Category Archives: Employment

Economic Theory Run Amok

For economics buffs out there (is there really such a person?) and those of you who are really just trying to figure out why the world is so messed up, I have to recommend a paper by Dan Ciuriak and John Curtis called What if Everything We Know About Economic Policy is Wrong?

Ciuriak and Curtis take a look at the current global economic situation and examine how Economic Policy has failed. They contrast the promises of Trickle Down Theory with the actuality of recession, high unemployment and government debt.

Download the pdf here for free.

I recommend that you print off a copy and hand deliver it to your local member of parliament, congressman or other favourite member of the political beau monde.

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Filed under Economics, Economy, Employment, Finance, How It Works, Inflation, Regulation, Uncategorized

How to Get a Bigger Paycheque

Have you ever heard of a Source Deduction Waiver?

Every payday your employer deducts the amount of  tax set by the Canada Revenue Agency. This money is applied against your annual tax bill.

But not everyone has the same income tax circumstances. There are people who have significant deductions, like monthly RSP contributions, child care expenses, or even deductible investment loan interest, which often result in a sizable tax refund each year.

If this describes your situation, you might be eligible for a Source Deduction Waiver. A source deduction waiver means that your employer could deduct less tax from your paycheque each month. If that’s the case, it will mean that you won’t receive a huge refund at the end of the year, however you will get more money every payday.

While it does feel nice to get a big refund every spring, you have to remember that this refund is your own money, which you have given to the government as an interest free loan for the past twelve months. I am sure you could come up with better ideas than of what to do with a little more money every month than the government does.

For the proper forms, go to the Canada Revenue Agency website, www.cra-arc.gc.ca, and search for form T1213.

If you are up to date on your taxes, the government will calculate the proper amount, and authorize your employer to reduce the tax withheld. Please remember that this is not automatically renewed, you do have to reapply each year.

Put a little more money in your own pocket next year.

 

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Filed under Employment, Saving, Taxes

Financial Train Wreck

Stephen Roach, chief of Morgan Stanley’s Asia unit, says that Asian economies will not be able to withstand the “Tsunami” of American cash which Bernanke is flooding into the financial markets.  http://www.bbc.co.uk/news/business-11756677

American fiscal policy is a train wreck that is set to sideswipe the rest of the planet. The little guys are likely to get squashed.

I see inflation becoming a threat before the global economy has had time to fully recover from the recession. We could be facing a period of stagflation which would be as bad or worse than what we have seen so far. It would most certainly drag out the jobless recovery in the US for a very long time.

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Filed under Economy, Employment, Finance, How It Works, Inflation, interest rates, Recovery, Stock Market, Uncategorized, US Debt, US Dollar

Is it over?

Last night I was meeting with clients, and once again I was asked the big question.

Is the recession over yet?

This is one of those questions where the answer depends on where you are standing.

In the world of economics there are leading indicators, lagging indicators, and current statistics and reality. They may all be very different things. We see patterns in the data, and some people try to make predictions based on past experience. Forecasting can be a deadly game, and you are sure to get shot down by someone who is blessed by 20/20 hindsight. Also all forecasts are subject to bias. Are you a cup half full, or a cup half empty type of person?

What I will say at the moment, is that given the current situation, it looks like we might be on the road to a gradual recovery. The Bank of Canada has declared the recession over in Canada, the EU is optimistic, and the US believes that they are beginning to turn around.

But my client’s unspoken question was “when will I see a recovery”. Firstly, remember that during past recoveries, we have progressed in “two steps forward, one step back” fashion. There will be ups and downs as we wander in a generally forward direction.

So we have to ignore the day to day hysteria of the business channels who spend the day trumpeting some piece of useless news as the stock market rises, only to beat their chests and tear their hair out the next day as the market falls 50 points, and they cry crocidile tears over today’s dire statistics which are an obvious indication that the experts were wrong, and the sky is indeed falling. Hog wash. They need to garner ratings. They need the next breathless piece of news to justify the fact that they are taking up valuable airwaves 24 hours a day.

When the markets began to fall last year, I began to talk about the pattern we normally see in these situations. Usually, you can expect the market to fall to a certain (unfortunately unknowable) point. Then we would expect to see a period of time where the market kind of bounces along the bottom. When things begin to look better, the markets will begin to turn upwards in a two steps forward, one step back dance, as we see a gradual return to normalcy.

TSX Oct 27,2009

So far, so good. But the stock markets are not the real world.

Stock markets are generally a device for forcasting the future profits and profitablity of a company. So a stock price is the assumed future value of the income which a company is expect to produce. The markets will usually be 6 to 9 months ahead of the real economy.

Since the markets began to turn around in April, if history repeats itself, this would indicate that somewhere in the next few months we should begin to see the real economy begin to improve. Business should pick up, inventories will need to be replaced, total sales should improve.

Now employment is a different thing. Employment is a lagging indicator. Companies will wait until their business has picked up, and the order books are full before they begin to hire people back. Many companies delay hiring until they are spending too much on overtime, and hiring new staff or recalling old staff from layoff is more economical. Normally this will be 6 to 9 months after the general economy begins to improve.

So for the average person, the recovery will become a reality when everyone is back at work, and everyday life is back to normal. That is going to take a little while yet.

Barring any horrible setbacks, right now we can say that we are headed in the right direction, and so far things are proceeding according to historical norms. Fingers crossed.

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Filed under Economy, Employment, Investing, Recession, Recovery, Stock Market