provided by Mark P. Cussen, Investopedia.com
Despite the plethora of websites, books, magazines, advisors and other financial information and services available for retirees, there will always be a contingent of people who fail to make their retirement savings last for the rest of their lives. There are many ways to avoid this, some of which are more proactive while others are reactive in nature. But none of them are particularly difficult; all any of them really require is discipline and common sense. Here are a few ways you might be endangering your retirement.
1. Too Much Risk
You worked and sweated for years to accumulate enough money to be able to live a comfortable retirement. Therefore, this is probably not money that you want to use to start trading commodities futures contracts unless you are very experienced with them. Derivatives, small cap stocks and other high-risk ventures should be approached with caution and used judiciously as part of a well-thought out investment strategy.
2. Too Little Risk
This mistake can be every bit as costly as the previous one; those who invest their portfolios too conservatively may find that their expenses are outgrowing their income. Treasury securities and CDs can be great foundations for any retirement portfolio, but virtually all retirees need to have at least a small portion of their assets invested in either equities or real estate in order to provide themselves a hedge against inflation.
3. Retiring Too Early
Early retirement has become something of a status symbol among the upper-middle class. However, early retirement can be disastrous for those who are not adequately prepared for it. For every five years that one wishes to retire early, at least $100,000 of additional assets should be saved (assuming a payout of $2,000 per month and a rate of 6%).
Those who choose this path should therefore be prepared to accept a reduced payout and a smaller government pension check every month if they have not done this.
4. Failure to Plan for Long-Term Care
Nothing can destroy a retirement portfolio like having to pay for the cost of a nursing home or other long-term care without any kind of insurance protection. Nursing home care can easily cost up to $60,000 a year, depending upon various factors such as the level of care needed and your geographic location. Medicare seldom if ever pays for long-term care expenses and Medicaid is not a reliable source of aid for this either.
There are "spend down" plans available for those who wish to follow their rules, but these plans can be substantially disruptive to daily living in most cases. Purchasing a long-term care insurance policy is usually the preferable alternative for those who can afford it. Other alternatives include annuities and cash-value life insurance policies with long-term care riders.
5. Retiring All at Once
For some people, the radical adjustments that come from retirement are too much to absorb all at one time. It may be necessary to work another, lesser job for a time, such as a part-time job with an employer in a field in which you have an interest. A few years of this type of work may allow you to "gear down" sufficiently to total retirement at some point. This strategy can also help to stretch an insufficient retirement portfolio a long way.
6. Living beyond Your Means
As obvious as this is, those who spend more than they have in retirement will find themselves in dire straits at some point. Run the numbers carefully before you buy that 54-foot yacht or that vacation home. These items often fail to fetch their purchase prices if you have to sell them, so think twice before you plunge into a major pleasure purchase that will eat up a material chunk of your savings.
Wednesday, August 25, 2010
Friday, August 20, 2010
Inflation rate rises on new HST
Jeremy Torobin
The Harmonized Sales Tax last month pushed Canada’s annual inflation rate to the highest since April, but a drop in a measure of price gains that strips out the levy’s impact reinforced doubts about how much more the central bank will hike interest rates.
Even with the HST coming into force in Ontario and British Columbia, plus a tax hike in Nova Scotia as well as higher energy costs, year-over-year inflation during the month stopped short of what many economists had expected, accelerating to 1.8 per cent instead of 1.9 per cent. While the reading from Statistics Canada Friday compares with a 1 per cent increase in June, it’s still less than the Bank of Canada’s 2-per-cent target.
The so-called core rate, which excludes tax changes and volatile items like energy, dipped unexpectedly to 1.6 per cent on a year-over-year basis from 1.7 per cent the month before – leaving it below Bank of Canada Governor Mark Carney’s forecast of 1.8-per-cent core inflation for the entire third quarter. On a monthly basis, the consumer price index rose 0.5 per cent – the highest since late last year – as the HST lifted prices across the economy while the core rate dropped 0.1 per cent.
