I want to leave that invitation open, because I, and perhaps others, know nothing about how daily life in Canada has been impacted by the global downturn. ______________________ European bond markets trembled a few months ago when there was the threat of default on government bonds issued by Greece; following that, there downgrades on the bonds issued by Spain and Portugal. During that time, interest rates demanded by investors on Greek bonds rose, sharply. Meanwhile, the U.S.- with debt more massive, and borrowing running amok- soldiered on with scarcely a ripple in the U.S. bond market. U.S. interest rates remained low, demand for U.S. bonds remained relatively strong, and in spite of massive borrowing, no one is saying the U.S. is facing more than a hypothetical crisis. Part of the difference has to be that the U.S. government is practically free to print more money to pay its bills, as it's currently doing. Another part may be due to the fact that, years ago, the U.S. set its currency up as a reserve currency, and got other nations to agree to price commodities in U.S. dollars. But why there has not been, as of this date, a serious loss of confidence in the value of holding USD is a little hard for me to understand- other than to see it as a house of cards, ready to come down. Following the G-20 meeting, and the sound rebuff dealt President Obama's suggestion that other governments should increase spending, rather than impose restraint, the USD dropped sharply in value against the Euro and certain other currencies (it didn't against the Mexican Peso). It will be interesting to see what happens, next week, when the currency markets are again open.
I think the biggest reason that the US bond market has held steady is that there are really very few "safe harbors" for investors. China has the strongest economy but also one of the more difficult governments to assess what their actions will be. Japan has been in a funk for years. Korea may be at war at any time. That leaves basically Germany, the UK and the US. The first two may be saddled with the problem of the PIGS (Portugal, Italy, Greece and Spain) and that tarnishes the lustre of their bond markets. Hence, the US is the only place to hide.
Well, here is some input as a Canadian. Canada has several large banking institutions, as opposed to numerous smaller independent banks as seen in the U.S.. Canada's banks are regulated to where they are not able to participate in the risky and some would say unethical investments that some banks in other countries took part in. Nevertheless, banks stocks here plunged, no doubt because of the "guilty by association" phenomenon. Canada's two largest economic provinces suffered during the height of the downturn. Ontario (the most populace) because of a large automotive sector and manufacturing ties to the U.S.. Alberta, because it's largest export is oil and gas, which saw a reduction in demand. Canada did not experience the downturn on the same level as the U.S. and other nations. It was tough...but not as bad. We are well on our way to recovery but it remains uncertain because of our global economic ties, particularly to the U.S.. I think all our governments role, in this area, is to provide and enforce reasonable laws and regulations in all industry, including banking. There is a balance to be struck, between the free market and potential for abuse.
Thanks for that Brewster I think for many Americans- me included- what goes on "up there" remains a black hole for information even though it's our nearest and best neighbor We hear a lot more about Mexico- a country that in reality is less important as a trading partner than is Canada ____________________
