Tag Archives: United States

Soap Operas in the News

We find ourselves in the middle of a well-known curse, for it is true that we live in interesting times. Common sense has fled, as has basic numeracy, and our media fails us yet again, for the story isn’t about what is going on, but about the cut and thrust of competing sound-bites.

Truly, this is an era — internationally, federally, provincially and municipally — where soap opera has taken over all programming.

Delays of Our Lives

Does one hand know what the other hand is doing? Can anyone count? The current contre-temps in Ottawa is Conservative claims that the Senate (dominated by the Liberals) is hold up their spending bills, while, at the same time, Liberals claim the Conservatives could move faster. Go figure.

Do any media hosts point out that the bills in question arrived in the Senate only last Thursday and that they are already in committee? No, they do not. Instead, the story becomes the current line of “they’re not pulling EI changes out”. Good heavens, an ever-shifting target — on both sides of the aisle — is all that is deemed newsworthy now. It is the game of “he said, she said” and no logic applied.

As The Stomach Churns

Then there’s the meme of the “ever worsening economic conditions”. Does anyone ask why any of us should expect that anything done to intervene could have made a difference when it is historically established that monetary policy changes take nine months minimum, and as much as eighteen, to work their way into the economy and make a difference? Fiscal policy changes are typically a year or more into the future as well, yet the charge is “not good enough, do more” mere days after action is taken.

We are staring at an abyss, mostly brought about by our own bad policy decisions. So far, in listening to the English-language news, only the Australians (ABC Radio National) seem willing to actually add up the days, challenge the wisdom of doing more until the last actions have had a chance to work, etc. But in most of the rest of the world, no one is asking the question: they simply echo the Opposition’s standard mantra of “not good enough” (wherever they are). It is certainly no different here.

Meanwhile, of course, we are not solving the underlying issues. It is now clear that systematic embezzlement and pyramiding of risk was undertaken, yet we seem determined as international policy to leave it all in place. No wonder there is no confidence. Do you hear anything of this in the stories? No.

General Horses**t

Meanwhile, of course, we all stumble down the same paths while blaming other governments. “It’s not our fault, it’s theirs” has become as much of a meme as “they’re not doing enough” has across the aisles of our legislatures.

Let’s be clear: just because everyone else wants to, lemming-like, be an idiot, why does this require you to be one?

Countries (the UK, Germany) are already having trouble selling their government debt. In the case of Germany, this is the strongest part of the EU: we are not dealing with minor nations here. US debt demand is crowding out everyone else — including corporate needs, as businesses closing around the world because they can’t sell their debt at any price shows — and yet everywhere, from profligate provinces to spendthrift nations, there is an assumption that this paper can just “be placed” — and at rock bottom interest rates, too.

Again, where is the media, adding up the deficit numbers and asking where the placement money will come from? That might actually require the ability to add 2 + 2 and get 4, so forget that. Far easier to put on competing talking heads yelling at each other, isn’t it?

Beast-Enders

Here is where this sorry story will end: governments will fail. Provinces and states will have no choice but to wholesale chop their core programs for lack of funds. Nations will have no choice but to let inflation loose — and it will rise as interest piles up on the debt they’ve added. Trade deficits will lead to protectionism and further reductions in economic activity, as will the disappearance of more and more companies and with them their activity.

Where will what’s left of the media (for it is not immune to this) be? Carrying the screaming and reporting on the riots — but never, never pointing out how we’re headed toward this due to our choices today.

After all, the talking heads won’t point that out, and the idea of putting a story in context died a long, long time ago.

Constipated Street

The refusal of the media to do its job had its roots in the ease with which they could put talking heads on the air. Real investigation, and working out how to make it approachable for readers, listeners and viewers, costs more money than opening the phone lines or letting people shout at one another does. If today the media is looking at its irrelevance and shrinking audiences, it has only itself to blame — well, that and the theory (advanced by the media) that concentration of ownership was a good thing, especially using debt to make the concentration work.

