The warmth and excitement of our welcome for President Barack Obama this week, underlines how estranged Canada had become from the United States over the last seven or eight years.

Mr. Obama’s substantive performance at Thursday’s press conference in Ottawa reminded us of his cool and intelligence. He was well briefed and sensitive to Canadian interests even though he nearly replaced Ottawa with “Iowa”.

The imagery was most interesting. Obama was relaxed, smiling and very much in control.

Harper seemed anxious, trying to please, attempting to make a good impression. Michael Ignatieff appeared tongue-tied in his photo-op with Obama. Only Governor General Michaëlle Jean seemed relaxed in the President’s company.

Obama’s discussion with the Prime Minister touched on a number of points from Afghanistan to the U.S./Canada border, to the carbon footprints of U.S. coal and the Alberta oil-sands, to trade and border security. They talked about the auto industry and the respective economic stimulus packages of the two countries, Canada’s concerns about “Buy American” provisions in the U.S. package and the U.S. financial industry.

On the matter of border security, Mr. Harper made it very clear that U.S. security is as important to Canada as it is to the United States and I applaud him for that. Mr. Harper was also quick to point out that our economic problems, although linked through our trading relationship are somewhat different from the U.S. problems, particularly in the areas of healthcare, housing and banking.

Canada’s problems are driven by crashing oil prices and a collapse in demand for our natural resources, automobiles and other manufactured products. Fortunately, our banking system remains strong. An article published in Newsweek Magazine earlier this month says that in 2008, the World Economic Forum ranked Canada's banking system the healthiest in the world. America's ranked 40th, Britain's 44th.

Nationalization of banks in the United States is now being openly discussed. It was the dominant item on CNN Wednesday. On Thursday, former Chairman of the U.S. Federal Reserve Alan Greenspan, who for decades was regarded as the high priest of laisser-faire capitalism in the United States, came out in favor of nationalizing some U.S. banks.

In an interview with the Financial Times of London, he said nationalization could be the least of all evils for policymakers. "It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring," he said.

The former Reserve Chairman said temporary government ownership would "allow the government to transfer toxic assets to a bad bank without the problem of how to price them."
Nobel prize-winning economist Joseph Stiglitz says nationalized banks are the "only answer.

“We live in a very different world than the world of the Great Depression. Then, we had a manufacturing economy. Now we have a service-sector economy”. In the Great Depression we didn't have a safety net. Now we have unemployment insurance.

The U.S. government has poured hundreds of billions of dollars into the U.S. banking system, to little effect. U.S. banks continue to fail. American taxpayers have already become owners in a large number of banks. With the state as sole owner, executives and board members could be fired without golden handshakes. Managers could be incentivized by linking remuneration to multi-year profitability.

Full public ownership of the banks could facilitate the creation of a ‘bad bank’ that would hold on its balance sheet all the toxic assets (assets of uncertain value not easily convertible to cash) currently held by the U.S. banks. The bad bank, holding the toxic assets would collect the cash flows associated with them until a liquid market for these assets could be established. The publicly-owned banks could be re-privatized when financial markets stabilize and the economy recovers.

The logic of bank nationalization in the American (and British) context could make sense but the Americans will have a problem with it, a problem that traces back to the declaration of American independence. It’s about their perception of freedom and independence, the sanctity of free markets and the perception they will self-correct.

The natural reflex of most Americans is that government interference in the private sector is not a good idea, yet they crave it for healthcare and other social programs. The auto industry will soon be on government life-support.

Leaders of the U.S. financial industry have become abject failures. Their banks or financial institutions have already been exempted from market discipline, i.e. bankruptcy, thanks to state intervention.

The very fact that they operated with minimal government oversight, drove themselves to the verge of bankruptcy and managed to make themselves so essential that they cannot be permitted to collapse suggests they cannot be left in the hands of their current owners.

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

There are more than 9,400 banks in the United States.

That compares to the big six (of fourteen) in Canada.

Last year more than thirty U.S. banks collapsed or were closed by U.S. regulators. Another nine were shut down in January of this year. Since October 2008, three hundred and fifteen U.S. financial institutions have been shored up with funds from the Troubled Asset Relief Fund (TARP) and more are likely to join them.

It appears that the sub-prime mortgage fiasco sucked most of the equity out of the U.S. banking system. The domino effect has been felt around the world. Investor George Soros has estimated that it will take another $1.5-trillion to properly recapitalize just the U.S. banks - a colossal sum that the U.S. Congress might be loath to fund. We should care because what’s good for the U.S. economy is good for the Canadian economy.

Royal Bank of Canada's investment arm warned in a report earlier this week that as many as 1,000 U.S. banks could fail in the next three to five years as losses mount on commercial real estate loans.

In Canada, the issue is not so much the banks but the fact that many lending sources have been withholding credit in the wake of the global financial crisis. In his recent budget, Finance Minister Flaherty set aside $125-billion to boost access to credit by acquiring insured mortgages from the banks to free up cash for lending.

