A Tale of Two Economies

So near, yet so far. The United States and Canada, dividing the top half of North America; friendly neighbours, sharing trade and social traits, language and tourism. Both are possessed of amazingly diverse geographies, each endowed with plentiful natural resources. And each enjoys an enviable, many would claim, wasteful style of life.

We have clean air, potable water, ample food, outstanding shelter, great medical and educational facilities, powerful economies, and nice international reputations.

Our political systems are dissimilar to a good degree. Our justice system and varied civil infrastructures like enough in their similarities. Canada is the vast country with a relatively sparse population, while the United States enjoys roughly analogous space, but with a hugely greater population.

Our conventions, traditions and values are recognized as being similar but dissimilar. And, it has been famously said, when the U.S. sneezes, Canada gets a cold.

The employment rate has always been more robust in the U.S. than in Canada, but we're seeing a bit of a reversal. The quality of life in both countries reflect one another, with the U.S. given a slight edge in voluptuous excess. And here we are, in 2008, with the long-anticipated recessionary blues hitting the U.S. economy; that free-market economy that went a little too far in extending sub-prime rates for real estate, and is now suffering the fall-out.

It's not alone in its agony; the risk of offering unreasonable debt to those whose credit ratings and earnings would never qualify them for acquiring properties under normal circumstances, was recognized, to a degree; the money markets realizing the safety valve inherent in distributing the risk, diluting it by combining with conventional bonds in the global market; everyone happy to haul in the rewards in good times, unwilling to heed the doomsayers.

So here's Canada now seeing its economy still in boom cycle, thanks to consumer confidence. The rise in Canadian retail sales exceeded expectations, in stark contrast to ongoing, worrying weakness in the U.S. system. And this, despite the fall-out from the too-healthy Canadian dollar, resulting in a downturn in Canadian exports to its biggest trading partner, the United States.

The increase in spending in Canada is based broadly across the spectrum of consumer spending; homes and vehicles included; big-ticket and pedestrian spending, both. And that, in the face of gradually rising price increases; still the volume of sales is rocketing ahead. Whereas, in the United States, consumer confidence has plunged to a five-year low. Inflation, job losses, the real estate market collapse; less spending, more worry.

Of course Canada isn't immune to succumbing to a reflection of the economic situation in the U.S. We still might begin that sad and sorry plummet, even if short-lived, before recovery. But for the time being, new jobs are still being opened up in Canada; employment rates are robust, opposed to American anxieties over eroding job prospects, and a fairly bleak, short-range future.

Thanks to the collapse of the sub-prime-rate mortgage market starting that downward spiral, investors are nervous across all debt markets. Asset mark-downs makes no one exuberant about the future. Value slips away, leaving empty hands, nervous tics. It's said that about $200-billion world wide (we're a global economy, remember) has evaporated.

Although the true figure may be even higher; an estimated credit loss of $460-billion closer to the mark, according to disclosure of figures from Goldman Sachs Group Inc. It's not just residential mortgage losses, but commercial as well, hitting the skids. Credit-card loans, auto loans, commercial and industrial lending, the pain is widespread.

Wow, isn't Canada fortunate. Really fortunate. For the time being, in any event.