A Tale of Two Economies...

[touchring]

Re: A Tale of Two Economies...

Every time a bit of rail is laid in China someone of influence made money. Even the expropriation of land for right-of-way benefited local officials That's been the key ingredient in a recipe to overbuild everything in China.

Liu Zhijun, China's ex-railway minister, sentenced to death for corruption

Actually, I would agree with that. It is interesting to note that special interests are involved when China overbuilds, while in North America, the opposite happens, special interests prevent any building at all so as to maintain monopolies, as in the Keystone XL, among others.

As I see it, corruption exists in the political elite of both societies, only that virtually no one of importance, at least that I know of, gets caught in North America, the MSM covers up everything, while China catches and punishes a couple of tigers to at least show the public that something is being done to clean the public service.

[GRG55]

Re: A Tale of Two Economies...

Actually, I would agree with that. It is interesting to note that special interests are involved when China overbuilds, while in North America, the opposite happens, special interests prevent any building at all so as to maintain monopolies, as in the Keystone XL, among others.

As I see it, corruption exists in the political elite of both societies, only that virtually no one of importance, at least that I know of, gets caught in North America, the MSM covers up everything, while China catches and punishes a couple of tigers to at least show the public that something is being done to clean the public service.

I agree with your observation. In China (and many, many other countries around the world) the State owns and controls a very large part of the economy, and the game becomes one of increasing spending on State sponsored or State supported projects and skimming a slice of that spending. The larger the contract the larger the amount that can potentially be extracted by the influential - which is why purchases of armaments and related services, or large orders for commercial airliners for the national carrier are so popular in such places as the Middle East. In the USA and Canada where, as you point out, property such as railroads, pipelines, real estate are all privately owned the game becomes one of using regulations, rules, and MSM influence of public opinion to discourage change or competition. People over here used to refer to NIMBY (not in my back yard) but the latest acronym is BANANA (build absolutely nothing, anywhere, anytime). While governments are running around trying to boost our moribund economy with "infrastructure spending" we can't even get a pipeline to move oil from the west side of the country to refineries on the east side of the country approved. A while back someone made the observation that we probably couldn't get approval to build the transcontinental railway (the CPR) in Canada if we tried today.

[vt]

Re: A Tale of Two Economies...

http://www.latimes.com/world/asia/la...225-story.html

[GRG55]

Re: A Tale of Two Economies...

China is tooled up to produce what its preferred developed export markets demanded. Not sure the average Chinese consumer has exactly the same needs and wants as their American counterpart. That seems to be showing up in spades right now with so much manufacturing (over)capacity idled or losing money.

I remain sceptical, but then I have been sceptical about the Chinese "miracle" since at least 2010.

China has all manner of unused capacity in iron ore processing, steel making, coal handling, cement, wire making, aluminum, fertilizer granulation, plate glass, and a host of other similar products. These are not easily re-tooled to satisfy the expected Chinese consumer demand. This is the legacy of too much misallocated capital to build empty cities and rail lines without passengers. At present the authorities have two main tactics: 1) extend new loans to maintain some semblance of SOE debt servicing continuity, and 2) talk up grand projects like a high speed rail line to Moscow and the new Silk Road ("one road, one belt") linking China with Europe to try to create demand to fill this capacity. We'll see how that plays out. My bet is much of this supply chain capacity will never come back into production, and the SOEs involved will probably have to be quietly wound up by the authorities.

China's well off consumers (skilled labour in the coastal regions) have already developed an appetite for higher quality foreign made products. Even foreign made imported baby formula is sought after over local product. This is a similar pattern to what happened in India decades ago as incomes rose among skilled workers in the cities - the SOE made products from cars to soap to matches were displaced by higher quality products from the private sector (Fiat, Suzuki, Unilever, Colgate). Granted many of those were made in India as the economy was opened up. We'll see how the Chinese authorities respond to the threat to their already beleaguered SOEs...

...

One of the reasons I am a China sceptic. The first part below is the mindless MSM echo chamber repeated official meme...the second part is where fantasy runs head-on into reality.

