Our economic fate remains entwined with that of U.S.
by investor on 06/01/09 at 1:57 pm
No one precisely knows how bad the economy will be in Canada in 2009. The forecasters, predictably, do not agree, except that the economy will contract, unemployment will rise and fiscal deficits will again become the order of the day.
Canada’s economy is joined at the hip with that of the United States. So consider this, when trying to figure out whether our recession will be short or mild: Since mid-2007, Americans have lost about a quarter of their net worth. That’s one-quarter in 18 months!
The best intentions, most uplifting rhetoric, and huge stimulus package presented by Barack Obama after he takes office on Jan. 20 will not easily or quickly fill that loss of net income.
Where did the lost income go? Americans are homeowners. Their government encourages them to buy homes, with such policies as mortgage-interest and property-tax deductibility. And in the years of easy money, low interest rates and a glut of savings coming from offshore, housing ownership grew, as everyone assumed (wrongly) that prices would continue to soar.
So the biggest loss to Americans came in the value of their homes as the housing bubble collapsed – from $13-trillion in early 2007 to $8-trillion today. Retirement income fell. So did savings and investment income of almost all kinds. Pension funds dropped. The total household loss is in the range of $8-trillion.
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