I thought I would share this article that was published in the financial press on September 12, 2011.  Read on…

Greece’s wrestling match with its sovereign debt is raising fears of default and financial market contagion around the world and threatening to tear a gaping hole in the euro.

Though the question of whether the country will be able to pay its creditors has been playing out for more than a year, fresh worries about the health of its economy were back in the spotlight Monday.

“Ultimately we believe that we’re going to see a default out of Greece,” said Beata Caranci, deputy chief economist at TD Economics.

The timing, however, is difficult to predict, she added. “There’s only one road out of this, and we’re taking the scenic route.”

Economists are warning of worse times still to come.

Greece’s debt problems won’t be solved quickly. Experts anticipate months of political wrangling over bailout and austerity measures which then drag down demand across the Euro zone and possibly North America and eat away at investor confidence globally.

In the U.S., the National Association for Business Economics, a panel of 52 economists, cut its growth forecast for this year in half to a measly 1.5 per cent from 3.1 per cent in the previous outlook.

In Canada, RBC Economics has slashed its GDP forecast to 2.4 per cent for 2011, down from 3.2 per cent initially estimated.

Markets throughout the world dipped sharply on Monday as investors priced in the growing likelihood of default. Only the Dow bucked the negative trend with a late-afternoon rally, taking it up 0.63 per cent at close.

If it feels like we’ve been here before, it’s because we have. Like the Greek myth in which Sisyphus was condemned to roll a boulder uphill for an eternity, only to have it roll back down each time, the country has embarked on another round of austerity measures, including government spending cuts and tax increases, meant to balance its books.

Among them, and sure to be wildly unpopular, is a two-year property tax that would range from 50 cents to 10 euros a square metre. The levy would be added to electricity bills to ensure collection and thwart tax evasion, apparently a national pastime in Greece.

But part of the problem is that these belt-tightening measures also slow the economy.

Greece’s finance minister warned Sunday that the country’s economy will contract by as much as 5.3 per cent, far more than the 3.8 per cent that was initially forecast.

“Greece has put through significant fiscal austerity measures but it’s not enough. The fact that its economy continues to contract at a faster pace than anticipated means they need more measures and that makes growth slow down further,” said Benjamin Reitzes, senior economist at BMO Capital Markets. “On top of that, protests have been continuing non-stop. It doesn’t help when the population isn’t willing to accept the measures needed to keep the economy stable.”

The euro fell to its lowest level since 2001 against the yen Monday, as speculation that German Chancellor Angela Merkel is preparing for a Greek default curbed demand for the 17-nation currency.

A growing chorus of economists believes that Greece may ultimately exit the euro. “The euro will survive. Whether Greece is in the euro is in another matter,” Caranci said.

The European Commission warned Monday that that Europe’s recovery is “fragile” and sovereign-debt levels will keep rising through 2012.

The lack of confidence and gloomy outlook are raising worries of contagion, financial troubles spreading like wildfire from one country to another.

In particular, investors zeroed in on three French banks, which are also among the largest in Europe. BNP Paribas, Société Générale, and Crédit Agricole, hold billions of euros worth of Greek bonds, and have been singled out by Moody’s Investor Services as candidates for a credit rating downgrade because they hold billions of euros’ worth of Greek bonds.

Greece has already received two bailout packages worth more than 200 billion euros, and there are signs that its well-to-do neighbours are growing weary.

Last week, Germany’s Juergen Stark resigned from the executive board of the European Central Bank said, suggesting policy makers are divided over how to fight the debt crisis.

Investors are now casting worried looks at other euro zone countries, notably Portugal, which is also likely to have a deeper-than-expected recession, Ireland, Spain and Italy, with its massive 1.8 trillion euro debt.

Canada has trade ties to Europe, but “the bigger impact would come through financial markets, not necessarily direct exposure to European banks, but our exposure to U.S. banks that are exposed to Europe,” Reitzes said.

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent.

