 Monday, December 23, 2024 | | | Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong | | |  | Chaos on Parliament Hill is going to weigh on the economy in 2025. (Adrian Wyld/The Canadian Press) | | | I am sending this dispatch out as one of my last official acts of 2024. I will host some radio before officially signing off (tune into As It Happens on Monday night).
I hope you'll get a break and a chance to catch your breath with friends and family. I'll be off until the first week of January, so this is the last edition of the newsletter until Jan. 13.
But there's a wild amount of news to discuss before saying fare-thee-well.
I was in Ottawa for what will go down as the weirdest lock-up ever. (I wrote a column about the day Freeland resigned. You can read that here.)
All that turmoil overshadowed the fiscal news of the day. But the fall economic statement had vital information in it.
The headline, of course, was that it booked a staggering $61.9-billion deficit.
That's mostly on the back of "contingent liabilities" for settling various Indigenous legal claims. (That's a fancy way of saying the federal government had to put a bunch of money aside because it's facing a series of lawsuits.)
"Absent these expenses, and allowances for COVID-19 pandemic supports, the 2023-24 budgetary deficit would have been approximately $40.8 billion, compared to the Budget 2024 projection of $40 billion," wrote the government.
But even if it's a one-time charge, it blows past the expected "guardrails." What's more, it balloons the yearly cost of paying for all that debt to $69.4 billion by the end of the forecast (2029-2030). | | |  | | | | | The FES landed on a Monday.
By Wednesday, the U.S. central bank, the Federal Reserve, announced it was cutting interest rates by another quarter point.
That was widely expected. It also brought American interest rates just a touch closer to Canadian rates, which would normally have been good news for the flagging Canadian dollar.
Alas, Fed chair Jerome Powell also said quite explicitly that the central bank is not going to cut rates quite as quickly as some had previously thought.
"I think we're in a good place, but I think from here it's a new phase and we're going to be cautious about further cuts," Powell said at a press conference.
That clobbered markets and pushed the loonie to 0.6916 cents US. |  | | | Colleague Anis Heydari did a great job of summing up why the dollar's so low. Check out his piece here. Or read the always-wonderful Jenna Benchetrit's piece on the loonie here.
There are plenty of analysts who think the Canadian dollar will fall further.
And the calendar ahead provides a bunch of opportunities for that to happen.
The two biggest ones are Jan. 20, when Donald Trump is sworn in as president. His musings and threats about tariffs have been just that: musings posted on social media.
The threats will take on new seriousness once he's in office.
The other date to circle on your calendar is the Jan. 29 meeting of the Bank of Canada.
The central bank will have to make a decision on interest rates. But we'll also get an update on the bank's forecasts and where it sees the economy moving over the next year or so.
What do you think will happen?
As always, send me a note.
My email is: peterarmstrong@cbc.ca
In the meantime, Happy Christmas, Happy New Year. I am endlessly grateful for this community we have built here, and I love writing this newsletter every week.
Thanks for reading and thanks for all your notes, letters, admonitions and encouragement. They mean more than you know. | | |  | | The Canadian economy likely eked out 0.1 per cent growth in October. We'll get the latest growth numbers on Monday. | | | | | | We will get the Bank of Canada's Summary of Deliberations on Monday. This gives us a look behind the curtain at how the bank decided to cut rates on Dec. 11. | | | | | | We'll get a better sense of economic confidence in the U.S. this week. The American Conference Board Consumer Confidence Index for December comes on Monday. | | | | | Three things to read, watch and listen to this week | | |  | James Stewart as George Bailey, centre, is reunited with his family during the last scene of Frank Capra's It's A Wonderful Life. (RKO Pictures Inc/The Associated Press) | | | 1. The best (business) Christmas movies | | | My plans for the Christmas break largely revolve around a giant bowl of popcorn and some classic movies.
I won't make my kids suffer through too many, but I started putting together a list of the best business/economics Christmas movies of all time.
The top of the leader board is the obvious granddaddy of business and Christmas: It's a Wonderful Life.
The 1946 classic stars James Stewart and was directed by Frank Capra.
The movie is chock-a-block full of teachable economic moments. Not the least of which comes when the main character offers this simple explanation of what a building and loan association is.
"You’re thinking of this place all wrong, as if I had the money back in a safe. The money’s not here. Well, your money’s in Joe’s house. That’s right next to yours. And then the Kennedy house and Mrs. Macklin’s house and a hundred others. You’re lending them the money to build, and then they’re going to pay it back to you as best they can," said Bailey (played by Stewart)
A Christmas Carol takes the second spot.
My colleague Mark Gollom wrote this fantastic piece back in 2012 making the case that we have misunderstood Ebenezer Scrooge.
Gollom interviewed Jim Lacey, author and analyst at the Institute for Defense Analyses, who made the case that Scrooge, before his ghostly visitors, "was already doing more to help his fellow man than any of the other main characters we meet."
Indeed, Lacey says Scrooge reduced his ability to do more good in the world by giving away some of his fortune.
