The most important business stories of 2012
With the gifts open and dispersed, the wrapping recycled and the turkey picked over, it’s a time for reflection.
Every year there are certain business stories that define it. The overarching theme for 2012 has been stories that — to be blunt — largely miss the point. Like icebergs, the really big stories this year are submerged and far bigger and deeper than they appear on the surface.
Among them are the following — in now particular order:
1. Cliff hanger
That’s the most apt description of the political impasse that has left the United States economy dangling at year-end. Obama may have won the battle but he’s in danger of losing the war.
That’s why he cut short his Christmas vacation to attempt an eleventh hour agreement that would avoid sharp increases in taxes and corresponding cuts in government spending with the Dec. 31 expiration of the 2010 Tax Relief Act and the Budget Control Act of 2011. The end result — the reduction of the massive U.S. deficit — may be commendable, but such extreme measures are generally expected to cause a recession or at least slower economic growth.
Treasury Secretary Timothy Geithner made his own contribution to the high state of drama by suddenly alerting Congress in the midst of all this that the U.S. government is set to hit its borrowing limit on December 31. He said the Treasury would take “extraordinary measures as authorized by law” to keep the government operating for another couple of months. But after that, all bets are off.
From the outset, however, what really counts in this intensely political showdown is the subtext: it demonstrates how deep the partisan fissures run through the U.S. government and how easily the most routine matters of state can be transformed into destructive divisions. And more than anything, that has dire implications for the country’s longer-term prospects — economically, politically and geopolitically. And when it comes to collateral damage, Canada is at the top of the list.
2. The magnificent Mr. Carney
The Governor of the Bank of Canada caused quite a stir with the announcement he’s leaving well before the end of his term to take the helm of the Bank of England.
The announcement ignited immediate speculation about his possible successor, followed only a little less immediately by gossip about Carney’s possible interest in politics, specifically the leadership of the federal Liberal party. His vacation visit to the summer home of Liberal MP (and former Tory) Scott Brison caused quite a stir on both sides of the Atlantic. Of course, there’s also the fact that Carney’s wife, Diana, has been publicly attached to an Ottawa group, Canada 20/20, that’s well-known for the number of former Liberal staffers among its ranks.
Lost in all the petty drama, however is the real story. Carney’s consistent hectoring over the past few years finally appears to be having an effect on a far more significant business story: the excessive household debt burden borne by most Canadians.
One important indicator of progress on that front is that over this past year, the number of fixed-rate mortgages has doubled to 90 per cent, suggesting that Canadians are ready to forego the gamble of traditionally cheaper variable rate loans and are preparing more broadly for a potential increase in interest rates. The growth in household debt has also slowed from an average annual rate of 10 per cent to a more manageable four per cent.
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