The global economic expansion is proceeding broadly as projected in the Bank’s April Monetary Policy Report(MPR), with modest growth in major advanced economies and robust expansions in emerging economies. The US economy has grown slower than expected, China’s economic growth remains strong, Japan’s economy has begun to show signs of recovering from the natural disasters that struck in March and Europe’s core economy is in a growth phase with some Euro-zone countries still under austerity measures that will hamper growth.  The European sovereign debt crisis still remains and there are still very real risks as to the ultimate outcome.

Commodity prices are expected to remain at elevated levels and this, together with persistent excess demand in major emerging-market economies, is contributing to global inflationary pressures. Total CPI inflation in Canada is expected to remain above 3% in the near term and is expected to return to the targeted rate of 2% by the middle of 2012.

The next schedule interest rate announcement will be made on September 7, 2011.

It is interesting to note that Citigroup Capital Markets, today, published a report predicting that the Bank of Canada’s overnight rate will double to 2% by mid 2012.  A lot would have to happen for this to materialize: the European debt-crisis needs to be something of the past and the US economy needs to be re-bounding otherwise we run the risk of being dumped back into a recession and will have a soaring Loonie.

I thought you would find the following Financial Post article of interest.  There has been much talk of a double-dip in the US property market and the fear that should the Bank of Canada increase rates too quickly then Canada runs the risk of getting dumped back into a recession.  So, the comments of Jim Flaherty are quite interesting.  Read on….

MONTREAL – The risk that the economic slowdown in the United States will turn into another North American recession is not high, Canada’s finance minister said Tuesday as he cautioned that too many people nevertheless remain jobless in this country.

“I do not think the risk is great,” Jim Flaherty said in response to a reporter’s question at the International Economic Forum of the Americas taking place in Montreal. “There are risk indicators with respect to which we are concerned which we reviewed in the budget [Monday] and which I reviewed with the private sector economists with whom I met last week. The nature of the risks have not changed. We are concerned about debts and deficit in the United States and the need for a convincing longer term plan in the United States” to deal with those problems.

Ottawa is also concerned about some evidence of continuing slowness in the U.S. real estate market which puts a damper on consumer confidence in that country, Mr. Flaherty said. As well, it is worried about the sovereign debt situation among some eurozone countries, including Greece.
“These are all risk factors but they are known risk factors,” Mr. Flaherty said, adding that to address the risk in the latest budget, federal finance officials discounted private sector growth assumptions by $10-billion in nominal GDP each year, equalling a revenue markdown of $1.5-billion annually.

The U.S. economy grew at a 1.8% annual rate in the first quarter but job growth remains anemic, prompting U.S. Federal Reserve Chairman Ben Bernanke to say Tuesday that the central bank should maintain monetary stimulus to boost a “frustratingly slow” recovery. U.S. employers hired 54,000 more people in April, well below the 165,000 expected by economists.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” Mr. Bernanke said in a speech in Altanta. The U.S. economy is growing above “stall speed,” Deutsche Bank AG foreign exchange analyst Alan Ruskin told Bloomberg in an interview Tuesday.

“A lot of people say that if the U.S. economy slows below 2% in year-over-year gross domestic product historically, we’ve slipped in to recession. The key is that we stay above that line, otherwise that is perceived as stall speed and other issues kick in.” The pace of economic recovery in the United States is crucial for Canada because America is Canada’s largest trading partner, buying 75% of all Canadian exports like oil, wood and cars. Any major slowdown would hurt Canadian businesses and force layoffs here.

Mr. Flaherty maintained that unemployment in Canada also remains too high, even as his government initiates targeted hiring investments. The country’s unemployment rate stood at 7.6% in April as the economy added 58,000 mostly part-time jobs. Employment has grown by 1.7% in the last year.

Asked if the Canadian government has picked a preferred candidate to lead the International Monetary Fund, Mr. Flaherty said not yet. Former IMF chief Dominique Strauss-Kahn resigned last month amid allegations he sexually assaulted a New York City hotel worker. Agustín Carstens, the head of the Mexican central bank, and Christine Lagarde, France’s finance minister, are vying for the job.

