My thoughts on the economy

In almost every case when I gather with people this holiday season, the talk eventually turns to the economy. So I guess I'll wade in now.

We have the power to manifest whatever kind of economy we want. How is that possible? Our economic system is now very much based on speculation. And who does the speculating? We do. While market forces do affect the prices of the things we consume, there's much more influence by the media and public perception. Just look at the price of gas for example. There are no fewer cars filling up at the pumps, no additional refineries built to produce gasoline, yet the overall price of gasoline has dropped to its lowest level in over 4 years. Why? Because the demand for gasoline is perceived to be on the decline, due to fewer people buying vehicles etc. But you'll likely find that actual consumption of gas year over year has not declined at all. I wish I had figures to back that up, but I digress.

It's not much different with the housing market. Many would-be sellers are currently sitting on their properties, waiting for the right time to sell. This is because most would-be buyers are convinced that house prices will continue their downward trend before they start rising again, so there's no point buying for an inflated price. A home that might have been worth $150,000 ten years ago in Calgary is valued at $425,000, but we know its true value is probably much less - closer to $300,000. So banks are even hesitating to lend you the money to buy a house. Because the last thing people need is to buy a home at an artificially inflated price and then owe more on the home than it is actually worth once prices stabilize. Unfortunately, things will not turn around until.... you guessed it.... the demand for homes rises again. This will not happen until.... right again... people start buying. The point here is that we are very much in control of what direction our economy will go from here. If we continue to stand around like a deer caught in the headlights, the economy will indeed continue to slide. It's a self-fulfilling prophesy.

I watch on TV as retailers moan that their bottom line is suffering so badly, while behind the moaners we see views of lineups of customers at the cash register with big screen TVs and Blue-Ray DVD players and Wiis on Boxing Day. Yeah, but - their revenues and profits are down a little. They should never be going down! Give me a break. The fact that big screen TVs are selling at all should be telling us something. The economy is just fine thank you very much. A little bruised in the ego, but chugging along nonetheless.

So what does it all mean? It means that we owe it to ourselves to plan the journey ahead carefully. I say no to bailouts. This will only prolong the agony. If an industry is destined to fall, it will fall and the market will pick up the pieces. I do not buy into the argument that the survival of the domestic auto industry is vital to the survival of the economy. If it's suddenly impossible to buy (and more importantly - to service) Ford and Dodge and Buick, people will instead buy Honda and Toyota and Volkswagen. This will create new demand for foreign cars and will force these automakers to set up more shops in North America, to get the product to market sooner - which recoups many of those lost jobs. Foreign car companies can... oh I know... use the same factories that were being used to build domestic cars, just re-tooled to make different vehicles! And hire some of that workforce back too. I admit - some of those jobs are lost forever, because the domestic car cartel wasn't operating at maximum efficiency in the first place. That's the price we pay for propping them up in the first place. You can pay now or you can pay later, but either way, you're gonna pay.

We should not fall into the trap of lowering lending standards so that more people can afford a home - it's a game of smoke and mirrors. We should not be tempted to abandon the stock market now that the bottom has fallen out, because eventually, the stock market will increase again - it always does. I do believe that the one lesson we should all be taking away from the stock market fiasco is that nobody should be blindly buying investments without doing a little bit of research into what they're buying. Crap wrapped in gold aluminum foil is still crap. Also, always remember what your investment strategist said - you're in it for the long haul.

If the government is to bail anyone out at all, it should be to assist those most affected by the current pause - the poor, the elderly, the unemployed, the pensioners. Now is the time to operate budget deficits for the right reasons - to develop new jobs in the industries that need them most and will never lose market value over the long term: health care, renewable energy, and manufacturing for domestic use.

The last thing we need right now, is panic. Those are just my thoughts.