"While [Charles Dickens's] book is scant on detail about Scrooge's actual career, Lacey deduces that he was some kind of lender. This means Scrooge lent money to individuals and businesses, made investments through the London Exchange, helped create jobs, all of which grew the economy, helped finance the Industrial Revolution and needed infrastructure and lifted up the condition of the poor and middle class," wrote Gollom.
My last spot goes to the perennial classic Trading Places, starring Eddie Murphy as a con artist and Dan Ackroyd as an elite businessman in Chicago.
They are bamboozled into trading places by the scheming Mortimer Brothers. The ending of that 1983 film has become lore among American commodities traders.
The always amazing podcast Planet Money explored what really happened on the trading floor and the emergence of what traders still call the Eddie Murphy Rule.
What are your business Christmas movies?
Let's start a list. Email me your ideas here.
Read up on the economics lessons of It's a Wonderful Life here.
Check out Mark Gollom's column about the misunderstanding of Scrooge here.
Listen to the Planet Money episode on Trading Places here. | | | 2. Ideas to bolster the Canadian economy | | | I wrote a piece a few weeks ago saying one easy way to offset the damage of potential U.S. tariffs would be to have more free trade among the Canadian provinces and territories.
Since then, people smarter than me have added to the list of things to do.
A piece in The Hub is a must-read. Eric Lombardi lays out 10 things to grow the Canadian economy.
"What follows are some big (and controversial) topics — ambitious ideas that cut against some sacred Canadian cows. While some may seem radical, I believe putting them on the table could contribute to necessary debates and hopefully progress," wrote Lombardi.
His list is pretty comprehensive.
A "light federation" between Canada, the U.K., Australia and New Zealand.
A "wealth fund" for Canadian kids in which the federal government would "invest $20,500 per child over 18 years — $10,000 at birth, then $1,000 annually from ages 2 to 6, and $500 from 7 to 17."
Lombardi says that would give every child born in Canada somewhere between $50,000 and $60,000 when they turn 18.
That's just a handful of his ideas. But the whole pieve is smart and interesting and well worth a read.
Check out the article in The Hub here. | | | 3. Trade lessons from Thucydides | | | Man, I wish I wrote this piece. If there's one thing you click on in this newsletter make it this extraordinary piece from Dan Gardner on what Trump, Trudeau and the rest of us can learn from a 2,500-year-old book about the war between Athens and Sparta.
Many moons ago, somewhere in the dusty corridors of the Beveridge Arts Centre at Acadia University, I first read the History of the Peloponnesian War by Thucydides.
It tells the story of the long war between Athens and Sparta. The final Spartan city state to face off against the Athenians was on the Island of Melos.
The Athenians start things off with a statement that has bounced around diplomatic circles ever since.
"The strong do what they can and the weak suffer what they must," wrote Thucydides.
Dan Gardner wrote an absolute banger of a piece on what the book tells us and why it's such a shame that it's unlikely neither Trudeau nor Trump have read it.
"The point of Trump’s bullying is — psychological gratification aside — to exhibit his power to the world, just as the Athenians did in destroying a city-state that was as harmless to Athens as Canada is to the United States. That’s why his seemingly gratuitous humiliations are not gratuitous. They’re the point. And in Trump’s mind, if Canada does as he demands, it will only confirm that he is strong and Canada is weak, increasing his contempt,” wrote Gardner.
But Gardner says Canada is not weak.
"So what should we do? Melos ultimately landed on the right solution: Threaten the bully. Say, 'if you come for us we may not be able to stop you but we will make you bleed.' That didn’t work for Melos, because Melos really was too weak to make credible threats. But in this critical way, Canada is not Melos," wrote Gardner.
He points out that Canada has the second-largest land mass in the world, more people than California and the 10th-largest economy in the world.
The piece is typically smart, well-written and rooted in history.
Do yourself a favour and read it.
Check out Dan Gardner's essay here. | | | How the economy looks beyond Bay Street | | | The housing crisis revisited | | | 2024 was a nasty year in Canadian housing.
2025 is looking to be worse.
I can see plenty of construction cranes working away from my window at work. The problem is those are mostly projects that were started and funded years ago.
They're all about to be completed and shell-shocked investors will have to take possession of condos now worth much less than the price they paid for them.
The question is what the next few years will look like. For that, we turn to housing starts, which show how many new projects are getting under way.
Starts have plummeted.
But as this tweet from Mike Moffatt shows, that slowdown is mostly an Ontario problem. | | |  | Housing starts are up in Alberta. The slowdown in B.C. is much less pronounced. But in Ontario, it's a disaster.
The scariest part of that chart is I have no idea what it will take to turn it around.
And every expert I hear from keeps saying some variation of "there are no silver bullets."
I think this issue is going to be one of the defining portfolios of next year. So stay tuned. | | | That's it for this week. | | | Drop me a line anytime.
Send ideas, comments, feedback and notes to peterarmstrong@cbc.ca.
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