Corpcentre's Blog

March 8, 2010

Should Politicians be Deciding our Fiscal Policies?

It seems that the hurricane called the global recession is starting to lose steam and peter out. But, if you follow global weather patterns, you see that there are always after effects, residual shocks, smaller storms, etc. In short, no disaster seems to operate independently. There is always cause and effect.

So what caused this recession? After all, if you can isolate the cause of a disease, you can help prevent its recurrence. The near collapse of the US economy was frightening. The devastation caused by it harmed countless individuals and businesses alike. Many have not yet recovered. Who is to blame?

It’s easy to say that the mega-bonuses within the nation’s financial industry were the problem. However inappropriate these bonuses may have been (and continue to be), they were not, and are not, the root of evil. No, when all is said and done, the root of economic evil is lousy government policy. Government leaders, and their script writers, are excellent at describing the ill-gotten gains of the private sector. It is quite easy to divert public attention from the real problems at hand by placing blame at the markets whose goal is to earn money. How many millions of American homes are now in foreclosure due to a mortgage system that was manipulated by US government policy, rather than operated by the modes of free economy?

Imagine, for a moment, that the US government operated along the lines of a major for-profit corporation. The Senate and Congress would be the Boards of Directors and/or shareholders. The CEO and his staff would have to justify their fiscal policies and operate the business in such a way to please the directors and shareholders. After all, the bottom line is what truly matters. Sounds absurd, of course. On the other hand, can one imagine a mega-corporation continuing to function while juggling an operating debt of more than $1 trillion? Of course not. At the minimum, some change in fiscal policy may be deemed necessary.

But, governments continue to operate based on political need. Business will adjust to the times and weather storms as necessary. With a little luck and hard work from non-government entities, society will persevere economically and overcome the mistakes of its political leaders. If we want to avoid another recession, it’s truly time that politicians stick to their business but leave the money matters to the professionals.

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February 23, 2010

Hope on the Horizon for the US and Canada

The news is out – the recession is over! Or is it?

Whatever you read today seems to have a different opinion. Some say that the worst is behind us and we’re recovering very nicely, thank you. Others say that we’re experiencing a temporary lull before the next storm. Optimists say we can return to our previous standards of living. Pessimists say that we should learn from our mistakes and prepare for the next rainy day.

The truth probably lies somewhere between the two. The fact is that the best of economists will tell you that predicting the future is virtually impossible. Yet, when the figures are checked and re-checked, the recent economic indicators are rather positive. Forget the major “what-if” theories and focus on what’s really happening.

Recently released figures for the final quarter of 2009 indicate a growth in the GDP of both Canada and the U.S. In the U.S., the growth is attributed primarily to inventory rebuilding. While some consider that a temporary measure, likely to taper off, others point out that the need for increased inventory is due to resurgence in consumer spending. True, consumers are still spending their money more cautiously but the figures remain positive.

Not just consumers are spending more. Business investments grew by 2.9% in the final quarter, as compared to a nearly 6% drop in the third quarter. Equipment and software investments rose by a whopping 13.3% for the quarter. Also, net exports added to the U.S. GDP, indicating that the Americans are now using their weak currency and high productivity to their benefit in foreign trade.

Back in Canada, economists have re-examined all the figures and are pleasantly surprised that economic growth in the fourth quarter exceeded 4%, well above the forecasts. The Canadian figures continue to rise well, indicating that recovery is progressing.

It’s hard to tell but, for the time being, after a treacherous journey, both Canadians and Americans are safely on the way back home.

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February 10, 2010

Buy American and Canadian Too!

The American Recovery and Reinvestment Act of 2009 was the landmark US$787 billion economic stimulus package intended to jumpstart the ailing U.S. economy. While it contained a variety of elements, one of the more controversial clauses was the “Buy American” stipulation. In order to qualify for government contracts, U.S. companies were obligated to buy only from American suppliers and manufacturers.