Since October 2008, Canada’s economy has lost 213,000 jobs. In January, 129,000 jobs disappeared, 101,000 in manufacturing alone. On Wednesday, Stats Canada data showed that Canada also recorded its first trade deficit in 32 years, reflecting the sudden collapse of U.S. demand and the collapse of commodity prices.

BMO Capital Markets deputy chief economist Douglas Porter called it "a watershed report," Statistics Canada said exports fell faster than imports in December, resulting in a trade deficit of $458 million, compared with a surplus of $1.2 billion the previous month.

It is the first time Canada's trade balance has fallen into deficit since March 1976.

Exports fell 9.7 per cent to $35.3 billion in December, the largest month-over-month percentage drop since October, 1982. Imports dropped 5.7 per cent to $35.8 billion, mostly on volume reductions in machinery and equipment, auto products and industrial goods.

This past week, General Motors announced it is cutting 10,000 “white collar jobs”. Meanwhile, French President Nicolas Sarkozy announced that PSA Peugeot Citroen and Renault SA will each be given a five-year loan of 3 billion Euros ($3.9 billion) from the government after they promised not to shut down plants or fire workers in France. Renault Trucks, which is owned by Volvo AB of Sweden and some other auto-makers, will receive 500 million Euros in loans.

The automobile sector in France employs about 2.5 million people or 10 percent of the working population. Germany and Italy also find themselves in the forefront of collapse in the automobile sector.

With the global economic crisis, the status of the automobile appears to be changing in society. Automakers who have long been blind to global environmental issues, exploited the SUV market when oil prices were in full explosion. Now they are being forced to accelerate their investments in the design and production of new cars that are reliable, cheaper and more energy-efficient.

Disorder in the automobile industry, even more than the decline of the housing and banking industries, is a reminder of economic history - the rise and fall of industrial destinies.

When "Fortune 500" listings began in 1955, General Motors was the largest American corporation and it was one of the three largest, measured in revenues, every year until 2007. GM was the "largest industrial corporation in the world," in its own description of 1989 and it was engaged, at the time, in "the most massive reindustrialization program ever attempted.

Albert Einstein once said, as if referring to the current economic stimulus climate "We can't solve problems by using the same kind of thinking we used when we created them".

Consider in contrast, Bank of Canada Governor Mark Carney’s remarks where he says economic recovery in Canada hinges on efforts around the world to bolster the financial sector. He says "extraordinary steps" are being taken by all G7 countries to keep banks from collapsing. Are they extraordinary or are they simply reactive to the experiences of a depression - seventy odd years ago?

Is this an economic "crisis" or an economic sea-change opening the door to extraordinary opportunity, a transformation that will revolutionize the way we think and live?

Who knows, we could be in the midst of some form of economic and societal revolution where no person or government can determine its conclusion.

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

A lot of things went down this week.

The federal Liberals supported a Conservative budget, albeit with a Liberal amendment that requires the Government to report back to Parliament every three months on the status of its stimulus spending.

The Premier of Newfoundland & Labrador pressured federal members of Parliament from his Province to vote against the federal budget so the Liberal leader allowed his Newfoundland members to do so without consequence. Unfortunate precedent?

Newfoundland had expected to receive $2.7 billion in Atlantic Accord payments over the next three years but that will drop to $1.2 billion because of changes to the way the equalization formula is now calculated by the feds.

Williams has said the change will have a crippling effect on his province's economy. He says the move was designed to "deliver the maximum shaft to Newfoundland and Labrador" after the province failed to re-elect Conservatives in last year's federal election.

History recalls a series of one-off arrangements with provinces in recent years. In January 2005, then Prime Minister Paul Martin announced that his Government had reached an agreement in principle with Newfoundland and Labrador that would ensure the people of the province would be the primary beneficiaries of offshore resource revenues. The agreement was to deliver both 100% of offshore revenues to the province and 100% protection of federal government equalization payments.

In a 2007 play, Mr. Harper announced a one-off $700 million increase in equalization for Quebec. The provincial government promptly used it to cut Quebecers’ income taxes.

These actions beg the question, can or should a federation follow the notion of different strokes for different folks. Our federation is an amalgam of provinces and territories that is supposed to be united by the federal government, not divided by it. National unity is the quality of being one in spirit, sentiment and purpose.

The principle of equalization is that Canadians receive similar levels of public services at comparable levels of taxation, regardless of where they live. Side deals that favour one province or region, over another are counter to the notion of unity and counter to the principle of equalization.

In another sideshow this week, Canadians were perplexed by ‘Buy American’ provisions in U.S. stimulus legislation. Congress would require that all steel and iron used in U.S. funded infrastructure investments be American manufactured.

The Senate version went further, demanding that all goods used for infrastructure projects, be U.S. manufactured. Canada and much of the world reacted by warning that these provisions could spark international trade wars.

Many economists have already reminded us that it was U.S. protectionist measures in the 1930s that drove the world into depression.

Protectionism is the economic policy of restraining trade between nations, through methods such as the imposition of tariffs on imported goods, restrictive quotas on the import of goods and a variety of other restraints built into government regulations that are designed to discourage imports. This policy contrasts with the spirit and intent of free trade agreements such as NAFTA, where government barriers to trade are kept to a minimum.

