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Canada’s Finance Minister Flaherty Resigns Unexpectedly | Zero Hedge

Canada’s Finance Minister Flaherty Resigns Unexpectedly | Zero Hedge.

In a surprising development out of Canada’s cabinet, moments ago the finance minister, Jim Flaherty, a noted deficit hawk and proponent of paying down government debt, just announced his resignation.

  • CANADA FINANCE MINISTER FLAHERTY RESIGNS FROM CABINET
  • FLAHERTY SAYS DECISION TO LEAVE POLITICS WAS NOT RELATED IN ANY WAY TO HIS HEALTH

As Bloomberg and Globe and Mail add, Flaherty said he’s stepping down to pursue work in the private sector. “Yesterday, I informed the Prime Minister that I am resigning from Cabinet,” Flaherty said today in a statement e-mailed by his office. “This was a decision I made with my family earlier this year, as I will be returning to the private sector.”

“As I begin another chapter in my life, I leave feeling fulfilled with what we have accomplished as a government and a country during one of the most challenging economic periods in our country’s history,” he said.

Flaherty said there’s “no doubt” Canada will balance its budget as promised in the year starting April 2015, and said the decision isn’t related to his health issues

Still, there is rife speculation that it was indeed his health that was the reason for this unexpected resignation. Either way, Canada’s housing mess will now be someone else’s problem.

Canada's Finance Minister Flaherty Resigns Unexpectedly | Zero Hedge

Canada’s Finance Minister Flaherty Resigns Unexpectedly | Zero Hedge.

In a surprising development out of Canada’s cabinet, moments ago the finance minister, Jim Flaherty, a noted deficit hawk and proponent of paying down government debt, just announced his resignation.

  • CANADA FINANCE MINISTER FLAHERTY RESIGNS FROM CABINET
  • FLAHERTY SAYS DECISION TO LEAVE POLITICS WAS NOT RELATED IN ANY WAY TO HIS HEALTH

As Bloomberg and Globe and Mail add, Flaherty said he’s stepping down to pursue work in the private sector. “Yesterday, I informed the Prime Minister that I am resigning from Cabinet,” Flaherty said today in a statement e-mailed by his office. “This was a decision I made with my family earlier this year, as I will be returning to the private sector.”

“As I begin another chapter in my life, I leave feeling fulfilled with what we have accomplished as a government and a country during one of the most challenging economic periods in our country’s history,” he said.

Flaherty said there’s “no doubt” Canada will balance its budget as promised in the year starting April 2015, and said the decision isn’t related to his health issues

Still, there is rife speculation that it was indeed his health that was the reason for this unexpected resignation. Either way, Canada’s housing mess will now be someone else’s problem.

Canada Should Consider Ending CMHC Mortgage Insurance: IMF » The Epoch Times

Canada Should Consider Ending CMHC Mortgage Insurance: IMF » The Epoch Times.

People walk past homes for sale in Oakville, Ont., in this file photo. The IMF says CMHC mortgage insurance exposes the government to financial system risks and might distort the market as a whole in favour of mortgages over more productive uses of capital. (The Canadian Press/Nathan Denette)

People walk past homes for sale in Oakville, Ont., in this file photo. The IMF says CMHC mortgage insurance exposes the government to financial system risks and might distort the market as a whole in favour of mortgages over more productive uses of capital. (The Canadian Press/Nathan Denette)

 

Further measures should be considered to encourage appropriate risk retention by private sector and increase the market share of private mortgage insurers.

International Monetary Fund

The International Monetary Fund says Ottawa should consider phasing out insuring home mortgages through Canada Mortgage and Housing Corp.

The advice is contained in the IMF’s latest economic report card on Canada, which projects modest economic growth of 2.25 percent for the country next year.

Such a recommendation, surprising from an international financial organization, appears to side with Finance Minister Jim Flaherty, who has recently questioned whether the federal government should be in the business of insuring higher-risk mortgages at all.

Some analysts have credited the system for providing much-needed confidence in Canada’s housing sector during the 2008–09 crisis, which many believe was sparked by a crisis in the U.S. mortgage market.

The IMF concedes that the current system has its advantages for stability. But it says it also exposes the government, or taxpayers, to financial system risks and might distort the market as a whole in favour of mortgages over more productive uses of capital.

“We think banks lend too much to mortgages and too little to small and medium enterprises,” Roberto Cardarelli, the IMF mission chief for Canada, told reporters in a briefing in Toronto.

