Small Business Blog from Atlantic Canada

We are living in one of the most unsettling periods in human history. Businesses are being nationalized. William Gale, an economist at the Brookings Institute, along with Fed Chairman Ben Bernanke suggests that while the recession might end by the end of the year, sustainable recovery may take a while. Perhaps the greatest economic lesson we will learn is that we cannot spend our way out of a recession. People cannot spend what they do not have. And this goes for governments too. Speaking of people, when they find themselves on path to poverty losing everything they have worked for all their lives, I guess rationality goes out of the window.

Who is John Galt? If you recognize the question, you have no doubt read Ayn Rand’s Atlas Shrugged. This question portrays a sense of helplessness and despair in her novel. With each passing day, did you not notice the things that are being done in the interest of the “public”. Are we traveling down the same path as mentioned in Rand’s book? The similarities are striking. New Brunswick seems to understand that where the Premier Shawn Graham promises to lower personal income taxes to 9% and 12%. I say abolish taxes totally with immediate effect.

How would you react when you notice a bunch of sharks keeping their distance from a bloodied meal? Imagine in your mind’s eye: speculators and hedge funds (sharks) circling around the meat (the US dollar), but still apprehensive to go in for the kill. After all we are talking about the world’s largest economy, albeit a one on crutches. Why haven’t we seen a hammering of the US dollar as we have seen in past crisis across the globe? Being the vehicle currency, the US dollar enjoys dominant share in central banks’ reserve portfolio worldwide. While there are some countries who have reduced their exposure to the US dollar, no country has given up trading in the US dollar altogether.

If I were an American International Group Inc. (AIG) employee I would quit – in a hurry. I’d rather be at home than become a government employee. Isn’t that what an AIG employee has now become? “Because the government gave me money, I got to do what the government asks me to.” I cannot run my business (unit) without thinking if my actions are going to upset the government and public. Today it is the retention bonuses – tomorrow I’ll be told I can’t make money. AIG won’t be returning to profitability any time soon in this scenario

“The current crisis is unprecedented!” “Governments globally are reducing interest rates to historic lows in response to this crisis.” “Government is urging banks to lend.” “TSX is down another 100 points …”

Not a day goes by these days without us hearing the words of economic gloom and doom. Deficit’s seem to be the new economic mantra. It seems to be the magic wand that will seemingly fix our economic woes. And perhaps it will. But I am not sure that getting into a deficit to fund infrastructure spending is the key to our economic recovery. A deficit may be effective depending on how we get into deficit.

I think the answer lies in speculators and hedge funds. They are no longer buying (using debt) futures and forwards as they used to. Did this cause the increase in demand in the first place? Did these funds create an artificial demand? I find it quite hard to believe demand for crude from actual users (i.e. those individuals and businesses who actually take delivery of the asset in a forward or a futures contract) just slid off the cliff in less than three weeks.

The Canadian Federation of Independent Business just released its Quarterly Business Barometer today. It shows the index has fallen in June, back to the levels displayed for most of 2006. That translates to 2-3% growth in the economy.

Dr. Mary Brooks (William Black Chair of Commerce at Dalhousie University, Halifax), one of the transportation experts, believes it is important for Atlantic Canadians to realize that the Atlantic Gateway Initiative is not a Halifax-only initiative. It has positive implications for the entire region. But, is transforming Halifax to a global trade hub possible for a province that screwed-up the 2014 Commonwealth Games?