Business
The big quiet bail out – Euro/Japan central banks propping up stock markets, is the US next?
You’d think that the golden age of markets, if there was one, would be something like the post WWII economic expansion era. That was pretty impressive, driven by baby boomers and the gigantic wave of consumption that enveloped them. Never before in history had parents worried so much about the outfits that New Baby would wear, and it only got crazier from there.
Fundamentally though, the late 1700s were far more earth-shaking. Not in the consumerist sense; those austere horse-travelers managed to survive somehow without the likes of either Apple or Lululemon, for example, but consider the free-market achievements of that period. The United States came into existence, a profound new experiment in governance and free(ish) markets. In academic circles, famed economist/philosopher Adam Smith coined the term “the invisible hand of the market” in his book The Wealth of Nations. It was a reference to the ability of a market economy to provide benefits far beyond those that accrue to the creator. That is, an inventor of something that becomes wildly successful enriches not only the inventor, but society as a whole. Plus, it is an indirect reference to the ability of markets to efficiently allocate capital.
We tend to forget that wonder of capital markets, particularly as the world drifts into one defined more and more by government intervention. Since the 2008 financial meltdown, governments have gone kind of berserk in attempting to keep the financial world afloat, causing markets to gyrate in increasing spirals through wild-eyed policy guidance as the dollars at stake become stupefyingly large. We no longer have economist/philosophers at the helm; we have economist/desperados who have convinced the world their alchemic ways will work, and they don’t know that it will, but they’re really really hoping.
The new breed of economist has introduced an all new Invisible Market Hand – not one that provides infinite benevolence, but one that is like a forklift driver feeling confident in his/her ability to pilot a fighter jet because the seats are similar.
The strategy of which I speak began in Japan over the past decade. After years of trying to kick start the Japanese economy in various ways, including dropping interest rates to zero, the central bank began buying up treasuries as a means of supporting debt markets. When that didn’t get things going, they took the next step and actually began buying up equities to prop up stock markets. Since then, Europe has started a similar program. And yes, you heard that right – in those jurisdictions, if stock prices fall too much, the market is prevented from self-correcting, and governments are, in effect, breaking the fingers of the original Invisible Hand.
They appear to be stepping in to keep critical sectors of the economy in good shape, and also to enhance the “wealth effect”. The wealth effect refers to how citizens tend to spend more drunkenly when they feel wealthy, and for many that means a healthy portfolio. If someone sees their retirement nest egg shrink from $100,000 to $50,000 in a severe market downturn, those people tend to lockdown spending – a wise reaction. But as we’re seeing, the world keeps turning because we are consumers, and like it or not, consumption makes our world go round. So by making those portfolios stay healthy one way or another, governments seek to put the population in a semi-drunken spending stupor in order to keep the party going. Anyone who’s witnesses a true boom economy will recognize the phenomenon – at the peak of the oil boom 6 or 8 years ago, there were direct flights from Fort McMurray to Las Vegas, and thousands of twenty-somethings were purchasing vacation properties. Suffice it to say that those days are gone.
Don’t expect the new Invisible Market Hand to bail you out if your brother-in-law convinces you to load up some hot stock tip he got from a friend who got it from a friend who got it from a friend, because the “friend” at the end of that chain will be some dubious stock promoter that may or may not end up in jail, and even panicked governments won’t save those souls.
With the new strategies for propping up markets however, we’re starting to see the lengths governments will go to in order to maintain financial stability. You’d think the mountains of debt will lead to a day of reckoning, but, emboldened by the global government response to the 2008 financial crisis, the high priests of finance are becoming more emboldened. That our fate depends so heavily on a squadron of tweedy economists is truly frightening, but we’re all in the same boat, so enjoy the ride…
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From Conservative Party Communications
The Hon. Pierre Poilievre, Leader of the Conservative Party of Canada and the Official Opposition, released the following statement on the threat of tariffs from the US:
“Canada is facing a critical challenge. On February 1st we are facing the risk of unjustified 25% tariffs by our largest trading partner that would have damaging consequences across our country. Our American counterparts say they want to stop the illegal flow of drugs and other criminal activity at our border. The Liberal government admits their weak border is a problem. That is why they announced a multibillion-dollar border plan—a plan they cannot fund because they shut down Parliament, preventing MPs and Senators from authorizing the funds.
“We also need retaliatory tariffs, something that requires urgent Parliamentary consideration.
“Yet, Liberals have shut Parliament in the middle of this crisis. Canada has never been so weak, and things have never been so out of control. Liberals are putting themselves and their leadership politics ahead of the country. Freeland and Carney are fighting for power rather than fighting for Canada.
