Everybody I talk to thinks the same thing: the United States of America is perched at the top of a very long, steep downward turn, economically and politically. And since we get a cold every time our elephantine neighbour to the south sneezes, we might want to prepare for what will happen to us when the US starts to react to its new realities.
Just today, economic pundits flinched when it was reported that the American unemployment rate hit a two-year high of five per cent last month. According to the country’s Labour Department, their economy lost 31,000 manufacturing jobs and 49,000 construction jobs in December alone. The retail sector lost 24,000 jobs. Only 18,000 jobs were added.
Expecting a general dip in value, stock market players started selling. The Dow Jones industrial average slid 256 points to a close of 12,800, while the S&P;/TSX composite index dropped 200 points to end the day at 13,779.
In order to get the economy jumping again, the US will need to cut interest rates dramatically, which can be really good news for you and me. But don’t use this opportunity to buy yourself more debt. If you’re smart, you’ll pay your debt down, plant a garden, get a wood burning stove, and get ready for a very big, very long recession.
In 2007, Canada exported $360,963,300,000 to the United States. We imported $264,899,200,000. That leaves a export balance of $96,074,000,000. Let’s assume that if a big recession develops, Americans will not buy our stuff. Not buying our stuff does not hurt them at all. They have no trade balance to lose. But not selling our stuff to Americans will be a major kick in the groin to Canadians. To give you an idea of the impact of that amount of money on a country, the entire federal budget of Canada in 2005-2006 was $212,900,000,000. Imagine removing half of all the federally-funded activities from the Canadian economy. Imagine losing the entire budget of the province of Alberta . . . then multiply that by three.
I am not an economist and I know that simply deleting a trade balance cannot give us much of an idea of real impact on an economy. The numbers I am tossing around include input costs, after all; they do not represent pure profit. I hope somebody who knows more about economics and budgets and all that tricky stuff will feel free to wade in. But if I apply my very not-professional budget ballparking method to the scenario, I can see that the loss of, say, a 10 per cent profit margin on that trade balance looks like $9,607,400,000 that we don’t sell. Let’s say that the taxes paid on that profit are around 30 per cent. Our governments would be out $3 billion at least: the cost of the entire social safety net of two or three provinces.
Of course, since the Americans gobble up exports from a heck of a lot of countries, we can assume that a heck of a lot of countries will be in the same spot, and will not be able to buy any of the stuff we can’t sell to the Americans. We are going to be in a bit of a pickle.
Is a global recession avoidable? Probably not. Recession happens when people and governments live beyond their means, when money that does not represent real value changes hands. We have seen the inklings already, like storm clouds gathering, with trade in debt that cannot be traced (creating a honeycombed, unreliable debt structure globally), the failure of banks in the UK, and growing levels of personal debt that is not supported by collateral.
Maybe it won’t be so bad. I have already sold my car. I am in better shape since I started walking and biking to work. I bought a wood stove. I like chopping wood and gardening. I already gave up milk and wheat. I feel great. Who knows — the coming economic catastrophe might be the best thing that could happen to us.