There would be few winners in a trade war, particularly in a world that has become so economically interdependent. In some industries, like the auto industry (see Canada), production is now so globalized that it is no longer possible to pinpoint or measure nationality in any meaningful way.

The “Buy American” movement is a response to the loss of middle-income jobs, largely connected with traditional or high technology manufacturing. Many of those jobs have moved offshore but massive layoffs responding to the global recession have compounded the problem and jobs are now being lost in other sectors as demand for goods and services continue to fall. There may be light at the end of the tunnel.

The “Buy American” factor was partially mitigated Wednesday when the U.S. Senate added a clause to its stimulus legislation that would require that international trade agreements be honoured, thereby watering down the impact of a measure that threatened to ignite a cross-border trade war.

The fly in the ointment is that Senate Democrats do not have the votes to pass the stimulus package so it’s expected they will have to cut billions of dollars from the stimulus bill to attract Republican votes. The House of Representatives has already passed its own (iron and steel) version of the bill. It will have to be rationalized with the more judicious Senate bill.

One more tidbit, on Wednesday the U.S. Senate also voted to give a tax break of up to $15,000 to home buyers in hopes of revitalizing the U.S. housing industry.

That should be good news for our forest industry, particularly when compared to the paltry home-buying stimulus in Canada’s recent budget.

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

This week’s Budget and Michael Ignatieff’s response to it, puts Prime Minister Harper on a short leash and may well trim the sails of Canada’s “right-wing” conservative movement for a while.

In many ways, this was a small “l” liberal budget. It was also a scatter-gun budget with little strategic cohesion. There seems to be a little bit for virtually everything except science and technology research and alternative energy initiatives.

It could have opened the door to real and productive change. Instead Mr. Harper chose to survive. Mr. Ignatieff had a chance to define himself with a substantive policy amendment. Instead, he chose to amend with a process instrument – a periodic reporting mechanism on performance.

Some people I talked with this week think it was a masterful stroke, others, particularly younger people were disappointed. As one man said to me on Thursday “They’re projecting an $85 billion deficit for short term spending with little or no long-term payback and it’s my generation that will have to pay for it”.

Never in my lifetime has a Canadian government forecast an $85 billion deficit. Those who would have us believe these projections told us just two months ago that we would have a surplus this year and next year.

There is no single visionary, great, national project in the budget, no compelling direction, no real hope-offering for the future.

It’s a politically-driven budget, strongly influenced by threat of a coalition government, not a strategic response to economic crisis. The deficit for this year alone is projected at $34 billion. Less than a third of it will be invested in infrastructure.

It would appear that forty to fifty percent of the deficit will be the result of lower tax revenues, not increased spending. In little more than sixty days, government revenue projections have somehow managed to deteriorate by about $15 billion.

How is this possible?

Everyone knew in November that we were headed into recession. How could the government have missed the signs?

Much of the Budget’s infrastructure spending is tied to cost-sharing with provinces and municipalities. Many of them will not be able to participate in the program without incurring significant new debt.

The same might be true of the home-reno offerings or the “first-time home-buyer” incentives. These programs will only benefit people who have already decided to renovate or purchase a home. Most renovations of consequence probably cost $15,000 or more. A home renovation tax credit of $1,350 is not going to trigger a $15,000 decision in times of economic stress. If the incentive was a $6,000 or $7,000 tax credit, it might get a lot of people on the phone to their contractor.

The Government has said it will change the maximum amount a first-time homebuyer can deduct from a Registered Retirement Savings Plan - the maximum allowable withdrawal would rise to $25,000 from $20,000. Good stuff, but very narrow in its application because not every (probably not most) first time home-buyer has $25,000 in his or her RRSP account.

The Canadian economy is shedding thousands of jobs, almost daily. The government is proposing changes that would tinker with the EI program but not adjust it to the circumstance of the day. It plans to extend maximum EI benefits by five weeks. It would not reduce the wait-time for first payments.

The measure would cost $1.15 billion. Another $500 million would be set aside to extend EI benefits for Canadians participating in longer-term training programs. Again, good stuff but it will not change behaviors or address the real problem of extended unemployment. Training for jobs that don’t exist has little value.

There are good things in this budget but they respond more to public consultation, than a well thought out strategic plan. In my view, an effective stimulus budget should be designed to change behavior and it should be designed to change the psychology of the marketplace. A scatter-gun approach will not get us there. The deficit projections are also suspect.

Indeed, the International Monetary Fund has already suggested that Canada’s Budget forecasts, as relate to the depth of recession are under-estimated. There is no plan (in the budget) to take us out of deficit. There is no plan to address the issue of lost consumer confidence. There is no guarantee that those who are in most need of help will get what they need.

Is this Budget the best our Parliamentarians can do for Canadians?

I don’t think so. It had the opportunity to respond to the economic crisis as an opportunity to re-tool the Canadian economy. It chose to respond with a political-survival budget. Can the Liberal Party support this Budget and be credible?

I have my doubts. The economic landscape has changed; the ball is now back in the Government’s court.

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