All in, the numbers give Mr. Carney more wiggle room to pause his tightening campaign some time this fall to assess how much damage the sputtering rebound south of the border and sluggish growth in much of Europe may do to the Canadian recovery. Mr. Carney has said growth likely slowed to 3 per cent in the second quarter from 6.1 per cent in the first three months of the year, and though he raised borrowing costs in June and July he has stressed that further moves would be ``weighed carefully” against economic developments at home and abroad.
``Underlying inflation remains quite tranquil, neither threatening a dip into deflation terrain nor a push above the 2-per-cent target,” said Douglas Porter, deputy chief economist with BMO Nesbitt Burns in Toronto. ``The Bank of Canada has the option to pause on its rate-hiking campaign, if the growth backdrop stumbles further. This just adds one more arrow into the quiver of reasons the Bank may take a timeout.’’ The central bank has said it will ``look past” the initial effects of the HST, which it predicts will add 0.6 percentage point to annual inflation from the tax’s unveiling on July 1 through next June. Core inflation, meanwhile, will average 1.8 per cent over the next three quarters, according to Mr. Carney’s forecasts.
The inflation data caused the Canadian dollar to drop as investors scaled back bets that Mr. Carney will raise his benchmark interest rate from 0.75 per cent to 1 per cent at his next decision on Sept. 8. Based on the overnight-index swaps market, the chances of a September rate hike are deemed to be between 40 and 50 per cent.
Most economists argue that economic conditions in Canada are strong enough to justify a third consecutive rate increase, but that could be the last for a while.
``The mild inflation report should give the Bank of Canada some comfort in toning down its language about its tightening bias as it contemplates taking a long pause after a September rate hike,” said Krishen Rangasamy, an economist with CIBC World Markets. ``Canadian prices remain well under wraps despite the economic recovery.’’ Energy prices rose 7.9 per cent from a year earlier in July, Statscan said, including a nearly 10-per-cent gain in electricity costs. Gasoline prices rose 4.8 per cent and homeowners’ replacement costs rose 5.5 per cent. Cars and trucks were 1.7-per-cent more expensive than a year earlier, while insurance premiums rose 5.1 per cent.
Meanwhile, an index of mortgage-interest costs declined as did the cost of clothing and footwear.
Ontario had the biggest year-over-year increase as consumer prices rose 2.9 per cent, and B.C. saw a 2-per-cent gain, Statscan said.
The Harmonized Sales Tax last month pushed Canada’s annual inflation rate to the highest since April, but a drop in a measure of price gains that strips out the levy’s impact reinforced doubts about how much more the central bank will hike interest rates.
Even with the HST coming into force in Ontario and British Columbia, plus a tax hike in Nova Scotia as well as higher energy costs, year-over-year inflation during the month stopped short of what many economists had expected, accelerating to 1.8 per cent instead of 1.9 per cent. While the reading from Statistics Canada Friday compares with a 1 per cent increase in June, it’s still less than the Bank of Canada’s 2-per-cent target.
The so-called core rate, which excludes tax changes and volatile items like energy, dipped unexpectedly to 1.6 per cent on a year-over-year basis from 1.7 per cent the month before – leaving it below Bank of Canada Governor Mark Carney’s forecast of 1.8-per-cent core inflation for the entire third quarter. On a monthly basis, the consumer price index rose 0.5 per cent – the highest since late last year – as the HST lifted prices across the economy while the core rate dropped 0.1 per cent.
All in, the numbers give Mr. Carney more wiggle room to pause his tightening campaign some time this fall to assess how much damage the sputtering rebound south of the border and sluggish growth in much of Europe may do to the Canadian recovery. Mr. Carney has said growth likely slowed to 3 per cent in the second quarter from 6.1 per cent in the first three months of the year, and though he raised borrowing costs in June and July he has stressed that further moves would be ``weighed carefully” against economic developments at home and abroad.
