Canadian Personal Finance Blog

Now that the largest bankruptcy in history has occurred, it begs the question, is there a bottom here somewhere? I think there is for now, but it does point out that “sure things” should sometimes be questioned. If someone had told a trader or investor that GM and Nortel would be in bankruptcy protection, 10 years ago, that person would have been laughed off as a “nut” or “crack pot” or worse, and now we have seen this happen.

Thanks to all of this the Canadian Government is pouring money into GM, with little hope of recuperating this money or of it making a huge difference. We are in uncharted waters that is for sure, I have little understanding of where this all might lead, and I am pretty sure that I am not the only one with these thoughts.

Stay tuned this could be some very interesting times ahead.

GDP Down, down, down…

Canada’s GDP is down 1.4% in the first quarter of 2009 which is the worst drop since 1991, another bad omen for the economy. 

Lower spending in Canada and the United States, particularly business investment in plant and equipment, led to a sharp decline in Canada’s exports and imports. Business investment in Canada fell at the fastest rate since 1982. Final domestic demand was down 1.5% as personal spending, particularly on durable goods, continued to decline. Corporate and personal income also fell in the quarter.

It is not a surprise that GDP is down, but the size of the drop is concerning, but if Canadians are dropping their spending that might be a good thing in some ways.

GDP Looks Not So Good

Companies and individuals in Canada also had the problem of their purchasing power dropping off steeply as well:

Real gross domestic income (GDI), a measure of Canada’s purchasing power, fell 3.0% in the first quarter (-6.2% year over year). Canada’s terms of trade, a measure of export prices relative to import prices, deteriorated for the third consecutive quarter as commodity prices fell and the Canadian dollar depreciated relative to its US counterpart. As a result, the decline in real GDI was much sharper than real GDP; the third consecutive quarter this has occurred.

Less money to spend, less money being spend, and less purchasing power, not a recipe for a way to spend our way out of this economic downturn (read apocalypse).

If I was having financial problems and went to credit counselling, and told the person helping me that I was overspending how much I made by $10,000 a year, they’d be very upset and tell me I had to change my ways. If I then came back 3 months later and said I miscalculated and that in fact I was going to overspend this year by $50,000 (but that is only an estimate), they’d ask for my credit cards and tell me to seriously think about bankruptcy and/or psychological help on impulse spending.

Record Breaking Deficit!

For the Federal Government take that scenario and multiply it by 1,000,000 and you’ll see where Canada stands now. The Feds announced a slight miscalculation in their deficit and in fact it is $50 Billion not their previous estimates, and they are not sure they are correct now, they’ll tell us in December.

Yes, we are in a Recession and maybe even a Depression, but this will be the largest deficit EVER (even more than the Trudeau and Mulroney Governments did in the 70’s and 80’s), which is astounding. 

Lowering incomes are part of the problems (i.e. deadbeats like me who don’t have income, aren’t paying tax like I did last year), spending MASSIVE money on the auto industry is not helping either, but this is painful. Is it really going to be $50 Billion, my guess is they are sand bagging and will bring it in about $40 Billion and talk about what a great job they did in tough circumstances.

Coughing Up More EI Benefits Too

Stats Canada published their monthly report on Employment Insurance Claims (nope I am not in that stat yet), and those numbers are scarey too. The number of folks collecting EI is up 10.6% from the previous month (not year long, one 30 day period). The number quoted is over 65,000 more claimants in March. 

EI Claims

Remember the government has previously used the EI fund as a buffer for spending using up extra funds, I think they can’t do that any more.

Interesting times in downtown Ottawa.

Don’t get me wrong, given the amount of complaining from the banking industry, Jim Flaherty’s new credit card rules seem to be a very good start, but I would dearly love to see them go a little farther.  The Globe and Mail does a good outline of what the new rules does address, but my concern is the major problem is still not being addressed, which is the exorbitant interest rates allowed.

Loan Sharks Blush

The rates that Credit Cards charge as regular business while cheaper than seen from the Pay Day Loan world are still completely out of sync with bank rates, yet, they are allowed to inflict this kind of usury on consumers. There are no rules capping the rates that can be charged, and I think that is what is missing from this legislation. I am not sure what the cap should be, but allowing unfettered rate increases is asking for trouble.

Better rules for credit limits would be good as well, stopping folks from being able to bump up their limit via a simple phone call seems a dangerous practice as well. If you want to lower your credit limit you have to send in a signed document and such, but to increase your rate is a simple phone call, wonder why that is?

While I know the other issue with credit card debt is that people are using Credit Cards as short term credit mechanisms (and then turning them into long term credit vehicles, since they can’t extricate themselves from the debt), and that a lot of the financial pits dug by consumers are self-inflicted, I think the Credit Card companies make this trap a little too easy to fall into.

There was one credit card lobbyist complaining about how teenagers and young folks won’t be able to get credit cards if new rules are put in place. I believe I shouted at the TV, “… and that is a BAD thing?”, so my view is less credit cards to less folks might just be a good thing. 

Nobody needs as many credit cards, as we all have!

Other Useful Documents

A useful link for those who are learning about Credit Cards is a document posted by the FCAC called Getting The Most From Your Credit Card. They also have a very good beginners document called Your Rights and Responsibilities , well worth a read as well.

Given the incredibly low CPI this week it made me wonder if this will all last and in reflection on yesterday’s numbers, the answer is an emphatic NO! Gasoline prices in Ottawa are now steadily heading back to at least $1 per liter which means the drops we have seen in the past few months are gone for now and we will be living through another summer of price gouging. With food prices sky rocketing, I suspect we may have a huge CPI jump by June, which will then cause an interest rate spike to slow it down, just my opinion, but might be a good time to lock into your mortgage rate.

Financial Folk Speak

The bloggers this week had a varied topical view on things and here are some of the best of the week.

• Canadian Financial DIY points out that Inflation is Higher For Retirees, and given it looks like Inflation might be coming back real soon now, those about to retire should read this closely.
• Michael James comments on Conrad Black’s Free Roll at the Supreme Court, good luck Mr. C.
• Preet at Where Does All My Money Go writes about Real and Fake Billionaires, my favorite on the list is the last entry, Excellent…
• No Debt Plan outlines the new Canadian Credit Card Act and I will be writing more about this act next week.
• One Caveman is writing about an excellent topic Cycling to Work (how to) I always dream of doing this and when I get my job I will look into this seriously (makes you frugal and fit).
• Canadian Capitalist does a review of Steadyhand Mutual Funds, sounds ok if that is how you want to invest. 
• Larry MacDonald asks What About The Little Banks are they going to be allowed to fail?
• Nancy Zimmerman is Looking Forward to Turning 50 , me I just hope to have a job by then.

Looks like the summer may actually be here so enjoy the warm temperatures and go outside!