Why the Dismal Science?

Monday, June 11, 2007

Chapter 6 (The Best Interest)

Bank of Canada seen holding steady on interest rates


As Canadian economy strengthens, the Bank of Canada has made a tough decision to not change the current interest rate of 4.25 per cent. After six rate decisions since May 24, 2006, the interest rate has only been raised by one-quarter of a percentage point. One of the core reasons why the Bank of Canada has not budge on this overnight rate for loans is because of inflation. The risk of high inflation is not sufficient enough to increase the interest rates to balance the economic setting. The current inflation rate stands at 2.2 percent and the economy has grown at an annual rate of 3.5 percent since December.

Based upon the current economic position of Canada, I think Bank of Canada should have increase interest rates. The Consumer Price Index grew sufficiently corresponding to the upswing in the value of Canadian Dollar. Inflation will persist to increase higher than the inflation target. Prices on food and gas have already risen exponentially in the last year. The Canadian Dollar is above the range of 8.5 – 9.0 cents where Canada is operating at its production capacity against the robust American economy. Thus there is a push of demand and prices for Canadian commodities. As a result, the Canadian economy will continue to grow pushing the inflation rate above expectations. The Bank of Canada must implement a constraint on the future inflation increase referring to the monetary policy. The Canadian economy needs a cool-down to combat inflation rates and hence, the best strategy is raising interest rates. This will encourage Canadians to save and chartered banks not to lend reducing the money supply. The Bank of Canada easily manages this future forecast of higher inflation and vast money supply by adjusting the interest rate by a few quarter of a percent. Although this adjustment will affect rates for mortgages and the demand on loans and credit, it may attract investments and continue to strengthen the Canadian currency. Canada is overdue for another boost in interest rates to curb the inflation rates.

Currently, I am seeking financial aid through various student loans as well as acquiring a bank loan for a car. If Bank of Canada hikes the interest rates to balance the Canadian economic growth, I will struggle to attain the finance for my new expenditures. The current interest for student loans in BC is a floating rate of prime plus 2.5 per cent or a fixed rate of prim with additional 5 per cent. Although I do not have to begin repayment until graduation, it would still be quite costly to repay as the interest rates increases in Canada. To maintain an economic balance, a higher interest rate will prevent inflation and stimulate to save. Overall, I will be content as long as the Bank of Canada continues to monitor the Canadian economic growth and be diligent in preventing a market meltdown.


If you grow, take a hike

http://www.cbc.ca/money/story/2007/04/23/interestratelookahead.html


Thursday, April 05, 2007

Chapter 5 (More Jobs for Everyone)

Economy adds better-than-expected 54,900 jobs




Canada's economy created 54,900 new jobs in March as the unemployment rate remained unchanged at a 30-year low of 6.1 per cent. Alberta's booming economy was mostly responsible for higher wages, rising 5.4 per cent in the first quarter of this year. In addition, women reached a new high in workforce participation as well as the sectors in the manufacturing and trade. As an economic recline begins in the United States, Canada can outperform their giant trading partner across the border. Canada has developed a prosperous economy since it creation of 158,000 jobs during the start of this year that will continue to be a strong foundation to support Canadian income and expenditures.

Based upon the income approach to GDP, the level of business in Canada indicates high economic growth. Since our economy is growing and producing more, it is assumed that the standard of living of Canadians are improving as well. Although one of the effects of GDP increase is population size, Canada remained to have a low population rate. Families continue to have fewer children and thus, the government of Canada is depending on immigration to sustain our GDP per-capita. Compared with last year, Canada is in excess of the 1.6 per cent inflation rate. There is an increase in the current Canadian loonie and with a low inflation rate, it does not have a drastic impact on the constant dollar GDP. However, Canada’s GDP can still be higher if all financial transaction are recorded especially in British Columbia with a low 3.9 per cent unemployment rate that included additional 12,500 jobs. The underground economy in BC is impressive from professional services to illegal items. It continues to be difficult to include the calculations of these transactions which employs numerous Canadians. The British Columbia government is taking this opportunity to purchase the single-room-occupancy hotels in Downtown Eastside which will increase the GDP in the expenditure approach. This investment ranges high in the government spending of $80 million. Overall, Canada has a sold circulation of business activity indicated in their GDP from current low unemployment rates, low inflation, and high income rates.

I personally am ecstatic on the news of women dominating the workforce in 2007 and the low unemployment rate for me in the future. The current trend in participation in these additional 54,900 jobs is that women are receiving higher levels of education, positive attitudes towards women’s involvement in the labour force, and the ideal of lower family sizes. Although these lower family sizes will hinder the Canadian population, Canada will be able to rely on other solutions to subsidize their labour force. I am content to attain a job after graduation and this endeavor will be easily attainable.

Without labor nothing prospers.

~ Sophocles

http://www.cbc.ca/consumer/story/2007/04/05/jobs-march.html

Friday, February 23, 2007

Chapter 4 (Security!!)


