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Banking turmoil is adding to sense of looming economic ‘precipice.’ What’s next?



The collapse of Silicon Valley Bank and the ensuing fallout impacting financial institutions in the United States and Europe this week is adding to the sense of a looming economic “precipice,” experts say.

Although they don’t see any signs of trouble for Canada’s banking system so far, they add Canadians will still likely feel the sting of the broader crisis on top of existing stressors like inflation and high interest rates, along with the rising cost of food and gas.

“I think there’s just a sense that we’re getting close to this precipice where something is going to break,” Kevin Page, president and CEO of the Institute of Fiscal Studies and Democracy and a former parliamentary budget officer, told Mercedes Stephenson on The West Block Sunday.


That could mean a recession or at least a “significant economic slowdown,” he added, though it remains to be seen if it will be a softer landing than what was seen during the 2008 financial crisis.

“I think this is a global issue,” Page said. “One way or another, I think we will feel it.”

The past week saw dramatic market turmoil after midsize U.S. lenders Silicon Valley Bank and Signature Bank imploded, with assurances from world leaders and policymakers that the global banking system is safe failing to calm fears about broader troubles in the sector.

Major U.S. banks had to swoop in with a US$30 billion lifeline for smaller lender First Republic, while all banks in the country sought a record US$153 billion in combined emergency liquidity from the Federal Reserve in recent days.

In Europe, Credit Suisse was forced to tap US$54 billion in Swiss central bank funding to shore up its own plunging stock price, becoming the largest bank ensnared in the crisis.

Both the Credit Suisse and First Republic interventions did little to help, with both stocks continuing to tumble into the weekend.


Lisa Raitt, a former Conservative MP and transport minister who now serves as vice-chair of global investment banking at CIBC, told Stephenson Canada’s banking system is more diversified in its holdings than SVB and other smaller banks, which should give Canadians confidence their deposits are secure.

But she noted the extraordinary speed at which dwindling investor confidence led to the bank run that sparked the broader upheaval, making it hard to predict what may happen next.

“In the past, a bank run could possibly take a number of hours, a couple of days, maybe some weeks. In this case, it was almost instantaneous,” she said.

“That is something that we have to watch in terms of regulation and in terms of what happens in our banking sector.”

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The mounting feeling of economic disaster comes as Finance Minister Chrystia Freeland is set to table the government’s latest budget on March 28.

Freeland’s office has reaffirmed the government’s commitment to “prudent fiscal management” in this year’s budget. That’s after she said in the fall economic statement in November 2022 that the government would “keep its powder dry” and reserve major spending items for the budget in the spring.

Inflation has shown signs of cooling this year due to the Bank of Canada’s aggressive hikes of its policy interest rate. For the first time since it began raising lending rates last March, the Bank of Canada held its rate at 4.5 per cent on March. Canada’s annual inflation rate has cooled from highs of 8.1 per cent in mid-2022 to 5.9 per cent as of January.

Both Page and Raitt said the challenge for Freeland will be presenting a budget that doesn’t reverse that trend with too much relief for Canadians while also addressing the needs of the future, from ongoing assistance for the war in Ukraine to boosting competitiveness in the growing green economy.

“There’s no question Canadians are hurting … so there may be some relief,” Raitt said.

“(But) the difficulty with sending more cheques out and increasing the amount of money in people’s pockets, of course, is that they’re able to spend more. They’re able to buy more. And that actually does add to the possibility of inflation sticking around for a while.”

Page said it will be important for the government’s overall fiscal policy to match the monetary policy being set by the Bank of Canada and work together to drive down inflationary pressures.

Yet some spending that could be seen as inflationary may be inevitable, he added, including the promised boost in health-care spending and addressing NDP priorities like dental care in order to keep the supply-and-confidence agreement with the Liberals alive.

That doesn’t mean the Liberals can’t achieve a balanced budget within “the next three to four years,” Page said — provided that soft landing occurs.

“It’s a complicated budget environment,” he said.


