Daily round-up: Friday, September 17, 2010

Hello again

Time for your daily dose of reality:

Four Things That Will Slow Canada’s Growth

Actually a really good read.  They outline the same four concerns that I’ve been advancing at this lowly blog (and at my bro’s blog since 2008), namely the ongoing economic woes of our largest trading partner; our bubblicious housing market; our debt-drunk consumers; and the waning stimulus.

I particularly liked this quote:

“The cooling in real estate also suggests that future consumer purchases will be more closely linked to underlying growth in employment and overall income”.

Translation:  The days of tapping home equity for crap you don’t need are over.  And so is the consumer-debt-driven pseudo economy of the past 5 years.  Time to pay the piper.

Home Sales Rebound, But It Won’t Last Long

“The industry consensus is both prices and activity will decline the rest of this year. The only argument is by how much.”

“TD Bank Financial Group economist Francis Fong weighed in yesterday with a forecast that sales will drop by 20% and prices by 7% on a national basis in 2011.”

Finally…

US Consumer Confidence Plummets

Scared consumers don’t buy our stuff.  Not good.

I’ll be posting another primer later this weekend.  Stay tuned….

Cheers,

Ben

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One Response to Daily round-up: Friday, September 17, 2010

  1. Tim Foxon says:

    Hi.

    Regarding your comments about hyperinflation.

    Your definition of hyperinflation is useful but doesn’t apply to advanced western countries suffering from balance sheet contractions.

    We won’t have hyperinflation for the following reasons.

    1. Although you are right in that hyperinflation is fundamentally different from inflation we have to go through inflation first, unless we get something truly dramatic like nuclear war. Inflation won’t happen for a very long time because we have too much slack in the economy (too much unused capacity), wage gains won’t be able to gain traction for a long time (because of persistently high unemployment) and as these are the biggest source of corporations costs this means costs will be contained. Speaking of the US energy scarcity which is coming like a freight train will increase costs across the board these are still minor compared to labour costs.

    2. Inflation needs a ratchet mechanism – i.e. the first round of price rises needs to be validated by a rise in purchasing power in order for the second round to appear. In our current environment this will not happen. Even if prices do rise, demand will fall and prices must come down to match purchasing power. The only way this could be done is for the authorities to print enough money and send it to a big enough constituency to affect virtually all prices, this seems very unlikely.

    3. Most hyperinflations in history involve special situations (such as a country owes the debt in a foreign currency and has no means to obtain it, or supply disruption on a massive scale such as the “land reforms” in Zimbabwe or the occupation of the Ruhr). These special situations don’t apply to the US and Canada. Also historically much higher levels of debt than we currently have have been survived by both the US and UK without even debt default much less hyperinflation.

    So sorry hyperinflation is not in the cards.

    Cheers.

    Tim.

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