Canadians shouldn't be so smug

Interesting, isn't it, how certain Canadian publications are commenting on the American economic, dare I say, crisis, yet major economists are taking every crumb of passably good news to say that Canadians won't suffer the same fate. But, will it?

First, the good news: the government saw the writing on the wall and put an end to no money down, 40 year amortization mortgages, thus putting constraints on a lucrative, yet higher-risk segment of the mortgage market. Does this avert a U.S. type housing-crisis in Canada? Well, probably not, but it's a solid step toward limiting the possible damage.

Supposedly, Canada's economy rose 0.8% at the latest outlook. However, this increase was largely buoyed by consumer spending. Have we not learned that an economy buoyed by consumer spending is fools gold? Consumers are spending more, yes, largely because 1) it's the summer and people are getting outside more, and 2) shit is more expensive. More expensive shit = more money spent. When people run out of money, these gains will be evaporated, and yes, they will run out of money. That's what happens during times of rampant inflation when you have to spend more just to stay where you're at.

Other danger signs: remember, it's never different, and history ends up repeating itself. I've repeatedly stated to my friends that we're in 1928 right now...just before the Great Depression. Heading into the Great Depression, Canada had the world's fastest growing economy, largely through our exports to the US. However, people thought the boom times would never end, and extended their credit to afford to increase their standard of living. When the US, also tapped out, were unable to buy Canadian resources and manufactured goods, the economy sank into a tailspin.

Now, things needed to play out in the States first for the ripple effect to hit Canada, and I can imagine the Canadians of the 20s looking pretty smug too. But after the dust settled, Canada actually suffered MORE under the Great Depression than the US did. Eighty years later, and in spite of an increasingly globalized world, we are staring the exact same problem in the face. Ontario is already starting to suffer, and this will continue for the next few years, as people downsize houses, or hold on to their vehicles a little longer, or can't afford good cuts of meat.

There are differences, however, between then and now, which will allow Canadians to come out of this situation relatively well. First, we have been using our economic boom times to aggressively pay down national debt. Our government, if need be, has the resources available to massively invest in make-work and infrastructure projects. The timing couldn't be any more fortunate, as much of our infrastructure is at least 40 years old and is sorely in need of renewal. Also, personal debt in Canada is lower than in the US. This means that if the financial situation gets tough in Canada, people will have a few more options in front of them.

That said, we are just at the start of a very ugly chain reaction. Banks and manufacturers going out of business and laying off employees, contributing to less consumer spending, which means businesses make less, lay off employees, who in turn spend less and force further layoffs, etc. Until citizens, corporations and governments can get this situation under control, it's only going to continue.