Bank of Canada governor Mark Carney was on CBC TV today and was again letting us know what some of the signs we are headed for recovery. I have recently blogged about this here, here, here and here but since my quest is to always show the other side of the story that the media shy’s away from here we go:
1) Fiscal policy around the globe has been easing, because there are clear signs that the measures have been taking hold, not the least of which is when global central banks start easing their monetary and fiscal policies they are signaling they are responding to the market improving.
2) He mentions there has been a sharp increase in business and consumer confidence, he also referred to a stabilized real estate market, yes folks it’s true the real estate market has stabilized, better get off the fence.
3) He mentioned sharply dropping business inventories a lot, which I reported from Benjamin Tal’s presentation last week. This is not often talked about but is incredibly important for a recovery, once businesses shed their over inflated inventories left over from the lack of sales brought on by the recession, they will have to start producing more which equals increased productivity and jobs etc, which spells r-e-c-o-v-e-r-y.
In fact in the US although their economy dropped by 6% in the first quarter, which is of course bad, but it is largely due to the massive dropping of inventories to the tune of $103 Billion. It is really akin to the US economy ripping off the band-aid and thank God they are doing it. The faster we shed these inventories the faster we get to recovery. I would rather see a real, real bad quarter, in fact Benjamin Tal correctly called the first quarter of 2009 the darkest hour of this recession and probably the darkest hour since 1945. But it’s over. This was painful but necessary to get us to the recovery point sooner.
4) The most pessimistic analysts and economists are forecasting recovery in lockstep with the Governor. In fact one of the most outspoken negative economists was Warren Jestin from Scotiabank who said on Friday “the worst is over for the Canadian economy and that a sluggish recovery is underway”. You know when the pessimists are saying something is positive, you better believe it.
One side note I thought was interesting, was when the Governor did a reversal from his last interest rate cut announcement, not even a month ago, when he said then that he absolutely would hold the bank rate at it’s current level until June 2010. Today he said “the rate promise is an ‘absolutely conditional promise’ based on inflation remaining tepid.
Thanks Mark, we know your primary job is controlling inflation and you will increase rates to do so. What is telling foreshadowing is that the bank is concerned inflation may come back sooner then many people expect. It will.
Recently I read a blog where the writer said that in 12 months we will be concerned about deflation, not inflation, due to excess inventories as a result of reduced demand, excess labour supply, etc. He is not paying attention. He is speaking about recessionary symptons. As almost every expert says 12 months from now we will not be in a recession, and for many reasons you can read here we will be battling inflation hard.
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