Monday, December 20, 2010

Pen Meets Paper Dec.20'10

Opinion by Helge Nome
Many Albertans live in a fool’s paradise, in spite of warnings from Bank of Canada Governor, Mark Carney that the debt levels carried by Canadians are very high and that there is no guarantee that interest rates will remain very low forever. Older folks remember the carnage wrought by spiking interest rates in the 1980s when a lot of people walked away from their houses and gave the keys to the bank.
We have been conditioned, yes, conditioned, or more crudely put, brainwashed, into the belief of perpetual growth. People that graduate from universities with degrees in economics are the worst because they are leading the rest of us down the tunnel of ignorance to a dead end. Perhaps we shouldn’t blame them because they had blinders put on in elementary school and were led down the garden path all the way up to and including their graduation from university.
The problem is that we want to believe in perpetual growth and are literally groping for information that will support this fallacy and ignoring information that does not. This explains what happened in the real estate market prior to the 2008 crash. It was thought that property values would continue to increase generating perpetual profits for those that were buying and selling real estate. The big winners were not the people that were buying and selling, but the people that financed these transactions by way of interest bearing loans. And as the prices went higher and higher the interest rates went down, creating the illusion that repayments were manageable. What was conveniently forgotten was that good paying jobs were needed to make those payments; jobs that disappeared when the bubble burst in 2008.
Now the buzz in Alberta is that “the oilpatch will boom again”. There have been massive investments in oil properties by transnational corporations and sovereign wealth funds. Our oil sands are the main target of these extractive enterprises because of the current relatively high price of oil.
We Albertans should know better than rely on this in planning our future. Boom and bust is the story in Alberta, going back a hundred years. We should remember that the price of energy depends on factors we have no control over, and it could plunge overnight. This has already happened with natural gas because relatively shallow shale formations gas can now be recovered at low cost due to improved extraction technology. This has depressed the price of gas to the point where it is becoming uneconomical to produce it from deeper formations. The US is now becoming increasingly independent by supplying gas from local sources, leaving Alberta gas in the lurch. Oil is more of a world commodity than gas because of its ease of transportation, but the world economy is very shaky at this time with big financial troubles brewing in Europe.
So, Mark Carney, if you increase interest rates, you may have to print the money to make up the difference between old and new interest rates, because we, your humble subjects, will likely have problems in just paying our regular bills.

1 comment:

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