The U.S. government is on the verge of making an unprecedented financial commitment to bail out its financial industry. Cost could be as much as a trillion dollars although the initial asking price is $700 billion, almost double the country’s current operating deficit.

The money would be used to buy and stabilize the bad securities held by large U.S. financial institutions and some foreign institutions including Canada’s Royal Bank.

After the stock-market crash of 1929, the American people decided to tightly regulate their financial system so that it could never again threaten the U.S. economy. Depression-era regulations worked effectively until the late 1970s, when the election of Ronald Reagan led to a radical process of deregulation.

Deregulation, in concert with rapid financial innovation created a volatile pattern of financial booms and crises. Crisis led to bailouts by affected governments. Bailouts encouraged financial firms to expand further and take greater risks. In good times, there were massive profits. In bad times, the public paid to limit their losses.

In the United States, the share of total corporate profits generated in the financial sector grew from 10% in the early 1980s, to 40% by 2006. As financial markets grew larger and economies became more vulnerable, the pressure on governments to bail them out increased proportionately.

The most recent housing boom was driven by a rapid rise in home prices in the years leading up to 2006. Home buyers and mortgage lenders assumed housing prices would continue to rise and sustain the boom. U.S. banks and mortgage brokers earned large fees to create mortgages.
Many, if not most of these mortgages were subsequently sold to investment-bankers who also received fees to package them into mortgage-backed securities that were then sold to mainline banks, hedge funds, pension funds and insurance companies around the world.

It made economic sense for the investment-banks and their brokers to promote the flow of mortgages, even if that meant selling mortgages that were likely to default if home prices stopped rising or interest rates rose substantially - it’s called greed.

These mortgage-backed securities were essentially highly leveraged; risky bets on the false assumption that housing prices would continue to rise ad infinitum. The security offerings were so complicated that no one knew their real value or what their price should be. They only had a market because credit-rating agencies such as Moody's gave them AAA ratings.

So what does all of this have to do with Canada? Well, to begin with, we all know that anything bad that affects the United States will ultimately affect Canada. Prime Minister Harper and Finance Minister Flaherty tell us there is no chance Canada will tumble into the same kind of financial mess as the United States, yet Merrill Lynch Canada suggested on Wednesday that Canada is well on the way to a U.S.-style housing crisis.

Coincidently, the Bank of Canada quietly conceded this week that the U.S. trauma is filtering north of the border by making $4 billion in cash available to Canada’s chartered banks at “relaxed terms”.

“After several decades of double-digit growth, Canadian housing prices are falling and inventories of unsold houses are rising sharply” according to a report by TD economists David Wolf and Carolyn Kwan. “The tipping point will come when owners start walking away from their homes because they owe more than the value of their properties”.

Is the United States about to revisit the ‘Dirty Thirties’ and take the rest of us along for the ride? Probably not, say economists at the TD Bank arguing that the Federal Reserve Board (U.S. central bank) is avoiding the mistakes it made before the big crash of 1929 and during the long economic darkness that followed.

TD economists argue that the current mess is more like the U.S. savings and loan (S&L) crisis of the 1980s, only worse. "During the S&L crisis, the government established a Resolution Trust Corporation (RTC) at just over $400 billion. The purpose was to purchase the bad debts of financial institutions and over time sell them back into the market as financial conditions improved. The RTC was able to sell over 95 per cent of the assets they had initially seized with a recovery rate of over 85 per cent.

That said, the TD does predict a mild recession next year with little economic growth in Canada or the United States as a consequence of U.S. problems. That seems a little optimistic in light of the current U.S. operating deficit, the rising cost of its wars in Iraq and Afghanistan and the potential cost of bailing the financial industry.

In my opinion, Canadians need to be concerned about this fiasco because somehow, somewhere, sometime, we are going to be forced to share the burden.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

In September 2006, the New Brunswick Liberals narrowly squeaked out a win over the incumbent Conservative Government led by Bernard Lord.