Canada Pension Plan fund feasts on rising markets: 10.1% nine-month return

The Canadian Pension Plan fund, which includes investment earnings, grew by $7.5 billion to $110.8 billion during the quarter ended December 31, 2006. For the quarter, the CPP fund experienced an investment rate of return of 8.7 per cent, or an increase of $8.9 billion [Calculation3: ROI Increase= $10.3-1.4=8.88], while the fund paid out $1.4 billion for CPP benefits [Calculation2: ROI Given=10.3*0.138=1.42] as it typically does in the latter part of the calendar year [Calculation1: ROI= (10.1%-8.7%)/ 10.1% = 0.138]. Overall, the result is a $7.5 billion increase in the CPP fund. CPP contributions are expected to exceed annual benefits paid until 2022, providing a 15-year period before a portion of the investment income is needed to help pay CPP benefits. Over the next ten years the CPP Investment Board estimates that the CPP fund will grow to approximately $250 billion making it one of the largest investment capital in the world and helping to secure the CPP for the long term.

Canadian government securities are alternatives to taxation where the government generates revenue. Taxpayers voluntary lend money to the government to pay for expenditures in the Canadian Pension Plan, mutual funds, bonds, and other insurances. These securities typically pay for large capital expenditures because many people wait years for the maturity date before cashing in on their investment so these expenditures are easily financed over number of years. The CPP Investment Board invests the funds not needed by the Canada Pension Plan to pay current benefits. With a mandate from the federal and provincial governments, the CPP Investment Board is accountable to Parliament. The government becomes the guardian of the CPP to the 16 million contributors and beneficiaries. In the years to come, the increase amount in the CCP provides the government with widespread borrowing from bonds and debentures. This can eventually reduce the amount of unmatured debt and continue to fund costly programs.

The CPP portfolio is extensive and its horizon is a great long-term investment. I already contribute to the Canadian Pension Plan and hope that in the upcoming years, my investment will be prosperous. Although, the estimated profit in the CPP is hefty, many people will retire in a few years to cash in. Thus, the number of contributors would decrease once the investment income is required to pay pensions. This will lead to a lower amount invested in bonds and other types of investment securities. The amount borrowed by the government will also decrease creating the quality and quantity of programs to decrease as well. However, if the CPP Investment Board is sagacious and continue to invest wisely on the Canadian and foreign equity market then the government may continue to receive revenue funding from the Canadian Pension Plan. Furthermore, I believe the return on investment is extensive and hence, I will also continue to contribute my income to the Canadian Pension Plan fund.

http://www.cbc.ca/cp/business/070208/b020859A.html#skip300x250

Tuesday, November 14, 2006

Chapter 3 (Going once..Going twice)


Others cry foul at Calgary's Efforts to Recruit Nurses

Calgary Health Region ad campaign to recruit nurses has created an outrage across Canada. Alberta has a shortage of nurses in the area and is in demand for 500 registered, licensed nurse practitioners. The ads target the market by offering permanent nursing positions in both urban and rural communities including excellent benefit packages and salaries. Other provinces like Saskatchewan with a less blooming economy cannot compete with the recruitment benefits and bonuses offered in Alberta. Hamilton Health Sciences in Ontario and Nova Scotia’s Nurses’ Union cannot afford to lose their pool of nurses. Canada is quickly entering a bidding war with the shortages of registered nurses.

For the past decade, provincial governments in Canada have been dealing with shortage of medical assistance from the health system. All Canadians have felt the decline but none more so than the nurses. Alberta is extending their recruitment to other provinces because they are currently short 2,000 nurses. Alberta provincial government has been instrumental players in recruiting nurses in the labour market. The information provided has extended details of job opportunities as well as created competition among the other provinces. This effective competition offered nurses the best benefits for working more overtime. Although this bidding war has created a positive third-party effect in Alberta, other provinces are facing negative third-party effect. The federal government has to undertake action to prevent further shortages of nurse in Canada by extending learning opportunities and benefits of nursing schools. It is vital for the government to attract nurses into the labour market in Canada since health care is an essential good. United States, our neighbouring country attract majority of the labour force in the medical industry especially from Canada because of their higher salaries and benefits. Privatization allows medical clinics to present the best offer to nurses under the tight demand. Health care is a public good that could be control by a company. However, if health care were privatized, would private companies have the best interest of the public under this shortage of nurses? Health care is not unmet good so private companies can take advantage of this situation and easily overcharge patients for the beneficiaries. The Alberta provincial government have become involved in the problem that arose in their health care system. By continuing their procedure in recruiting nurses, they will slowly diminish their shortage. The federal government must slowly regulate the procedure of the provincial government to prevent an extensive national shortage of nurses. Government officials must create a mandate to eliminate the current price ceiling on salaries offered to health care workers to reduce the current shortages. Price ceiling result in shortages that force the federal government to deal with rationing health care among the provinces.

In British Columbia, nurses are offered a $10,000 bonuses and Alberta has created a bidding war for British Columbians. I hope the shortage is temporary and the federal government will take proper initative to reduce the problem. Education is a key factor in eliminating this shortage because "education supply has not kept pace with the demand". The government must help rebuild the profession and not steal from one another. Because of these circumstances, governments must intervene in our free-market system.

