Bank of Canada Leaves Rates Untouched

Article: 


http://www.canadianmortgagetrends.com/canadian_mortgage_trends/2011/04/bank-of-canada-leaves-rates-unchanged-yet-again.html#more

Summary:

This article states that the Bank of Canada is keeping its key lending rate at 1.00%.  This has been the fifth consecutive meeting and the Bank of Canada has definitely surprised many.  The current prime rate is 3.00%.  This is good news for everyone with a mortgage.   Many people foresee that bank increasing its bank rate by the time summer rolls around.  Financial markets and major economists predict 2011’s first bank rate hike to happen on July 19^th. Other forecasts state that the hike will be pushed back to September or October. 

Connections:

This article is related to Chapter 7 because it talks about chartered banks and the bank rate.  A chartered bank is the term used to describe a financial institution operating under the authority of Parliament that accepts deposits and lends money to businesses, government, and households.  The chartered banks in this article are borrowing money from the Bank of Canada.  The bank rate is the rate of interest paid by chartered banks on money borrowed from the Bank of Canada.  The key lending rate is currently lower than the current prime rate. 

Reflections: 

I think that mortgage holders must be extremely happy with the current lending rate at a low of 1.00%.  With a low lending rate comes a low prime rate.  With both being quite low, interest rates on savings accounts would without a doubt decrease. This would cause people to spend more compared to save more because they would be getting less interest on their money.  With all the spending in the economy, there would be a decrease in the level of demand-deficient unemployment.  The persistent strength of the Canadian dollar will certainly help to decrease inflation and in the long run, help restore the economy to capacity by the middle of 2012. 

Virtual Wallets

How long do you think it's going to take to get to all virtual cards? How many years? (1 point)
Why? (1 point)

I think that it will take atleast 10 - 20 years before we get to all vitrual cards.  I think this is the case because we still need to make sure that these virtual cards are safe.  With everyone using virtual cards; credit, debit and identification fraud will definitely be a big factor.  That is why safety and legitimacy is extremely important before these virtual cards actually come into effect.

Who will not be on board with this new virtual wallet? (2 point)

I believe that people who do not like change will be against the new virtual wallet.  To transition from cards and paper money to nothing is actually not an easy task. Many people alike will be against this idea because the change would definitely be too dramatic for them. 

What companies are going to be affected negatively by this? Name 3 (3 points)

I think that small, privately owned companies will be affected greatly because they will not have enough money to purchase the machines for the virtual wallets.  Companies that sell wallets will also suffer because wallets will no longer be needed. 

Which industries are going to make money from this? Name 3 (3 points)

I think that retail companies will benefit from the virtual wallet because consumers will be carrying their entire "bank account" with them through the virtual wallet.  This is cause consumers to spend more because they have all the money they need.  The bank will also benefit because people will be using their virtual cards everyday and the banks will be able to charge fees on activation and transactions.  Lastly, I think that the industries that created this virtual wallet idea will benefit.  They will benefit because they were the ones who created this idea and many people will be buying the machines from them. 

Great Depression Versus Current Recession

Questions to Answer:

1. How did the Great Depression start?

The Great Depression started in the United States when the stock market crashed on October 29th, 1929.  From there, it spread quickly to countries all over the world.  It was the longest and most widespread depression of the 20th century.  Fall in stock prices was what lead to this stock market crash.

2. How did the current recession start?

High liquidity and low interest rates on mortgage loans created a high demand for housing properties.  The U.S sub-prime mortgage crisis indicated that there was going to be a crisis.  Not so creditworthy people received loans from banks and they began to buy homes with this money.  This created a rise in residential property prices.  With this increase in prices, people could no longer pay for their loans.  The banks ended up selling the houses for money leading to further sub-prime customers.

3. How did the government take part following the event? Were/ are they successful attempts?

During the Great Depression, the government spent millions of dollars on various relief programs.  The government also handed out food vouchers, created a form of employment insurance and also tried to create jobs so that the unemployment rates would go down.  I think that the government in the 1930s did what they could with the little money that they had. 

In the current recession, the government is spending billions of dollars trying to help the citizens.  They are reducing the tax burden for Canadians, helping the unemployed, supporting industries and communities and also improving access to financing and strengthening Canada's financial system.  The government is helping the unemployed by building infrastructure to create jobs and also innovating the economy through science, technology and research so that more jobs will be created.  In my opinion, i think that these attempts are pretty successful because they all affect the country as a whole.

4. What factors are present now that were not present during the Great Depression?

In today’s society, there are many more factors that could lead to a recession or even a depression.  Credit cards are a common form of payment and they can easily be misused by some.  Credit cards usually have a high interest rate and individuals who fail to pay their bills on time will be penalized.  This causes them to have bad credit.  Now that they have bad credit, banks will know that loaning money to these individuals may not be a great idea.  The internet is also a great resource that people can use today.  They can monitor their financial assets and also do research regarding stocks. 

5. How did these two affect United States’ GDP?

In the Great Depression, unemployment was extremely high and people could no longer afford luxuries because they were already striving to buy necessities. Since not many people could afford goods, the demand went down causing more people to get unemployed.  This caused an even greater decline in the United States’ GDP. 

In the current recession, demand for goods also went down which also caused the United States’ GDP to go down.  

6. Reflection: in your own words, tell me which one has made more of an impact on the world.

I certainly feel as though the Great Depression has left a bigger impact on the world compared to the current recession.  Unemployment rates were at its highest during the 1930s and we are definitely nowhere near those rates at the moment.  The Great Depression left many people broken, jobless and striving to provide food and shelter for themselves.  Although the current recession is also creating a lot of unemployment among citizens, the government is currently spending billions of dollars on programs to create jobs.  During the Great Depression, the governments had little to no source of revenue to create new jobs so the Depression lasted for at least 10 years.  