Full of energy and optimism, the Liberals bounded into government determined to change the world. Their mantra was self-sufficiency – great start. The problem was they failed to define “self-sufficiency” and they neglected to set targets or milestones that would allow viewers to measure their performance on the way to self-sufficiency.

The goal is noble and one that I subscribe to without hesitation. The problem is that without definition, there is nothing to reference when it comes to decision-making. Businesses have “visions” that dictate standards for decision-making.

For example “Our vision is to become the world’s leading provider of fresh, unprocessed water”. With such a vision, investment decisions, business acquisitions, employee hires, research, the adoption of new technologies, equipment purchases, distribution channels, selection of resource and other decisions are all referenced to the vision.

In the last two years, the Government has stumbled on a number of issues, in part because it did not offer self-sufficiency rationales for decisions relating to those issues.

For example, how does the reduction of provincial excise taxes on gasoline move us towards self-sufficiency?
How does bail-out of the Shippigan Caisse Populaire move us towards self-sufficiency? How did tax-increases move us towards self-sufficiency?
How will the removal of early French immersion move us towards self-sufficiency?
How will the rationalization of post-secondary education institutions move us towards self-sufficiency?
How will uranium exploration move us towards self-sufficiency?
How will tax-reform move us towards self-sufficiency?
How will the rationalization of our health system move us towards self-sufficiency?

There are positive answers to most, if not all of these questions but they go without speak. The self-sufficiency agenda has been driven by the notion of a Saint John “energy-hub”. As recently as this week, the Premier was pitching the idea to New England Governors and Eastern Canadian premiers. Good on him but an energy hub by itself will not lead us to self-sufficiency.

Some would argue that dependence on the U.S. market for the sale of our energy products will lead to a market dependency that may be quite different from federal government dependency but still a dependency.

There is some legitimacy in that argument but surely market dependency is better than government dependency. Market dependency encourages innovation, entrepreneurship, business development, competitiveness and a host of business and personal reactions that are absent in a government dependency.

In a small, economically dependent province like New Brunswick, it’s easy to settle into the comfort of federal government largess. The reality is that Canada’s economy is changing and federal largess is diminishing. The great “have” province of Ontario is no longer the hub of our national economy. Alberta has taken the lead with its gas and oil exports and its oil sands development.

The U.S. economy is in a shambles. Financial institutions are crashing. The U.S. deficit is advancing towards the trillion dollar mark. Our own federal government has moved us perilously close to deficit, if not into deficit. Self-sufficiency in New Brunswick is more than a noble objective. It may ultimately be the necessity of our survival.

New Brunswick has never been self-sufficient, at least not for the last 150 years. Our forestry industry, our fishery, our agricultural industry, mining, manufacturing and IT industries (as currently configured) will never make us self-sufficient at present levels of production and scale. Our only hope for significant growth, in the short-term, is energy, energy production, alternative energy production and the sale of energy products.

Self-sufficiency is a worthy goal but as I suggested earlier, it needs definition. If self-sufficiency means the absence of need for federal “equalization payments”, Newfoundland has arrived but New Brunswick has miles to go.

In the next few years, Shawn Graham and his Liberal Government will tackle the issue of tax reform and energy-related development. There will be issues surrounding the construction of a second oil refinery in Saint John and the possible construction of a second nuclear plant at Lepreau.

Depending on the outcome of our federal election, there may or may not be issues related to the environment and how our energy-production program fits with the environment and concerns about climate change.

To me, self-sufficiency is not about equalization payments, it’s about being in control of your destiny. It’s about paying your way, earning enough money to pay your bills and avoiding dependency on another person or another entity. It’s also about creating a sustainable and friendly environment.

Shawn Graham should be talking about the building of an economy that will employ New Brunswickers in a way that will make them personally self-sufficient and environmentally friendly.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

Five days out of the gate, this is a most interesting election, notwithstanding the fact that our national media has already labeled it a bore and/or a walk to majority for Stephen Harper.

