Wednesday, September 17, 2008

Canadian Election Watch - Day 11

Let's play One of These Things is Just Like the Other:

McCain on the US economy:

The fundamentals of the economy are strong.

I reject the doom and gloom that says our nation is in decline.

Stephen Harper on the Canadian economy:

The Canadian economy's fundamentals are solid.

I don't think the atmosphere should turn to one of complete doom and gloom.

Meanwhile, the TSX dropped nearly 350 points on Wednesday - its lowest level in 2 years - and, as a Financial Post headline reads, Canadian banks face exposure.

Importantly, banks remain vulnerable on important chunks of this overall exposure because of a second layer of the credit system that they themselves rely on to back them up when things go wrong--called financial guarantors -- who provide a form of insurance that if the value of their positions falls they will be covered.

The severity of the ongoing credit crisis has tested the durability of these entities and raised questions about whether banks can rely on them in a crisis. AIG is one, but others are under stress, too.

Already, Canadian banks have been compelled to acknowledge that some of the protection they bought is worthless, and have had to discount billions from their books.

But they are still counting on this industry of guarantors to be there in a crisis. Even those who are relatively sanguine about the risks to the credit portfolios of Canadian banks acknowledge the stakes are high.

Back at the end of August, CIBC warned: Household debt now rising faster than wealth

The annual pace of Canadian economic growth has slowed to less than 1% this quarter while the U.S. economy likely contracted, even though U.S. inflation is running at a 17-year high of 5.6% and the Bank of Canada has warned that inflation here will top four per cent in the first quarter of next year.

As a result, the central banks have stopped cutting interest rates, it said.

One of those "fundamentals" includes Alberta's oil wealth. Don Braid writing for the Calgary Herald on Tuesday reminded us of the impact of falling oil prices (good for the consumer, not so good for declining contributions to the federal government or for Alberta's vital needs):

The Alberta government potentially lost $650 million in annual revenue over eight wild hours on Monday, as oil prices dropped more than $5 a barrel.

It was a mere drop of blood in the global fiscal carnage, but the number shows how quickly things can change in a province driven by oil and gas.

In July, oil hit $147 a barrel. Today it's $95. Every dollar drop, if sustained for a year, costs the Alberta government $130 million.

It's not that the Cons who run this province don't have enough money already. It's just that it has been be torn from their cold, greedy hands with a crowbar so they'll actually spend it on things that matter (ie. those pesky "social" programs and sorely neglected infrastructure and education etc etc).

At the same time, Herald columnist Don Martin whines about how the federal candidates aren't paying enough attention to Alberta, "the province keeping Confederation out of recession", he says. Why bother? Every damn seat here is Conservative and Martin certainly doesn't want to hear any criticism about the oilsands projects - not with the huge environmental concerns and a headline like this: Fort Hills oilsands project costs jump to $21 billion

The cost of Petro-Canada's Fort Hills oilsands project has ballooned by 50 per cent to as much as $21 billion, putting the proposal's viability into question and hammering the shares of its smallest partner.

Petro-Canada Wednesday blamed the huge increase on rising materials costs, a tight labour supply and higher project management expenses. The new estimate comes at a time of weakening oil prices and crumbling credit markets.

What was Steve saying about those "fundamentals" again?

Oh, right. Steve's the Alfred E. Neuman of the Canadian economy: What? Me worry?

Speaking of the economy, Green Party leader Elizabeth May released her party's platform on Wednesday "promising tax breaks for low-income earners and industries that cut carbon emissions, as well as annual federal surpluses." She's also proposing a one percent tax hike in the GST which I doubt the public will look at very favourably after fighting for so long to scrap the tax altogether. I have to say though, having watched her press conference, that there is no doubt she will add definite spark to the leaders' debates because of her dynamic personality and excellent grasp of the issues. You can download the Green Party platform (.pdf file) here.

Layton and Dion both released their child care plans on the same day. As The Star headline reads, both parties "vow billions for daycare". We definitely need more, affordable spaces in this country. Will any of these parties actually come through on their repeated promises?

One last thing for this evening that could be more depressing economic news for Steve: he's agreed to the release of the report on the costs of the war in Afghanistan.

The minority Conservative government has estimated the cost of the six-year mission at under $8 billion. If the new figures are much higher, it could be bad news for Harper.

Polls have repeatedly shown that Canadians are lukewarm to the mission, especially in the key electoral battleground of Quebec, where Harper must make gains to have any chance of winning his coveted majority.

And critics suggest cost overruns in the Afghan mission could erase the government's shrinking surplus and put the country into deficit, especially given the economic slowdown.

Oops. I forgot about Gilles. Apparently, he and Con blowhard Jason Kenney are having it out over alleged xenophobia by the BQ leader. I guess Kenney thinks he still in Question Period.

Any general comments about my daily Election Watch posts? Too long? Too much info? Too little? Let me know. Is anybody out there? Hello?

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