Links: 

http://www.heritage.nf.ca/law/gov_response.html

http://www.actionplan.gc.ca/eng/feature.asp?featureId=18

http://en.wikipedia.org/wiki/Great_Depression_in_the_United_States

http://en.wikipedia.org/wiki/Recession

http://en.wikipedia.org/wiki/Great_Depression

Oil Finds New Floor At $100

Article:

http://business.financialpost.com/2011/04/04/oil-finds-new-floor-at-100/

Summary: 

This article is about the rising prices in oil.  OPEC, the Organization of the Petroleum Countries first stated that the original "fair price" of a barrel of oil for both producers and consumers was $75 but now, it has increased to $100 a barrel.  The increased price was supported due to the rising production costs and the higher budgetary requirements.  This increase was largely supported by Saudi Arabia, who is also the leading nation in OPEC. Unrest across the Middle East means that Saudi Arabia’s attention is no longer focused on moderating the oil prices.

Connections:

This article is related to Chapter 6 because it involves aggregate demand.  Aggregate demand is the total demand for goods and services in the economy.  The factor of aggregate demand in this article is price.  The price for one barrel of oil has increased from $75 to $100.  This increase in price can really affect many people.  Since the price of oil has increased, the price of food will most likely increase as well due to transportation costs which would ultimately, involve oil. The increase in price will affect people worldwide.   

Reflections:

I feel as though the components of aggregate demand affect everyone.  With the oil prices rising from $75 a barrel to $100, many people will ultimately decide to take public transport.  Although our country is not in a recession, we are still recovering from the high rates of unemployment and underemployment.  Perhaps Saudi Arabia is currently too distracted with the Libyan rebellions to consider that many people will choose other alternatives of transportation.  This would cause a decrease in oil consumption but it will not really affect it too much because many people will still purchase oil because it is an inelastic good to some.

Canadian Unemployment

Article:

http://www.hrmguide.net/canada/jobmarket/canadian-unemployment.htm

Summary:

Statistics Canada reported that the unemployment rate rose to 7.8% in January even though the employment increased by 69,000 jobs. Our country’s employment rate has increased by 1.9% since January 2010.  Ken Georgetti, the president of the Canadian Labour Congress, stated that the government should pursue policies that would help to create sustainable jobs for the future.  The current job growth in the Canadian economy is nowhere near fast or good enough.  Statistics show that one out of 5 unemployed Canadians (20.1%) had been unemployed for more than 6 months in January 2011! That percentage has almost doubled since 2008 when the unemployment rate was one out of 10 (11.9%).  

Connections:

This article is definitely about the unemployment rate in Canada.  The unemployment rate is defined as the percentage of the labour force that is not working, yet is looking for work.  This means that if an individual has actively looked for work in the last four weeks, they are considered unemployed.  There are quite a few types of unemployment such as frictional, seasonal, structural, insurance induced and natural.  All these could have been the cause of the rise in our unemployment rate. 

Reflections:

I believe that our unemployment rate rose due to seasonal unemployment.  Seasonal unemployment results from the seasonal nature of some industries, such as agriculture, construction, tourism and recreation.  After December ended, many people were probably unemployed once again due to seasonal jobs during the holidays.  With the holidays coming to an end, a rise in unemployment is to be expected in January.  Perhaps the government should listen to Ken Georgetti’s words.  He is right about creating more sustainable jobs because most of the new jobs created are for part-timers only.  This creates an unstable structure for those looking for a long term job because they may decide to keep looking, causing the unemployment rates to stay high. 

HST is not a progressive tax

Article:

http://www.vancouversun.com/news/progressive/3834122/story.html

Summary: 

To say that the harmonized sales tax is disliked is an understatement.  The reason for such hatred is not because it is simply a tax, but because of how it was established and put forward.  The case for such hatred also revolves around  the people who are paying and benefiting from it.  The B.C. government said that they would not bring in the harmonized sales tax during the elections. After the election ended, they went back on their words and brought in the tax.  This enraged many.  Citizens were angered because the revenue raised by this tax would not be going to health care (as was suggested at one point), nor to education or to any of the other social services!  Instead, the money taxed, would be going to big businesses and corporations!  The money would supposedly trickle back down to the citizens eventually but apparently we've been waiting for that to happen to us as well from other taxes that we've paid in the last two or three decades.

Connections:

This article, about the harmonized sales tax, is related to chapter 4 because it is a regressive tax.  A regressive tax, is a tax that takes a larger percentage of the income of low-income people than of high-income people.  The HST applies to food, clothing and shelter and these tend to make up a higher percentage of a lower income consumer's overall budget.  In this case, the tax is applied to everyone whether you have a low income or a high income.  This regressive tax should be removed and replaced with a progressive tax because it will be able to help people with lower incomes. 

Reflections:

I honestly think that the harmonized sales tax should be removed.  I don't think that it is fair for people with a lower income because they aren't even making enough money as it is.  Why should they have to spend even more of their money on this tax that doesn't even go back to them.  Instead, this tax would go to businesses and big corporations!  It's ridiculous.  Why can't the money go to health care (like suggested), education or the other underfunded social services?  Perhaps the government is benefiting from these taxes more than the citizens and that is why they are supporters of this tax.  Perhaps a progressive tax would be more beneficial to everyone.