“We suspect the fact that banks may benefit from government-backed insurance on mortgages … it sort of makes it easier for banks to do mortgages than other kinds of lending which, presumably, we think, is going to be more useful for the real economy.”

CIBC deputy chief economist Benjamin Tal says he believes the advice may be appropriate for the U.S., particularly prior to the crisis, but not necessarily for Canada, where the mortgage securitization market is a relatively small slice of the financial pie. CMHC can carry a maximum of $600 billion mortgage loan insurance on its books.

“In this case size matters,” he said. “It is true when securitization dominates the market it is not a very healthy thing, but when it is part of a normally functioning market, it actually helps the economy” by contributing to low borrowing rates and liquidity.

The Washington-based financial institution said further measures should be considered to “encourage appropriate risk retention by private sector and increase the market share of private mortgage insurers.”

It cautioned, however, that if any structural changes are made, they should be gradual to avoid unintended consequences.

The IMF report, released Wednesday, forecasts that Canada’s economy as a whole will start benefiting next year from a pickup in the U.S. economy, leading to greater demand for Canadian exports and renewed business investment.

In essence, the scenario is identical to the one predicted by the Bank of Canada, which also sees growth rising from the current 1.6 percent level to 2.3 next year.

A slightly more positive estimate was issued Wednesday by the Ottawa-based Conference Board of Canada, which is projecting Canadian real GDP will grow 1.8 percent in 2013, 2.4 percent in 2014, and 2.6 percent in 2015—assuming strong growth in the United States.

The Bank of Canada forecast holds that the risks are balanced—meaning there is as much chance the projected growth rate will be higher as lower.

But the IMF warns, however, that the risks to its outlook are primarily on the downside. The main reason, it says, is that it might be wrong about the U.S. economy rebounding in 2014.

“Renewed political standoff (in the United States) over spending appropriations and the debt ceiling and a faster-than-expected increase in long-term rates in the context of exit from quantitative easing could negatively affect the U.S. recovery and hence demand for Canadian exports,” the IMF said.

“Protracted weakness in the euro area economic recovery and lower-than-anticipated growth in emerging markets would also hurt the prospects for Canada’s exports, including through lower commodity prices,” it added.

On the domestic front, the IMF said the long period of low productivity growth and strong Canadian dollar may have left a deeper dent in Canada’s export potential, especially in the traditional manufacturing base, limiting the economy’s ability to benefit from the projected strengthening in external demand.

Cardarelli stressed the importance of investing in the energy sector, an industry that he said would have a significant impact on the organization’s economic forecasts in the future.

“We really feel that the system is stressed in terms of the transportation capacity—the ability of moving these resources out of Alberta, British Columbia, and Saskatchewan,” he said at a news conference in Toronto.

Among other things, the IMF recommends that Canada’s central bank hold off raising interest rates until there are firmer signs of a sustained transition from household spending to exports and investment, something bank governor Stephen Poloz has signalled he intends to do.

And it warns the federal government that it need not be so fixated on balancing the federal budget in 2015 if there is no meaningful pickup in economic activity.

That is likely to fall on deaf ears, however. Finance Minister Jim Flaherty said this week he is confident he will eliminate the deficit in 2015 and bring in surpluses after that.

With files from The Canadian Press

Loonie Hits 4-Year Low After Bad Economic News

Loonie Hits 4-Year Low After Bad Economic News.

The loonie continued its long slide Wednesday, hitting a fresh four-year low against the U.S. dollar.

The Canadian dollar was trading at 92.58 cents after falling more than a cent Tuesday to its lowest close since late 2009.

The slide followed a spate of bad news about Canada’s economy. The Ivey Purchasing Managers Index, a measure of economic activity, came in much lower than expected for last month, at 46.3, compared to 53.7 the month before. A reading below 50 suggests economic contraction.

Canada’s trade deficit numbers also spooked the markets, with Statistics Canada reporting Tuesday that the country’s overall trade deficit with the world grew to $940 million in November as imports rose to $40.7 billion, while exports were unchanged at $39.8 billion.

The deficit came as the results for October were also revised to show a deficit of $908 million compared with an initial report of a surplus of $75 million for the month.

Meanwhile, U.S. economic data has been positive, further pressuring the loonie downwards.

Payroll firm ADP reported the U.S. private sector created 238,000 jobs during December. That data came two days before the release of the U.S. government’s employment report for last month. Economists expect it will show the economy created about 195,000 jobs in total. 