It starts with the Prime Minister’s decision to ignore his government's legislation fixing October, 2009 as the date for the next election. He launched this election by over-riding his own legislation, in effect, saying to Canadians that Parliamentary legislation is irrelevant – ignore it when it doesn’t suit your fancy.

Next, the Prime Minister and Jack Layton, leader of the NDP rejected the notion of Green Party Leader, Elizabeth May joining in the upcoming televised “Leaders debate”. On Wednesday, after Layton’s acquiescence to Ms. May’s demand, the Prime Minister agreed to debate with her and the other party leaders – a flip-flop.

And then there was the Conservative internet ad showing the official bird of Newfoundland, the “Atlantic Puffin” pooping on the shoulder of Liberal Leader Stéphane Dion. When it became public, the Prime Minister apologized to Dion and withdrew the ad. Newfoundland Premier Danny Williams responded by calling the Prime Minister a “fraud”.

Then Prime Minister Harper declared that the Liberal “carbon-tax” would push Canada into recession and threaten national unity. The CBC described Harper’s remarks as a “tirade” and an outraged Stéphane Dion struck back at his rival, calling the Prime Minister’s comments "irresponsible.

While he (Harper) was busy talking about building firewalls in the West, I was fighting to keep my country together" Dion told a Saint John Board of Trade audience this week. "I do not need any lessons from Stephen Harper on fighting for the national unity of my country."

Next, the Prime Minister announced that Canada will withdraw the bulk of its military force in Afghanistan by 2011. That contradicts his earlier statements (May 2007) that Canada can’t set arbitrary withdrawal deadlines and that Canada “will not cut and run while he is in power”.

Another flip-flop!

One might ask why, in the middle of an election campaign, Mr. Harper would change his mind on Afghanistan. The answer seems obvious. His Party’s fortunes and his chance at majority lie in Quebec, the Province where anti-war sentiments are the highest in Canada. He’s already attempted to buy the province with huge multiples of hundred million dollar fiscal transfers and recognition of the province as a “nation”. This latest sop is an attempt to soften his hawkish image in the province by removing Afghanistan as an election issue (76% of Quebecers oppose the Afghanistan mission).

Mr. Harper’s Afghanistan announcement sparked a response from the grieving father of a soldier who died in Afghanistan. Jim Davis, the soldier’s father, said that the decision to end the mission without ensuring that its objectives have been achieved would mean his son had died in vain. In a media interview, Mr. Davis said that Harper's decision to end the Afghan mission in 2011 was "irresponsible."

The Prime Minister’s Chief of Communications, Ryan Sparrow responded to Mr. Davis with an e-mail to a reporter saying that criticism by the soldier’s father was politically motivated and further that he is a supporter of Liberal candidate Michael Ignatieff.

On Wednesday Mr. Harper “suspended" (one might have thought fired would be more appropriate) Mr. Sparrow from his campaign position and ordered him to personally apologize to Mr. Davis for his comments.

There is more. Mr. Harper announced this week that he would reduce tax on diesel fuel from four cents Canadian per litre to two cents per litre over the next four years. Some call that a cynical move to encourage increased consumption of the fuel when the world is trying to reduce carbon emissions Mr. Dion, called the Prime Minister’s announcement “irresponsible'' and said it would remove ``the incentive for Canadians to be more energy-efficient.

In the past, Mr. Harper has been criticized for putting too much money into the reduction of consumption taxes. He defends these cuts as being broad-based and of benefit to everyone. Incidentally, Tuesday’s announcement wasn't the first time Mr. Harper has offered tax breaks to truck drivers.

In last year's budget, his government increased the amount truck drivers can deduct for food and entertainment expenses. It just so happens that truck-driving is the second largest occupation for men in Canada, according to census figures released in March - 276,200 in 2006 – a big constituency.

