Economy

A troubled world economy points to global catastrophe

Published

11 months ago

October 13, 2023

Troubles are coming to the world economy — not as single spies, but as battalions. They are doing so on multiple fronts, in the United States, China and Europe. Coupled with renewed geopolitical strains in the Middle East, those troubles heighten the chances of a full-blown world economic and financial market crisis by the middle of next year.

Among the greatest threats to the U.S. and world economic recoveries is the recent spike in U.S. Treasury bond yields, the key interest rate in the world economy. In the short space of two months, the 10-year Treasury bond yield spiked from less than 4 percent to over 4 ¾ percent — a 16-year high. It did so in response to Federal Reserve warnings that interest rates would stay high for longer to contain inflation, as well as to growing market fears about how the U.S. government will fund its budget deficit, at 8 percent of gross domestic product.

The sharp rise in interest rates has already sent the 30-year mortgage rate toward 8 percent and substantially increased the interest rate cost for automobile purchases. This must be expected soon to constitute a major headwind for both home and automobile sales at the very time when most households have run through their pandemic savings and the government faces another shutdown.

It is also likely to exacerbate problems in the commercial property space where property developers are already struggling with low occupancy rates in a post-COVID world. The last thing that these developers needed was to have to pay higher interest rates on the more than $500 billion in commercial property loans that come due over the next few years.

Worse yet, the spike in Treasury bond yields must be expected to soon lead to a U.S. credit crunch. It is likely to do so by raising solvency questions in large swaths of the U.S. banking system in general and the regional banks in particular.

Even before the recent spike in bond yields, it was estimated that the U.S. banking system had more than $600 billion in mark-to-market losses on its bond portfolio. The further plunge in bond prices is going to add substantially to those losses. This puts the regional banks in a particularly poor position to absorb the expected wave of defaults on their commercial property loan portfolios, which constitute almost 20 percent of their balance sheet.

It would never be a good time for the world economy to have China, the world’s second largest economy and until recently its main engine of economic growth, move to a decidedly lower economic growth path. It would be a particularly inopportune time for such an occurrence when the United States appears to be on the cusp of a meaningful economic recession. Yet that is what now seems to be occurring in the wake of the bursting of that country’s outsized housing and credit market bubble. The bursting of that bubble, coupled with China’s very poor demographics, is now raising serious fears that China is well on its way to a Japanese-style lost economic decade.

Similarly, now would seem to be an inopportune time for Europe to succumb to an economic recession and to experience another round of its sovereign debt crisis centered on Italy, a country with an economy some 10 times the size of that of Greece. Yet that now seems to be very much in prospect as the European Central Bank continues to raise interest rates to regain inflation control at a time of economic weakness, and when the Italian government has introduced an expansionary budget while its public debt level is very much higher than it was in 2012. The German economy has now already experienced three consecutive quarters of negative economic growth, as the spread between Italian and German bond yields is increasing at a troubling rate.

All of this would seem to have clear implications for U.S. economic policymakers. The Federal Reserve should back off its high interest rates for longer mantra and start preparing for a world economic and financial system crisis. At the same, Congress should get its act together and start addressing in a meaningful way the country’s long-term budget deficit problem.

American Enterprise Institute senior fellow Desmond Lachman was a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging-market economic strategist at Salomon Smith Barney.

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Business

A timeline of events in the bread price-fixing scandal

Published

3 hours ago

September 19, 2024

Anne Joseph

Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

Published

3 hours ago

September 19, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

Published

17 hours ago

September 18, 2024

Anne Joseph

VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

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