This discussion was originally posed by a user in our old economics forums (that are now closed). The question was: what the current macroeconomic situation in the US and Canada? We’ll continually add some more insight in this thread for more insight.
What is the current macroeconomic situation (e.g. worrying about inflation or recession) in the U.S.? What should the Federal Reserve do about it?
**DiscussEconomic will post updates on the current macro situation in the comment section below**
List of Websites with Updating Macroeconomic Indicators:
- Bank of Canada Targets and Announcement
- Economic Indicators (Stats Canada)
- Schedules of economic announcements 1 and two.
- FED Stats and Data
- Major Economic Numbers (Dept of Labor USA)
- Economic Indicators (Dept of Commerce USA)
- Weekly Petroleum Stats (US EIA)
- Bureau of Economic Analytics (USA)
- Office of National Stats (UK)
Decreases in interest rates, depreciation of currency, not much going on! But you’ve asked an open ended question. What specifically about macroeconomics are you curious about?
I don’t think he’s asking a question. It seems his intention is to start a topic for frequent macroeconomics updating.
BTW, i think the crisis effects are not going to last very long. US government is doing rather good about that and the economy may start to recover in the 3rd quarter of next year..
Actually, this WAS a devry essay question – I just googled it and this was the first site that popped up. So basically you did his homework for him. lol
I’m kind of skeptical about the market returning to tip top shape in less than a year. It seems extremely unstable to me; a week or so ago the DOW was down below 7000 points, as of yesterday it was almost back up to 9,000 in only a week or so. It has been doing this insane fluctuation since September, with no signs of stopping. However, with the new President we could see some significant improvements, but I think it will unfortunately take years for the market to regain strength.
The current Macro situation obviously depends on a number of parameters. Some ways you can keep track of the overall picture is to capture brief snapshots from a variety of sources. For example, to get an idea of the economics indicator announcements that are made daily in a variety of forms you should pay attention to some kind of release calendar like this one from Briefing.com
Rarely is there any unanimous consensus on what’s happening in the economy is it’s also important to pay attention to reports from different article and news voices. For example read Bloomberg, WSJ, Economist, Investors daily, and other publications. You can also read a number of blogs of leading economists from both sides of the spectrum and everywhere between. Arnold Kling, Greg Mankiw, Paul Krugman, to name a few.
Some of the big aspects you need to pay attention to in both the American and Canadian economies are interest rates, debt loads, housing markets, and consumer prices (again, to name a few).
America’s debt load is HUGE and is growing substantially. That will continually depress the economy and minimize growth. What growth that does happen will be hampered by the rising debt. Interest rates are currently low, however, that isn’t doing much to help the economy rebound in the short term, although necessary over the long term.
Low interest rates encourage borrowing for the business sector as well as consumers looking for homes. Unfortunately in America the default rate is HUGE, somewhere around 20% I believe. New home buyers are staying quiet unwilling to accept more debt in a time of uncertainty. Assets may even decline in the short term once you buy it….so the risk is high.
Also, in order to service their own debt America relies on foreign money. Their assets like govt bonds are purchased by other countries, but that demand is decreasing as America becomes so in debt other countries like China are questioning the validity of the American economy and their ability to repay. It’s obviously far more complex but America is quickly losing their stature as a world economic superpower as more countries look elsewhere to invest.
Canada is in a much better position than America, but in Canad athe issue surrounds consumer spending. Consumers actually exhausted their credit during the the recession period more so than Americans. They also purchased homes much quicker and this may lead to a bubble effect where the market could collapse. This is unlikely, but new mortgage rules in place will probably lead to declined housing market prices.
lastly you have to look at employment numbers, more jobs means less money the govt pays for social services/ employment insurance, and more people paying off their debts/expenses. America’s 9%-10% rate is quite large, sometimes 20-25% in some areas (such as Michigan). That’s a sobering thought and frankly many jobs may not be recovered if AMerica can’t reclaim its global dominance.
Another area you may want to browse is the actions of banks. They, along with our need to borrow, got us into this mess, and there were few measures put into place to percent another collapse. Essentially banks are supposed to act responsibly, but they get carried away with their lending. Once they lend too much and people default they lose money and there is potential to collapse. Free market economies dictate the banks should have failed, but as you saw in 2008 that didn’t happen as most banks were ‘bailed out’ thus putting a bandaid on a situation that required overhaul and more measures to prevent excessive lending.
Again, the situation is always complex, but you can do well to capture a spectrum of opinions on the current maco state by reading some key voices.
It seems that just about everyone knows that the bailout wasn’t what was really needed, why then wasn’t more done to ensure this doesn’t happen again?
He actually posted this because he is enrolled at DeVry University, and it was an essay question from his professor which needed a 300 word essay
Currently in the US the Federal Reserve is contemplating its next move. Interest rates are not expected to increase, but the extent the 700 billion dollar bailout package is not known. Our rather, the benefit from the bail out hasn’t been noticable so the FED doesn’t know what to do next in terms of intervention.
All this to say the US economy is still weak at best. The housing market is still cool and job creation is limited. Look for the FED to start more monetary actions to spur economic activity. You will also see some fiscal policies designed to increase production.
In Canada the government and central bank have a cautious outlook. They have kept their interest rate unchanged at 1%. The problem with Canada is that they are very reliant on the success of the US. Right now despite some perceived strength, it’s plausible any growth won’t be actually realised for another 2-3 years.
recovery is slow, and the actions by the respective central banks are still licking the wounds from the 08 fallout.