International traders are certainly bearish on the Canadian dollar. The Globe and Mail reports the amount of money being placed in bets against the loonie is nearing extremes, with about US$5.5 billion currently invested against it.

Investment bank Goldman Sachs forecast late last year the Canadian dollar could hit 88 cents U.S. in 2014.

Meanwhile, Bank of Canada governor Stephen Poloz doesn’t appear in any hurry to raise the Bank of Canada’s trend-setting rate. In an interview on CBC on Tuesday, he denied he was under international pressure to raise rates.

Federal Finance Minister Jim Flaherty suggested in a recent interview that there would be such pressure as a result of Fed tapering.

Poloz did say that Fed tapering will inevitably put pressure on Canadian bond yields, likely leading to an increase in long-term fixed mortgage rates even if the Bank of Canada does not increase its benchmark rate.

— With files from The Canadian Press

Budget office to investigate Flaherty’s $7.1B surprise – Politics – CBC News

Budget office to investigate Flaherty’s $7.1B surprise – Politics – CBC News.

The Parliamentary Budget Office says it will investigate how the Finance department found more than $7 billion in savings for the last fiscal year.The Parliamentary Budget Office says it will investigate how the Finance department found more than $7 billion in savings for the last fiscal year. (Adrian Wyld/Canadian Press)

The surprising revelation last week that Ottawa is almost $7 billion ahead of schedule for eliminating the deficit is attracting the scrutiny of the budget watchdog.

The No. 2 man in the Parliamentary Budget Office says officials have asked the Finance Department for clarification.

“We’ll look at it because it will affect our own numbers, and try and figure out what the source of it is,” says Mostafa Askari.

“There’s a part we still don’t understand … as to why departments spent less than what they were expected to … and why they (Finance) didn’t see it in March,” when the budget was tabled.

In a report last week, the government pegged the deficit for the 2012-13 fiscal year at $18.9 billion, rather than the $25.9 billion estimated in the March budget.

The lion’s share of the difference — about $4.9 billion — came from lower program spending, including on the public service.

Askari said one pressing question is whether the savings were largely a one-time occurrence or will flow through to future years.

If the latter, analysts say, Ottawa may be able to balance the budget next year, one year earlier than the 2015 target, a boon for the Harper Conservatives heading into an election year.

Election promises

The Conservatives have promised to introduce income splitting for tax purposes once the budget is balanced, a measure likely to boost the party’s chances in the scheduled 2015 election.

hi-flaherty-006935352-852 

“But at what cost to Canadians?” says NDP finance critic Peggy Nash.

“This is exactly why the PBO was created and it goes to the heart of accountability for the government. What are the programs and services that have been affected? They won’t say.”

Nash says she believes Prime Minister Stephen Harper has issued orders to get the budget balanced as quickly as possible to load his campaign platform with goodies, noting that in this month’s throne speech, the government pledged more restraint.

Liberal critic Scott Brison says the government’s continuing job cuts are a “fatwa” on the public service — politically driven, and not about helping the economy.

When Flaherty was asked why departments hadn’t spent their approved limits, he joked: “I think I’m scaring them all.”

Underestimating surpluses?

Some critics speculate Flaherty may have been borrowing the tactics of a famous predecessor, Liberal Paul Martin, who set a low bar to look all the better when good numbers arrived.

In Martin’s case, the sizes of surpluses were underestimated, a practice Harper and Flaherty have criticized and pledged to end.

But former PBO Kevin Page, who has quarrelled with Flaherty in the past, said he doesn’t believe the minister is deliberately under-promising on the fiscal numbers.

Page said during the Martin restraint years in the 1990s, officials cut capital expenditures, such as maintenance and upgrades of equipment, but that proved a false economy in the long run. The move only delayed spending to later years and often increased costs.

“I’d worry about the prime minister and finance minister saying there’s too much money in the system, just put the squeeze to it, we don’t care how, because we’re not going to the election in 2015 with some kind of deficit,” he said.

That is becoming increasingly unlikely given the new deficit level, says Scotiabank senior economist Mary Webb, who specializes in federal and provincial finances.

She says the current, lower starting point of $18.9 billion means Flaherty can do much better than the $18.7-billion level he was supposed to get to this fiscal year, which runs to March, making the final leap to balance 2014-2015 possible.

Webb notes that in the March budget, Ottawa forecast the deficit shrinking by $12 billion between the 2013-14 and 2014-15 fiscal years.

“Let’s take an optimistic scenario and say the deficit is down to $10 billion after this year, then the question is can they cut $10 billion in one year. Well they were going to, so why not?”

