http://www.thestar.com/business/article/554557

THE CANADIAN PRESS

OTTAWA–The Conference Board says Ottawa should be prepared to spend between $10 billion and $13 billion in fiscal stimulus in the January budget to help out the struggling economy.

The Ottawa-based think tank says such a stimulus would create a deficit of about $20 billion or more next year.

But the Conference Board says monetary policy – interest rate cuts by the Bank of Canada – may be reaching their limit of effectiveness and more is needed to jolt the economy.

The central bank has cut rates by 1.5 percentage points this fall, but the Conference Board says it usually takes about 18 months for such measures to fully kick in and the economy can't wait that long.

The Conference Board says the stimulus of up to one per cent of the economy and should be targeted toward infrastructure investment on shovel-ready projects, on capital renewal expenditures and on ensuring Canadian firms have access to credit.

http://www.thestar.com/business/article/554292

A seemingly endless stream of sobering news has many of us wondering about our jobs, our home equity, our savings and our country.

Loose talk of depression and deflation, followed by Zimbabwe-style inflation can get you down. But take a deep breath. Stop hyperventilating. Scale back your personal dread meter.

"Eventually, economies do recover," veteran University of Toronto economist and forecaster Peter Dungan reminds us.

You could hardly call his latest revised outlook good tidings of great joy.

But having lived through and analysed a few recessions, he does bring a well-seasoned perspective.

He was a certified brainiac in economics before the first OPEC oil crisis in 1973. While he is an academic, he has the financial incentive from selling subscriptions to businesses and governments to keep his forecasts rooted in reality.

"I feel so old," he confides.

Like most other economists, Dungan and his sidekick Steve Murphy at the Policy and Economic Analysis Program have been forced by events in the United States to repeatedly ratchet down their forecasts for Canada.

"How come this one is so much different?" he has asked himself. Perhaps, he answered himself yesterday, a collapse in stock prices, retirement assets and consumer confidence that results from pricking a bubble in home U.S. prices hits the average person and news reporter closer to home than a collapse of stock prices, retirement assets and confidence that resulted earlier this decade from pricking a bubble in information technology sales. Also, having a lame duck U.S. president doesn't help.

Regardless, Dungan and Murphy have now moved from the dark side of the general consensus among Canadian economists to the bright side. They expect zero growth here in 2009, and a mild contraction in Ontario, but a recovery starting late next year.

The two academics, whose subcribers keep them grounded in reality, rely in part on the work of others for their U.S. outlook. But they predict the fall in oil prices will add to the stimulus of several cuts in the interest rate – including another quarter or half a percentage point in the U.S. today – and the massive bailout packages for the financial and auto sectors.

They expect the unemployment rate in the U.S. will peak at about 7.8 per cent, up from 4.6 per cent in 2006. This will be painful, but not as bad as Canada saw in the early 1990s or the U.S. saw after the first OPEC oil crisis. They say the U.S. economy will shrink by 1.7 per cent in 2009, a far cry from a depression, but enough of a slowdown to keep a lid on inflation without causing wages to tumble.

Dungan rejects scary talk about central bankers sowing the seeds for hyperinflation, arguing it is necessary to flood the economy with currency to make up for a contraction of credit sources. This, he says, can be reversed quickly by selling government debt instruments and pushing interest rates up.

Dungan and Murphy see a mixed picture for Canada, but less of a downturn, and less unemployment than in the U.S., a rarity not seen since the late 1970s. They expect our governnment to run deficits for a few years and they urge Ottawa not to repeat the mistake of raising employment insurance premiums before a recovery.

Low prices for oil and other natural resources will slash corporate profits and government tax revenues, forcing Finance Minister Jim Flaherty to revise numbers in his recent economic update. But Dungan says a dollar near 80 cents (U.S.) next year and U.S. spending on infrastructure should give manufacturers breathing room before oil and other commodity prices rise again and lift the dollar back above 90 cents by late 2010.

Dungan's forecasts assume Canada will still have an auto industry. But its export value has already fallen from about 10 per cent of Canada's total economic output in 2000 to about 4 per cent, he says. Meanwhile, his economic model suggests the fall of the dollar to 80 cents would normally be enough to offset most of the effects of a U.S. economicslowdown.

James Daw, CFP, appears Tuesday, Thursday and Saturday.