On one hand you have to balance an electorate, (the US mid-term elections approach and the Republicans will think they can do a better job and people will embrace change in a time when they aren’t getting what they want (jobs) but if anybody thnks the Republicans have a magic solution to the worst economic recession since the Great Depression you’re dead wrong,) so what happens the picture is reported to be better than it is.
On the other pragmatic hand the size of the recession and the success of monetary policy are polar opposites. The recession was huge but the equally large monetary solutions haven’t had their expected result.
yeah. this is a Devry question. don’t do his work for him.
Canada added 69,200 jobs in January. That number was twice that of the 36,000 jobs expansion reported later by the U.S. Bureau of Labor Statistics. The Canadian figure exceeded expectations by almost 5x, whereas the US numbers were about half of expectations.
Interestingly, the unemployment numbers for both countries went in opposite directions. The US rate fell to 9.0% from 9.4% in December, whereas Canada rose to 7.8% from 7.6%. The difference largely attributed to those who counted themselves as part of the workforce. Canadians seem to be re-entering in hopes that a increasingly active economy will provide more jobs.
Because Canada’s overall economy looks better, investing in Canada is attractive. That would include items like T-Bills, Govt bonds, and of course other equities located in Canada.
That means greater demand for Canadian dollars. Couple that with the usual tie to the commodity market (Canada is a resource based economy, when oil goes up so does the Canadian dollar), and you begin to understand why the Canadian dollar is currently above par with the USD. The demand for CDN $ helps the dollar appreciate (or stay in its relative strength position vs. the USD).
Interest rates are always an indicator of where the economy is going. Raising is an indicator of a couple of things, most notably the capability for the economy to accept a higher interest rate. What I mean by this is the raising of interest rates means that the central bank believes enough people will continue to borrow/build (increase productivity) at a higher interest rate so that the economy won’t contract.
Raising interest rates also slows inflation.
The US continues to keep their interest rate near zero, an indication the economy is still having exceptional struggle producing. Raising interest rates at this point would stymie the economy even further.
Think of all the homes (housing markets are th elargest consumer purchase) that are still outstanding/empty in the US. People are not buying. part of that has to do with consumer confidence. Many unemployed, other still too worried about accepting a mortgage, still others having issues with the bank lending them money, and of course many who can’t even qualify.
Different story in Canada where they have increased interest rates twice, since early 2010. the rate currently sits at 1%. Nonetheless, Banks in Canada have been slow to pass on the savings to their customers (increasing their profits handsomely). Canadians are still, however, buying, and also buying homes. They continue to buy to the point many have speculated that the eventual increase in interest rates this year and years to come will create a housing bubble.
It’s true, that Canadians are going in opposite directions as the American counterparts. For starters, the Canaidna economy is stronger, there are more jobs, however, they are also carrying/assuming more debt. Since 2008 Americans have steadily increased their savings and decreased personal debt. The opposite has happened in Canada.
That’s partially the reason why the Bank of Canada has increased rates and made buying homes tougher. They do not want to experience a housing crash akin to the US (not that they would given the different in ‘toxic’ mortgage assets—Canadian banks don’t have any.)
Overall, given market demand for resources, Canada will continue to shine into quarter 2 2011. America continues to struggle with their debt and job creation which will slow recovery.
Now comes the hard part. For the Bank of Canada, responsible for setting interest rates, an economy that’s perceived to be adding jobs, and far more jobs compared to their Southern neighbors, would make increasing the interest rate hard.
An increase in interest rates would further put pressure on the Canadian dollar to appreciate (another reason for it to go up).
Part of the strength has to do with current commodity prices, at which the Canadian economic health is heavily reliant upon.
The question will become how long will Canada be capable of maintaining their torrid pace of job creation before they have to increase interest rates, pushing up their dollar even higher, and making those liing on the margins fall through the cracks. Higher interest rates could put strain on a fickle housing market, that despite its strengths, still has a number of consumers just making payments.
Then again, one could argue that this only affects new home buyers on variable plans. Most Canadians who are on fixed terms have been paying old rates from pre-2008 times. These folks are up for renewal and will in fact save, even with increases in the 1.0% interest rate.
BofC and FED have both kept their interest rates the same. This makes sense in the US as they’re further away from showing strong signals across the board that their economy is recovering. Recovery is happening, it’s just slow, and an increase in the short term lending rate could damper borrowing thereby slowing down expansion (building).
Canada is different, their economy is on a faster road to recovery with many of the lost jobs from 2008 recovered, although there is still some ways to go. The economy is heating up to the point the Bank of Canada needs to be concerned about the rise in inflation. Since Canada’s economy is intimately tied to the resource economy, rising oil prices means Canadians generally do better off, however, that means further pressure on an increasing inflation rate. That coupled with a strong and sometimes over extended housing market means there was pressure to to in fact increase the domestic short term lending rate.
That would’ve slowed down the housing market but put some Canadians at the brink of losing their homes. Conversely, an increase would’ve lead to an even higher appreciation push on the CDN dollar. Right now it’s sitting just under 1.03 to 1 USD. The hold on interest rate means temporary respite from the appreciation, but overall the strong economy comparative to the USD and higher oil prices are trumping any interest rate movements.
Canada is also looking for better indiactors in the US that their economy is recovering before putting theirs at undue stress. Economists believe that quantitative easing sometime in the third quarter will help provide another boost to the US economy and hopes that it will speed recovery.
The UK may also be considering an increase in interest rates as their board at the central bank voted in favour of a small rate hike suggesting that their economy can handle such an increase.
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What fiscal policies and monetary policies would be appropriate at this time?