``Underlying inflation remains quite tranquil, neither threatening a dip into deflation terrain nor a push above the 2-per-cent target,” said Douglas Porter, deputy chief economist with BMO Nesbitt Burns in Toronto. ``The Bank of Canada has the option to pause on its rate-hiking campaign, if the growth backdrop stumbles further. This just adds one more arrow into the quiver of reasons the Bank may take a timeout.’’ The central bank has said it will ``look past” the initial effects of the HST, which it predicts will add 0.6 percentage point to annual inflation from the tax’s unveiling on July 1 through next June. Core inflation, meanwhile, will average 1.8 per cent over the next three quarters, according to Mr. Carney’s forecasts.
The inflation data caused the Canadian dollar to drop as investors scaled back bets that Mr. Carney will raise his benchmark interest rate from 0.75 per cent to 1 per cent at his next decision on Sept. 8. Based on the overnight-index swaps market, the chances of a September rate hike are deemed to be between 40 and 50 per cent.
Most economists argue that economic conditions in Canada are strong enough to justify a third consecutive rate increase, but that could be the last for a while.
``The mild inflation report should give the Bank of Canada some comfort in toning down its language about its tightening bias as it contemplates taking a long pause after a September rate hike,” said Krishen Rangasamy, an economist with CIBC World Markets. ``Canadian prices remain well under wraps despite the economic recovery.’’ Energy prices rose 7.9 per cent from a year earlier in July, Statscan said, including a nearly 10-per-cent gain in electricity costs. Gasoline prices rose 4.8 per cent and homeowners’ replacement costs rose 5.5 per cent. Cars and trucks were 1.7-per-cent more expensive than a year earlier, while insurance premiums rose 5.1 per cent.
Meanwhile, an index of mortgage-interest costs declined as did the cost of clothing and footwear.
Ontario had the biggest year-over-year increase as consumer prices rose 2.9 per cent, and B.C. saw a 2-per-cent gain, Statscan said.
Thursday, August 19, 2010
CIBC World Markets Inc. trims forecast for rate hikes and currency strength in Canada as economic growth outlook dampens abroad
Continuing weakness in the U.S. economy may force the Bank of Canada to put interest rate hikes on hold after September, notes a new report from CIBC World Markets Inc.
"North America's story is again darkening," says CIBC's Chief economist in the latest Global Positioning Strategy report. "We were looking for a material second-half slowdown for the U.S. but as it turns out, it's already happened."
Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.
And still ahead is a "further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.
"Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest."
While Canada is in much better economic shape - it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job - it "cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold," Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie "substantially stronger" creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the "external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline."
Mr. Shenfeld doubts that the Bank of Canada "has been shocked enough to forestall a rate hike in September" but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC's outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are "lessons learned, we hope," says Mr. Shenfeld.
"Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening."
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld.
"North America's story is again darkening," says CIBC's Chief economist in the latest Global Positioning Strategy report. "We were looking for a material second-half slowdown for the U.S. but as it turns out, it's already happened."
Economic growth stateside from April to June is being revised downward, Mr. Shenfeld notes, and key indicators are pointing to growth that will be slower than anticipated by U.S. monetary policy makers.
And still ahead is a "further fiscal belt tightening in 2011 that will have to be softened, and accompanied by quantitative easing, if the U.S. is to stay out of recession in early 2011 and get back to potential growth by the end of that year.
"Forget about any rates hikes from the U.S. Federal Reserve until sometime in 2012 at the earliest."
While Canada is in much better economic shape - it leads the U.S., Eurozone, U.K. and Japan in first-half growth and has a record gap over the U.S. in the share of working age population holding a job - it "cannot move all the way to normalized interest rates while the U.S. Federal Reserve is still on hold," Mr. Shenfeld contends.
For starters, an interest rate differential of 300-400 basis points would take the loonie "substantially stronger" creating additional headwinds for Canadian economic growth, says Mr. Shenfeld.