The refusal of politicians to tell the truth to the people — to treat them as citizens, not as consumers — is also a key part of this. Anyone with two brain cells to rub together can look at the banking “industry” (there’s your first sign of failure: banking is a “utility” and thus requires utility-style regulation) in the US, UK, etc. and see that the old Glass-Steagal and pre-Big Bang rules served those nations well — and that the current regime, of collateralized debt obligations, mark to market securities, liar-loan risk on mortgages, etc., has not. We might disagree about how to fix the situation, but the source of the problem is clear. It’s even bipartisan: the Conservatives made it happen in the UK and Labour has extended it; the Democrats made it happen in the USA and the Republicans extended it. Yet the issue cannot be spoken of — and the media only speaks of it in partisan terms.

No wonder our countries are dying. Systematic mediasclerosis and the big lie sound-bites will see to that. No wonder, too, the average person now has no confidence in the political system, the fixes on offer, or the news and reporting they see, hear and read.

No wonder, too, that so many dedicated bloggers have lost interest in blogging lately (myself included). There’s a feeling of ennui abroad that the train wreck is inevitable.

This is what happens when politics and the news and analysis work of the media degenerates into entertainment — and nothing more.

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A Sense of Decline and Fall?

Having been away for a few days in the southern United States has given me an opportunity to get a feel, on the ground, so to speak, as to whether the US truly is in economic distress or not. This is a subject about which there are conflicting opinions (as, indeed, there are conflicting opinions about whether and to what extent will Canada be affected).

I shall start by being quite clear on one point: I went convinced that the US had passed a tipping point last fall, and that the question was not whether years of economic mismanagement were going to have their revenge, but when and how deeply. Much of my examination, therefore, was done with a conscious attempt not to read too much into what I observed, to try, so to speak, to take the contrarian view and look for the bright side rather than confirm my own down side view.

I was at a conference this week which attracted the bulk of its attendees from across the United States — along with a few Canadians and a handful of people from Europe. First of all, attendance was off relative to prior sessions (this is a twice-a-year event). While the conference organizers tried to paint a positive picture, my crowd estimate is that attendance was down more than 33% from October. Normally, too, the audience tends to bias to the eastern half of the continent at the spring session (held in the east) and to the west in the fall session. Major sections of the east — mostly in the industrial belt, what Joel Garreau, in his 1981 book The Nine Nations of North America called “The Foundry” — were thin in terms of attendees. “Local” attendees — those who could have driven to the event to avoid the cost of flying — were practically non-existent. This is a radically-different profile from previous conferences of all types that I have attended in the Orlando area, as “taking the family” to an event there when you live in the south-eastern US is almost de rigeur.

The tollway from the airport to the hotel facility — this time, at the Universal complex rather than at Disney — doesn’t give one much opportunity to see the state of residential real estate. I was here just a year ago, however, when the billboards were filled with real estate ads: this time, nary a one was seen. Condo developments near highway I-4 were advertising rentals, rather than purchases (and I believe this walled and gated community was advertising as much holiday rentals as long-term ones). There is much unfinished construction, and no sign of continuing work.

Prices everywhere were up from a year ago. Diesel, for instance, is over US$4.00 per US gallon — about CAD 1.06 per litre. Regular petrols ranged between US$3.50 and $$3.70. Yes, they’re still cheaper than in Canada (and especially in Vancouver, which is consistently above the CAD 1.20/litre mark these day) but the differential has dramatically closed: Florida has always been relatively inexpensive, as it is quite close to the heart of the refining base (unlike, say, California). Such food prices as I was able to glean from the local newspaper and television advertising indicate 20% jumps from a year ago for the basics.

The attendees at the conference were glum — morose, even. Few felt that their companies would be doing much this year; many asked me for my thoughts on how to defend their budgets and staff base. There was a general feeling that harder times lay in their companies’ futures. Many capital projects had been cancelled or deferred. Many had had their contractors and consultants quietly purged and removed from the office. More than once I heard people say “thank goodness this was booked months ago, along with a non-refundable air ticket, or I wouldn’t be here”.

Local advertising was mostly for solicitors, especially to deal with foreclosure and to provide relief from dunning by creditors.

