Canada's Economic Slide in Five Charts
If China is the Commodity Engine
Canada’s poorest 10% of the population saw their net worth drop some 150% since 2005. They have an average net worth of -$5,100, meaning on average the lowest earners have $5,100 more debt than assets, down from -$2,000 in 2005.
In the U.S. those in the lowest 20% quintile had a negative median net worth of -$6,029 in 2011, compared with -$905 in 2000. Those in the 2nd lowest quintile saw their assets drop by nearly half to a median of $7,263 in 2011 from $14,319 in 2000. (CNBC.com)
Deep and Persistent Wealth Inequality in Canada
Broadbent Institute September 2014
The Fading Redistributive Impact: Inequality and Poverty After four decades of relative stability, income inequality in Canada surged upward in the latter half of the 1990s. Between the mid-1990s and the mid-2000s, inequality increased more in Canada than in other OECD countries, and the redistributive impact of the tax-transfer system in Canada declined (OECD 2008, fig. 4.7). As we saw at the outset, by the mid-2000s, the redistributive impact of Canadian taxes and transfers was among the smallest among OECD countries (OECD 2011, 271).
The big surge in market income inequality began during the recession of the early 1980s and continued until the end of the 1990s. Rising market inequality reflects several distinct but powerful trends. Most attention has focused on the stunning rise in the proportion of income captured by the top 1 percent of income-earners, reflecting changing norms about compensation for the highly paid (Saez and Veal 2005; Fortin et al. 2012). The share of income captured by the top 1 percent is now approaching the levels reached in the “Gilded Age” of the 1920s and the Great Depression of the 1930s, generating an intense debate about the division between the rich and the rest, which was highlighted by the Occupy Movement in 2011.
However, other trends have also mattered. One is the loss of solid middle-income jobs as a result of a combination of technological change, outsourcing, and declining unionization. According to one analysis, “the young and the poorly educated have borne the brunt of these forces, but significant numbers of those previously in the middle and lower middle of the occupational skill and wage distribution have also been adversely affected” (Fortin at al. 2012, 133).
Finally, social changes have been important. Women and men increasingly choose spouses with similar educational levels, a process known as marital homogamy, or educational assortative mating. This trend tends to increase family income inequality as high-income earners increasingly marry each other and lower-income earners do likewise. Figure 1.1 captures the impact of these wider trends, demonstrating the strong rise in the real income of families at the 80th and 90th percentile, compared to the stagnation in the incomes of families in the middle and lower levels of the income distribution.
Read the whole Broadbent Institute study with charts here.
Bill Maher - Wealth Inequality in America
Thanks to Ted Kavadas rounding up these 3 charts (and 7 others shown here). In the past 30+ years since the peak in the cost to borrow, Capital has chased financial asset prices (housing, stocks and bonds etal) in bidding wars to record highs against yields plunging to negative return lows.
During this time frame, Labour has formed longer lineups as more and more jobs become a negative return on work/time. Why invest one's time in working for someone else if "unemployment" and grubbing about for oneself produces a similar quality of existence?
The past class struggles against the owners of the means of production ended either with revolution that restructured society or the common ruin of the contending classes. (paraphrased from the 1847 Communist Manifesto Wikipedia)
Well the North American "Spring" seems nowhere in sight, so forget the revolution. Perhaps the reset will be a "restructuring of the contending classes"; although that idea currently seems remote; a minimum wage increase or an asset mark to market is well lobbied against. Also the U.S. (and Canadian) federal governments are on a declared path of austerity as is Europe and other developed countries. As governments reduce spending the only alternative sources for investment in the economy are the private sector and trade. The trade balance is stubbornly negative.
Goldman Sach's via Zero Hedge
The National Federation of Independent Businesses (NFIB) shows 0% of their members planning to hire.
As reported in the previous post about Canadian business expectations for hiring, the demand for Labour continues to slump.
If you have a job and can supply a couple of years of employment documentation, you probably qualify for a big, huge, enormous mortgage. But if business operator's sentiment is plunging on both sides of the border, it means your income stream is at risk.
As housing prices fall over long time spans, households have to make decisions about how they are going to turn the debt they acquired on the way up into equity.
There are two basic choices; get in front of the falling price curve and sell at a either a loss or gain depending on timing, or if the household has the income, pay down the debt over time as a forced savings plan. The former allows for greater savings and re-investment and the latter is a suicidal prison term chained to one price decaying asset.
In either case, households turn to saving and away from consumption.
The charts above and below are from an article by Jack Crooks of Black Swan Trading where he argues:
1) The demand for dollar liquidity in a world where the European banking system is desperately deleveraging and many in the private world are doing the same likely means the world reserve currency remains supported, even though it is likely Ben Bernanke would like to push the buck lower.
2) The commodities super cycle is behind us. This doesn't mean all commodities go lower; agricultural commodities could spike again and are subject to lots of volatility. But even the Australian Central Bank believes there has been a peak in the mining cycle in Australia.
3) The credit crunch (2008-09) really was a sea change. Massive personal balance sheet over-leverage, coupled with the decline in the biggest personal asset, real estate, seems to have triggered a sea change in both real consumption and attitude toward future consumption. This means more savings. More savings tends to mean more money in fixed income (keeping yields low).
4) The knock-on effect of a change in reduced global consumption and increased savings is the catalyst for rebalancing the current account deficit nations with the current account surplus nations. It is especially bad news for those with export-dominated growth models who will take the brunt of the adjustment domestically; and we know who you are: China, Germany, Japan...
By Steve Randy Waldman
April 17, 2012
"We (the U.S.) are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives.
But the preferences of developed, aging polities — first Japan, now the United States and Europe — are obvious to a dispassionate observer. Their overwhelming priority is to protect the purchasing power of incumbent creditors.
That’s it. That’s everything. All other considerations are secondary. These preferences are reflected in what the polities do, how they behave. They swoop in with incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.
The same preferences are reflected in what the polities omit to do. They do not pursue monetary policy with sufficient force to ensure expenditure growth even at risk of inflation. They do not purse fiscal policy with sufficient force to ensure employment even at risk of inflation. They remain forever vigilant that neither monetary ease nor fiscal profligacy engender inflation. The tepid policy experiments that are occasionally embarked upon they sabotage at the very first hint of inflation.
The purchasing power of holders of nominal debt must not be put at risk. That is the overriding preference, in context of which observed behavior is rational." Read Full Article
An Example in Real Time
The Dutch Left’s Embrace of the Austerity Suicide Pact: It’s Necessary for the Children! by William K. Black, April 30, 2012 SOURCE: NewEconomicPerspectives.org
"A remarkable, thing has just taken place in the Netherlands. The ruling Dutch political coalition collapsed when the ultra-right wing party refused to support its coalition partners’ austerity package that called for tax increases and reduced government expenditures.
The bizarre fact is that European leaders, at the precise time that neoclassical (utopian?) economic dogma has utterly discredited itself empirically, has embraced the failed dogma with a passion worthy of the most formulaic romance novel. This embrace is not limited to politicians from the extreme right; much of the left’s political leadership has gotten all steamy about austerity." Read Full Article
History, Charts & Curated Readings
"Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement; and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it." George Santayana Vol. I, Reason in Common Sense
Balance Of Trade
Rent Or Buy