Wednesday, August 22, 2012

Mark Carney killed income trusts, creating the dllemma of "dead money" (his term)



Corporate Canada doing too little to drive growth: Carney

The Globe and Mail
Published  Wednesday, Aug. 22 2012, 11:14 AM EDT

Bank of Canada Governor Mark Carney suggested that Canada’s publicly traded companies are failing to take advantage of ultra-low interest rates, sitting on a huge pile of “dead money” that should be returned to shareholders if managers are unwilling to find more productive uses for it.   
Speaking to reporters in Toronto Wednesday, Mr. Carney acknowledged that companies are wary about the global economy’s prospects as a result of the European debt crisis. However, he said Canadian executives are underestimating the resolve of the Bank of Canada and other authorities to guard against a financial crisis. He suggested corporate Canada isn’t doing its fair share to drive economic growth.

“This is dead money,” Mr. Carney said of corporate cash, because interest rates are so low. “The level of caution could be viewed as excessive,” Mr. Carney added later. Referring to corporate managers, he said, “Their job is to put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.”
The comments followed a speech to the Canadian Auto Workers union, which estimates that Canadian non-financial companies are sitting on more than $500-billion in cash.  
It is rare for a central banker to launch such a direct assault on some of the country’s biggest companies – and most influential chief executives. However, the remarks reflect Mr. Carney’s broad worry that Canada is doing too little to become a competitive force in the global economy.
 In his remarks to the auto workers, Mr. Carney repeated that Canadians are spending money on houses that should be used for more “productive” purposes, and that the country trades too little with the fast- growing emerging markets.
“We cannot grow indefinitely by relying on Canadian households increasing their borrowing relative to income,” Mr. Carney said in his speech.
Mr. Carney’s hosts on Wednesday will cheer his criticism of corporate executives.
However, the central bank chief dismissed the union’s contention that the Canadian dollar’s strength is hurting exports. On the contrary, Bank of Canada research suggests that the dollar’s appreciation accounts for only about 20 per cent of Canada’s export decline.
The biggest reason Canada is running a trade deficit is because it is “overexposed” to the United States, where gross domestic product will be $1-trillion smaller in 2015 than pre-crisis estimates, Mr. Carney said.
“We cannot devalue ourselves to prosperity,” Mr. Carney said in the text of his speech, a direct rebuttal of the CAW’s position that Ottawa should intervene in foreign exchange markets to weaken the currency.


Bruce Benson said...

WOW, Carney and Flaherty the bobsie twins of wealth destruction have the nerve to tell corporations to part with their cash. They were the ones that created this situation. Seems the Income Trusts that these assholes destroyed returned their free cash flow to shareholders. Oh and what are all those corporate tax cuts doing for the economy? Starving the Govt of cash at the same time creating a corporate culture of corporate hoarders. How lovely!

Dr Mike said...

Essentially Carney is saying that Flaherty`s corporate tax cuts are the root of this dead money.

The tax cuts should have gone to the real economic engine , the consumer.

Flaherty is a dufus

Since Carney did not object at the time , he is also a dufus.

Dr Mike

Brent Fullard said...

Well, Carney and Flaherty have pretty much covered both extremes ends of the spectrum in assessing blame on the part of others.

First they condemn the income trust model in which businesses distribute their earnings (after capital investment) to unitholders on a MONTHLY BASIS, who in turn immediately deploy that money back into the economy by condemning these investors as "coupon clippers" and next they condemn the corporate model they did everything to afford with an unfair advantage by calling them cash hoarders and dead money.

Did it ever occur to these two masterminds that they may be the source of the problem, in their reckless act of preventing the income trust model from bringing much needed economic efficiency to the capital markets?


Anonymous said...

These have to be the best 3 comments on the Caiti site, so on that note !

Lance Armstrong showed leadership with the coming proof of his guilt.

So our beloved Mark CON Carney and our LITTLE Jim Flaherty have to face up to the truth and show leadership !

The Lie , Conceal and Fabricate charade is now over , they are a fraud !


Anonymous said...

What a (expleteive deleted) hypocrite! First he helps the government kill income trusts, then he complains about corporate Canada sitting on $500 million rather than investing it or paying it out to shareholders! If they had only left the income trusts alone this would not be a problem. These corporations would either have to do something with their money or face shareholders demanding they convert to trusts.

Will anyone in parliament bring this up?