“Common Sense Conservatives are calling for Trudeau to reopen Parliament now to pass new border controls, agree on trade retaliation and prepare a plan to rescue Canada’s weak economy.
“The Prime Minister has the power to ask the Governor General to cut short prorogation and get our Parliament working.
“Open Parliament. Take back control. Put Canada First.”
From the Fraser Institute
Canadian federal politicians are floundering in their responses to Donald Trump’s tariff and annexation threats. Unfortunately, they’re stuck in a 2016 mindset, still thinking Trump is a temporary aberration who should be disdained and ignored by the global community. But a lot has changed. Anyone wanting to understand Trump’s current priorities should spend less time looking at trade statistics and more time understanding the details of the lawfare campaigns against him. Canadian officials who had to look up who Kash Patel is, or who don’t know why Nathan Wade’s girlfriend finds herself in legal jeopardy, will find the next four years bewildering.
Three years ago, Trump was on the ropes. His first term had been derailed by phony accusations of Russian collusion and a Ukrainian quid pro quo. After 2020, the Biden Justice Department and numerous Democrat prosecutors devised implausible legal theories to launch multiple criminal cases against him and people who worked in his administration. In summer 2022, the FBI raided Mar-a-Lago and leaked to the press rumours of stolen nuclear codes and theft of government secrets. After Trump announced his candidacy in 2022, he was hit by wave after wave of indictments and civil suits strategically filed in deep blue districts. His legal bills soared while his lawyers past and present battled well-funded disbarment campaigns aimed at making it impossible for him to obtain counsel. He was assessed hundreds of millions of dollars in civil penalties and faced life in prison if convicted.
This would have broken many men. But when he was mug-shotted in Georgia on Aug. 24, 2023, his scowl signalled he was not giving in. In the 11 months from that day to his fist pump in Butler, Pennsylvania, Trump managed to defeat and discredit the lawfare attacks, assemble and lead a highly effective campaign team, knock Joe Biden off the Democratic ticket, run a series of near daily (and sometimes twice daily) rallies, win over top business leaders in Silicon Valley, open up a commanding lead in the polls and not only survive an assassination attempt but turn it into an image of triumph. On election day, he won the popular vote and carried the White House and both Houses of Congress.
It’s Trump’s world now, and Canadians should understand two things about it. First, he feels no loyalty to domestic and multilateral institutions that have governed the world for the past half century. Most of them opposed him last time and many were actively weaponized against him. In his mind, and in the thinking of his supporters, he didn’t just defeat the Democrats, he defeated the Republican establishment, most of Washington including the intelligence agencies, the entire corporate media, the courts, woke corporations, the United Nations and its derivatives, universities and academic authorities, and any foreign governments in league with the World Economic Forum. And it isn’t paranoia; they all had some role in trying to bring him down. Gaining credibility with the new Trump team will require showing how you have also fought against at least some of these groups.
Second, Trump has earned the right to govern in his own style, including saying whatever he wants. He’s a negotiator who likes trash-talking, so get used to it and learn to decode his messages.
When Trump first threatened tariffs, he linked it to two demands: stop the fentanyl going into the United States from Canada and meet our NATO spending targets. We should have done both long ago. In response, Trudeau should have launched an immediate national action plan on military readiness, border security and crackdowns on fentanyl labs. His failure to do so invited escalation. Which, luckily, only consisted of taunts about annexation. Rather than getting whiny and defensive, the best response (in addition to dealing with the border and defence issues) would have been to troll back by saying that Canada would fight any attempt to bring our people under the jurisdiction of the corrupt U.S. Department of Justice, and we will never form a union with a country that refuses to require every state to mandate photo I.D. to vote and has so many election problems as a result.
As to Trump’s complaints about the U.S. trade deficit with Canada, this is a made-in-Washington problem. The U.S. currently imports $4 trillion in goods and services from the rest of the world but only sells $3 trillion back in exports. Trump looks at that and says we’re ripping them off. But that trillion-dollar difference shows up in the U.S. National Income and Product Accounts as the capital account balance. The rest of the world buys that much in U.S. financial instruments each year, including treasury bills that keep Washington functioning. The U.S. savings rate is not high enough to cover the federal government deficit and all the other domestic borrowing needs. So the Americans look to other countries to cover the difference. Canada’s persistent trade surplus with the U.S. ($108 billion in 2023) partly funds that need. Money that goes to buying financial instruments can’t be spent on goods and services.
So the other response to the annexation taunts should be to remind Trump that all the tariffs in the world won’t shrink the trade deficit as long as Congress needs to borrow so much money each year. Eliminate the budget deficit and the trade deficit will disappear, too. And then there will be less money in D.C. to fund lawfare and corruption. Win-win.
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