First off, check the date on this posting! I want to call your attention to that because I want you to know that "I called it" when it happens. The "it" I'm referring to is the Great Recession. I'm not only going to explain why it's going to hit Canada, I'm going to explain how and give you a good indication of when.
But, you say, the Great Recession has already hit Canada, has it not? IT HAS NOT. There isn't a single economist anywhere in the world who thinks Canada got hit by the Great Recession of 2008 and while most of them are congratulating Canada for its regulatory foresight that helped us avoid a disaster, none of them have clued into why Canada didn't get hit by it in 2008, or that the blow is yet to come.
This is not to say that Canada didn't go into recession in 2008, but look around and anyone with a pair of working eyes and some common sense (yes, all three of you) can plainly see that what's been going on here isn't even as bad as the 1988 recession that put thousands out of work and caused nearly as many to walk away from their homes and declare bankruptcy.
This economic downturn, and that's the worst you can call it for Canada, has only affected the average Canadian because....
1) Our Federal Government's first response to the "Greatest Economic Crisis Since the Depression" was a weak and openly partisan economic statement (ie: Mini-budget) that would've resulted in a change of Government had our weasel of a Prime Minister not shut down the joint in the greatest act of self-preservation since the first Caveman realized he didn't have to be faster than the bear to survive, just faster than his friends the bear was also chasing.
2) Without any clear direction from the Federal Government, which was busy avoiding governing lest they lose their already tenuous grasp on power (see above point), the rest of the country held its breath.
I say held it's breath because that's the only way to describe what happened. Canadian Corporations across the land put a freeze on all spending, hiring and as much as possible firing until they knew what the Government's reaction to the "Greatest Economic Crisis Since the Depression" (GECSD) was going to be, and seeing as our Head Weasel was more worried about his job than anyone else's in the country there wasn't any reaction to witness or plan around.
And the average Canadian, not knowing if they'd have a job after the Ostrich in Charge pulled his head out the sand and did something, held their breath too. So the winter of 2008 had a whole bunch of people who probably were not losing their jobs avoiding any and all discretionary spending lest the Government come up with a plan to deal with the GECSD by laying off half the nation.
And when a lot of people hold back discretionary spending the service industry takes a hit, so like any self-fulfilling prophecy thousands of people lost their jobs. But most of those were low paid office temps and seasonal retail workers whose combined spending power made barely a blip on the national GDP. It was the greatest case of over-reaction ever to hit the country. We weren't a target, weren't being affected, but reacted like the house was on fire, just in case something happened. And we caused a small "it" to happen while waiting.
But because "it" was small and self-created Canada appeared to weather the economic storm as unscathed as someone who was sitting in a park while their neighbour's house burnt down. Yet, because we caused a small "it" to happen we weren't so unscathed that pundits weren't pushing past each other to praise our Weasel-in-Chief when he finally got around to doing his job.
It wasn't until the impact of our largest trading partner's economy collapsing (ie: America) began to affect exports that our Company of Misfits running Canada finally got their ball rolling and created a stimulus package that sounded great on paper. I say "Sounded Great" for the simple reason that most of the money was already earmarked. It came out when it did because the Feds held up all spending while they "reviewed the situation" (if you open a newspaper from November 2008 and look you'll see that Mr Harper and his ilk were actually waiting to see what America did BEFORE committing to any in-action of their own).
Then, to capitalize on the situation as much as possible, our leaders ensured that the only "shovel in the ground" projects that went ahead were either in solid Conservative ridings, or in ridings that almost elected a Conservative (so-called "Marginal Constituencies").
The fact is though, had our Parliament staying in session during the early days and had someone been at the wheel that knew what they were doing, they would've quickly pointed out that the impact of the GECSD wouldn't be felt for months and that the last thing Canada needed was a pre-emptive panic. The so-called "steady hand at the wheel" approach is completely lacking from our current regime.
So instead of a leadership Canadians have been subjected to an ad-hoc, self-fulfilling prophesy, something that wasn't as bad as we were told it could be by the very people trying to keep their own jobs. And because there really wasn't anything yet to worry about, and nothing too seriously happened because of it, the leaders of this country have come off looking like idiot savants.
Cue end of 2009 and the two warning signs of the "other shoe".
Shoe #1: In order to get the Federal Budget back under control Finance Minister Jim Flaherty has warned there will be belt tightening in 2010.
Shoe #2: Various sources have warned Canadians should concentrate on getting their debts under control because when the US economy begins to recover their interest rates will start to climb and ours will follow suit.
The belt tightening of Shoe #1 is the circumstance that will lead to disaster. Not because the Federal Government spent a lot on the stimulus but because incoming tax revenues have tanked (for proof of this look at Provincial budgets, which haven't spent much on stimulus at all but are still showing record deficits because of the drop in revenues). The Conservatives keep saying they spent a lot on stimulus, but unless you count the costs of putting up "paid for by your Conservative government" signs most of this money was already earmarked for approved projects. They're trying to take credit for something they already did, and in some cases, because the projects were approved and earmarked by the former Liberal Government they're trying to take credit for something someone else did. Why does that sound familiar?
But when the revenues fell, well, in any normal year the Feds would've suspended these projects because they weren't getting enough revenue to pay for them, but they couldn't be seen doing that in 2008. Not while half the planet was spending Tax money their grand-children's children wouldn't earn.
The biggest reason this is a problem for Canada is because a lot of these projects, and their related debt, could've been covered with by raising the GST a few cents to cover them. Keeping in mind that each penny of the GST represents $4.5 Billion annually. Unfortunately your federal government would prefer to cut the services your tax dollars pay for than raise taxes, particularly the dreaded GST. But anyone who lived in Ontario during the Mike Harris years can tell you how that works.
Downshifting and User Fees will replace some of it but the fact is a lot of things that Canadians are proud of, and which the most desperate need, will simply cease to be.
Say good-bye to arts funding, festivals, new schools, hospitals. So long well maintained highways and bridges. Ta-ta to help when you need it the most.
There won't be any money for it so it'll all go away, as will the thousands of jobs these projects pay for, and by their extension the service sector jobs dependant on the discretionary spending of these people. Yet, this alone is survivable, in fact, we're arguing that we're doing it now.
Shoe #2 is the real worry. As Paul Martin demonstrated repeatedly during his term as Finance Minister Canada's economy is strong only if the housing market is strong. It's how we avoided the US Recession of 2001, it's how we survived Mad Cow and the downturn that should've resulted from the Great Lumber dispute. In fact, it's how we've managed to avoid the depths of the GECSGD so far. So long as Canadians are buying homes the economy is good.
Do you see the problem yet?
Canadians only buy homes when the cost of borrowing is cheap. The moment interest rates begin to rise that becomes less desirable. When housing sales slump the economy slows. When that happens, people start to lose jobs. Only this time the Federal Government won't be there to help them because they will already have shot their load on "The Great Stimulus Theatre of 2009".
So the housing bubble is the second shoe. And once the housing bubble in Canada collapses then Canada is in the same boat as the US, only we'll be two years behind them and entirely dependant on their recovery for our own.
And our Federal Government? They'll probably prorogue Parliament again, and stick their heads in the sands for another 8 weeks while they try to find a way to save their collective asses. But the math is simple. Either we'll need tax increases or a wholesale suspension of services in this country, neither of which will help them in the next election.
And for most of 2010, the Great Recession of 2008 will seem like the good times.
