Now it's clear....as mud

What a summer and early fall it has been. First the U.S. decides to play chicken with their debt ceiling with the hopes of political gains from both of the parties. The result, a firm and clear decision to delay action until after the 2012 election making the subject clearly a major election issue.

That having been dealt with, the world clearly refocused on the Euro debt situation and how to avoid an immenent default by Greece. The  Greek economy has been on and off the hot seat for the past year and half and it has been widely known and acknowledged that they will not be able to deal with the massive debt they have accumulated without assistance from outside sources. Having run that situation to the edge of the abyss, the EU decided to issue a vague collective committment to support the a vague and unclear portion of the Greek debt provided that the banks and lenders agree to write down a vague and unclear amount of the debt. Clarity regarding the amounts to be decided at a future time and effectively delaying action.

All of this hand wringing and tension to come to a decision, not to make a decision at present, would appear to have been a waste of time. In the U.S., the motivation clearly has political implications. I believe that the Euro decision, while less transparent also has significant political overtones. After all, letting Greece pile on debt that was clearly beyond their capacity to reasonably repay was irresponsible but also somewhat unavoidable since the EU, while having the mandate to set targets for member economies, lacks the political authority to impose restraint on individual countries and clearly was not able to monitor the situation adequately. When the EU was formed in the 1990's, Britain decided not to join. At the time, Magaret Thatcher the Prime Minister, stated that the EU would not survive it's first major crises. That time has clearly arrived and while it may be slow in unfolding, the accuracy of that prediction will soon be revealed.

In all of this muddling, we are left trying to assess the strength of local economic conditions so that we can make informed short and long term decisions. Certainly not overly simple, but setting aside the Euro situation that seems endlessly plagued by politics, we are left looking at the fortunes of our largest trading partner, the U.S.

- Unemployment: still very high and will remain a political football through the election

- Debt Crises: remains worrisome but the U.S.(all parties) seem to be aligning to rally for significant reduction, lets look at the situation

            - need to cut Gov't spending recognized, pulling out of wars, addressing services, election issues

            - need to raise taxes recognized, flatten income taxes, VAT tax, election issues

            - need to stimulate employment recognized, regulatory simplification, energy initiatives, election issues

Poor Mr. Obama, to date he has been behind the curve on most of these issues and pandering to his left wing base on social and environmental concerns. While these issues remain important, it appears that concerns over the economy will dominate the election campaign. It remains to be seen whether Mr. Obama can move to the right just far enough to keep his base while satisfying the soft support that won him the last election.

What ever the outcome of the U.S. election, the major issues appear to have been defined and seem to have positive implications for growth in the economy. Hopefully this happens fast enough to help Canada avoid a major slowdown and that we will continue to be benefactors of the their growth initiatives.

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Tom Herlick

Tom Herlick

REALTORĀ®
CENTURY 21 Pinnacle Realty Ltd., Brokerage*
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