A friend of mine in Vancouver asked if (following up on some reading she had been doing) organizations like Starbucks were suffering more deeply than most. The lineup at Starbucks at both Vancouver and Toronto airports was its usual long self, with a full complement of serving staff to keep up with the demand. On the other hand, this morning, the airside (where no worries about liquids would be involved) Starbucks in the busier terminal at Orlando Airport had no lineup at all, and a skeleton (and obviously not well trained) staff. Having had an efficient and even relatively pleasant TSA experience, I had the time, so I sat where I could watch the outlet for about thirty minutes. Only one other person bought anything there during the entire time. Burger King coffee, on the other hand, was a much better seller (although not necessarily a better experience). Apparently people are cutting back.

I think there’s little doubt that Canada will experience some of the same experience over the next while: there are Canadian regions that have also experienced a housing bubble (no area can long sustain housing prices that require 70% or more of a two income family’s monthly net pay simply to pay the mortgage on the most generous [minimal down payment of 5%, 40 year amortization, lowest variable interest rate], as does Vancouver today). Garth Turner’s new book — based more generally in the Toronto region experience, which is equally overpriced — suggests the bubble is being burst this year. I concur. The adjustment — having lived through Connecticut eight years after its last housing bubble, where a 50% “adjustment to reality” was still required to awaken the local market — can be long and difficult, especially as real estate generally needn’t move.

For all that, we have done many things right. The West is unlikely to experience a slowdown (save only if the Bank of Canada does something really stupid and follows the Federal Reserve into the abyss of negative real interest rates). Central Canada has some adjustments, but these are as much due to the drying up of business on the US side of the border — work-out specialists from New York fill flights to Michigan, for instance, to restructure the extended automobile sector — as to the border shenanigans associated with the Department of Homeland Security’s flouting of the principles of NAFTA, to which the US was a willing signatory and remains a general beneficiary.

The Bank of Canada must resist the siren call to lower our interest rates: we do not need it for our domestic purposes, and indeed it would simply start an economic fire that would worsen our competitiveness for the future. (We must also, it goes without saying, eschew the “quick fix” handout mentality from the Opposition benches, from the Turners in the Liberal camp to the NDP at large.) On CNBC this morning the Bank of England was applauded by the stock junkies for having lowered rates “to help the United States” (the myopia of the US media continues unabated) and the European Central Bank was criticised for being “more concerned with European needs than ‘our’ needs”. Jean-Claude Trichet and his fellow ECB governors are to be applauded for paying attention to the people they are there to serve, and so, too, our central bank should do the same.

All in all, I come away thinking that the US had quite a bit further to fall. Until the hubris that leads to calls for others to suffer to “bail out” the US abate and Americans take responsibility for the shape they’re in — no one I talked to felt there was any connection between their own deficits, or their quest for endless growth, or their quest for a risk-free life and the conditions they are now experiencing — this downturn will continue to unfold. Only if we see responsibility being accepted, south of the border, should Canadians consider lending a hand. Certainly none of the candidates campaigning for office there show any sign of understanding how much bad policy exists, and how much they are espousing. In short, sauve qui peut — we should tend to our own health and well-being.

Fixing Our Own Problems First

Living next door to the United States as Canadians do, we are innundated with daily doses of American media. A significant percentage of us have relatives on the other side of the border, or own property there, or have spent part of our own lives living there. Then, too, much of what interests us for our own savings and investments tends to be American in nature: American companies on the stock market, for instance. We are, as a people, invested in outcomes in the USA almost to the same depth as we are to Canadian ones.

That’s why it’s not surprising to find most Canadians feeling that there’s nothing wrong with helping our neighbours out as they continue their descent into an economic collapse of their own making. (Too harsh, that? What else would you call no commitment to ending deficit spending and ever-ratcheting-upward debt, no concern for the health of their currency [odd, given the dependence of the United States on imported energy: slipping US dollar exchange rates means it costs Americans more even if the world price of oil and natural gas is stable], financiers who have once again taken on too much risk and a Federal Reserve policy of saving their bacon at the expense of Main Street, USA?) Indeed, as the combination of the US Department of Homeland Security’s incessant border actions impede business as organized under NAFTA, destroying the effectiveness of just-in-time industry supply chains, and as the insolvency crisis around mortgages continues to drain the American economy of consumers with cash, American businesses are consolidating, to the detriment of Canadian plants and suppliers. Canada ends up with clear differences across the country: sectors in trouble (lumber everywhere, manufacturing in Ontario and Québec), and sectors that are booming.