There is no possibility of China achieving a 6.5% actual growth rate if it undertakes serious restructuring, shuts in money losing capacity and expects already significant internal consumption (with Chinese characteristics) to miraculously increase to fill the gap. If China is serious about "a desire to make needed reforms" it will have to accept a much lower growth rate than 6.5%. Alternatively, if 6.5% is required it will be achieved one of two ways: a) material increases in fiscal stimulus, curtailing its terror campaign against its own capital markets, a depreciation of the yuan and aggressive discounting of export prices in an effort to fill capacity; or b) diddle the official reported statistics so it is 6.5% no matter what (and jail anybody that disputes that figure)

"...Economists inside and outside China widely expect that Beijing will announce a gross domestic product target for next year that is lower than this year’s benchmark of about 7 per cent, which would signal a desire to make needed reforms at the expense of short-term growth......Mr Xi has signaled that growth must be at least 6.5 per cent annually for the next five years in order to double per capita growth and income by 2020 over 2010 levels, so economists expect the 2016 target to be around 6.5 per cent..."

China maps economic plan for 2016

21 Dec, 8:26 PM

Acknowledging China is heading for a potentially prolonged slowdown, Chinese leaders approved an economic blueprint for next year that emphasizes tackling long-term problems that have been haunting the world’s No. 2 economy, such as persistent industrial overcapacity and a property glut...

...The plan nods to chronic problems hindering China’s transformation into an economy driven more by consumption and less by debt and investment. Beijing’s economic priorities for 2016 include reducing industrial overcapacity, slashing its stockpile of unsold homes, lowering costs for businesses and mitigating financial risks, according to a communiqué released by China’s official Xinhua News Agency after the conclusion of the meeting Monday...

...The plan approved in the meeting that ended on Monday comes after China’s yearlong effort to stoke demand through interest-rate reductions and government spending has done little to bolster the economy. Many economists say those measures have saddled Chinese companies and various levels of government with more debt, potentially putting the economy at greater risks...

...At the same time, economists say, Chinese consumers’ rising demand for safer food, better medical care and other quality-of-life improvements remains unmet. “We’re not facing a lack of demand,” the official close to the leadership’s thinking said. “What we need to do is to carry out supply-side reforms to meet the unmet demand.”

One way to do that is to target overcapacity that has resulted in poor productivity and inefficient allocation of credit and other resources, according to the communiqué released by Xinhua. China suffers from a glut of steel factories, glassworks and other emblems of the old economy at a time when Beijing is emphasizing growth services and consumer spending.

In addition, China has an oversupply of unsold homes -- mostly in less economic developed cities and the interior -- that has suppressed investment in property, traditionally a big driver of China’s growth...

...Meanwhile, China’s fiscal and monetary policies will remain”accommodative” next year, the official said. “Fiscal deficit will be expanded in a cautious manner,” the official added...

[santafe2]

Re: A Tale of Two Economies...

One way to do that is to target overcapacity that has resulted in poor productivity and inefficient allocation of credit and other resources...

This sounds very much like Western style QE. How does a sovereign government "target overcapacity that has resulted in poor productivity and inefficient allocation of credit..." in, for example, the steel industry? One would assume that government buys up the debt and shuts down the excess factory capacity...Job done. Overcapacity gone, check. Productivity increased, check. Inefficiency solved, check. Then devalue your currency and along with it the debt you've consumed. It's good to be king.

[GRG55]

Re: A Tale of Two Economies...

This sounds very much like Western style QE. How does a sovereign government "target overcapacity that has resulted in poor productivity and inefficient allocation of credit..." in, for example, the steel industry? One would assume that government buys up the debt and shuts down the excess factory capacity...Job done. Overcapacity gone, check. Productivity increased, check. Inefficiency solved, check. Then devalue your currency and along with it the debt you've consumed. It's good to be king.

If only it was that simple.

The government doesn't have to buy the debt. It already belongs to the government. It's been issued by state owned banks to state owned steel plants.
The most influential (and now wealthiest) people in the country are the ones that benefited from the system that resulted in that overcapacity. They have a vested interest in maintaining and extending the old order. And there are far more of them than there are "reformers". This is just one example of the daunting hurdles the top leaders currently face.

So what are they doing right now? They are issuing new debt from state owned banks to the state owned steel companies (as one example) to replace the old debt.