As both the U.S. and Canada rely heavily on exports between the two nations, “Buy American” was met with strong opposition from both American and Canadian business. Supporters of the clause argued that America needed to boost sales and manufacturing at home. Opponents noted that supply chains north and south of the border are so intertwined that all parties involved would be hurt, not improved.

After months of deliberation between the nations, a multi-faceted trade deal has been reached between Canada and the U.S. All though yet to be fully ratified (the U.S. requires an executive order while Canada requires each province and territory to sign, as well as the federal cabinet), the agreement reflects the spirit of cooperation that has long existed between the two neighbours.

Canadian companies will now be able to bid on procurement contracts in 37 U.S. states. Similarly, U.S. suppliers will receive reciprocal access to provincial procurement. As the possibility of future U.S. federal funding is quite realistic, the current deal contains a commitment to fast-track negotiations on possible “Buy American” stipulations.

As a result of this reaffirmation of the strong links that connect the two nations, talks in Canada of promoting “Buy Canadian” retaliatory actions have been suspended.

Rather than just looking at what’s good for each other, both Canada and the U.S. have agreed that maintaining the long-standing friendship will have a positive payout for both countries.

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February 9, 2010

Obama and Small Businesses

In his recent State of the Union address, U.S. President Obama presented a bold, economic initiative to help bolster his nation’s struggling economy. Obama proposed making $30 billion available to small community banks so that they, in turn, can make these funds available in the form of credit to small businesses.

From a patriotic standpoint, Obama is worthy of praise in his concern for small businesses, part of the backbone of America. From an economic standpoint, many feel he has missed the boat.

Many bankers and economists agree that the problem in the U.S. economy is not the lack of credit but the lack of demand by small business and consumers. Simply put, Americans are not interested in borrowing money at this point in time. Unsure of their country’s economic future, Americans prefer to save rather than spend. Herein lays the problem for small businesses. Their market has shrunk, due to fewer customers. As a result, they cut costs by hiring less and purchasing less from suppliers. At the end of the chain are the businesses that face closure. In order to keep afloat, these businesses attempt to obtain credit to pay their bills. But, these are the high risk customers that the banks don’t want. The banks want the solid customers who can repay their loans. After all, banks make money from repaid credit, not defaulted loans.

At this point, the only banks that would require funds from Obama’s $30 billion are those holding problematic loans, and they probably won’t qualify. Bank regulators are examining records with magnifying glasses. High risk banks will most probably fail, rather than receive federal relief.

Maybe Obama should re-direct his funds. Stimulus funds need to get into the economy right away. Rather than strengthen the banks that are in trouble, strengthen the small business sector. When consumer spending is stimulated, the wheels of the economy will be oiled and the system will move forward.

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November 26, 2009

Stimulus Funds in Canada to Become Permanent?

Much has been written these last few months about the effects if the recession, or whatever term one may wish to call the global economic situation since last year. Some countries have weathered the storm better than others. Certainly, Canada, while by no means having fully recovered, is on much stronger financial footing as compared to our neighbours to the south. Experts have attributed many factors to Canada’s relative strength. But, putting aside the past, the questions that still remain unanswered pertain to the future.
 
One factor that is contributing to Canadian recovery is the strength of public confidence. As the belief in the stability of the economy grows stronger, the recession and its effects recede that much more. However, what will be if the global economy takes a nosedive once again. Are we prepared for that?
 
The Canadian government has been a major player in managing the recession and orchestrating the country’s recovery. A large factor has been the availability of federal funds available through a variety of programs tailored to the various needs of the business community. While these programs were designed as a temporary stopgap to help weather the storm and keep the business sector liquid, government officials are now asking themselves whether it might be wise to make a basis of liquidity permanently available.
 
On one hand, officials see the inherent benefit of providing funds to facilitate the continuous functioning of core markets. On the other hand, researchers for the Bank of Canada are concerned that these “permanently available” funds might induce investors to take on excess risk, secure in the knowledge that there will always be a bail out plan ready.
 
