Friday, December 26, 2008

Doom and Gloom Media Contribute To Fear and Recession

Modern Parable

Japanese co (Toyota) and US co (Ford Motors) decide to have a canoe race on a River Both teams practiced to reach their peak performance. On the big day, Japanese won by a mile. USA,discouraged ,investigate the reason for the defeat.Senior management was formed to recommend action. Conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Ford spent the last 30 yrs moving its factories out of US, claiming they can't make money paying US wages. TOYOTA spent last 30 yrs building plants inside the US. Last quarter's results: TOYOTA - 4 billion profits , Ford 9 billion in losses. Ford folks are still scratching their heads, and collecting bonuses... and now wants the Government to 'bail them out'.

Submitted by shleprock at 9:41 PM Tuesday, December 23 2008

Think 2008 was bad? Just wait, economists say

TheStar.com - Canada -

December 24, 2008

Julian Beltrame
THE CANADIAN PRESS

OTTAWA–It's going to get worse. As bad as the past few months were, even the rosiest of economic forecasts shows on average that Canadians will get poorer in 2009 and many – perhaps as many as 200,000 additional workers – will lose their jobs as the economic recession deepens.

The economic tsunami that was well below the surface as 2008 began hit Canada's shores with a crash in the fall and is only now washing deeper inshore, swallowing an economy that once appeared impregnable – having withstood both the Asian financial crisis a decade ago and the 9/11 fallout in the United States.

Prime Minister Stephen Harper described it best in a recent television interview in which he perhaps tellingly did not reject out of hand the possibility of a depression – a deep economic downturn in which output shrinks by 10 per cent or more.

"I've never seen such uncertainty ... I'm very worried about the Canadian economy," he said, before explaining that governments had learned survival lessons from the 1930s depression that they are applying to the current situation.

But as Merrill Lynch's Canadian chief economist David Wolf put it: "Given the events of the past few months how can you rule anything out? Even us bears have been surprised at just how aggressively things have unravelled."

A key lesson of the Great Depression – and a reason economists believe the damage can be contained shy of D-terrain – is that governments must not sit idly by as the cancer spreads.

The U.S., Europe, China and others have already stepped to the plate with Ruthian stimulus packages worth trillions of dollars in total, and Harper has suggested spending measures in the $20-billion range are being prepared for the Jan. 27 budget, at a price of a huge deficit.

As well, Ottawa and Ontario announced last Saturday that $4 billion will go into jump-starting the battered Canadian auto sector, with more likely to come as part of a North American industry restructuring.

The measures aren't necessarily going to be popular with Canadians, although they are likely a minimum condition for preventing a Liberal-NDP coalition, with the backing of the Bloc Quebecois, from seeking to dump the government once Parliament resumes in late January.

A Canadian Press Harris/Decima poll conducted in mid-month found only 39 per cent support for stimulus spending if it means Ottawa will go into deficit.

For policy makers, the deficit ship has long since sailed.

Even sober-minded economists don't see much to shout about in keeping government books in the black if it means the rest of the country sinks. If everyone else is too scared to spend their last dime, governments had better, they reason.

"Unfortunately it's necessary. Things could be very ugly if policy makers don't step in to support the economy, in certain cases specific industries," said Bank of Montreal deputy chief economist Douglas Porter.

"It still going to be the weakest year since `91," agreed Dale Orr, managing director of IHS Global Insight. "The second half will be better than the first, thank goodness, but we'll need another year after that before we're back to the economy returning to potential."

Orr's analysis is shared almost universally among private sector economists, who have been busily revising even their bleakest forecasts in the past few weeks.

Last week, the Bank of Nova Scotia set the standard for low with a projection that the economy would shrink 1.2 per cent in 2009. A day later the Bank of Montreal did it one notch better at minus 1.3 per cent.

The shocker, however, is that most expect a seldom considered statistic called nominal gross domestic product – which measures the value of what the country produces – to become headline news next year as the wealth-effect of high commodity prices over the last six years gets reversed big time with oil in the tank and prices of minerals, grains, coal and other commodities also in decline.

Many are expecting nominal GDP to shrink by as much as three per cent in 2009, bringing lower corporate profits, lower government revenues and most importantly, lower wages for Canadians.

"That's a shrinking of the economic pie the likes of which we really haven't seen for generations," said Wolf.

The latest projections also predict Canada's unemployment rate will rise to about eight per cent, from the current 6.3 per cent, resulting in something Canadians also haven't seen in a generation, outright job losses of 200,000 from the recession's peak to trough.

While the jobless rise in 2009 will hurt, it's still a far cry from the last two recessions. Unemployment hit 13 per cent in the 1980-81 decline, when industrial North America – mainly the steel and auto sectors – went through a painful restructuring. In the early 1990s the recession hurt real estate and retail sectors and pushed the jobless rate to 10 per cent.

How do we get ourselves out of this mess?

A recovery is coming, economists say, and it's likely from a combination of several factors.

Surely some good must come from the trillions of dollars being poured into the economy from governments around the world, they figure.

The other bright spot – although it's cold comfort to Canada's oilpatch – comes from cheap oil, which will cut business costs and leave more money in the pockets of consumers around the world.

And then there's that fickle measure called consumer confidence, which has been dining on despair for months and sits at its lowest level in more than a quarter century.

Orr believes much of the loss of trust and confidence among investors and consumers stems from global markets' stomach-churning bungee jump since mid-September.

In Canada, the stock market has lost more than 40 per cent of its value since a mid-June record high, wiping out hundreds of billions of dollars of stock value and squeezing the investments of Canadians held in pension plans, stocks and mutual funds. That has made people feel poorer and tighten their wallets and companies from cutting investments and expansion plans.

"Everybody is gloom and doom now, but things could turn around quickly," Orr says. "Everybody is now waiting for conformation we're at the bottom and if you can get a week or two of really strong markets, there will be a piling on phenomenon and people won't be able to wait to get back in."

But he hurries to add, it might not be wise to bank on it happening in 2009.

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