A Double Dip Recession?

Are we heading for another recession? Based upon the most recent headlines, some experts say yes. Still, it's far from a certainty and may simply be a minor correction before the economy begins a slow recovery.

It is possible that the worst is over in terms of housing prices, job losses and the hit to savings and retirement funds. On the other hand, few economists predicted the housing crisis or the worldwide fallout or the subprime mortgage crisis, so one can be forgiven for being skeptical about claims about 'market corrections'.

Given the US debt crisis, the EU debt crisis, the weakening US dollar and the fall in the stock markets, many are speculating another Great Depression. Along with calls to move back to the Gold Standard, is it any wonder than many fear another global meltdown?

Whether this will happen is anyone's guess but with the US debt at over $12 trillion and with record consumer debt, it may appear inevitable that the modest gains in the economy will be rolled back.

Nevertheless, it is likely that we will narrowly avoid dipping into another recession, but it is clear that we are not out of the woods yet.

Stunning Upsets in Canadian Federal Election

Most, if not all political pundits were caught off guard by the sweeping changes in the 2011 Federal Election.

A Tory win was predicted, but there was uncertainty over whether it would be a minority government or a majority government. As the election campaign went on, most were seeing a majority slip away. However, the big news, esp. during the last week of the election campaign, was the sudden surge in NDP popularity, with some going so far as to predict a new Prime Minister!

Meanwhile, many expected the Liberals to lose seats but no one predicted such a stunning upset with the Liberals seeing their seats cut in half from 77 to 34. Even more incredible, was the destruction of the Bloc from 49 seats down to 4!

The NDP sweep was not only in Quebec, but also in parts of Toronto. The dramatic fortunes of the NDP have seen a historic result: Official Opposition.

However, NDP success was muted with the surprise majority victory of the Conservatives. With 167 seats, 12 more than required for a majority, the Conservatives have achieved a Conservative majority for the first time since 1988.

So, we have a Conservative Majority, an NDP Official Opposition, a severely weakened Liberal party, a decimated Bloc Quebecois and a first seat for the Green Party.

Who knew Canadian politics could be so interesting?

A Minority Government?

With less than 2 weeks to go, it is still uncertain whether or not the Conservatives will secure a majority win or a minority win.

If Harper wins a minority, the question then becomes will the opposition parties form a coalition in order to defeat the government or will Harper make concessions in order to remain in power?

The latest polls reveal that the Conservatives are firmly in the lead but a majority, while close, still eludes them.

One question on everyone's mind is: what will happen if the Conservatives win a majority? As today's column in the Vancouver Sun mentions, it will likely be more of the same.

Harper, contrary to Warren Kinsella's assertions, is not about to re-open the abortion debate, change gay marriage or introduce the death penalty. He will focus on the economy.

After all, he has a Master's Degree in Economics.

Libyan Unrest Hits U.S. Dollar

The U.S. dollar may no longer be the 'safe haven' of old. The continuing crisis in Libya, as well as fears of unrest spreading throughout the Middle East has caused investors to seek safety outside the U.S. Specifically, the Euro, once a risky currency (due to the ongoing debt crisis in parts of Europe), is now considered (relatively) safe.

Oil prices have risen on speculation Libya has lost as much as 2/3rd of its oil production. Oil is hovering close to the $100/bbl mark.

Meanwhile, the Canadian Dollar is currently trading over par with the U.S. dollar. Given that the Oil prices are rising and investors are fleeing the U.S. dollar, the Canadian dollar will likely remain high for quite some time.

This does not bode well for Canadian exporters who are being hit both ways: reduced sales in the U.S. and higher production prices at home due to higher Oil prices.

If anything, this should be a wake up call for Canadian manufacturers. Improved efficiencies will be necessary if they wish to remain competitive.

Stronger U.S Economy in 2011

Although the U.S. unemployment rate has held at 9.4%, the number of new claims fell to 404,000, below expectations.

Economists indicate claims falling below 400,000 will signal that the U.S. unemployment rate will begin to decline.

Housing sales have also improved. Scotiabank Group has predicted a global recovery with global output expected to grow 4.2% and 4.4%, respectively, in 2011 and 2012. While the majority of this growth will occur in emerging economies, advanced economies, including the United States, are expected to see growth.

Still, for now U.S. unemployment remains stubbornly high with few new jobs being created. There are genuine concerns that the U.S. might be in a jobless recovery, despite Obama's assertions to the contrary.

Time will tell

Spending Cuts Coming in 2011

As with many European countries, Canada will be cutting back on spending in order to rein in the federal deficit.

Finance Minister Jim Flaherty did not provide details but said that the government has to scale back spending in order to eliminate the deficit by 2014.

Opposition parties are concerned that 'turning off the taps' too soon could hurt the economy and especially those most in need.

The Canadian economy is relatively strong (especially compared with other Western economies). This is in part due to the strong demand from developing nations for our natural resources.

We won't know the impact of a reduction in spending until Flaherty reveals the details.

Stay tuned.

U.S. Economy Slow to Recover

Canada's unemployment rate inched up in July, although this appears to be due to layoffs in the Education sector due to the summer months.

However, while the Canadian outlook is not too bad overall, the U.S. outlook is far more uncertain. The economy appears to be recovering, but at a slower pace than anticipated.

Unemployment is still high in the U.S. and it is not likely to drop significantly, at least for the short term