The Rhetorical Rhetoric: While Many Small Businesses Have Been Wiped Out Because Of Government Interventions, The Bank Of Canada Governor, Tiff Macklem, Says The Economy Is Overheating...
Tax receipts are down and the population is being aged out of the workforce. Immigration, cut off in 2020, hasn't recovered. Despite optimistic narratives, all signs point at a cooling global economy.
The BoC’s latest statements were fit to be on stage at the FOMC. The Central Bank was quick to hawk headlines flying in the face of contrary data, also provided by the same statisticians. GDP forecasts are being slashed globally; with even more ominous signals brewing below the surface, like volcanic gas underneath Yellowstone, in the bowels of the shadow banking system for risk assets.
On Monday, this was the hot ash coming out of the same mouth:
The Bank of Canada faces a “delicate balance” as it tries to bring inflation back down without slowing the economy too much and triggering a recession, Governor Tiff Macklem said on Monday.
The Canadian economy is in a relatively good position to handle rising interest rates, Mr. Macklem said in an appearance before the federal finance committee. But he acknowledged that pushing the cost of borrowing sharply higher to try to quell rising consumer prices has some risks, particularly given the high level of household debt in Canada.
“Getting this soft landing is not going to be easy,” Mr. Macklem said, although he added that there are “some good reasons” to believe the economy will continue to grow as inflation declines.
Wednesday, this flip-flopper testified for the Senate, softly landing this decidedly different outlook:
https://stocks.apple.com/ArFygY2uzTuKaGgMhrlntkw
“If you boil it down, the economy is overheating. That’s creating domestic inflationary pressures. We need to cool growth, to cool inflation,” Macklem said.
REALLY?
As soon as a little revenue was permitted pour again in bars, pubs and, restaurants, a new rug pull is announced. The real economy has become the de-facto lender of last resort.
How the story appears to be unfolding is one of traditional government cronyism. The business owners are facing a supply chain problem because of two main reasons:
The provincial monopoly on alcohol distribution, with strict requirements on a liquor license being issued. Establishments are not able to purchase from wholesalers servicing the off-premises market.
Molson Coors has been consolidating every label possible, and every inch of chug-able retail shelf-space for decades, giving them extraordinary pricing power in distribution. Operators were slowly forced into a situation where they must rely on a single supplier.
Beer shortage caused by Molson Coors strike looms in parts of Quebec, bar owners warn
The head of the Quebec bar owners' association says some suds sellers could soon run dry because of an ongoing strike at a Molson Coors brewery.
Renaud Poulin says in a phone interview that since Monday he has received dozens of calls from pub owners who are worried they may be out of beer by next week, in particular those in rural parts of the province and under exclusive contract with Molson Coors.
In a letter to Economy Minister Pierre Fitzgibbon, the Corporation des Propriétaires de Bars, Brasseries et Tavernes du Québec calls on the provincial government to ease restrictions on beer sales and let them buy beer from other retail outlets for resale in their establishment.
Under provincial regulations, bars and restaurants can only sell bottles that are marked specifically for "on-site'' consumption, as opposed to those intended for home consumption that are sold at convenience and grocery stores.
The government has created its own supply chain nightmare. There is available product but, because of decades of lousy government interventions, it is not allowed to fill this unmet demand from legitimate buyers. This massive supply imbalance would immediately go away if the government removed itself from the equation. Another pleasant side-effect would be that prices would go down.
Does artificial inventory turnover count as, pent up demand? Is the price of oil domestic? Is the global economy so hot that food and energy shortages are only months away? Does the tourism industry even exist right now?
Here’s what the Federal government is doing to prop up this haemorrhaged limb of the Canadian economy:
https://ised-isde.canada.ca/site/canadian-tourism-sector/en
Canada's tourism sector is an essential contributor to the Canadian economy. Unfortunately, it has been among the most affected by the COVID-19 pandemic. Targeted government supports have helped businesses not only survive but also adapt their operations to meet public health requirements, improve their products and services, and position themselves for post-pandemic economic recovery.
Reading headlines for US, domestic, airline stocks do not give the impression of existing in reality. There has been a permanent reduction in business-class travel. That’s right, people finally caught on to how silly many conferences and trade shows are. The next few years will show us how much more efficient virtual gatherings are for global industries. This is a future which leaves many cottage industries clinging to scraps left by the vultures.
What unemployment numbers always fail to capture are the demographics of the workers, and the underlying reasons behind the numbers. Canada is an aging population with a declining birth rate.
Canada Fertility Rate 1950-2022:
The current fertility rate for Canada in 2022 is 1.492 births per woman, a 0.53% decline from 2021.
The fertility rate for Canada in 2021 was 1.500 births per woman, a 0.6% decline from 2020.
The fertility rate for Canada in 2020 was 1.509 births per woman, a 0.53% decline from 2019.