Furthermore, the "external environment will be one of less-than-normal growth as fiscal tightening bites in Europe and the U.S., and with our own upcoming fiscal tightening also hitting domestic demand, monetary policy might have to be set at stimulative levels to allow the economy to return to potential and remain there. To keep moving at all, you have to step on the gas if your car is trying to roll up a steep incline."
Mr. Shenfeld doubts that the Bank of Canada "has been shocked enough to forestall a rate hike in September" but his forecast that Canadian growth in Q2 and Q3 will fall below the BoC's outlook will likely warrant a rethinking in the October Monetary Policy Report and in the months to follow.
The report also notes that there are limits to how far the Bank of Canada can diverge from the U.S. Federal Reserve without later regretting it. Episodes in recent years in which rate overnight rates were 2 per cent or more above those stateside resulted in sagging or sacrificed growth. These are "lessons learned, we hope," says Mr. Shenfeld.
"Since a hike at every rate setting date through 2011 would take rates substantially higher than 2%, a pause is coming on the road to tightening."
As a result of the dampened external growth outlook, Mr. Shenfeld has trimmed his call for rate hikes. He sees Canadian overnight rates going no higher than 2% next year as the U.S. Federal Reserve stays on hold.
A less hawkish monetary policy combined with a mixed outlook for commodity prices affected by slow global growth will also likely see the Canadian dollar roughly two cents weaker than earlier forecast over the same horizon, adds Mr. Shenfeld.
Wednesday, August 18, 2010
Bills will make clear the real cost of credit
New rules for credit card issuers Dana Flavelle - Business Reporter
Few consumers realize that a credit card bill can take up to a decade to pay off and add hundreds of dollars in interest charges if they make only the minimum monthly payment.
That unpleasant fact will become a lot more apparent as of Sept. 1, when credit card issuers will be required to clearly state the exact time and cost of making only the minimum payment.
U.S. department store Macy’s already does so on the front of its bills. A recent real-life example shows that a customer owing $375.65 who makes the minimum monthly $13 payment would take 10 years to pay off the bill.
And the total cost would balloon to $821 due to interest charges, more than double the original cost of the purchases.
The bill clearly shows that by paying just $2 more per month, repayment would take only three years and the consumer would save $287.
It’s just one of several changes consumers will see as new federal rules governing Canada’s multi-billion dollar a year credit card industry come into effect next month.
Among them:
Consumers will get a 21-day grace period to pay off any new charges, even if they haven’t paid off all the previous month’s bill. Previously, credit card issuers could charge interest on any new purchases if the previous month’s bill was still outstanding.
Banks and other credit card issuers must give consumers advance warning of any changes in interest rates, such as when a low introductory rate is about to expire and be replaced with a higher rate.
Credit cards often come with different interest rates for purchases, cash advances and balance transfers. The new rules require the banks to spread any partial payments over all outstanding expenses equally, or apply it against the expense with the highest interest rate first.
The new regulations, first introduced in May 2009, are intended to help educate consumers and also curb some of the worst abuses. They come on top of provisions implemented in January.
But critics say the changes don’t go far enough to cut the high cost of using credit cards, both for consumers and merchants.
Many credit cards carry an interest rate of 19.5 per cent, while the Bank of Canada’s overnight lending rate is less than 1 per cent, they note.
“That’s window dressing. It’s not addressing the two main issues in regards to the rates and fees. The interest rates charged to consumers and the merchant fees charged to retailers,” said Liberal Senator Pierrette Ringuette.
A recent study by the Federal Reserve Bank of Boston found lower- and middle-income families pay the most interest charges and collect the fewest rewards, in effect subsidizing higher-income card users, Ringuette added.
“It’s great to know how long it’s going to take you to pay off your credit card. But it doesn’t do anything to address the root problem,” said Glenn Thibeault, the NDP’s consumer protection critic and MP for Sudbury.
Credit card interest rates are too high and the cards are given to too many people who can’t afford them, he said.
“When you’re buying groceries on your credit card and making a minimum payment, that’s a step toward bankruptcy,” Thibeault said.