To paraphrase Jim Chanos..."extend and pretend X 1000"

[GRG55]

Re: A Tale of Two Economies...

A thread for Canucks (and displaced Canucks), on a USA centric site, to watch the Canadian economy, and see if we really are all that independent from our cousins south of the border after all...
[As I like to remind my English-born mother-in-law, Canada will never be a truly independent nation until we get the Queen off our money ]

Three random items to start the confusion...

Coming back on topic on this thread (or maybe this next item should have been posted on the "You Can't Make This Up" thread?).

btw, the nitwit approach of the Ontario governments to shifting to renewable green energy is a very large contributor to the debt load problem they are carrying today.

Buddy, can you spare $300 billion?

FRIDAY, DECEMBER 25, 2015 06:39 PM EST

The Christmas season is a time to celebrate with family and loved ones, and to help the less fortunate and those in need.

But before you open your wallet and donate to the United Way or the local food bank, Ontario Premier Kathleen Wynne is asking that you consider giving your money to the Ontario government as well.

For a mere $21,000 for every man, woman and child in the province, Ontario could be debt free.

No, this is not some kind of holiday joke about the Grinch who stole Christmas.

And, no, voluntarily donating to the government isn’t in lieu of paying taxes.

It is in addition to them.

Canada’s largest province has asked its taxpayers to donate their hard-earned money to the cause of bailing out the much indebted provincial government.

On top of paying among the highest taxes in North America, and coping with skyrocketing hydro prices — hikes directly caused by the decisions made by this Liberal administration and the previous one — the Wynne government wants more.

Treasury Board Chair Deb Matthews made the bold request last week, and specifically asked folks to donate their tax return rebate to help pay off the provincial debt...

...This is the daftness we’ve come to expect from the Wynne Liberals in Ontario.

Your tax return refund, after all, is about the amount of money the government took from you above and beyond what you owe.

It’s a refund because you overpaid in the first place; the return is an acknowledgement you were overtaxed.

But the Wynne government is desperate for cash.

For the past decade, they’ve spent and borrowed like there’s no tomorrow and wasted public funds with little concern for taxpayers.

Thanks to all the government’s reckless spending, including a pile of billion-dollar scandals that have led to criminal charges, Ontario’s government is dealing with spiralling debt.

Nearly one in every ten dollars spent by the Ontario government goes towards paying interest on the provincial debt.

Ontario’s provincial government owes approximately $300 billion. That is $300,000,000,000 — with 11 zeros...

[Chris Coles]

Re: A Tale of Two Economies...

I do not see any real difference between China and Canada, both exhibit classic symptoms of a feudal mercantile economy; yes, there are differences, but both show clear signs of leadership that is centred upon their own needs as a group within their respective nations; rather than as leading to create conditions that favour the people. Indeed that seems to have become the norm, is the norm; except that such never works in the long run. Everyone loaded with debt, very little equity capital. Every time a government, any government, uses debt for their own advantage, they reinforce their feudal credentials.

Time to recognise the long term benefits of increasing investment of equity capital into free enterprise; where failure can increase local prosperity to underpin the required change in direction for the overall economy, where debt, particularly that created to support "friends" of the government, simply drags down the entire national economy, leading to stagnation.

[santafe2]

Re: A Tale of Two Economies...

btw, the nitwit approach of the Ontario governments to shifting to renewable green energy is a very large contributor to the debt load problem they are carrying today.

Other than the uber-green government idiots in Spain, the folks in charge of the Ontario program were the biggest group of clowns to ever run a renewable energy program. Spain gets the award for worst renewable energy program because of its size but at least Spain has sunshine.

For utter incompetence and lack of forethought Ontario is the clear winner. There never was real funding but that didn't stop them from making massive commitments. I spent more time begging our customers not to open up a location in Ontario than I ever spent trying to sell product into that market. What a nightmare.

[GRG55]

Re: A Tale of Two Economies...

Other than the uber-green government idiots in Spain, the folks in charge of the Ontario program were the biggest group of clowns to ever run a renewable energy program. Spain gets the award for worst renewable energy program because of its size but at least Spain has sunshine.