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As economy faces potential recession, Liberals to release 'tricky' budget Tuesday – Financial Post



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OTTAWA — The federal Liberals are set to unveil a budget on Tuesday intended to showcase their plans to keep Canada competitive amid the clean energy transition while supporting Canadians who are struggling with affordability.

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Finance Minister Chrystia Freeland has promised to accomplish as much over the last few weeks, while also pledging to keep the budget fiscally restrained.

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But that balancing act isn’t expected to be easy. A slowing Canadian economy could weigh on government coffers.

“It’s going to be very tricky for the federal government,” said Randall Bartlett, a senior director of Canadian economics at Desjardins.

The Liberals are expected to invest considerably in Canada’s clean energy transition, in an attempt to keep Canada competitive with the United States as it launches its own aggressive measures.

The Inflation Reduction Act, signed into law last August by U.S. President Joe Biden, invests nearly US$400 billion in everything from critical minerals to battery manufacturing, electric vehicles and clean electricity, including hydrogen.

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Ottawa has also promised big bucks for health care. It recently signed 10-year funding agreements with provinces on health-care transfers, and that spending is expected to be accounted for in the budget.

And with the cost of living still a top economic issue for many Canadians, the Liberals have signalled the budget will include new affordability measures.

“In the weeks to come, for those Canadians who feel the bite of rising prices the most acutely, for our most vulnerable friends and neighbours, our government will deliver additional, targeted inflation relief,” Freeland said in Oshawa, Ont. on Monday.

But Bartlett said the federal government has to balance its big-ticket spending priorities with an uncertain economic outlook.

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Many economists are forecasting that Canada could enter a recession this year as high interest rates weigh on the economy. Since March 2022, the Bank of Canada has aggressively raised interest rates to crack down on high inflation.

As global price pressures ease and interest rates dampen spending in the economy, inflation has been slowing. Canada’s annual inflation rate has tumbled from 8.1 per cent in the summer to 5.2 per cent in February.

Even as inflation becomes less of a problem, though, a slowing economy means less government revenues to finance spending.

According to a report from Desjardins, new spending measures alone wouldn’t necessarily put federal finances on an unsustainable path. But if significant new spending is paired with a worse-than-expected economic downturn, that could spell trouble for the federal government, the report says.

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“Planning for an optimistic future and spending accordingly now could lead to very challenging circumstances going forward,” Bartlett said.

The federal government also runs the risk of fuelling inflation with excessive spending, making the Bank of Canada’s job of cooling inflation more challenging. Freeland has repeatedly said she doesn’t plan on doing that, noting the federal government can’t compensate all Canadians for the rise in prices.

Bartlett said the federal government so far has done a good job balancing the need to help low-income Canadians while avoiding adding fuel to the fire.

“My concern is this that (if) they continue to layer this on top of additional spending for other other initiatives … it’s not only going to make potentially the Bank of Canada’s job more challenging, but it’s also going to just increase the size of the deficit at a time when the economic outlook is very uncertain,” he said.

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There is some ambiguity around how the government will approach tax policy in this year’s budget.

Some policy experts have suggested that increasing tax revenues might be part of the solution when it comes to stabilizing federal finances. A shadow budget put together for the C.D. Howe Institute, an economic thinktank, recommended increasing the GST tax rate.

But Bartlett said raising taxes might be a tough sell for Canadians, especially because the federal government has had mixed results on some of its key areas of investment, such as its national housing strategy.

“If we continue to see increased spending, and that requires tax increases to to afford that spending, there’s going to be … increased scrutiny by the public on whether or not we’re getting the bang for the buck,” Bartlett said.

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On the political front, the Liberals also have to contend with New Democrat priorities as outlined in the party’s supply-and-confidence agreement with the Liberals. It agreed to support the minority government in key votes until 2025 — including on federal budgets — in exchange for movement on shared priorities.

In the upcoming budget, NDP Leader Jagmeet Singh has said he wants to see the government extend the six-month boost to the GST rebate, introduced last fall, which temporarily doubled the amount people received.