Stop “Poaching” for Nurses!!

http://www.edmontonsun.com/News/Alberta/2007/01/22/3424613-sun.html

Friday, November 10, 2006

Chapter 2 (Up, up Supply)

New housing supply outstripping demand

Extra, Extra! The Canada Mortgage and Housing Corporation announced that new housing construction has cooled down the market in British Columbia. There is enough supply of houses to supply the large demand. They predicted that 36,900 new housing would start in B.C. this year and diminish off to 35,300 in 2007. Currently, there are a large number of projects launched in Richmond and New Westminster. These projects need time for the market to absorb. Overall, this allows prices and sales to slow down which is good thing for the market. Economists state that the main factors that reduce housing are the combination of rising prices and moderately higher interest rates. This factor is going to slow the demand and have a huge impact on monthly mortgage payments. Presently, in the housing market supply has outpaced demand in some areas of Greater Vancouver.

In the last few years, the housing prices in Vancouver increased immeasurably. A number of factors combined to increase the supply for houses are prices, production costs, and psychology of owner. Due to the increased prices of housing along with a high demand, suppliers are able to receive a profit for their product. The higher the price, the more the supplier will offer the product onto the market and hence there is an increased in construction of residential areas. They suggest that in the future, cost will increase so the supply of new housing diminishes too. Demand for workers and materials for housing will be increased due to higher cost because the only way suppliers are willing to supply the new housing after granting a wage increase is if higher prices for the product is received. The quantity supplied of housing to the market increases when the price of housing is also higher. The additional costs of supplying more housing in Vancouver is beyond the certain level of output. People have other choices such as living in the suburbs or alternatives such as apartments and condos. These substitutes allow them to have more choices which constantly changes the supply side of the market. The supply of a product to the market will change over time because changes in the factors that influence that supply. For example, renting houses in Vancouver have been very popular due to the higher prices. Now the housing bubble might burst due to the upward-sloping supply curve because of the change in quantity supplied in response to the change in the price of housing. Housing is shifting on its elasticity curve in the Greater Vancouver market. Housing is frequently categorized as elastic because it is expensive and has multiple substitutes like trailers, apartments, etc. Time is influencing the elasticity of housing. The market is at current equilibrium where there is large supply and demand on the market. The total revenue of housing is increasing meaning majority of the housing investments are cash cows. Over time, housing is a reliable market to invest in. It is unlikely that market prices will decrease and hence it will continue to constantly increase. There is still a large demand because the time to invest in housing is profitable. The resulting concept is that time does make all products even more elastic.

When Canadian economic conditions are booming, it can also create the perfect breeding ground for speculative price bubbles to form in BC expanding housing market. There is a sense the air is leaking out of what had become an over inflated market even though in the bubble scenario, prices keep climbing at the same rate as supply of housing grows. High costs have not restricted housing construction. In the new supply of houses created, there is the increasing supply that will have a downward effect on the price. The market needs just a little bit of time to recharge before the next introduction of supply. So the air of the housing bubble must be released from the earlier tight market.


Tuesday, October 31, 2006

Chapter 1 (Beyond Scarcity)

U.N. seeks G8 aid in water crisis

The United Nations is urging the G8 to establish a strategy to resolve the world’s lack of water. Africa is a country suffering from the outcome of the sanitation crisis and deficit of water. Africans could have prevented 1.8 million children from death, if they had clean water and toilets. In addition, 443 million school days were lost to the same unsanitary sickness. Overall, the global water crisis causes the deaths of nearly 2 million children every year. It also holds back countries' development, especially in Africa. This crisis contributes to a lost of 5 percent of GDP annually for the African governments, which is more than the various countries receives in aid. Shockingly, unclean water is an immeasurably greater threat to human security than violent conflict during civil war.

This environmental issue is not only happening in Africa. In the near future, Canada will also be sailing on the same sinking ship because each Canadian uses approximately 7100 litres of water a day. Currently, the severe outcomes of a water shortage has not affected Canada. Nonetheless, Canada has 14 percent of the world’s lakes and 9 percent of the world’s river flow which only one percent of the world’s population have access to. Canadian water resources are going to be exhausted as we continue to match the demand for water with the available supply. There’s a high demand for water in Canada apart from needing water to drink. Canadians are accustom to the unrealistic luxury of unlimited water supply for their modern conveniences. Major changes must be made into Canadians' lifestyles because the world is dealing with inadequate water supply and sustainable development must be implemented.

In Maslow’s hierarchy of needs, water is at the level of survival. Everyone needs water to live and their country to flourish. Without water, a population is unable to function properly and has to deal with millions of deaths and various social issues. Before Africans can face the violence in their countries, they need water to survive. Water is a scarce resource that needs to be preserving immediately or there will be opportunity costs involved. Our world is operated around the economy, so the answer to providing water supply is primarily financial. Money has to be taken away from other uses in order to ensure that we maintain an adequate water resource because presently water is a fixed resource that has increasing amounts of variables. All in all, the law of diminishing returns states that our water supply will eventually become smaller and smaller.

Please think about Sustainable Development!!!