Ottawa should have required the banks to raise their minimum monthly payments so that consumers “won’t be in debt forever,” said Genevieve Reed, head of research for the Quebec-based consumer group Options Consommateurs.
Minimum payments have been falling in recent years as a percentage of the total bill, making them more attractive to consumers in the short term but more expensive to carry in the long-run.
“I don’t think a lot of people read their bills that closely. It may become like warnings on cigarette packages,” said John Lawford, a research analyst with the Public Interest Advocacy Centre in Ottawa.
The Canadian Bankers Association warned last fall that the new rules would be “hellishly complicated” and cost their members “hundreds of millions” of dollars to implement.
Chief executive officer Nancy Hughes Anthony said it could lead to banks issuing fewer card products or restricting lending practices.
Hughes Anthony was not available for comment Monday. An association spokesperson said it was too soon to tell what impact the regulations would have on the industry.
About 70 per cent of Canadian households pay off their credit card bills in full every month, the association says.
On the Financial Consumer Agency of Canada website, consumers can calculate for themselves how much it will cost and how long it will take to pay off an outstanding balance using only the minimum payment per month.
In a related move, Ottawa also brought in a voluntary code of conduct for the credit and debit card industry, to give merchants more power to negotiate fees with credit card processors. The code came into effect Monday, though some of the provisions don’t take effect until next February.
Few consumers realize that a credit card bill can take up to a decade to pay off and add hundreds of dollars in interest charges if they make only the minimum monthly payment.
That unpleasant fact will become a lot more apparent as of Sept. 1, when credit card issuers will be required to clearly state the exact time and cost of making only the minimum payment.
U.S. department store Macy’s already does so on the front of its bills. A recent real-life example shows that a customer owing $375.65 who makes the minimum monthly $13 payment would take 10 years to pay off the bill.
And the total cost would balloon to $821 due to interest charges, more than double the original cost of the purchases.
The bill clearly shows that by paying just $2 more per month, repayment would take only three years and the consumer would save $287.
It’s just one of several changes consumers will see as new federal rules governing Canada’s multi-billion dollar a year credit card industry come into effect next month.
Among them:
Consumers will get a 21-day grace period to pay off any new charges, even if they haven’t paid off all the previous month’s bill. Previously, credit card issuers could charge interest on any new purchases if the previous month’s bill was still outstanding.
Banks and other credit card issuers must give consumers advance warning of any changes in interest rates, such as when a low introductory rate is about to expire and be replaced with a higher rate.
Credit cards often come with different interest rates for purchases, cash advances and balance transfers. The new rules require the banks to spread any partial payments over all outstanding expenses equally, or apply it against the expense with the highest interest rate first.
The new regulations, first introduced in May 2009, are intended to help educate consumers and also curb some of the worst abuses. They come on top of provisions implemented in January.
But critics say the changes don’t go far enough to cut the high cost of using credit cards, both for consumers and merchants.
Many credit cards carry an interest rate of 19.5 per cent, while the Bank of Canada’s overnight lending rate is less than 1 per cent, they note.
“That’s window dressing. It’s not addressing the two main issues in regards to the rates and fees. The interest rates charged to consumers and the merchant fees charged to retailers,” said Liberal Senator Pierrette Ringuette.
A recent study by the Federal Reserve Bank of Boston found lower- and middle-income families pay the most interest charges and collect the fewest rewards, in effect subsidizing higher-income card users, Ringuette added.
“It’s great to know how long it’s going to take you to pay off your credit card. But it doesn’t do anything to address the root problem,” said Glenn Thibeault, the NDP’s consumer protection critic and MP for Sudbury.
Credit card interest rates are too high and the cards are given to too many people who can’t afford them, he said.
“When you’re buying groceries on your credit card and making a minimum payment, that’s a step toward bankruptcy,” Thibeault said.
