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  • 2019 Federal Budget Analysis February 27, 2019
    Watch this space for response and analysis of the federal budget from CCPA staff and our Alternative Federal Budget partners. More information will be added as it is available. Commentary and Analysis  Aim high, spend low: Federal budget 2019 by David MacDonald (CCPA) Budget 2019 fiddles while climate crisis looms by Hadrian Mertins-Kirkwood (CCPA) Organizational Responses Canadian Centre for Policy […]
    Canadian Centre for Policy Alternatives
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    Founder of the political Hip-Hop group The Coup, Boots Riley is a musician, rapper, writer and activist, whose feature film directorial and screenwriting debut — 2018’s celebrated Sorry to Bother You — received the award for Best First Feature at the 2019 Independent Spirit Awards (amongst several other accolades and recognitions). "[A] reflection of the […]
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  • CCPA-BC welcomes Emira Mears as new Associate Director February 11, 2019
    This week the Canadian Centre for Policy Alternatives – BC Office is pleased to welcome Emira Mears to our staff team as our newly appointed Associate Director. Emira is an accomplished communications professional, digital strategist and entrepreneur. Through her former company Raised Eyebrow, she has had the opportunity to work with many organizations in the […]
    Canadian Centre for Policy Alternatives
  • Study explores media coverage of pipeline controversies December 14, 2018
    Supporters of fossil fuel infrastructure projects position themselves as friends of working people, framing climate action as antithetical to the more immediately pressing need to protect oil and gas workers’ livelihoods. And as the latest report from the CCPA-BC and Corporate Mapping Project confirms, this framing has become dominant across the media landscape. Focusing on pipeline […]
    Canadian Centre for Policy Alternatives
  • Study highlights ‘uncomfortable truth’ about racism in the job market December 12, 2018
    "Racialized workers in Ontario are significantly more likely to be concentrated in low-wage jobs and face persistent unemployment and earnings gaps compared to white employees — pointing to the “uncomfortable truth” about racism in the job market, according to a new study." Read the Toronto Star's coverage of our updated colour-coded labour market report, released […]
    Canadian Centre for Policy Alternatives
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The Progressive Economics Forum

Lots of kindling

Are we headed towards a recession in 2007? Housing markets have begun to turn, interest rates are back where they were pre-9/11 and oil is near $80 a barrel. Nouriel Roubini puts the risk of a US recession at 50% for 2007. I like this approach – no one can predict the future so we must think ahead in terms of probabilities.

Here’s an excerpt:

It is hard to predict with certainty whether the U.S. and global economy will suffer of serious stagflation or even a recession. … I have recently argued that the probability of a US recession in 2007 is, in my view, as high as 50%. In brief, the Three  Bears of high oil prices, rising inflation leading to higher policy rates, and a slumping housing markets will derail the Goldilocks (of high growth and low inflation) and trigger a sharp U.S. slowdown in 2006, that may turn into a recession in 2007.

Fed Chairman Bernanke is downplaying the risks of a recessions but many out there are starting to worry about it a lot. The Fed may also want to learn from its previous serious forecasting mistakes. In 2000, it took six months for the U.S. to go from overheating into outright recession: in Q2 of 2000 the economy was growing at an annualized rate of over 5% and it slowed down to close to 0% by Q4 and entered into an outright recession by Q1 of 2001. As late as September 2000, Fed discussions – see their Minutes – were showing the FOMC being mostly clueless about the upcoming recession and still worrying more about the alleged rising inflation (with their view of the balance of risks stressing rising inflation rather than slowing growth). It then took a suprising and lousy Chrismas season of sales and a crashing Nasdaq at the beginning of the new year session on January 2nd 2001 to get the Fed into reality check, panic mode and start reducing the Fed Funds rate at an exceptional inter-FOMC meeting point.

And in 2000, the triggers for the recession were suprisingly similar to 2006: then a tech sector investment bust (now a real estate sector bust); then a Fed tigthening of 175bps (between June 1999 and June 2000), now a 425bps (soon 450bps) tigthening; then a modest oil shock (with oil rising from low teens to high teens in 2000 on the basis of Mid-East tensions and the beginning of the second intifada), now oil rising from $ 20 to 40 to 60 to 75 (and soon enough to 80) on the wave of much more serious Mid-East tensions (Israel conflict with Palestinians and Lebanon, growing security mess in Iraq, rising risks of a confrontation with Iran on the nuclear proliferation issue); then, there were worries – mostly unfounded in reality – on the risks of rising inflation, while now there are much more serious real worries (in spite of Bernanke’s latest flip-flop on the issue, to cite Steve Roach today) on a truly rising inflation rate (see also WSJ’s Greg Ip on Bernanke keep on saying one thing and doing another for the last few months; so much for Fed transparency and consistency of its communication strategy).

So, why does Bernanke believe that a “U.S. recession is not likely?” Why are things better now than in 2000 when all indicators show similar vulnerabilities but only more severe and scary ones now than in 2000? There are much more severe vulnerabilities now compared to 2000-2001 as today:

  • the U.S. consumer is facing negative savings, rising debt and debt-servicing ratios; is being buffeted by rising rates, rising oil, slumping housing, rising inflation; is experiencing falling real wages and rising inequality thas is slumping aggregate demand. Thus, the US consumer is in much much worse shape than in 2000.
  • When the tech bust led to the  2001 recession, the recession was much more shallow than could have otherwise been as the  U.S. consumer – then strong after a decade of rising real wages and falling income inequality – was very resilient and kept on spending while corporate investment slumped. Thus, the recession was modest and short-lived. This time around the battered U.S. consumer and worker is not resilient at all.
  • Compared to 2000 when the current account deficit was small (and driven by the 1990s investment boom) while fiscal policy was sound (a huge surplus), today the U.S. economy is much weaker with a huge twin fiscal and current account deficit and a structural fiscal deficit.
  • Compared to the post-2001 recession, when the Fed could slash rates from 6.5% all the way down to 1% and Treasury went to a reckless fiscal stimulus (turning a 2.5% of GDP fiscal surplus into a 3.5% deficit), today the levers for policy easing are much more limited. Indeed, given the inflation pressures, the Fed may have to keep on tigthening or at most pause and cannot afford to slash rates. Moreover, the fiscal deficit is such a structural mess that the idea of using fiscal drug stimulus to counter a recession would be outright reckless.
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