Your right, I don’t think anyone knows where this train is heading for, but at one point there will be a train wreck. Everyone is worried about the automobile industry; what about the industrial sector, farmer’s etc.I can see the Dow being in the 7000’s again. The puzzling one is gold and when that starts to rise then were in trouble. I am guilty as charged, living beyond my means. I appreciate things much better now that I am paying cash.

hey average_joe...

yes there is speculation all over the place.

There will be a deleveraging process going on. That will lead to deflation, as far as house prices etc which will further affect deleveraging.

I can only think that this will go on for quite some time.

I've heard predictions that the DOW will go as low as 1500 - 2000!

It's not a bad process.. it just means that people start to appreciate what they've got and not try to live beyond their means. We didn't really know what that mean before as credit was always easy to get , and strongly marketed.

Here is what I heard on cnbc last night that makes real sense on how bad things are going to get. The first phase in the United States on the housing foreclosures has taking affect as we are aware. There is a second phase that is going to hit the housing market from these other type of loans which I forget what they are called and the commercial market is expected to collapse too.

Then after all that housing mess the credit card industry is going to be next and after that the car repossessions. The individual also stated that 2009 is going to be a mess and also 2010 and maybe a few years after that. I have heard a lot of people speculating on when things are going to get better, but this guy made sense and I tend to believe him.

If America is going to take years to correct their problems, that means Canada is in for some hard times. This is one guy’s opinion.

Alrighty then... let's not argue needlessly about things.
Let's stick to helping people.

Arguing with the other members needlessly is pointless.

I like a good argument if we're uncovering new facts.. It's not productive to tear each other down for prides sake.

Once again, don't shoot the messenger. I'm only repeating what every major economist in the world has been saying for years.

Bloggers pontificate how they would fix the world economy and they've never even taken Economics 101. Yet we've got Harvard MBA's and nobel prize winners who can't. As an illustration, I stated in previous posts that I carefully listen to all the analysis and predictions by CIBC chief economist, Jeff Rubin. I generally can be pretty confident exactly the opposite will occur. And so if these people don't know, how do you expect me to be positive about the analysis of forum bloggers hypothesizing solutions for multnational corporations like GM, when they can't even afford to buy one of their cars - and even if they could, the sheriff would tow it away in the middle of the night.

Would that be positive or just plain idiotic? Seriously, please tell me.

"Gilligan's Island Theory" is actually a lot more than a theory. It's born out by universal empirical economic data. I didn't write those articles about the disappearing middle class in Business Week, Forbes, the Financial Post, the Globe and Mail or Statistics Canada; I only repeat what they say. And if they go counter what some semi-literate guy chugging back a beer that's never taken a single economics course or never will; that's too bad. If they think they know more than nobel prize winning economists, what can I say? Right on bros! You rock!

As I recall, the first advice Warren Buffet gives to people is to stick to fields they know.

And so, if you sarcastically ask me what I would do, why would I be silly enough to counter what international experts say about the infusion of contingent fiscal stimuli being necessary? Nevertheless, the short answer also involves the fact that there is little that can be done to circumvent the inexorable effects of economic laws. They've proven themselves more powerful than the totalitarian governments of the Soviet Union or Red China. (Coincidentally, I just came back from visiting a lady that was raised one of Chairman Mao Tse Tung's communes who will concur).

In our democracy, you've got a fundamentally unstable situation as one perspecatious author mentioned in a Ryerson address last week. Each person has one vote irrespective of their wealth level; but poor people traditionally tend not to vote because of apathy. Several local politicians confessed that was the reason why people living in apartments effectively pay triple the mill rate homeowners do. Three months of their annual rent goes for the murb tax levy. They candidly shared only a few percent of renters vote whereas 60 to 70% of homeowners do, and so that's why the laws are weighted in favour of them.

Howvever, such apathy can persist only so long because we have an unstable politico-social situation. As economic inequity becomes increasingly pronounced, its painful disequilibrium effects reach higher and higher into the strata of society. We see it dramatically affecting the auto workers at Magna and GM, but economic globalism is entering it's 3'rd decade. Non-union factory workers and truck drivers, which once were decent paying blue collar occupations, haven't had a wage increase in 10 years. In fact, their real earning power has steadily been eroded when adjusted for inflation.

As for me, I prefer to stick to simpler and humbler tasks like helping people escape being pecked over by ravenous collection agencies during economic downturns.