In a speech to conference delegates, Mr. Flaherty stressed the importance of sound fiscal management for an elected government, noting no one truly foresaw the credit crisis in the fall of 2008 and subsequent recession. He said “it’s unpredictable” when the next shock might come.

The finance minister on Monday delivered a budget that included a pledge to bring the federal government back into surplus position by 2014-2015. He said he will do that through a combination of $4-billion in annual spending cuts and closing tax loopholes to generate another $4.1-billion.

The cuts mark the most intense attempt to rein in public sector spending in more than a decade. The government is conducting an operational review of the federal service and some departments have begun laying off staff.

Opposition against the cuts is expected to grow in the months ahead.

Canadian Auto Workers union president Ken Lewenza said Monday the government’s  spending will wipe out thousands of jobs and hurt service delivery. “With the economic rebound being so uncertain and anemic private sector investment growth, these billion-dollar cuts are the last thing Canada needs,” Mr. Lewenza said.

But compared to what a private company would do to trim spending, the government’s $4-billion plan is not very ambitious, Mr. Flaherty argued.

Mr. Flaherty’s savings target represents 5% of Ottawa’s $80-billion in annual discretionary spending. The government won’t book the savings until it achieves them and has not provided any details of which programs and departments will be affected.

It has been generally expected that the Bank of Canada would look at raising rates in July but a report in the Financial Post on May 24 by the RBC Economics team predict that the Bank of Canada will hold-off on raising rates till September.

You can read more on this article at http://business.financialpost.com/2011/05/24/boc-rate-hike-on-hold-until-september-rbc/

Greater Vancouver saw a typical, solid month of residential home sales on the Multiple Listing Service® (MLS®) in April, in contrast to the near record pace witnessed in the two preceding months.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales of detached, attached and apartment properties in Greater Vancouver reached 3,225 in April 2011, an 8.2 per cent decrease compared to the 3,512 sales in April 2010 and a 21 per cent decline compared to the 4,080 sales in March 2011.

Looking back further, last month’s residential sales represent an 8.8 per cent increase over the 2,963 residential sales in April 2009, relatively unchanged compared to April 2008, and a 4.8 per cent decline compared to the 3,387 sales in April 2007.

“While it continues to be a seller’s market in Greater Vancouver, last month’s activity brought greater balance between supply and demand in the overall marketplace,” Rosario Setticasi, REBGV president said. “The year-over-year decline in April sales can be attributed to a less active condominium market on our MLS®, as there were more detached and townhome sales this April compared to last year.”

New listings for detached, attached and apartment properties in Greater Vancouver totalled 5,847 in April 2011. This represents a 23.5 per cent decline compared to April 2010 when 7,648 properties were listed for sale on the MLS®, which was an all-time record for April. Compared to March 2011, last month’s new listings total registered a 14 per cent decline.

At 14,187, the total number of residential property listings on the MLS® increased 8.2 per cent in April compared to last month and declined 10 per cent from this time last year.

“There’s considerable variation in activity within the communities in our region. This is causing home price trends to differ depending on the area,” Setticasi said. “Your local REALTOR® is a valuable resource for obtaining the most accurate, up-to-date market evaluation.”

The MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 5 per cent to $622,991 in April 2011 from $593,419 in April 2010.

Sales of detached properties on the MLS® in April 2011 reached 1,402, an increase of 2.3 per cent from the 1,370 detached sales recorded in April 2010, and a 17.8 per cent increase from the 1,190 units sold in April 2009. The benchmark price for detached properties increased 7.4 per cent from April 2010 to $879,039.

Sales of apartment properties reached 1,201 in April 2011, a 21.3 per cent decrease compared to the 1,526 sales in April 2010, and an increase of 1.9 per cent compared to the 1,179 sales in April 2009. The benchmark price of an apartment property increased 2.9 per cent from April 2010 to $409,242.