Singh has also said he’d like to see federal funding for school lunches.

Per the parties’ agreement, the Liberals have already agreed to create a federally funded and administered dental care program this year that would replace the dental benefit for children in low-income families that was rolled out in the fall.

The deal also commits the Liberals to passing legislation on a national pharmacare program by the end of 2023 — although there’s been no sign of movement on that yet.

This report by The Canadian Press was first published March 26, 2023.


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Property Sector Biggest Overhang for China Economy: Hong – Bloomberg



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Property Sector Biggest Overhang for China Economy: Hong  Bloomberg


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Prices are High: Yet Inflation has dropped to 5.2%



The Inflation rate remains relatively high at 5.2% but it has declined reasonably since the interest rates began to rock and roll upwards.

Will the decision be made to raise rates further or drop them? I believe the rates will stay where they are or go up a further point. America will be increasing its rates in an effort to quell its own inflation, and our government will follow suit as usual. A Federal election may well be announced once the inflation rate in Canada has halved itself. Interest rates will be allowed to decline and the public will show their support for the Liberals in kind.

More importantly, why are prices still extremely high while inflation continues to drop? Greed and Shrinkflation of course. Any manufacturer knows the marketplace in Canada and the US has rebounded since mid-summer 2022. Supply chain problems aside, the decline of needed products that once were earmarked for North American Markets have been redirected to China and Indian needs. This is deliberate of course, allowing those manufacturers in Asian Markets to demand higher prices. Products within the retail sector have gone up in price or the price remains the same while the product has been reduced in size. After 2020-2021, most retailers did increase their prices and realized that our markets still were prepared to purchase what was needed, so they will retain their higher prices until forced to change their pricing structure in the near future.

Has this increase in slowing the economy work? North America’s Economy has been booming since mid-summer 2022. Growth rates in the US show promise, and Canada’s Economy has benefited from the boom to the south. America’s President Biden continues to sell its America First purchasing policy putting Canada’s Liberal Government into a fear fest spin. Trump’s “make America great again has been followed by Biden’s purchase American 1st”. Federal Agencies must purchase American manufactured products and services 1st, before giving foreign firms a chance to bid. Canada’s begun to apply taxes on various products in an effort to pay down their massive public debt. Beer and most forms of booze and other items that fall into the luxury tax sector are being targeted.


Have you noticed that most media outlets have refused to offer an attitude of clarity with regard to higher prices and inflation? Why are prices so high? Most so-called specialists claim various reasons why, while others insist grocers are not making loads of money, surviving on a 2-4% profit margin.
Would it not be nice to see a media broadcaster or journalist come out with something like this…

“The Public is being taken for a ride by basically everyone within the retail-manufacturing sectors”
“It’s greed baby, with a side of massive profiteering”.

Canadian and US Corporations are taking our funds to the bank, and we are letting them do so. The public continues to buy what they want on credit while complaining all the more. And did our government demand that essential items needed by the public be made locally, and not imported from some distant land? Words with no follow-up, propaganda with no real power behind them. Instead of going after the wayward profiteering firms, our governments are canceling funding programs for the businesses most damaged by the pandemic(restaurants and Mom & Pop Stores) and also pursuing some individuals that asked for CERB. Governments are and will continue to create new taxes and tax us, while they let the wealthy hide their fortunes in banking centers throughout the world. The government is so comfortable that it will pursue a policy of taxation that strikes at the most vulnerable, our elderly, who also have within their bank accounts @ 3.2 trillion Canadian and much more in America. The average Canadian Boomer is worth @$206,000 and the government and many corporations want some of that.

Like Premier Ford said last year…Ontario is back in business. So to the taxation hikes to come.

Why do our governments allow corporations to blind us with advertising propaganda while their hands are in our pockets, robbing us blind? The very basics of foodstuff, energy demands, and housing needs are pushing many towards a credit crisis never seen before. If the public fails, so do their public governments.

Steven Kaszab
Bradford, Ontario

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