Ottawa should have required the banks to raise their minimum monthly payments so that consumers “won’t be in debt forever,” said Genevieve Reed, head of research for the Quebec-based consumer group Options Consommateurs.
Minimum payments have been falling in recent years as a percentage of the total bill, making them more attractive to consumers in the short term but more expensive to carry in the long-run.
“I don’t think a lot of people read their bills that closely. It may become like warnings on cigarette packages,” said John Lawford, a research analyst with the Public Interest Advocacy Centre in Ottawa.
The Canadian Bankers Association warned last fall that the new rules would be “hellishly complicated” and cost their members “hundreds of millions” of dollars to implement.
Chief executive officer Nancy Hughes Anthony said it could lead to banks issuing fewer card products or restricting lending practices.
Hughes Anthony was not available for comment Monday. An association spokesperson said it was too soon to tell what impact the regulations would have on the industry.
About 70 per cent of Canadian households pay off their credit card bills in full every month, the association says.
On the Financial Consumer Agency of Canada website, consumers can calculate for themselves how much it will cost and how long it will take to pay off an outstanding balance using only the minimum payment per month.
In a related move, Ottawa also brought in a voluntary code of conduct for the credit and debit card industry, to give merchants more power to negotiate fees with credit card processors. The code came into effect Monday, though some of the provisions don’t take effect until next February.
Monday, August 16, 2010
Canada’s economic recovery ‘by no means a sure thing'
Janice Tibbetts, Postmedia News · Sunday, Aug. 15, 2010
NIAGARA FALLS, Ont. — Canada avoided the brutal financial meltdown that plagued the U.S. economy, but there are some red flags that make recovery for this country “by no means a sure thing,” says a leading U.S. economist.
Paul Krugman, a Nobel Prize winner, New York Times columnist and renowned economic pundit, described Canada as “a very calm, very happy story” during the world economic crisis.
Canada escaped relatively unscathed, through a combination of good luck and sound, conservative regulation of banking and consumer debt in which “it is not so easy to use your house as an ATM,” Mr. Krugman told the Canadian Bar Association.
“Canada is an example of the virtues of a relatively traditional approach, a country that did not get caught up in the euphoria of banking innovation,” he said in a speech to hundreds of lawyers.
However, he warned that Canadians’ lavish spending habits, stubbornly high unemployment, and rising housing costs are potential trouble spots that could potentially turn a good news story into a bad one.
“There are a few aspects of Canada that are not scary but a little disturbing,” warned Mr. Krugman, a Princeton University professor.
“Canada is by no means insulated. It’s by no means a sure thing that everything is going to be OK.”
Despite better banking regulation, Canadians tend to “spend and borrow and awful lot like Americans,” Mr. Krugman said in his speech.
“Household debt relative to total income is very high here, not quite as high as the United States but getting close.”
On the plus side, however, Canadian confidence in the financial sector has not been shot, and it is helpful for Canada to have its own floating currency, Mr. Krugman said.
The Bank of Canada, in an economic forecast late last month, acknowledged that the global recovery would slow down as a result of an increased focus on budget-cutting at the household and government levels.
As a result, the central bank trimmed its growth outlook for the Canadian economy to 3.5% this year and 2.9 per cent in 2011, compared with earlier estimates of 3.7% and 3.1% expansion.
The Bank of Canada reported that economic growth petered out in the second quarter of this year, following softer household spending and declining real-estate activity.
In a separate speech on Sunday, Canada’s chief justice also weighed in on the foundation of a solid and sustainable economy, saying that it depends on a strong justice system and commitment to human rights.
“In the short term, a country that violates human rights can appear to be just and experience economic growth,” said Beverley McLachlin.
“But in the long term, instability and the waste of human potential, which are a direct result of a systematic suppression of individual rights and economic freedom, will invariably cause its downfall.”
NIAGARA FALLS, Ont. — Canada avoided the brutal financial meltdown that plagued the U.S. economy, but there are some red flags that make recovery for this country “by no means a sure thing,” says a leading U.S. economist.
