Welcome to My Economic World
This weblog contains Research Projects, Learning Videos and Interviews all related to economy and business. Please feel free to leave any comments below any posts on this weblog. Also if you have any researches you have done and you would like to share them with others, please email me your project and I will post it on the weblog.
Hope this Weblog come in handy for you..
Wednesday, March 4, 2015
Is Canada going to a recession?
Should we be worried?
Today, in my economic class, one of my colleagues brought up an article from HuffingtonPost regarding Canada going into a recession, in a close future. This article was posted on 12/30/2014 by Sunny Freeman. The author mentioned many reasons and incidents which are leading Canada into a recession such as: sinking commodity prices, a rise in interest rates and tanking oil prices. In my opinion, there would not be another recession for Canada anytime soon. The reasons mentioned article, can affect Canada's economy, but it will not affect to a point which Canada sinks into a recession.
Sinking Commodity?
First, it is true that CAD/USD ratio has not been good lately, but it is only the US dollar that is getting stronger everyday. If you look at CAD/EUR ratio, you will see that Canadian dollar is not getting weaker, but it is getting stronger.
.png)
The article mentions that the low foreign investments in Canada resulted in the weak Canadian dollar. Amount of foreign investments could be much higher in Canada, but due to the recent recession, it is not. Let's not forget that In 2007-2008 recession, Canada performed really well boosting its economy back up. Although Canada's foreign investments is low right now, its growth has been higher than many developed countries such as Japan, France or Germany. According to World Bank, Canada led all the G-7 countries in economic growth in the past decade which also includes the 2007-2008 recession period.
A Rise In Interest Rates
Recently, Bank of Canada lowered the interest rates in order to lower the interest rates in Canadian commercial banks. Lowering the interest rates results in more borrowing and more investments which can lead to economic growth. The article is concerned about this and the reason is that if many Canadians start borrowing with low interest rates, what happens if the interest rates go back up? It is truly something that people should be concerned about before borrowing large amounts of money from banks. You also might ask yourself isn't having low interest rates and encouraging borrowing the reason why the world went into a recession in 2008? well, you are completely right and low interest rates were one of big reasons that led the world into a recession; but in USA, there are numerous number of commercial banks and these banks lent out great amounts of money to people with much less regulations concerning these borrowings. Canadian banking system, is one of the strongest banking systems in the world and there are many regulations regarding borrowing, which protects the borrowers from being unable to repay their debt to banks.Also, due to Canada's banking system, Bank of Canada will not increase the interest rates if they know that it will hurt many people who borrowed with low interest rates. Over all, Canadians who took advantage of low interest rates to buy a house, finance their investments and etc, should not be concerned about interest rates rising again.
Tanking Oil Prices!
The first topic used by two economists to start a conversation
"Crash of oil prices"; there are not many Canadians, who still has not heard of low oil prices or even sensing it while they are filling up their cars with gasoline. Due to recent decisions of OPEC, the oil prices dropped by around 50%. Those countries which oil is one of their main exports with high cost to extract it from ground, are really hurt by this price.
According to WorldRichestCountries.com, oil is 27% of Canada's total exports and for a country like Canada where cost of getting the oil ready to be exported is high, there is not much profit in it anymore. In my opinion, current oil prices will rise again due to the great pressure on some OPEC countries economy. OPEC is consisted of Iran, Iraq, Algeria, Saudi Arabia, United Arab Emirates and 7 other countries with lower market share. For countries such as Saudi Arabia, extracting the oil from the ground and exporting it only costs around $20 per barrel; now selling it at $50 a barrel is still a good revenue. What about other OPEC giants? Is it same for them? For some OPEC giants like Iran, it costs much more to extract oil from the ground and Iran needs to sell its oil at around $80 a barrel in order to reach its 10 year economic goals. Currently, many OPEC countries like Iran are having many issues due to the current oil price so there is a very great chance of these countries forcing OPEC to cut supplies. If the demand stays the same, due to shift of supply curve to the left, the new equilibrium will have a higher price. Overall, current oil price is just a bubble and soon the oil price will go back to its real value. This will most likely happen in June 2015, on OPEC's next meeting.