For utter incompetence and lack of forethought Ontario is the clear winner. There never was real funding but that didn't stop them from making massive commitments. I spent more time begging our customers not to open up a location in Ontario than I ever spent trying to sell product into that market. What a nightmare.

Many of us in Alberta have a great fear that our new, socialist New Democratic Party government is going to repeat that exercise and worse here. The NDP have a long and well deserved reputation for being "Liberals in a hurry".

[GRG55]

Re: A Tale of Two Economies...

I do not see any real difference between China and Canada, both exhibit classic symptoms of a feudal mercantile economy; yes, there are differences, but both show clear signs of leadership that is centred upon their own needs as a group within their respective nations; rather than as leading to create conditions that favour the people. Indeed that seems to have become the norm, is the norm; except that such never works in the long run. Everyone loaded with debt, very little equity capital. Every time a government, any government, uses debt for their own advantage, they reinforce their feudal credentials.

Time to recognise the long term benefits of increasing investment of equity capital into free enterprise; where failure can increase local prosperity to underpin the required change in direction for the overall economy, where debt, particularly that created to support "friends" of the government, simply drags down the entire national economy, leading to stagnation.

One of the defining differences between Canada and the USA is who are the enduring "national heroes".

In the USA these have historically come from three areas: prominent entertainers (singers like Sinatra & Ella, actors like Brando & Bogart, Fonda and Hepburn), sports personalities (like The Babe, Vince Lombardi, Muhammed Ali, Palmer, Hogan and Nicklaus ) and the world of discovery, invention & business (Wright brothers, Edison, Ford, Alfred P. Sloan, Bill Boeing, Neil Armstrong and more recently perhaps Bill Hewlett, Andy Grove, Steve Jobs). Public sector figures in the USA have great difficulty getting into that pantheon; the few whom have are generally from the military (such as Washington, Eisenhower), and even many of those tend to fade quickly (witness the short lived lionizations of MacArthur, Patton, Schwartzkopf and Colin Powell). The notable exceptions that come to mind are Lincoln and Dr. King, and that's about it.

By contrast, in Canada our "heros" come almost entirely from the public sector (such as Macdonald, Pearson, Tommy Douglas, David Suzuki and Pierre Elliot Trudeau, the father of the current Prime Minister). Canadians seem to think there is something unseemly about excessive admiration of sports stars (okay, maybe Gretzky is an exception) and entertainers (maybe we could put guitar pickin' astronaut Chris Hadfield in that category?). People associated with business in Canada are to be viewed with universal suspicion and distrust - unless of course you were a Cabinet Minister like C.D. Howe setting up a government owned company such as Trans-Canada Airlines.

I suppose all this should seem perfectly reasonable coming from a nearly 150 year old nation that considers its defining achievement to be its Medicare system.

[lakedaemonian]

Re: A Tale of Two Economies...

One of the defining differences between Canada and the USA is who are the enduring "national heroes".

In the USA these have historically come from three areas: prominent entertainers (singers like Sinatra & Ella, actors like Brando & Bogart, Fonda and Hepburn), sports personalities (like The Babe, Vince Lombardi, Muhammed Ali, Palmer, Hogan and Nicklaus ) and the world of discovery, invention & business (Wright brothers, Edison, Ford, Alfred P. Sloan, Bill Boeing, Neil Armstrong and more recently perhaps Bill Hewlett, Andy Grove, Steve Jobs). Public sector figures in the USA have great difficulty getting into that pantheon; the few whom have are generally from the military (such as Washington, Eisenhower), and even many of those tend to fade quickly (witness the short lived lionizations of MacArthur, Patton, Schwartzkopf and Colin Powell). The notable exceptions that come to mind are Lincoln and Dr. King, and that's about it.

By contrast, in Canada our "heros" come almost entirely from the public sector (such as Macdonald, Pearson, Tommy Douglas, David Suzuki and Pierre Elliot Trudeau, the father of the current Prime Minister). Canadians seem to think there is something unseemly about excessive admiration of sports stars (okay, maybe Gretzky is an exception) and entertainers (maybe we could put guitar pickin' astronaut Chris Hadfield in that category?). People associated with business in Canada are to be viewed with universal suspicion and distrust - unless of course you were a Cabinet Minister like C.D. Howe setting up a government owned company such as Trans-Canada Airlines.