Paul Krugman, a Nobel Prize winner, New York Times columnist and renowned economic pundit, described Canada as “a very calm, very happy story” during the world economic crisis.
Canada escaped relatively unscathed, through a combination of good luck and sound, conservative regulation of banking and consumer debt in which “it is not so easy to use your house as an ATM,” Mr. Krugman told the Canadian Bar Association.
“Canada is an example of the virtues of a relatively traditional approach, a country that did not get caught up in the euphoria of banking innovation,” he said in a speech to hundreds of lawyers.
However, he warned that Canadians’ lavish spending habits, stubbornly high unemployment, and rising housing costs are potential trouble spots that could potentially turn a good news story into a bad one.
“There are a few aspects of Canada that are not scary but a little disturbing,” warned Mr. Krugman, a Princeton University professor.
“Canada is by no means insulated. It’s by no means a sure thing that everything is going to be OK.”
Despite better banking regulation, Canadians tend to “spend and borrow and awful lot like Americans,” Mr. Krugman said in his speech.
“Household debt relative to total income is very high here, not quite as high as the United States but getting close.”
On the plus side, however, Canadian confidence in the financial sector has not been shot, and it is helpful for Canada to have its own floating currency, Mr. Krugman said.
The Bank of Canada, in an economic forecast late last month, acknowledged that the global recovery would slow down as a result of an increased focus on budget-cutting at the household and government levels.
As a result, the central bank trimmed its growth outlook for the Canadian economy to 3.5% this year and 2.9 per cent in 2011, compared with earlier estimates of 3.7% and 3.1% expansion.
The Bank of Canada reported that economic growth petered out in the second quarter of this year, following softer household spending and declining real-estate activity.
In a separate speech on Sunday, Canada’s chief justice also weighed in on the foundation of a solid and sustainable economy, saying that it depends on a strong justice system and commitment to human rights.
“In the short term, a country that violates human rights can appear to be just and experience economic growth,” said Beverley McLachlin.
“But in the long term, instability and the waste of human potential, which are a direct result of a systematic suppression of individual rights and economic freedom, will invariably cause its downfall.”
Wednesday, August 4, 2010
Canada-US savings rates reach widest gap since early 1970s: BMO Capital Markets
Paul Vieira - August 3, 2010
Tally this up to another sign of the diverging directions Canada and the United States are taking on the economic front.
Whereas the U.S. personal savings rate is headed upward, to 6.2% for the second quarter, the comparable Canadian measure is actually headed down, to 2.8% as of the first quarter of 2010. As a result, the gap between the U.S. and Canadian savings rates is at its widest since the early 1970s and is poised to hit levels not seen since the 1960s.
“The tables have completely turned,” said Douglas Porter, deputy chief economist at BMO Capital Markets, who highlighted the trend in a Tuesday afternoon note to clients.
For the bulk of the last 30 years, Canadians tended to save more than Americans. Not so anymore (although both are saving a lot less).
Mr. Porter said the trend highlights the state of the two economies. In Canada, housing prices have not collapsed, consumers remain confident and credit from the country’s banks has been relatively easy to obtain. Meantime, a totally different story has emerged in the United States, leading to households to build up savings as their main asset — their home — isn’t worth that much any more.
“Eventually, the gap will narrow,” Mr. Porter said, “but not anytime soon.”
One factor that could reverse this trend is Canada’s debt-to-disposable income ratio, which is at record levels, at roughly 145%. Analysts say that level is not sustainable — unless there is a robust rise in personal income.
Tally this up to another sign of the diverging directions Canada and the United States are taking on the economic front.
Whereas the U.S. personal savings rate is headed upward, to 6.2% for the second quarter, the comparable Canadian measure is actually headed down, to 2.8% as of the first quarter of 2010. As a result, the gap between the U.S. and Canadian savings rates is at its widest since the early 1970s and is poised to hit levels not seen since the 1960s.