For that to happen, all would need to go well for the government, she said. And Flaherty himself has noted Ottawa is facing additional costs this year as a result of the Lac-Megantic train derailment and Alberta flooding.

But the minister has also included a sizable $3-billion cushion for “risk” in his projections, so Ottawa is that much closer each year than it is reporting.

Webb says the federal government typically “outperforms its deficit target,” so although unlikely, she says there may be another Flaherty surprise down the road.

 

Right to strike by civil servants curtailed by budget bill – Politics – CBC News

Right to strike by civil servants curtailed by budget bill – Politics – CBC News. (source/link)

The federal government is moving ahead with plans to strip certain public servants of the right to strike.

The second budget implementation act, which was introduced by Finance Minister Jim Flaherty Tuesday, will make it illegal for any bargaining unit declared to provide an essential service to strike.

Instead, such workers will be forced into arbitration in cases of a contract dispute. The rule will apply to any union where 80 per cent or more of the positions are considered to be necessary for providing an essential service.

The proposed legislation goes onto say that “the employer has the exclusive right to determine that a service is essential and the number of positions required to provide that service.”

In other words, the government decides when the rule applies. “A democratically elected government should have the right to identify what Canadians consider ‘essential services,'” read an email sent to CBC News from Treasury Board President Tony Clement’s office.

The Harper government also defended its intent to set public service pay and benefit levels. “The proposed amendments will bring savings, streamline practices and bring them in line with other jurisdictions,” said the government’s emailed comments. “Our government will sit at a bargaining table on behalf of the taxpayer where the rules are fair and balanced.”

Canada’s largest union representing public-sector workers says it was caught by surprise by these changes.

The Public Service Alliance of Canada says it is too early to say exactly what the impact will be — but they know they don’t like it.

“This bill represents a far-reaching attack on public service workers and the unions that represent them,” said PSAC President Robyn Benson.

“The government is upsetting the balance of labour relations, and is showing a callous disregard for due process, health and safety and the collective bargaining rights of every single public service employee,” Benson said.

“The collective bargaining rights and the protections of workers who face discrimination, who do dangerous work, or who are treated unfairly will be undermined by the proposals in this bill.”

Other changes

The union measure was just one of several provisions in the 300-plus page document, including several measures that do not appear to relate to anything in last March’s budget, including such housekeeping matters as:

  • Changing the definition of “passport” in the Criminal Code to match the one used in other legislation.
  • Implementing the freeze in Employment Insurance premiumsannounced by Flaherty a few weeks ago.
  • Enacting the MacKenzie Gas Projects Impacts Act, which was announced in 2006.

There are also more substantive changes that were not announced or even foreshadowed in the March budget, including:

  • Making declaratory provisions to amend the Supreme Court Act, to make it clear judges with 10 years at the bar of a province are eligible to represent that province on the court, a direct attempt to resolve a legal challenge to the recent appointment of Justice Marc Nadon.
  • Getting rid of health and safety officers and handing their powers to the federal Minister of Labour.
  • Changes to the Immigration and Refugee Act that give the minister more power to pick and choose from economic and professional immigrants who may or may not apply for permanent residency status.

Deficit shrinking more quickly than predicted

Flaherty said Tuesday the government is $7 billion ahead of pace toward balancing the budget in 2015.

He said spending controls the government put in place that have worked better than expected are responsible for the bulk of the improvement in Ottawa’s fiscal position.

Flaherty said last year’s final deficit will come in at $18.9 billion, better than the $25.9 billion predicted in his budget.

This year’s anticipated $18.7 billion deficit will likely be revised lower when the minister recalculates the books in the fall economic update, expected in about a month.

Is There A Bubble In The Canadian Condo Market? We Drill Down Into The Facts To Find Out | Zero Hedge

Is There A Bubble In The Canadian Condo Market? We Drill Down Into The Facts To Find Out | Zero Hedge.

 

BMO, RBC, TD Hike Mortgage Rates; Economists Wary Of Effect On Housing Market

BMO, RBC, TD Hike Mortgage Rates; Economists Wary Of Effect On Housing Market.

 

CMHC cools mortgage market with new cap for banks – Politics – CBC News

CMHC cools mortgage market with new cap for banks – Politics – CBC News.

 

Canada’s Flaherty: No ‘doom and gloom’ in Canada housing market | Business | Reuters

Canada’s Flaherty: No ‘doom and gloom’ in Canada housing market | Business | Reuters.

 

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