Attached property sales in April 2011 totalled 622, a 1 per cent increase compared to the 616 sales in April 2010, and a 4.7 per cent increase from the 594 attached properties sold in April 2009. The benchmark price of an attached unit increased 2.4 per cent between April 2010 and 2011 to $514,670.

Download the complete April stats package here

As was widely expected, the Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The global economy continues to show signs of recovery with growth evident in the USA and Europe (even with the presence of some challenging banking issues in some Eurpoean countries and some challenging sovereign debts issues). There is the emergence of broader global inflationary pressures arising from the robust demand from emerging-market economies for commodities.
The Bank of Canada projects that the Canadian economy will grow by 2.90% in 2011 and 2.60% in 2012. The BOC sees total CPI increasing to 3% in the 2nd quarter of 2011 but then retracing back to the 2% target by mid-2012. The persistent strength of the Canadian Dollar could lead to a larger decline in imports and thus lower inflation even further.
The next scheduled date for announcing the overnight rate target is May 31, 2011.

Activity in the Greater Vancouver housing market continued to strengthen in March with both the number of homes sold and added to the region’s Multiple Listing Service® (MLS®) reaching near record levels.

The Real Estate Board of Greater Vancouver (REBGV) reports that residential property sales of detached, attached and apartment properties in Greater Vancouver reached 4,080 in March 2011. This represents a 31.7 per cent increase compared to the 3,097 sales recorded in February 2011, an increase of 30.1 per cent compared to the 3,137 sales in March 2010 and an 80.1 per cent increase from the 2,265 home sales in March 2009. The all-time sales record for March occurred in 2004 when 4,371 transactions were recorded.

“Our market has had a very strong start to the spring season,” Rosario Setticasi, REBGV president said. “With home sales above 4,000 and nearly 7,000 home listings added to the MLS® in March, it’s clear that home buyers and sellers view this as a good time to be active in their local housing market.”

New listings for detached, attached and apartment properties in Greater Vancouver totalled 6,797 in March 2011. This represents a 3 per cent decline compared to March 2010 when 7,004 properties were listed for sale on the MLS®, an all-time record for March. Compared to February 2011, last month’s new listings total registered a 19.4 per cent increase.

At, 13,110, the total number of residential property listings on the MLS® increased 9.9 per cent in March compared to last month and declined 3 per cent from this time last year.

“Conditions favour sellers at the moment, but we’re seeing differences in home-price trends and overall activity depending on the region and property type,” Setticasi said.

The MLSLink® Housing Price Index (HPI) benchmark price for all residential properties in Greater Vancouver over the last 12 months has increased 5.4 per cent to $615,810 in March 2011 from $584,435 in March 2010.

Sales of detached properties on the MLS® in March 2011 reached 1,795, an increase of 34.4 per cent from the 1,336 detached sales recorded in March 2010, and a 100.1 per cent increase from the 897 units sold in March 2009. The benchmark price for detached properties increased 8.3 per cent from March 2010 to $866,806.

Sales of apartment properties reached 1,622 in March 2011, a 29.6 per cent increase compared to the 1,252 sales in March 2010, and an increase of 66.2 per cent compared to the 976 sales in March 2009. The benchmark price of an apartment property increased 2.1 per cent from March 2010 to $403,885.

Attached property sales in March 2011 totalled 663, a 20.8 per cent increase compared to the 549 sales in March 2010, and a 69.1 per cent increase from the 392 attached properties sold in March 2009. The benchmark price of an attached unit increased 3.6 per cent between March 2010 and 2011 to $511,039.

Download the complete Stats package here:

March 2011 Real Estate Stats

More than a year after Europe’s debt crisis erupted in Greece, the leaders of the 17 countries that use the euro are still struggling to snuff it out.

Ireland said this week it will pour another 24 billion euros ($34 billion US) into its crippled banking system, while Portugal appears ready to join Ireland and Greece in needing a bailout from the European Union and the International Monetary Fund.

Here are some questions and answers about the crisis that won’t quit.

What’s the problem in Europe?

• Too much government debt. So much that people wonder if governments can pay it all back. Some countries — Greece, Ireland, Italy for instance — owe more on government bonds than their entire economy produces in a year.