“The tables have completely turned,” said Douglas Porter, deputy chief economist at BMO Capital Markets, who highlighted the trend in a Tuesday afternoon note to clients.
For the bulk of the last 30 years, Canadians tended to save more than Americans. Not so anymore (although both are saving a lot less).
Mr. Porter said the trend highlights the state of the two economies. In Canada, housing prices have not collapsed, consumers remain confident and credit from the country’s banks has been relatively easy to obtain. Meantime, a totally different story has emerged in the United States, leading to households to build up savings as their main asset — their home — isn’t worth that much any more.
“Eventually, the gap will narrow,” Mr. Porter said, “but not anytime soon.”
One factor that could reverse this trend is Canada’s debt-to-disposable income ratio, which is at record levels, at roughly 145%. Analysts say that level is not sustainable — unless there is a robust rise in personal income.
Tuesday, August 3, 2010
CREA lowers home sale expectations
By QMI Agency
There will be fewer homes sold this year, but for more money than initially thought, the Canadian Real Estate Association said Friday.
CREA downward revised its 2010 housing market forecast after a weak spring buying season in four of Canada’s most crucial markets.
National sales activity via the Multiple Listing Service is now expected to reach just 459,600 units this year, representing an annual decline of 1.2%.
That’s because the pent-up demand resulting from the recession is now running out and further interest rate hikes will keep homebuyers in a cautious mood, CREA said.
As new listings shrink to adjust to fewer buyers, home prices are now forecast to jump 3.5% in 2010 to reach a national average of $331,600.
"Slowing first-time home buying activity means lower- and mid-priced homes are making a smaller contribution to the average price calculation, causing the average price to be skewed upward as a result," said Gregory Klump, CREA Chief Economist.
Prices are expected to ease off by 0.9% again in 2011, though some provinces could see modestly higher price tags.
"The hangover from accelerated home purchases earlier this year is expected to persist over the rest of the year, but positive economic and job market trends bode well for home price stability," Klump said.
Big swings in the market could finally be behind us, he said.
"Homebuyers will no doubt welcome a more relaxed housing market in places where there was a shortage of supply earlier in the year."
CREA expects that in 2011, slower economic growth and consumer spending will contribute to a 7.3% decline in home sale activity.
"While the jump in national sales activity earlier this year likely borrowed from the future, local markets trends are not necessarily in sync with national trends, so buyers and sellers would do well to consult with their local realtor to best understand the outlook in their market,” said CREA President Georges Pahud.
There will be fewer homes sold this year, but for more money than initially thought, the Canadian Real Estate Association said Friday.
CREA downward revised its 2010 housing market forecast after a weak spring buying season in four of Canada’s most crucial markets.
National sales activity via the Multiple Listing Service is now expected to reach just 459,600 units this year, representing an annual decline of 1.2%.
That’s because the pent-up demand resulting from the recession is now running out and further interest rate hikes will keep homebuyers in a cautious mood, CREA said.
As new listings shrink to adjust to fewer buyers, home prices are now forecast to jump 3.5% in 2010 to reach a national average of $331,600.
"Slowing first-time home buying activity means lower- and mid-priced homes are making a smaller contribution to the average price calculation, causing the average price to be skewed upward as a result," said Gregory Klump, CREA Chief Economist.
Prices are expected to ease off by 0.9% again in 2011, though some provinces could see modestly higher price tags.
"The hangover from accelerated home purchases earlier this year is expected to persist over the rest of the year, but positive economic and job market trends bode well for home price stability," Klump said.
Big swings in the market could finally be behind us, he said.
"Homebuyers will no doubt welcome a more relaxed housing market in places where there was a shortage of supply earlier in the year."
CREA expects that in 2011, slower economic growth and consumer spending will contribute to a 7.3% decline in home sale activity.
"While the jump in national sales activity earlier this year likely borrowed from the future, local markets trends are not necessarily in sync with national trends, so buyers and sellers would do well to consult with their local realtor to best understand the outlook in their market,” said CREA President Georges Pahud.
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