The International Monetary Fund says that reductions in consumption taxes (GST) should be replaced by cuts to income taxes (the Dion formula). Loss of revenue from the GST cuts may be part of the reason this country is once again facing a deficit problem.

A reduction in diesel-fuel taxes could push us over the edge.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

Prime Minister Stephen Harper's (apparent) intent to call an election this week, in defiance of his government's legislation fixing October, 2009 as the date for the next election, has triggered a good deal of controversy across the country.

A number of commentators have argued that calling an election without waiting for the House of Commons to reconvene on Sept. 15 would violate established constitutional conventions or norms. Some have claimed that the election call would be illegal, in light of the government's fixed-date election legislation and have suggested that Governor General Michaëlle Jean should carefully consider whether to accept the Prime Minister's request for an election or not.

Professor Patrick Monahan, Dean of the Osgoode Hall Law School at York University has concluded that "while the Prime Minister's election gambit may violate political commitments, it is perfectly consistent with constitutional norms and practices, and would not violate the fixed-date election legislation”.

With all due respect to the Professor’s conclusion, I have to disagree. The notion of “consistency with constitutional norms and practices” was abandoned with passage of the fixed-date election legislation. If all legislation could be abandoned in the name of traditional norms and practices, why bother passing new legislation. If this election call is allowed to stand without challenge, Canadians will effectively be saying to future governments “pass whatever legislation you want and know that if it proves to be inconvenient, the legislation should be considered inoperative.

George W. Bush considered constitutional adherence to be inconvenient when he spied on the American people, permitted torture of suspected terrorists and waved the right of habeas corpus for people imprisoned as suspected terrorists. Are we really prepared to follow the Americans in their acquiescence and permit our Prime Minister to call an election before its legally prescribed date?

In my view, the Governor General has an obligation to Canadians to respond to the Prime Minister’s request for an election by asking Stéphane Dion, Leader of the Opposition to form a government. If he cannot do so, then we should have an election. If he can forge a partnership with the NDP, we could have a new, albeit still minority government.

When a government loses a confidence vote in the House of Commons, tradition says it has to resign. The Governor-General then determines whether or not to dissolve the House and call an election or whether to ask another group to form a government.

It’s reported that Stephen Harper will (and by the time you read this column, he may have) advise the Governor General to dissolve Parliament on the grounds that it will be 'chaotic' this fall and/or that the Liberals have threatened to defeat the Government on a matter of confidence.

Not good enough. This government has survived for nearly three years. There is no excuse for calling an election today.

Professor Monahan argues that the Governor General should not call upon Mr. Dion to form a government because the Prime Minister still enjoys the confidence of the House of Commons, having survived numerous confidence votes during the last session of Parliament. That is a blatantly contradictory argument. If Mr. Harper enjoys the confidence of the House, he should not be asking for its dissolution. If he does not have the confidence of the House, the Governor General should be asking Mr. Dion to form a government.

The fact Mr. Dion has hinted that he might defeat the government is irrelevant because he has also left open the possibility that he might continue to support the government. Professor Monahan argues that since Mr. Harper still enjoys the confidence of the House, the Governor General is required to act on his advice. Monahan says that if the Prime Minister asks Madame Jean to dissolve Parliament and fix a new date for a general election, she should act on this advice.

The good professor can’t have it both ways. Either Mr. Harper has the confidence of the House or he does not. Evidence to date indicates that he does have the confidence of the House and therefore is not entitled to ask the Governor General to change the date of Canada’s legislated 2009 election.

There are many reasons why this country should be avoiding an early election, not the least of which is the unfinished business of the Ethics Committee, Elections Canada and the Cadman lawsuit.

Our economy is fragile.
Our budget is near deficit and requires a fix.
Our environment is at risk and needs help. If any of these issues lead to a non-confidence vote, call an election.

If they are played out with integrity, there may be no need for a premature and perhaps illegal election.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com