In conclusion, Canada is not likely to approach a recession. Recessions happen when the economy is at a peak and Canada's economy just started to recover from the previous recession and has a long way to reach its peak. I do not believe that it is a good time to be worried about upcoming recession and I believe that the focus on doing all that is possible to grow Canada's economy is the priority.
Thank you very much for your time.
Should we be worried?
Today, in my economic class, one of my colleagues brought up an article from HuffingtonPost regarding Canada going into a recession, in a close future. This article was posted on 12/30/2014 by Sunny Freeman. The author mentioned many reasons and incidents which are leading Canada into a recession such as: sinking commodity prices, a rise in interest rates and tanking oil prices. In my opinion, there would not be another recession for Canada anytime soon. The reasons mentioned article, can affect Canada's economy, but it will not affect to a point which Canada sinks into a recession.
Sinking Commodity?
First, it is true that CAD/USD ratio has not been good lately, but it is only the US dollar that is getting stronger everyday. If you look at CAD/EUR ratio, you will see that Canadian dollar is not getting weaker, but it is getting stronger.
The article mentions that the low foreign investments in Canada resulted in the weak Canadian dollar. Amount of foreign investments could be much higher in Canada, but due to the recent recession, it is not. Let's not forget that In 2007-2008 recession, Canada performed really well boosting its economy back up. Although Canada's foreign investments is low right now, its growth has been higher than many developed countries such as Japan, France or Germany. According to World Bank, Canada led all the G-7 countries in economic growth in the past decade which also includes the 2007-2008 recession period.
A Rise In Interest Rates
Recently, Bank of Canada lowered the interest rates in order to lower the interest rates in Canadian commercial banks. Lowering the interest rates results in more borrowing and more investments which can lead to economic growth. The article is concerned about this and the reason is that if many Canadians start borrowing with low interest rates, what happens if the interest rates go back up? It is truly something that people should be concerned about before borrowing large amounts of money from banks. You also might ask yourself isn't having low interest rates and encouraging borrowing the reason why the world went into a recession in 2008? well, you are completely right and low interest rates were one of big reasons that led the world into a recession; but in USA, there are numerous number of commercial banks and these banks lent out great amounts of money to people with much less regulations concerning these borrowings. Canadian banking system, is one of the strongest banking systems in the world and there are many regulations regarding borrowing, which protects the borrowers from being unable to repay their debt to banks.Also, due to Canada's banking system, Bank of Canada will not increase the interest rates if they know that it will hurt many people who borrowed with low interest rates. Over all, Canadians who took advantage of low interest rates to buy a house, finance their investments and etc, should not be concerned about interest rates rising again.
Tanking Oil Prices!
The first topic used by two economists to start a conversation
"Crash of oil prices"; there are not many Canadians, who still has not heard of low oil prices or even sensing it while they are filling up their cars with gasoline. Due to recent decisions of OPEC, the oil prices dropped by around 50%. Those countries which oil is one of their main exports with high cost to extract it from ground, are really hurt by this price.
According to WorldRichestCountries.com, oil is 27% of Canada's total exports and for a country like Canada where cost of getting the oil ready to be exported is high, there is not much profit in it anymore. In my opinion, current oil prices will rise again due to the great pressure on some OPEC countries economy. OPEC is consisted of Iran, Iraq, Algeria, Saudi Arabia, United Arab Emirates and 7 other countries with lower market share. For countries such as Saudi Arabia, extracting the oil from the ground and exporting it only costs around $20 per barrel; now selling it at $50 a barrel is still a good revenue. What about other OPEC giants? Is it same for them? For some OPEC giants like Iran, it costs much more to extract oil from the ground and Iran needs to sell its oil at around $80 a barrel in order to reach its 10 year economic goals. Currently, many OPEC countries like Iran are having many issues due to the current oil price so there is a very great chance of these countries forcing OPEC to cut supplies. If the demand stays the same, due to shift of supply curve to the left, the new equilibrium will have a higher price. Overall, current oil price is just a bubble and soon the oil price will go back to its real value. This will most likely happen in June 2015, on OPEC's next meeting.