But we have our own issues. We, too, have been playing the “house equity ATM” game these past few years — after all, if we hadn’t been, local radio wouldn’t be full of advertising for second mortgages, home equity lines of credit, and borrowing from equity built up, especially in the country’s hot real estate markets. Meanwhile affordability has gone to hell in a handbasket: less than 30% of Vancouver-area residents qualify to enter the housing market, even with 95% mortgages CMHC-backed, and the target being a 400 sq. ft. overpriced postage stamp of a condo as houses are out of the question. At a time when fuel is (as it is here) over $1.20 per litre, the suburbs sprawl ever further out, with even longer commutes, to try and trade off land costs and create “affordable” housing. There’s a financial trap: too much money, still, to live too far away, with all the hours spent stuck on the road, in mounting traffic jams (the worst roads are inevitably in the suburban areas outside our cities), and all the life that is lost — not to mention the health care problems to come from all that sedentary, stressful driving time and worries about making ends meet!

Australia saw this coming back in 2004. They — like us, like the UK and Spain, like the Irish, and like the Americans — had a housing bubble and a growth in consumer debt. They decided to get ahead of the inevitable “popping” of the bubble (with consequences clearly on display south of the border). Interest rates were run up, to dry up the speculative building and house-trading. Even today Australian rates are more than double ours — and nearly quadruple where American rates are now after the US Federal Reserve’s 75 basis point rate cut today. This was a little less than anticipated, yet, judging by the futures and stock market action this morning, a continuation of the “preserve Wall Street, to hell with everyone else and the US dollar” approach taken to date.

Yes, Australian prices have fallen. Those on the frothiest edge of the speculative bubble paid the price for being the “last one in” — something that must happen when every set of conditions turns. But they have come down in an orderly fashion — that country is not filled with whole neighbourhoods in foreclosure or for sale at distressed (40% or more down from purchase prices of two years ago) asks with no bids. The Australians have had to tighten their belts for a year or two. But the country is growing, and prosperous; the danger was averted.

We in Canada can (just) still do this. The Bank of Canada ought to be doing the same for us: raising interest rates, signalling to lenders to think more about risk. Borrowers would pay more; real estate would begin to decline in an orderly fashion. Likely, the Canadian dollar would rise as well. The whole combination would likely bring screams of anguish from Southern Ontario (which has had both a housing bubble and a plethora of employers who figured the Canadian dollar would perpetually be the poor cousin of the US one). We would need, as a country, to begin to add high-value-add manufacturing to our mix, instead of competing on price. All this is a long-term benefit to Canada, worth the price of two or three years of pain.

The alternative, after all, will be to be a Japan, with a nearly two-decade long depression — exactly where America is headed. A deflationary depression, with all the levers of monetary policy jammed at zero and unable to do anything, debts galore, a declining currency and escalating costs for food, fuel, etc. due to imports and diversion of foodstocks to make fuel with the ethanol programme. Add a little of the usual American protectionism and the outcome will be America’s withdrawl from much of the world exactly as did Britain a century earlier: unable to afford to stay. This is where the world is headed — thirty or forty years of great power transition. Two world wars signalled the last one.

What Canada must do is take its medicine. Yes, it’s hard: it’ll bring pressure on the government, and will make people like Garth Turner, MP froth at the mouth. So be it. The alternative is to do what we have done so far in 2008: sink ourselves and our future so as not to “deviate too much from the United States”.

America is a dying empire. We need to step up to our own future — energy state that we are — and decouple from the US. We do that by straightening out our own house. Ideally we would go all the way and return to a gold standard. If not that, at least show some backbone — be Swiss, be European, be Australian.

There is no greater gift to the future — no better sign of stewardship — than that a dollar retains its value. When it doesn’t, saving makes no sense. Do we want to be Americans, with a negative savings rate, drawing down capital to keep spending? Or do we want to again practise thrift and a sense of longer-term interest?

The choice is now. Let us hope those in charge in Ottawa get the point, and do what we need, not what we, in our desires, may (at this moment) want.