All that debt keeps coming due. The governments have to sell new bonds to pay off the old ones. The people that buy the bonds — banks, investors, insurance companies — are getting reluctant to lend, and if they do, they sometimes want more interest than the governments can afford.

Suddenly, some governments find they can’t pay off their old bonds. Then it’s a choice: default or get bailed out.

Greece and Ireland DID get huge bailout loans. Why doesn’t that fix it?

• Only for a while. A bailout loan is still a loan that has to be paid back. And to get the bailout loans, countries promise the European Union and the International Monetary Fund they’ll be sensible from now on and try to balance their budget.

In fact, to pay back all that interest, countries have to in effect run a budget surplus, which means spending less than comes in through taxes. That sort of belt-tightening, often referred to as austerity, is not easy for countries in recession.

And the fear in bond markets can spread from one country to another. Portugal is expected to be the next to need a bailout.

Won’t shaping up their budgets plus a bailout take care of it? After all it’s good sense for governments to balance their budgets.

• Not during a recession. It takes a lot of income out of the economy. Growth lags. People lose their jobs, businesses close and don’t pay taxes because they don’t have income. So the government has less money — and still has trouble paying debts.

One estimate is that it will take Ireland 20 years to pay down its debt pile to a reasonable level.

And investors in the bond market demand far too much interest to lend the government money. It’s not clear what countries like Ireland will do long term.

But isn’t cutting back what the bond market and the European Union WANTED governments to do?

• Yes. Markets wanted balanced budgets so governments could pay off their bonds. Now they’re afraid balanced budgets will mean governments can’t pay off their bonds.

That’s because cutting spending too sharply can hurt economic growth, in turn depriving governments of the tax income they need to pay off their bonds.

Sometimes you can’t win.

So what IS the answer?

• Governments could muddle through and hope their economies start growing. But a number of economists say that eventually, Greece and Ireland will have to simply declare that they cannot pay back all the money they owe.

It’s called default, or, more technically, restructuring. Creditors are handed a new bond that gives them less than 100 cents on the euro. They’re paid less, later, or with less interest.

Is THAT the end of it then?

• Maybe. But default or restructuring can be ugly. Russia did it in 1998, and bounced back in a couple of years. Argentina did it in 2002 and people are still chasing them in the U.S. courts.

Also, remember people aren’t going to loan you any more money for a couple of years, so you should balance your budget first. If you try to default while running a deficit, you could have to start closing schools, hospitals and police stations.

And default is one thing for a developing country, and another thing for a rich European country. It would make the euro look bad, and a lot of powerful people — the leaders of the 17 eurozone countries and the European Central Bank, for starters — have a big political stake in that not happening.

Should I be worried?

• If you live or do business in one of the countries that’s gone bust, definitely. If you hold shares in companies that depend on customers in Europe, you might notice it as well. A 1997-98 currency and debt crisis in Asia and Russia hurt stocks for a while.

Today, as was widely expected, the Bank of Canada today announced that it is maintaining its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent.

The recovery in Canada is proceeding broadly as anticipated, whilst the global economic recovery is proceeding at a somewhat faster pace than the Bank had anticipated.  Ongoing challenges in the European banking sector will limit the pace of the European economic recovery.  In Canada, more modest growth is expected in 2011 with the contribution of government spending expected to wind down this year, with debt-heavy consumers expected to restrain from spending in contrast to business investment which is expected to continue to rebound strongly.

The Bank projects the economy will expand by 2.4 per cent in 2011 and 2.8 per cent in 2012. Core inflation is projected to edge gradually up to 2 per cent by the end of 2012. Total CPI inflation is being boosted temporarily by the effects of provincial indirect taxes, but is expected to converge to the 2 per cent target by the end of 2012.

Considering all these factors the Bank of Canada decided to keep the target for the overnight rate at 1 per cent since this leaves considerable monetary stimulus in place

The next scheduled date for announcing the overnight rate target is 1 March 2011.