The Globe reports:s “For months, the person who should know the most about the health of Canada's economy and its prognosis has been badly out of step. Both estimates were wildly out of sync with those of private forecasters and other economy evaluators.”
Jack Mintz reports: “I do want to point out that there is a serious flaw in some analyses especially on the taxation of pension and RRSP accounts. Finance was not right to treat the impact as zero”
The US had as their Treasury Secretary the former CEO of Goldman Sachs, meanwhile Canada has as its Governor of the Bank of Canada some novice who was downsized from Goldman Sachs before he even made partner? He has demonstrated a lack of ethics in how he conducted himself on the trust file. Why do we have to tolerate such conduct and incompetence?
Oh, to live the carefree life of an unaccountable bureaucrat making $429,600 a year, plus free on-the-job training.
Central bank darkens view of recession
By BRIAN MILNER and HEATHER SCOFFIELD
From Wednesday's Globe and Mail
April 21, 2009 at 9:47 PM EDT
TORONTO and OTTAWA — For months, the person who should know the most about the health of Canada's economy and its prognosis has been badly out of step.
Now, in a sharp public reversal, Bank of Canada Governor Mark Carney has cast aside his earlier view of a quick recession and accepted what other economy watchers have been saying for months: The situation on the ground is much worse than anticipated, and it could be many months before we see any kind of a turnaround.
“The global recession has intensified and become more synchronous since the bank's January monetary policy report update, with weaker than expected activity in all major economies,” the bank explained in a statement. “While more aggressive monetary and fiscal policy actions are under way across the G20, measures to stabilize the global financial system have taken longer than expected to enact.”
The question left hanging: How did Mr. Carney and his advisers come to their previous forecast in the first place?
The answer appears to lie in the bank's sophisticated computer models, which produced expectations that unprecedented interest rate cuts and a massive injection of fiscal stimulus would spark the conditions for a strong recovery.
“At that time, the bank was still clinging to the hope that that easing would have the typical economic response,” said Avery Shenfeld, chief economist with CIBC World Markets. “But there are reasons to believe that the global economy is not going to respond to the medicine as well as it has in the past.”
On Tuesday, the central bank cut its key overnight lending target in half to a record-low 0.25 per cent and is vowing to keep it there for more than a year, if necessary. It now predicts that the national economy will shrink by 3 per cent this year, to be followed by a tepid recovery of 2.5 per cent in 2010.
Yet as recently as January, Mr. Carney surprised the market with a bullish prediction that the economy would contract by as little as 1.2 per cent this year, before rebounding strongly with growth of 3.8 per cent in 2010.
Both estimates were wildly out of sync with those of private forecasters and other economy evaluators. The International Monetary Fund last month predicted both a steeper decline and slower recovery.
“The [central] bank is well aware that things are not turning out as they had forecast,” said Jayson Myers, president of Canadian Manufacturers and Exporters.
The Bank of Canada has a lot of influence on business confidence, particularly when companies are so skittish these days and hungry for information, said Tina Kremmidas, chief economist at the Canadian Chamber of Commerce. So when the central bank changes direction, “it does matter.” The bank has gained high credibility in the past 25 years of successfully targeting inflation, so its views will reverberate widely, she said. The downward revisions are likely to shake business confidence further and cause firms to rethink investment and hiring.
At the small end of the business scale, many operators pay close attention to the signals the central bank sends, although they don't usually adopt the bank's forecast wholesale, said Ted Mallett, vice-president of research at the Canadian Federation of Independent Business. To that end, Tuesday's statement from the bank was encouraging, because it signals that interest rates will stay in the basement for a long time. “It's an interesting approach and a strong signal that they want to keep the cost of money at a favourable rate,” he said. “That helps business decision making. What they're trying to do is create some certainty here.”
Other economists believe that while Bank of Canada's outlook is influential, it is not as powerful as it once was.
Peter Hall, chief economist at Export Development Canada, argued that companies researching their marketplace have so much information available to them these days – much of it available for free on the Internet – that the central bank's view is just one of many that they will consider.
“There's a deluge of information out there,” Mr. Hall said.
EDC's customers – Canadian businesses involved in exporting – are well aware that all forecasters are revising frequently these days, and have reacted by building large amounts of risk into their own company outlook, Mr. Hall said.
Nevertheless, businesses and consumers can ill-afford to have a central bank out of step with reality by, for instance, making monetary conditions tighter than they ought to be.
“There's no light at the end of the tunnel, as far as construction goes,” said Steve Ross, general manager of Cherubini Metal Works in Dartmouth, a steel fabricator that has laid off close to a sixth of its work force of 300 and will soon face further cuts if orders don't pick up in the next few months. “We just don't know where the bottom is.”
Tuesday, April 21, 2009
Posted by Fillibluster at 10:32 PM