Us Double Dip Recession And What This Could Mean For Canadian Mortgage Rates

US Fears of a Double Dip recession are slowly becoming a reality

. Based on Data released on Housing, Employment, construction and manufacturing it is becoming quite clear that things will more likely get worse before they get better with the world's largest economy facing a huge uphill battle.

One of the main indicators is housing sales which had a 30% month over month decline which happens to be the largest on record. US Unemployment numbers spiked month over month as well so the employment market will remain under stress for some time.

The recovery we thought we had was not accompanied with job growth which is needed for long term growth. A jobless recovery is not practical or likely and the stimulus spending has done nothing more than create a short term recovery. With western governments preparing to tighten their spending and reduce deficits the economy has a chance to remain stagnant, but more than likely will decline.

What does all this mean for Canada, a country that has done relatively well during this crisis and subsequent recession. Well history can tell us that Canada is usually one to two years behind the US since most of our exports go to the US. If this assumption is true then Canada has not really hit the bottom yet. So further economic declines will keep inflation low with a period of deflation possible. Giving the Bank of Canada no reason for to raise rates in the short term with very modest increases possible in the foreseeable future.

One could argue that Canada will find other trading partners and while that is true it will not happen overnight and even the other trading partners are facing similar challenges. Did we not prove in the financial crisis that when the US sneezes the world catches a cold?

So with the majority of the western hemisphere in decline and China feeling slowing pressure on their economy which many countries hoped that China will lead the world out of this recession, it is foolish or naive to think that Canada can go on without feeling the effects of the rest of the world.

If housing prices start falling as predicted it will only prolong the recession because housing has the single biggest psychological effect on consumers and when house prices go down spending goes down and savings go up.

Canada will have to cut deficits which have already wiped out ten years of repayments in one year and with an aging population of two million climbing to ten million in the next decade it is hard to imagine how they can do this when they barely accomplished debt repayments at the best of times. Are we really that far behind Greece?

Hind sight is always 20/20, but it would have been nice for our politicians to pay down more debt when they were over taxing us and running huge surpluses instead of going on spending sprees.

The only way the government will accomplish the needed reductions in debt is to slash spending on government programs, benefits and ultimately tax increases. My biggest fear is they usually go for the tax increases first because it is easier to deal with the public than deal with the public sector unions. Once again putting strain on our purchasing power which does not help the economy one bit.

Have we not already seen some tax increases (HST)? As a Canadian we all must take part in correcting this mess which will result in short term pain for long term gain but most of all we must hold our politicians responsible for the mess they created and demand more long term vision and accountability.

We must stop frivolous government spending, corporate welfare and funding special interests groups that do not represent or benefit the masses. We must demand that government sector workers pay and benefits stay in line with what's going on in the private sector and only then will this disconnect between the two stop.

This entitlement that society feels combined with I must have it now thinking, short term vision and the belief that it can go on forever is what brought us here today. It will get better and if everyone takes some responsibility the world will be a better more responsible place.

by: Paul Mangion

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