With the resignation of Berlusconi under the caveat of approving austerity reforms, and the ECB’s decision to increase purchases of Italian bonds (part of the ECB 54 billion euro bond-buying program), another euro crisis seems to have been averted.Or has it? Better yet, what do the troubles in Europe imply for Canada?The recent economic charade with the Italians is showing the true problem of the euro, inter alia, which is the segmented debt of individual nations wreaking economic havoc on the union. In this case, Italy needs to shore up 350 billion euros to finance its debt or else the country will face serious fiscal consequences.It is also showing that Europe’s financial troubles are affecting Canada’s recovery. While absent a financial crisis, Canada’s recovery has been sluggish, with productivity and GDP down this year according the Bank of Canada. Moreover, in recent statements, Prime Minister Harper, Minister of Finance Flaherty and Bank of Canada Governor Carney have all pointed to Europe as a serious threat to another pull-back on Canadian exports.According to the New York Times, part of the reasoning for the recent European convulsion is the activity on trades in the Italian bond market. Investors who wish to protect themselves from an Italian default are purchasing futures that bet against the nation. Along with an increase in speculative futures, European commercial banks began selling off high-risk national bonds recently. Just this past week, Commerzbank and BNP Paribas both announced a reduction of holdings of 22% on… Read More

Amid grim outlook, hope

If you walk by Zuccotti Park in downtown Manhattan, you will pass a motley crew of individuals constituting the now-famous Occupy Wall Street movement. Although surrounded by the many shops and restaurants of downtown New York City, the movement has set up a small community, consisting of a medical hut, a women’s and men’s communal clothing bin, and a free food and water station for those who are camping out.The square, which is a few metres away from the World Trade Centre, has turned itself into a political ground zero, with demonstrators demanding change to the political and financial status quos.What are we to make of the protests?The media have been quick to label the protests as leaderless and rag-tag, and they are right in this respect. But the protests are not just an ad hoc manifestation of economic frustration; they symbolize and represent a larger quagmire: an existential funk that has plagued the American psyche for years.I remind readers that history repeats itself. Years ago, America was in dire straits. Unemployment was rampant; inflation astronomical; the country’s morale was at an all-time low. All this was occurring while Washington’s appeared inept and was overshadowed by one policy failure after another. Yes, America needed saving; economic salvation came in the form of a California actor/governor named Ronald Reagan.The next eight years would change America, and ultimately the world, forever. A new kind of American capitalism was born – the kind we see today. Markets were the place to be, Wall Street was cleaning up; the US was again the most lucrative and profitable economy in the world. The American dream was reborn.Yet here we are again, two-plus decades later, and we to be in the same spot as before. The economy is in shambles; confidence in political leaders is reaching… Read More

The politics of taxation

The Obama administration’s recent initiative to tax the super wealthy is a refreshing paper tiger, but will most likely fall short of its intended mark. As usual, domestic politics will trump the desired outcome. This has, and will likely again, generate futile debate, in turn resulting in a loss of investor confidence and a general sense of pessimism south of the border.Since the Reagan years, economic debate in the United States has been an ideological struggle of “all-or-nothing capitalism” versus “the evils of socialism.” The events of this past summer have proven that Americans are more polarized than at any other point in living memory, and the most critical issues facing American society appear unbearable and intractable.Politics aside, it is interesting to analyze carefully the plans put forth by both parties and use economic theory to truly determine if what Republican and Democratic candidates contend is actually true. In the end, as it will be noted, it all boils down to a debate over ideals and votes – a dismal game of politics.A more progressive tax system would entail stricter income taxes for higher earners. Moreover, such tax reform would coincide with significant spending cuts in a number of other programmes and departments – including cutting $320 billion from Medicare and Medicaid, and, despite a whopping $1 trillion dollars from two wars on the tail end, aim to reduce the deficit by $3.1 trillion. It will be difficult, if not impossible, to pass this host of measures into legislation.Let it be noted, President Obama’s plan is a dignified and worthy effort to decrease the deficit. After all, in theory when a government is a running high deficit it must increase taxes and decrease spending to level its fiscal balance.While taxing income is sensible in theory, some high-income earners will continue… Read More