Over five years ago now, March 11, 2013, I published this mayo615 blog post on the Alberta bitumen bubble, and the budgetary problems facing Alberta Premier Alison Redford, and the federal Finance Minister Jim Flaherty at that time, both of whom were surprisingly candid about the prospect for ongoing long-term budgetary problems for both the Alberta and Canadian national economies. Fast forward five years to today and the situation has essentially worsened dramatically. The current Alberta Premier Rachel Notley is facing another massive budget deficit, just as Alison Redford predicted years ago, and was forced to call a new election. My most glaring observation is that despite years of rhetoric and arm-waving, almost nothing has changed. Meanwhile, the Canadian economy is on the precipice of a predicted global economic downturn which could easily become a global financial contagion.
Wall Street is currently basking in a vigorous “Trump rally,” with the Dow rising more than 1000 points since the election. The rally is driven by analysts who are salivating over the future prospect of sweeping deregulation of many markets. But there is also chorus of concern from dozens of financial experts, that the global financial markets are “whistling in the graveyard,” acting in a classicly irrational manner. Experts cite a host of issues both financial and geopolitical, among them Trump’s intention to exit TPP, NAFTA, and the COP21 Climate Agreement. Combined with rising geopolitical tensions with China, North Korea, and Iran, a perfect storm of global uncertainty and instability is forming.
We are now seeing the first indications of the consequences of a Trump withdrawal from the international community. China has seen an opportunity to displace the United States and to advance China’s own aspirations to take a more aggressive and visible leadership role in the COP21 agreement. The simultaneous announcement of the de facto death of the TransPacific Partnership (TPP) has also opened a new opportunity for Chinese hegemony in the Asian economic and geopolitical world. Regardless of the Trumpist views on climate change and foreign trade, we are proverbially cutting off our noses to spite our faces.
Leonardo DiCaprio’s extraordinary two-hour National Geographic documentary is now available for viewing free everywhere, including on this page, YouTube, The National Geographic website, and the National Geographic Channel. Everyone should watch it. Equally worthwhile is the series The Years of Living Dangerously on National Geographic. The 2-minute trailer and the full documentary film are below here.
Global Financial Contagion, is a well-understood phenomenon among economists, but less so among the general public. Financial contagion refers to “the spread of market disturbances — mostly on the downside — from one country to the other, a process observed through co-movements in exchange rates, stock prices, sovereign spreads, and capital flows.” Financial contagion can be a potential risk for countries who are trying to integrate their financial system with international financial markets and institutions. It helps explain an economic crisis extending across neighboring countries, regions, or in the worst case, the entire global economy.
Over two years ago now, March 11, 2013, I published this mayo615 blog post on the Alberta bitumen bubble, and the budgetary problems facing Alberta and the federal Finance Minister Jim Flaherty at that time, both of whom were surprisingly candid about the prospect for for ongoing long term budgetary problems for both the Alberta and Canadian national economies. Fast forward two years to today, and the situation has essentially worsened dramatically. The most glaring difference in my mind is that there is no Jim Flaherty, and there is no candid talk coming from the current Finance Minister, Joe Oliver, or anyone in the Harper government, on this issue or when a budget may be expected.
Regrettably, this week’s events in the oil market, provide further evidence of the dire consequences ahead for the Canadian oil economy. Oil industry bulls who have been betting on a quick rebound in oil prices are likely to get severely burned, and the prospects for the local tourism based economy are only worsening.