While the debate continues, the government and the central bank have learned that they must maintain sufficient flexibility and readiness to respond to any future liquidity problems.

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October 12, 2009

Advertising Advice for Small Businesses

Undoubtedly, you will invest a good deal of time spreading the word about your new business. However, business requires a degree of volume. Therefore, advertising is a necessity. There are a variety of ways to advertise your new business, beyond merely speaking to people.
 
Even in this age of the Internet, many people still open the Yellow Pages when looking for a business. Of course, remember that the more visible your ad, the better your chance of being seen.
 
Newspaper ads are not just the realm of the major players. Your business will begin its path from a local market and local newspapers are the economical and effective way to attract a customer base. Don’t forget to have an advertisement prepared professionally. An amateur look could harm your professional image.
 
A new business should avoid costly telemarketing. On the other hand, direct mail may serve you well as you can choose exactly which geographic audience you are seeking.
 
Do you have a supply of eye-catching business cards? Each card is a miniature advertisement. Give them out freely to whomever you meet. Also, you may want to enlarge your card and prepare a sign to stick to your car. Remember, it is hard to say that you can advertise too much.
 
Of course, budgets do factor into advertising. The size of your advertising budget will determine how much you can allow yourself.
 
Be sure to get around to trade shows. Networking at shows and conventions is a very effective way to make contacts and get known “in the business.”
 
If you can afford it, local cable television advertising and radio spots may work for you. Similarly, sponsorship of local events in your community will earn you positive recognition.
 
Be creative and continually seek new and creative ways to advertise your business. It doesn’t always require a large budget to market your business. Do what’s best suited for your budget and be persistent.

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October 5, 2009

Canadian Recovery Indicators

Recent economic records this summer seem to indicate brighter days on the Canadian horizon. Earlier, analysts had predicted a $100 million surplus in July. The reality, though, was quite different. Rather than a surplus, Canada experienced a near record deficit in July 2009 of $1.43 billion. This was surpassed only by the May 2009 deficit of $1.45 billion. Despite these figures, economic analysts seem buoyed by the surge in imports. The sharp rise in imports and exports seem to indicate that recovery from the global financial crisis is on the horizon.

Import figures for July reflected an overall 8.3 percent increase from the previous month. This positive figure included a 10.9 percent increase in machinery and equipment imports, an impressive 18.7 percent rise in automotive products, and a similarly encouraging 18.6 percent rise in energy products.

Exports rose by 3.3 percent in July, primarily due to increased shipments of equipment, machinery, and automotive products. 73 percent of all Canadian exports in July were to the United States but, due to the sluggish American economy, this figure was down a whopping 35.2 percent from July 2008.

In order to stimulate the economy, the Bank of Canada has promised to leave interest rates at their current record low. The recent trade figures have not caused the Bank to change its current position. Responding to the Bank’s announcement regarding interest rates, the Canadian dollar rose to 92.46 U.S. cents from 92.10 U.S. cents.

Analysts insist that the increasing deficit is not a prime cause of long term concern. The true indicator is the rapid acceleration in trade volumes. The rises in imports and exports indicate increased commercial activity and the true beginnings of economic recovery.

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September 17, 2009

Bank Of Canada: Strong Canadian Dollar may Reduce Economic Growth

Filed under: canada economy,Canadian economy,canadian jobs,US economy — corpcentre @ 9:10 pm

With predictions abound of economic recovery in the third quarter of this year, the Bank of Canada has issued a warning – not its first – that the strong Canadian dollar may pose a serious threat to the nation’s financial comeback.

The Deputy Governor of the Bank of Canada, Timothy Lane, recently addressed economists at a meeting of the Canadian Association of Business Economists. Mr. Lane’s speech did not veer much from the official viewpoint of the country’s central bank. He warned that a strong Canadian dollar will reduce economic growth and will delay the return of inflation to its target. In fact, as the bank has made certain projection in regards to inflation, Mr. Lane feared that the continuing strength of Canada’s currency may force a revision of those predictions.