The fertility rate for Canada in 2019 was 1.517 births per woman, a 0.52% decline from 2018.
To make-up for the shortfall in birthrates, Canada relies heavily on importing the global wealth class’ offspring. Much of that came from China, but, when the pandemic mutated from renewed clampdowns on capital flight, the flow of consumer-friendly big-money immigrants dried up.
While this was good in that foreign capital enters the domestic economy and is either spent or invested, wealthy immigrants don’t need jobs. Immigration also slowed dramatically when the world shut down.
What isn’t encapsulated within the employment statistics are labour force participation rates; how many people are actively working or looking for work?
When March 2020 sent everyone home from work sick, a very healthy portion of the contributing workforce decided to exit permanently. Retirement was bumped up by years, even decades; they’re done. Companies are now left trying to fill more jobs than there are participants. Conditions for full-employment, albeit unhealthy ones.
On a Monday, he was fearful of triggering a recession. Only Wednesday, the BoC Governor stated that the economy was “too strong” and, it “needs to be cooled”. You, sir, are acting like a politician on an election campaign.
The government’s balance sheet has not returned to pre-pandemic levels of normality. Does Tiff use Y/Y data for his conclusion of an “overheated” economy?
The raw numbers show that the rate of growth had been steadily declining for years leading up to the global shut-down event.
Canada gdp growth rate for 2020 was -5.40%, a 7.26% decline from 2019.
Canada gdp growth rate for 2019 was 1.86%, a 0.57% decline from 2018.
Canada gdp growth rate for 2018 was 2.43%, a 0.61% decline from 2017.
Canada gdp growth rate for 2017 was 3.04%, a 2.04% increase from 2016.
The only thing middle class Canadians have going for them now is their real estate portfolio; also their primary residence. When you can’t sell because moving to a comparable property is not economically responsible, the only option is to remove equity. Big gains in paper value and access to cheap debt. Equity converted into usable currency can be invested, and the cost of borrowing is written down as an expense.
For people starting this process without a mortgage, it’s not a problem when borrow rates enter periods of volatility. However, those already on the brink of breaking can easily be toppled by as little as 1% increases to mortgage rates. Many small business owners began using their house as a lender of last resort to avoid bankruptcy, long after the government forced their doors closed and then told them to deal with it.
If the lifeblood of the economy is small business owners and entrepreneurs, Canada’s economy has leukaemia and is receiving health care from 1970.
Canada’s Housing Agency Abruptly Halted Its Public Real Estate Warning System
Canada’s national housing agency abruptly ended its warning system for housing. For nearly a decade, the agency warned home buyers when their local market became risky. In the September 2021 report, they declared all of Canada as highly vulnerable. That was the last report. The latest one was replaced with a message saying it would no longer be continued. You know? At the exact time you would need a report like this.
RBC’s posted 5 year fixed rate was 3.94% last week, almost double the 2.19% they offered back in October.
Canadian unemployment numbers are still higher than pre-pandemic.
Provincial unemployment rates show that the East coast has been hit substantially harder than the rest of the country.
With spring agriculture season underway, farmers still face uncertainty; many will not be able to manage the external risks of just-in-time supply chains. Semi-conductors are also vital components of the heavy equipment used for agriculture production and processing. They are also large consumers of diesel fuel, which broke through all resistance at the top end of prices.
Canada’s love-hate relationship with US automakers could become more volatile as plants begin competing for scarce components. Despite all efforts by government to prop up manufacturing jobs, inevitabilities continue to snowball like a bad carry-trade.
First it’s chips, then base metals; rubber can’t be far away from burning up the price charts.
Ford to Halt Production Next Week at Flat Rock Plant on Chips Shortage
(Reuters) - Ford Motor Co confirmed late on Thursday it will halt production next week at its Flat Rock plant where it assembles the Mustang because of a shortage of semiconductor chips.
The No. 2 U.S. automaker had previously said it had planned to idle the plant for two days this week. Automotive News reported the production cuts earlier.
Ford said on Wednesday it had built about 53,000 vehicles but not shipped them as they awaited final parts held up by the chips shortage.
Our neighbours to the South have been whistling the same tune as the BoC. Strong economies, robust growth, no chance of contractions. Why are they using obsolete data to create policy objectives for tomorrow? If expectations are this imbalanced with reality in the US, how disappointed are Canadians going to be when layoffs start happening and HELOC flywheels start breaking from the rate of change to borrowing costs?
In conclusion, double-speak is alive and well. Prosperity is destitution, war is peace, recovery is failure. If things get too bad up here, we can always fall back on abusing the land by stripping it of resources. To accomplish some of these goals the government will need to raise the age of retirement to 80, and, deny anyone under 80 access to CPP & OSP benefits that were paid into over a lifetime.
That's enough reading from you, get back to work!
I’m betting on Blackrock owning Canada by 2030.