In conclusion, Canada is not likely to approach a recession. Recessions happen when the economy is at a peak and Canada's economy just started to recover from the previous recession and has a long way to reach its peak. I do not believe that it is a good time to be worried about upcoming recession and I believe that the focus on doing all that is possible to grow Canada's economy is the priority.
Thank you very much for your time.
Friday, February 27, 2015
Analyzing Canada’s Welfare State Research Project
Submitted on Feb, 2015
Should Canada Reduce Its Welfare-State?
During the Great Depression in 1930’s, Canada’s government had no official system in order to aid the people in need and to provide monetary assist to unemployed Canadians. During this period, governments of Canada, decided to started spending on social aid programs through transferring tax money to individuals in need and by selling bonds. In forty years, Canada transferred into a Welfare-State leaving its old system of government, Laissez-Faire behind. Today, Social programs in Canada are designed to aid Canadians who are having a hardship in acquiring their needs and Canada’s social safety net includes many different programs provided by provinces, plus Medicare and public education. Supporting Canada’s social programs is extremely expensive which leaves Canada’s federal and provincial governments in debt. Many people in Canada are really dependent these social programs to a point that they are dishonest about the status they are in. Should Canada keep its current system of Welfare-State? Should it be reduced? Should Canada move toward Laissez-Faire system? In my opinion, Canada’s Welfare state should be reduced in order to lower the yearly debt, lower the number of people who are abusing the programs and also to create more competition in the economy.
First, Canada’s Federal debt is increasing by the hour and a great portion of the tax paid by tax payers goes toward the interest of this debt. Below, you can see a chart of Canada’s Federal debt from 1930 to 2013.
As you can see Canada’s Federal debt has increased dramatically in 70 years of running the Welfare-State. In 2010-2011 fiscal period, governments of Canada contributed 1,380.29 in millions for social safety programs. According to Ministry of Finance, Social Programs Spending increases by %8 every year because of growing population, unemployment rate and many other contributing factors and Bank of Canada believes that this Federal debt can be reduced without paying the debt but with investing more money in the economy. This approach requires much less spending by the government in order to be successful. By reducing the budget from the largest portion of these spending, Social Assistance, governments of Canada can save millions of dollars every year which can help in paying Canada’s Federal debt.
.gif)
Second, Canada’s Welfare-State system must be reduced in order to force those who abuse it to be removed from the programs and become independent. Currently Canada holds 6.6% unemployment rate and they need financial assistance from the government in order to acquire their needs. A portion of those who are included in government’s programs, take advantage of it to a point where they start being dishonest about their life status to stay in these aid programs. Many other claim the need to be provided with a shelter from the government where they do not have to pay rent and they rent the shelter out with a low price to someone else. In recent years many rules were set by the ministry of justice for those who take advantage of the programs and these rules did not help the situation. If the Welfare-State system reduces the finance it contributes to these programs, the qualification for these government aids will become harder and harder and since less people are being supported, the number of individuals abusing it will decrease and it is much more fair for tax payers and this way they know that their tax dollars are being transferred to those who are really in need of it. According to Governments of Canada website,
You may be entitled to receive EI regular benefits if you:
* are employed in insurable employment;
* lost your employment through no fault of your own;
* have been without work and without pay for at least seven consecutive days in the last 52 weeks;
* have worked for the required number of insurable hours in the last 52 weeks or since the start of your last EI claim, whichever is shorter;
* are ready, willing, and capable of working each day; and
* are actively looking for work (you must keep a written record of employers you contact, including when you contacted them).