Mr. Lane explained that the Bank of Canada has tools at its disposal to deal with the rise in the dollar’s strength. However, the Bank’s options are limited, with interest rates at an historic low of 0.25 percent. At this point, the most the Bank can do is issue verbal warnings to speculators to try and steer them away from the Canadian dollar. Most economists agree that Bank intervention in foreign exchange markets is highly unlikely. Another step the Bank could do, and is highly unlikely, is quantitative easing – literally, the printing of money. Mr. Lane did not give any indications, though, that the Bank is considering this unconventional step.

One of the leading factors of the currency’s rise in value is attributed to higher commodity prices, in turn leading to a Canadian recovery. Similarly, the weakening of the U.S. dollar is a contributing factor.

While Mr. Lane views global financial recovery as moving forward, and Canadian recovery as one of the leaders, he remains cautious about committing to a complete recovery in the third quarter.

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September 15, 2009

Evaluating Canada’s Inflation: More Buying Power for Small Business

Volumes have been written in the last few months about Canada’s inflation rate, currently sitting at 0.25% annually, and the interest rates set by the Bank of Canada. As the 2009 recession is seemingly coming to an end, according to many government and private analysts, speculation exists as to how the interest and inflation rates will be affected.

According to the chief economist for the CIBC, Avery Shenfeld, there should not be any expected growth above non-inflationary potential until sometime in 2011. The economic slack created by the recession is quite large and is expected to persist for a couple of years. Although the Bank of Canada is rather optimistic in its projections, Shenfeld feels that inflation will still feel the downward pressure of a sizable output gap well into next year.

Shenfeld explained that the core inflation rate did not decelerate this year as much as the Bank of Canada predicted. The reason for this deceleration slowdown is due, in part, to a process that economists call the income effect. Essentially, the Bank of Canada has excluded most of the volatile items that have been deflating from the Consumer Price Index (CPI).

Putting aside economic evaluation, the real question is what this means for the average consumer. In real terms, a negative year-on-year inflation rate means an increase in buying power of the average wage. With lower gas prices at the pump, and new, lower mortgage bills, average Canadians will have more money in their pockets when they go shopping. Also important is the strength of the Canadian dollar. The strong dollar is having a dampening impact on retail prices of imported goods.

Mr. Shenfeld’s report does not see the projected US recovery as having much benefit for Canada. The US stimulus programs, while spurring economic growth in that nation, contain trade barriers with Canadian manufacturers that historically have benefited from trade with the US. Thus, US recovery may actually dampen some of Canada’s economic advancement.

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September 7, 2009

Visa to the U.S.

Gone are the days when a Canadian family would hop in the car and drive down for a day to the closest city in the U.S. to do a little shopping. But the desire to purchase certain goods in the U.S. still exists. Now, in the world of eCommerce, a British company has made shopping in the U.S. available to Canadians while staying at home.

Borderlinx, headquartered in the U.K. with additional offices in Brussels, was established by experts in eCommerce, logistics management and international trade. The company enables U.S. retailers to sell their products to a global marketplace by providing innovative eCommerce management solutions. Similarly, consumers globally are provided access to the best quality products at the best possible prices.

Canadian Visa credit card holders are now able to purchase goods online from American retailers with relative ease. Through Borderlinx, Canadian shoppers are provided with a U.S. address and shipping services. This makes previously hard to access stores as simple as shopping from the store around the corner. Studies conducted by Visa revealed that 37% of Canadian online shoppers prefer shopping from U.S. stores due to the variety of products available. The Borderlinx service simplifies the shopping procedures and provides an on-screen calculator that allows shoppers to know exactly what will be the final price of their purchase. Additionally, shoppers through this service have the option of consolidating their purchases from several U.S. stores into one shipment, thus reducing shipping prices.

Canada is the first country to utilize this shopping agreement with Visa although other countries are expected to join later this year.

In the current economic climate, when consumers are careful how they spend their money, this new service affords shoppers an excellent way to make informed shopping decisions.

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