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  • Why would a boom town need charity? Inequities in Saskatchewan’s oil boom and bust May 23, 2018
    When we think of a “boomtown,” we often imagine a formerly sleepy rural town suddenly awash in wealth and economic expansion. It might surprise some to learn that for many municipalities in oil-producing regions in Saskatchewan, the costs of servicing the oil boom can outweigh the benefits. A Prairie Patchwork: Reliance on Oil Industry Philanthropy […]
    Canadian Centre for Policy Alternatives
  • CCPA's National Office has moved! May 11, 2018
      The week of May 1st, the Canadian Centre for Policy Alternatives' National Office moved to 141 Laurier Ave W, Suite 1000, Ottawa ON, K1P 5J2. Please note that our phone, fax and general e-mail will remain the same: Telephone: 613-563-1341 | Fax: 613-233-1458 | Email: ccpa@policyalternatives.ca  
    Canadian Centre for Policy Alternatives
  • What are Canada’s energy options in a carbon-constrained world? May 1, 2018
    Canada faces some very difficult choices in maintaining energy security while meeting emissions reduction targets.  A new study by veteran earth scientist David Hughes—published through the Corporate Mapping Project, the Canadian Centre for Policy Alternatives and the Parkland Institute—is a comprehensive assessment of Canada’s energy systems in light of the need to maintain energy security and […]
    Canadian Centre for Policy Alternatives
  • The 2018 Living Wage for Metro Vancouver April 25, 2018
    The cost of raising a family in British Columbia increased slightly from 2017 to 2018. A $20.91 hourly wage is needed to cover the costs of raising a family in Metro Vancouver, up from $20.61 per hour in 2017 due to soaring housing costs. This is the hourly wage that two working parents with two young children […]
    Canadian Centre for Policy Alternatives
  • Mobility pricing must be fair and equitable for all April 12, 2018
    As Metro Vancouver’s population has grown, so have its traffic congestion problems. Whether it’s a long wait to cross a bridge or get on a bus, everyone can relate to the additional time and stress caused by a transportation system under strain. Mobility pricing is seen as a solution to Metro Vancouver’s transportation challenges with […]
    Canadian Centre for Policy Alternatives
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Market Mayhem

The wild swings in the North American financial markets this week serve as yet another reminder of the weakness of  any linkage between levels and changes in financial asset values and levels and changes in real economic variables. This is apparent for both bonds and equities.

In the case of the US and Canada, the rise in government bond prices is surely excessive. As of today, the Government of Canada 10 year bond had a yield of 2.4% compared to a near record low of about 3% a month ago and the US yield is about the same. I certainly buy the argument that their and our economic prospects are not good, but locking in a real return of about 0.5% per year for ten years suggests that investors have panicked.( In Europe they have probably panicked in the opposite direction by demanding excessively high yields for pretty safe debt in the case of the larger economies which have come under attack.)

At the same time, equities are probably under-valued relative to continued high corporate profitability, especially given that (unfortunately) neither real wages nor the wage share are likely to be much of a downward force in the foreseeable future. Dean Baker thinks that the US stock market is significantly under-valued judged by prospective profits – and he has a record of making good calls on these things.   

Volatility driven by fear and greed and the hope of quick short term returns  results in large day to day and week to week swings in financial asset prices. While there may – or may not – be some underlying forces which bring prices back into lines with fundamentals over long (often very long) periods of time, such swings have damaging effects on the real economy.

My bet is that big correction in equity prices over the past little while will increase household and corporate savings, lowering consumption and  investment at just the wrong time. Those saving for retirement will see a need to make up  for losses, and will also have been sharply reminded just how uncertain is the ability of a certain sum of savings to fund a decent retirement. Pension funds already deep underwater will be forced to weather a downdraft in equities, and, more importantly, the sharp plunge in US and Canadian interest rates will  require firms to put much more money into plans to make up for another sharp  increase in the present value of liabilities.

Market over-shooting and excessive volatility likely reflects short-term trading for quick, speculative gains by hedge funds and the investment banks. Once again, the excesses of the markets will damage the real economy.

This should remind us that little or nothing has been done to implement the financial re-regulation agenda which was briefly given serious consideration in the aftermath of the 2008 stock market crash.

There is no shortage of tools to hand to limit speculative trading. We should limit the use of leverage, especially by the hedge funds, and introduce transactions taxes to limit returns from very rapid trading. We could also regulate outright gambling through naked shorts (selling stocks one does not own) as some European governments are now doing, and we could impose higher rates of personal and corporate income tax on short-term capital gains.

Market mayhem continues because governments are still in thrall to a financial sector which profits from patently parasitic and damaging speculation.

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