These factors set by Governments of Canada can be easily abused or taken advantage of and Employment Insurance is just a small portion of benefits that government provides for unemployed and low income families. In conclusion, many of the governments social aid programs such as EI, EI Maternity and Parental Benefits, EI Family Supplement or GST/HST Credit are easily being abused today and by reducing these programs and their budget, many of these frauds can be stopped and those who really need these programs can fairly benefit from it.
At last, if governments of Canada reduce the Welfare-State system by privatizing many sections of the government, it creates a competition in those sectors between the private companies and businesses which brings quality and efficiency. For example, Canada is spending 214.9 billion dollars on health care which is 11% of the total GDP. If Canada’s health care system becomes a mix of health care from government and also private clinics, the spending on health care is reduced, those who can afford the private health care can receive it with good quality, and the time spent in hospitals will be much lower since the number of individuals in need of health care is being divided into two sectors.
In conclusion, it has been more than 80 years that Canada is using the socialist Welfare-System and during these years, social aid programs are getting more and more expensive to run which leaves annually deficit for governments of Canada. I do not believe going back to Laissez-Faire system is the right thing to do, but reducing expenditures of the current system is the right method in order to lower the annual debt and deficit in Canada. Governments of Canada need to lower the spending on the social programs, start privatizing some of the public sector and also force those who abuse it to be removed from the programs by making the qualifications for these aids harder. This might seem like a big step toward the left side of the political spectrum but it also allows Canadians to enjoy all the positive qualities of a Welfare-State.
Sources:
"Health Care in Canada-how Is the System Performing? | CIHI." Health Care in Canada-how Is the System Performing? | CIHI. Web. 17 Feb. 2015. <http://www.cihi.ca>.
"TD Bank | Personal Banking, Small Business Banking, Mortgages and Loans, Investments." TD Bank. Web. 17 Feb. 2015. <http://www.tdbank.com/>.
"Canada's National Debt Clock : The Canadian Taxpayers Federation." Canada's National Debt Clock : The Canadian Taxpayers Federation. Web. 17 Feb. 2015. <http://www.debtclock.ca>.
"Apecsec.org." Apecsecorg. Web. 17 Feb. 2015. <http://apecsec.org>.
Web. 17 Feb. 2015. <http://www.nytimes.com/>.
"Ministry of Finance / Ministère Des Finances." Ministry of Finance / Ministère Des Finances. Web. 17 Feb. 2015. <http://www.fin.gov.on.ca>.
"Recherche De Base." Gouvernement Du Canada, Service Canada, Direction Générale De Service Aux Citoyens, La Direction Du Service Numérique, Services Web. Web. 17 Feb. 2015. <http://recherche-search.gc.ca/>.
Hui, Ann. "The Globe and Mail - Home." The Globe and Mail. 6 Jan. 2015. Web. 15 Feb. 2015. <http://www.theglobeandmail.com/>.
Submitted on Feb, 2015
Should Canada Reduce Its Welfare-State?
During the Great Depression in 1930’s, Canada’s government had no official system in order to aid the people in need and to provide monetary assist to unemployed Canadians. During this period, governments of Canada, decided to started spending on social aid programs through transferring tax money to individuals in need and by selling bonds. In forty years, Canada transferred into a Welfare-State leaving its old system of government, Laissez-Faire behind. Today, Social programs in Canada are designed to aid Canadians who are having a hardship in acquiring their needs and Canada’s social safety net includes many different programs provided by provinces, plus Medicare and public education. Supporting Canada’s social programs is extremely expensive which leaves Canada’s federal and provincial governments in debt. Many people in Canada are really dependent these social programs to a point that they are dishonest about the status they are in. Should Canada keep its current system of Welfare-State? Should it be reduced? Should Canada move toward Laissez-Faire system? In my opinion, Canada’s Welfare state should be reduced in order to lower the yearly debt, lower the number of people who are abusing the programs and also to create more competition in the economy.
