Financial restructuring: Implications of recent Canadian macroeconomic developments

Studies in Political Economy

Volumn , Issue 82, 2008, Pages 61-83

  Baragar, Fletcher ^a   Seccareccia, Mario ^b  

^a UNIVERSITY OF MANITOBA   (Canada)

^b UNIVERSITY OF OTTAWA   (Canada)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 58649113874     PISSN: 07078552     EISSN: None     Source Type: Journal    
DOI: 10.1080/19187033.2008.11675064     Document Type: Article

References (42)

1. See Ricardo Grinspun and Yasmine Shamsie, (eds.), Whose Canada? Continental Integration, Fortress North America and the Corporate Agenda (Montreal & Kingston: McGill-Queens University Press, 2007).
2. See Riccardo Bellofiore and Joseph Halevi, "A Minsky Moment? The Subprime Crisis and the 'New Capitalism,'" in C. Gnos and L.-P. Rochon, (eds.), Credit, Money and Macroeconomic Policy. A Post-Keynesian Approach (Cheltenham: Edward Elgar, forthcoming, 2008);
3. Till van Treeck, "The Political Economy Debate on 'Financialisation' - A Macroeconomic Perspective," Institut für Makroökonomie und Konjunktursforschung, Working Paper 01 /2008 (Düsseldorf. Hans Böckler Foundation, 2008);
4. the various contributions in Gerald Epstein, (ed.), Financialization and the World Economy (London: Edward Elgar, 2005);
5. and, among many others, Greta R. Krippner, "The Financialization of the American Economy," SocioEconomic Review 3 (2005), pp. 175-200.
6. Some of the most important and innovative research has been carried out in the United States at the Levy Economics Institute. See, for example, Wynne Godley, Dimitri B. Papadimitriou, Greg Hannsgen, and Gennaro Zezza, "The U.S. Economy: Is There a Way Out of the Woods?" Strategic Analysis (Levy Economics Institute of Bard College, November 2007).
7. Following conventional national accounting and flow-of-funds analysis, net private sector savings, net public sector spending, and net foreign spending must all sum to zero when accounting for the aggregate net financial flows in an economy. A surplus (deficit) in one sector must necessarily be matched by a corresponding deficit (surplus) in the sum of all the other sectors of an economy.
8. Research by one author has shown that, based on flow-of-funds data spanning almost a halfcentury, the consolidated government balance in Canada essentially mirrors that of the household sector. See Mario Seccareccia, "Growing Household Indebtedness and the Plummeting Saving Rate in Canada: An Explanatory Note," Economic and Labour Relations Review 16/1 (July 2005), pp. 133-151.
9. This is the local macroeconomic context in which the ongoing financial turmoil plaguing the world economy has visited Canada. Indeed, this imbalance of the household and corporate sectors is very much a continental phenomenon. In the United States, a similar situation exists (i.e., household sector deficit, corporate sector surplus), but unlike Canada, the US government sector is running a massive negative balance. For the United States, this is offset to a considerable extent by its current account deficit (reflected in the positive net flow of foreign sector savings).
10. The data can be found in the Department of Finance, Fiscal Reference Tables (Ottawa: Department of Finance Canada, 2007), and from Statistics Canada's National Income Account Data Tables available on the Statistics Canada website (accessed 27 June 2008).
11. Also see Conference Board of Canada, "The 2008 Federal Budget: The End of Surplus," at .
12. Statistics Canada, CANSIM II series V37289.
13. See Hyman P. Minsky, Stabilizing an Unstable Economy (New Haven, CT: Yale University Press, 1986).
14. For an early application of some of Minsky's ideas to the Canadian economy, see Mario Seccareccia, "Systemic Viability and Credit Crunches: An Examination of Recent Canadian Cyclical Fluctuations," Journal of Economic Issues 22/1 (1988), pp. 49-77;
15. as well as a critique of an important aspect of Minsky's theory in Marc Lavoie and Mario Seccareccia, "Minsky's Financial Fragility Hypothesis: A Missing Macroeconomic Link?" in Riccardo Bellofiore and Piero Ferri, (eds.), Financial Fragility and Investment in the Capitalist Economy: The Economic Legacy of Hyman Minsky 2 (Cheltenham: Edward Elgar, 2001), pp. 76-96.
16. A recent newspaper article states that banks in the United States reported "nearly 53,000 cases of suspected mortgage fraud" in 2007 (up tenfold from 2001 and 2002), and that between March and mid-June 2008, more than "400 U.S. real estate industry players have been indicted." See Lara Jakes Jordan and Alan Zibel, "U.S. Indicts Hundreds of Industry Players in Mortgage-fraud Sweep," The Globe and Mail (20 June 2008).
17. On 19 June 2008, Ralph Cioffi and Matthew Tannin, late of Bears Stearns, were indicted "on conspiracy and securities and wire fraud charges" in what could be the first of "a wave of prosecutions" of Wall Street players "related to the meltdown in the housing market." See Tom Hays, "FBI Charges Pair in Subprime Debacle," The Globe and Mail (20 June 2008), p. B7.
18. Quoted in Glen Somerville and John Poirier, "Bank Woes Will Worsen, Kohn Warns," Financial Post (6 June 2008), p. FP7.
19. Statistics Canada, CANSIM II series V39050, V39072, V39073, and V39074.
20. Statistics Canada, CANSIM II series V646928.
21. The profit rate is calculated as the ratio of corporate profits to the value of the capital stock of the business sector. The figures used for the value of capital stock are the year-end price of the capital stock after allowing for geometrically calculated depreciation. Profits and the value of the capital stock are expressed in current prices.
22. Statistics Canada, CANSIM II series V1992052.
23. Statistics Canada, CANSIM II series V498927.
24. Statistics Canada, CANSIM II series V122270.
25. Statistics Canada, CANSIM II series V122276.
26. Allan Robinson, "Financing Deals Plummet 23% in First Quarter," The Globe and Mail (3 June 2008).
27. Statistics Canada, CANSIM II series V1409153.
28. René Morissette, "Earnings in the Last Decade," Perspectives on Labour and Income (February 2008), p. 13.
29. Morissette, "Earnings," p. 18.
30. Statistics Canada, CANSIM II series V1802965.
31. Statistics Canada, CANSIM II series V2461245.
32. Market income consists not only of labour income (i.e., wages, salaries, benefits) but also property income, such as profits, rents, dividends, and interest earnings.
33. Statistics Canada, CANSIM II series V1542413.
34. Statistics Canada, CANSIM II series V1554031.
35. Statistics Canada, CANSIM II series V122620.
36. Statistics Canada, CANSIM II series V498187.
37. As an indication of this trend, the new housing price index has increased from 114.1 at the beginning of 2003 to 158.4 as of March 2008, an increase of almost 40 percent in just over five years. The monthly data for the new housing price index is available from Statistics Canada, CANSIM II series V21148160.
38. Statistics Canada, CANSIM II series V122736.
39. Statistics Canada, CANSIM II series V36408.
40. See Raj K. Chawla, "Personal Debt," Perspectives on Labour and Income (January 2007), pp. 28-34.
41. Capacity utilization rates in the first quarter of 2008 had dropped to 79.8, which is the lowest level since 1992. Following the recession of 1991, capacity utilization rates through the first three quarters of 1992 rested at 78.6. See Statistics Canada, CANSIM II series V4331081.
42. Cf. Mario Seccareccia, "Keynesianism and Public Investment: A Left-Keynesian Perspective on the Role of Public Expenditures and Debt," Studies in Political Economy 46 (Spring 1995), pp. 43-78.