I suppose all this should seem perfectly reasonable coming from a nearly 150 year old nation that considers its defining achievement to be its Medicare system.

You forgot the Trailer Park Boys.

A national institution loved and respected all around the world!

[Milton Kuo]

Re: A Tale of Two Economies...

Coming back on topic on this thread (or maybe this next item should have been posted on the "You Can't Make This Up" thread?).

btw, the nitwit approach of the Ontario governments to shifting to renewable green energy is a very large contributor to the debt load problem they are carrying today.

I saw an article on Bloomberg a few days ago on this and two thoughts came to my mind:

Are government workers in Ontario taking a pay cut to do their part in helping to reduce the massive deficit? I would not be surprised if the typical government worker in Canada has a total compensation greater than that of a typical worker in Canada's private sector.

I then wondered what would happen in the United States (or any developed economy nation) if we were ever forced to balance our budgets. Would it be possible without stealing money from people either directly; or indirectly through the printing press?

Beyond what I suspect is the fact that the Ontario government, while not making any real sacrifices of its own, is asking its taxpayers to voluntarily pay more taxes than required, giving the government additional money just encourages more bad behavior. The bad behavior that resulted in the government getting into the pickle it's currently in will suffer no consequences and the government workers will believe they'll be bailed out again the next time it occurs. (I've seen a similar dynamic occur in the private sector, too, ex-Wall Street.)

Even if taxpayers were naive enough to dig deep and pay off all the government debt, in just a few years the government will again be heavily indebted without some sort of fiscal reform and discipline. I guess what I'm saying is that taxpayers can pay as much as they want but the debt will never go away.

[santafe2]

Re: A Tale of Two Economies...

Public sector figures in the USA have great difficulty getting into that pantheon; the few whom have are generally from the military (such as Washington, Eisenhower), and even many of those tend to fade quickly (witness the short lived lionizations of MacArthur, Patton, Schwartzkopf and Colin Powell). The notable exceptions that come to mind are Lincoln and Dr. King, and that's about it.

Early on we have a few big ones, Washington, Jefferson and Adams come to mind. Later you can add John Kennedy and maybe his brother Bobby to that list. In the 20th Century US, if you want to be a revered public figure, getting your brains blown out pays huge dividends. As a society we love guns. Same for the entertainers. Dylan is just annoying today but not Hendrix, Joplin, Cobain, Holly and Morrison. How about James Dean and Billy the Kid? We love our modern folk heroes to be dead unless they're Warren Buffett, then we just want to pretend their nice, kind, and avuncular.

[GRG55]

Re: A Tale of Two Economies...

Yup, it's sunny for as far as the eye can see...


Why No One’s Worried About the Recession in Canada

"Best. Recession. Ever."

The Canadian economy is technically in a recession with two consecutive quarters of contracting GDP. However, the recession does not seem to be bothering most Canadian economists — or, for that matter, most Canadians. The sentiment was best summed up by a quote from Doug Porter, Chief Economist at the Bank of Montreal. “Best. Recession. Ever.”

Why would a recession be treated in such a cavalier fashion? It appears to be atypical in several ways. Canadians have good reason for optimism based on other economic aspects.

First, the GDP contractions are quite small. First quarter GDP was revised downward to a 0.2% loss from a 0.1% loss, and the first estimate of the second quarter GDP also came in at a 0.1% loss (0.8% and 0.6% annualized respectively). Given the slump in oil prices and the energy industry, it’s surprising the damage was not greater. The energy sector accounted for just under 28% of Canada’s 2014 GDP in goods-producing industries, according to Statistics Canada (Statscan).

Further, while the previous five monthly GDP values showed contraction, the June reading produced a growth of 0.5%. Growth was broad-based and headed by the problematic oil industry, which posted its first gain in over seven months.
Other economic indicators defy the typical recession. Jobs are being created at a healthy pace, and consumer spending is still robust.

