Archive for the ‘Trade’ Category

The financial press appears to be drawing parallels between our current financial challenges and the depression of the 1930s. To some it may seem reasonable. Yesterday, British Prime Minister Gordon Brown, in the House of commons, referred to the economic environment as a depression, though he later explained that he simply got the words wrong meaning to say recession. This is how rumours start.

While drawing parallels may make it easier to explain complex subject matter, there are many differences between now and then.

1. In the 1930s there was no social security. Today these cheques, delivered monthly, provide a basic level of subsistence.

2.  Peoples’ savings are protected from bank failures through federal deposit insurance. In the 30s investors lost their savings when banks defaulted.

3. Governments around the globe have lowered interest rates in response to a weak economy. In the 30s the U.S. actually raised rates simply getting the monetary policy wrong. These rate cuts are significant. The Bank of England is currently at 1% for fed funds, the lowest level since the Bank was established in the the 1700s . Japan has lowered the rate to zero. Canada and the U.S. are at 1%.

4. There has been a global increase in money supply unlike the contraction experienced in the 30s.

5. International trade agreements now promote trade between economies. The escalating trade barriers introduced in the thirties had the opposite effect.

6. As a global trend, corporate and individual taxes are low when compared to the rising tax environment which typified the 1930s.

7. We now have single digit unemployment. In the thirties unemployment exceeded 20% in North America.

8. Governments have acted quickly, introducing a fiscal stimulus package in a globally co-ordinated effort. In the 30s Roosevelt’s “New Deal”  took several years to launch.

9. We have the experience of the depression as our guide.

For a great read and perspective of economic cycles I recommend The Ascent of Money by British Historian  Niall Ferguson. It it densely written, and therefore a moderately difficult read but gives an excellent review of how governments have dealt with crises beginning with the advent of money.

I continue to be impressed by the resilience of people. We have much to be thankful for in North America but one of the great strengths we rely on is our attractiveness as a better home for people from all corners of the world. We attract the best and the brightest because of the opportunities that our society provides. Recently, I spoke to the Indo Canadian Ottawa Business Chamber (ICOBC). This is a group formed to promote better business and social ties between Canada and India. They meet regularly to provide support to efforts around increased trade and entrepreneurship. The Chamber membership is populated by professional in the public and private sphere. These people are making significant contributions to their adopted country and providing a conduit for access to the rapidly developing India. Their efforts, combined with many other organizations like them, are the basis for solving the economic problems in which we are currently embroiled.