First, Canada’s Federal debt is increasing by the hour and a great portion of the tax paid by tax payers goes toward the interest of this debt. Below, you can see a chart of Canada’s Federal debt from 1930 to 2013.
You may be entitled to receive EI regular benefits if you:
* are employed in insurable employment;
* lost your employment through no fault of your own;
* have been without work and without pay for at least seven consecutive days in the last 52 weeks;
* have worked for the required number of insurable hours in the last 52 weeks or since the start of your last EI claim, whichever is shorter;
* are ready, willing, and capable of working each day; and
* are actively looking for work (you must keep a written record of employers you contact, including when you contacted them).
These factors set by Governments of Canada can be easily abused or taken advantage of and Employment Insurance is just a small portion of benefits that government provides for unemployed and low income families. In conclusion, many of the governments social aid programs such as EI, EI Maternity and Parental Benefits, EI Family Supplement or GST/HST Credit are easily being abused today and by reducing these programs and their budget, many of these frauds can be stopped and those who really need these programs can fairly benefit from it.
At last, if governments of Canada reduce the Welfare-State system by privatizing many sections of the government, it creates a competition in those sectors between the private companies and businesses which brings quality and efficiency. For example, Canada is spending 214.9 billion dollars on health care which is 11% of the total GDP. If Canada’s health care system becomes a mix of health care from government and also private clinics, the spending on health care is reduced, those who can afford the private health care can receive it with good quality, and the time spent in hospitals will be much lower since the number of individuals in need of health care is being divided into two sectors.
There are many other sectors which can be privatized to create competition for between businesses. For example, Toronto city privatized the garbage collection of a part of the city and the result was saving $11-million dollars annually. These private companies have profit motives which forces them to do things more efficiently comparing to government workers doing the same activity.
In conclusion, it has been more than 80 years that Canada is using the socialist Welfare-System and during these years, social aid programs are getting more and more expensive to run which leaves annually deficit for governments of Canada. I do not believe going back to Laissez-Faire system is the right thing to do, but reducing expenditures of the current system is the right method in order to lower the annual debt and deficit in Canada. Governments of Canada need to lower the spending on the social programs, start privatizing some of the public sector and also force those who abuse it to be removed from the programs by making the qualifications for these aids harder. This might seem like a big step toward the left side of the political spectrum but it also allows Canadians to enjoy all the positive qualities of a Welfare-State.
Sources:
"Health Care in Canada-how Is the System Performing? | CIHI." Health Care in Canada-how Is the System Performing? | CIHI. Web. 17 Feb. 2015. <http://www.cihi.ca>.
"TD Bank | Personal Banking, Small Business Banking, Mortgages and Loans, Investments." TD Bank. Web. 17 Feb. 2015. <http://www.tdbank.com/>.
"Canada's National Debt Clock : The Canadian Taxpayers Federation." Canada's National Debt Clock : The Canadian Taxpayers Federation. Web. 17 Feb. 2015. <http://www.debtclock.ca>.
"Apecsec.org." Apecsecorg. Web. 17 Feb. 2015. <http://apecsec.org>.
Web. 17 Feb. 2015. <http://www.nytimes.com/>.
"Ministry of Finance / Ministère Des Finances." Ministry of Finance / Ministère Des Finances. Web. 17 Feb. 2015. <http://www.fin.gov.on.ca>.
"Recherche De Base." Gouvernement Du Canada, Service Canada, Direction Générale De Service Aux Citoyens, La Direction Du Service Numérique, Services Web. Web. 17 Feb. 2015. <http://recherche-search.gc.ca/>.
Hui, Ann. "The Globe and Mail - Home." The Globe and Mail. 6 Jan. 2015. Web. 15 Feb. 2015. <http://www.theglobeandmail.com/>.
Subscribe to:
Posts (Atom)