According to economists at Scotiabank, since oil and commodity prices began to crash in June 2014, the Canadian economy has actually added over 180,000 jobs. Statscan reported that 54,000 jobs were added in August even though the unemployment rate rose to 7.0%. Even that development was interpreted as good news, because the rise is due to more unemployed Canadians re-entering the workforce and raising the labor participation rate — a problem that the US has found difficult to shake.

In the words of CIBC Chief Economist Avery Shenfeld, “Sometimes a rise in the unemployment rate is actually something to cheer about.” You have to love the Canadian attitude. Perhaps we can import some of their optimism to the US?

Meanwhile, consumer spending fueled by housing and big-ticket item sales were great enough that the economy would have grown in the second quarter if the energy sector were excluded.

The Bank of Canada expects the Canadian economy to grow slowly its way out of the recession, with 1.5% GDP growth in the third quarter and 2.5% in the fourth quarter. Given that oil prices probably will not recover during that time and the world economy is not looking much better, it is hard to foresee a faster growth rate.

Fortunately, the US economy is continuing to grow (despite the volatile stock market) and Canadian businesses are likely to prosper from that growth. US exports from Canada totaled $312.4 billion in 2014, and are on a higher growth pace for the first half of 2015.

One true downside of the recession that is being glossed over is the amount of debt. The Canadian savings rate has dropped to 4% from 5.2% at the beginning of 2015, and the rate of total debts of Canadians rose 4.9% in June, the highest year-over-year debt increase in over two years. Canadians seem to have concluded that the recession is a temporary oil-induced drop and will simply dip into savings to get by in the interim.

A recession with optimism… what a novel concept! And here we are in the US, continually edgy and nervous because of slow steady growth. Maybe it really is time to add some Canadian optimism to our import list.

http://time.com/money/4035562/canada-recession/

Best. Recession. Ever. Eh?

This recession up here is just starting to gain momentum.

These 10 Numbers Will Tell Canada’s Economic Story in 2016

2016-01-04 09:43:33

Bloomberg News

Canada’s economy doesn’t often fail to muster annual growth of at least 2 percent, and it’s rarer still to see it happen in consecutive years. Yet forecasters in a Bloomberg survey are calling for a 1.8 percent expansion this year, after 1.2 percent in 2015. That would mark only the third time the country has recorded back-to-back years of sub-2 percent growth since the end of World War II.

Here are nine more numbers that will illuminate Canada’s economic path in year ahead.

1956
The collapse in commodity prices, the story of 2015, was more of a shock to domestic income than to production because Canada, which has always relied on resources, is earning less for every unit of oil, metal or wheat it produces. The depth of the commodity collapse is perhaps most clearly reflected in Canada’s terms of trade — the price of exports relative to imports — which fell 7.9 percent in the third quarter from a year earlier, putting the annual decline on pace to be the biggest outside of the 2008-09 recession since 1956...


...61.76 cents
After falling 16 percent last year and 26 percent since the end of 2011, the Canadian currency may test record lows in 2016 if the commodity boom continues to deflate. That would be 61.76 U.S. cents, reached in January 2002, about 14 percent below current levels.
That’s not the base case scenario for forecasters, who see 2016 marking the end of the decline. The consensus in a Bloomberg survey predict the loonie will finish 2016 higher than it started. To be sure, at the end of 2014, forecasters were predicting little change for the Canadian dollar in 2015.


$3 Million
More than 80 detached homes in Vancouver West were sold above that price in November alone. Toronto, Canada’s biggest city, isn’t far behind. The average price of detached homes sold in the swanky Sunnybrook Park area rose to $2.95 million the same month.
Its one of the starkest examples of growing imbalances in Canada’s household sector that includes record indebtedness, inflated home valuations and over-investment in condominiums.


54%
If you are a high-earning banker or doctor who loves paying taxes, Canada is for you.
One of Trudeau’s first acts in government was to raise tax rates on the country’s high income earners starting this year, in part to finance cuts lower down the income scale. The move brings rates in some provinces into the global stratosphere of the world’s highest top marginal tax rates.
For those earning $220,000 or more in Ontario, the top rate rises to 53.5 percent. In Quebec, the top rate rises to 53.1 percent at or above $200,000.
According to 2014 OECD tax revenue statistics, only a handful of countries that year had top tax rates of 54 percent or more, including Sweden, Denmark and France...