Decoupling

[Kidlicious]

Originally posted by KrazyHorse


You can't read a chart, can you...look at the 2001 cycle. We never underwent a contraction at all. You guys underwent a classic peak then contraction.

You will this time.

[KrazyHorse]

That is possible, but given the pattern so far, we're following 2001, not any of the earlier cycles.

[RedFred]

That is part of the answer.

But the federal gov't has gotten its house in order running surpluses since the early nineties. Also the banks and insurance companies are regulated somewhat differently than in the US and have suffered less as a result. And most Canadian companies balance sheets are in better shape heading into this recession than in previous ones. And the behemoth economies of China and India will mean commodities can't fall as far and as fast as was the case when the US dominated the world economy to a greater extent...

I don't like the small black daal though. Oh, the taste is fine. But each one is the same size as small pebbles which somehow get mixed up in them, so you have to sort very carefully.

[DanS]

Originally posted by RedFred
And the behemoth economies of China and India will mean commodities can't fall as far and as fast as was the case when the US dominated the world economy to a greater extent...

That's a patently ridiculously thing to say at this time, what with the price of oil dropping 60% in the last 3 months.

[KrazyHorse]

It may be that energy extraction involves higher fixed costs and lower operating costs than other types of commodity production. This would tend to mediate volatility in the labour market expecially, because as long as the contraction is significantly shorter than the lifetime of these projects low prices don't persist long enough to cause a contraction in our energy sector (in terms of labour at least; dollar value of output drops immediately with a changed price).

[The Mad Monk]

There could be several reasons.

Canada certainly has been recieving windfalls from the oil industry, has it been using those funds to develop infrastructure? That takes a lot of people, and you do have a lot of territory to develop. It would also be less coupled to events in the US.

Another possiblilty is expansion into new industries or revitalization of old ones. Is your service sector expanding? What about high tech, transportation (say, shipbuilding), or tourism? Granted, these would be more closely coupled to the US, but expanded internal consumption might account for it.

Then, of course, there's good old fashioned government.

[KrazyHorse]

Originally posted by The Mad Monk
There could be several reasons.

Canada certainly has been recieving windfalls from the oil industry, has it been using those funds to develop infrastructure?

No. Alberta gets most of the direct profits from extraction (the federal government, AFAIK receives 0 royalties).

[Kidlicious]

Jobs were still created in Alberta. That's not likely to continue though.

[Kidlicious]

The only way the price of oil can not fall during a recession is if there is a significant reductions in availability. That happened in 74', 79' and 91'. I doubt if oil production is going to decrease, because producers will likely try to get profit while they can. IMO, it would be stupid to let others get your profit and cut back.

[RedFred]

Originally posted by DanS


That's a patently ridiculously thing to say at this time, what with the price of oil dropping 60% in the last 3 months.

Still sleepy this morning? Several rebuttals: 1 is that oil is far from the entire commodity market, 2 is that the hedge funds were betting heavily on higher oil prices and they accerated the price movement both on the way up and on the way down, and 3 is that I said the price fall would have been larger if not for other economies, not that it was not large.

[KrazyHorse]

Originally posted by Kidicious
The only way the price of oil can not fall during a recession is if there is a significant reductions in availability. That happened in 74', 79' and 91'. I doubt if oil production is going to decrease, because producers will likely try to get profit while they can. IMO, it would be stupid to let others get your profit and cut back.

Thankfully, OPEC is stupid (though technically they have sufficient pricing power to actually benefit themselves by doing this)

[Victor Galis]

Originally posted by KrazyHorse


You can't read a chart, can you...look at the 2001 cycle. We never underwent a contraction at all. You guys underwent a classic peak then contraction.

I don't think Canada had the massive boom due to the internet bubble. What you might be seeing is steady non-bubble growth then the lack of said bubble popping. Or possibly I don't know enough to come up with something better.

Commodity prices rise during expansions. Over-reliance on commodities would imply a stronger cycle for the Canadian economy, not weaker. This was the classic pattern observed up into the 90s. Something has happened since then.

Maybe my theory isn't that crazy.

It may be that energy extraction involves higher fixed costs and lower operating costs than other types of commodity production. This would tend to mediate volatility in the labour market expecially, because as long as the contraction is significantly shorter than the lifetime of these projects low prices don't persist long enough to cause a contraction in our energy sector (in terms of labour at least; dollar value of output drops immediately with a changed price).

Actually, I suspect part of the problem is that the marginal cost of expanding production shot up because everyone was trying to do that at the same time and the industry that produced the equipment and such that oil companies needed hadn't yet expanded production. As a result production didn't actually expand as much as sky-rocketing prices would normally lead to. So when prices fell to a more sane level there wasn't a cutback because the production expansion had never been that massive. Instead for a few months the companies just made a killing selling resources for a lot more than normal.

Thankfully, OPEC is stupid (though technically they have sufficient pricing power to actually benefit themselves by doing this)

Free riding off OPEC

[Kidlicious]

Originally posted by KrazyHorse


Thankfully, OPEC is stupid (though technically they have sufficient pricing power to actually benefit themselves by doing this)

Actually causing oil shocks is stupid. The Saudi's take a long run approach now. They've been hoping for lower prices during the current boom because price spikes only hurt them in the long run.

VE is the one really pushing for cut backs and I doubt anyone thinks they will hold up their part of the bargain anyway.

[Victor Galis]

Originally posted by Kidicious


VE is the one really pushing for cut backs and I doubt anyone thinks they will hold up their part of the bargain anyway.

Of course they will. Underinvestment in their oil industry will push their output down whether they'd really like to cheat or not.

[Kidlicious]

Originally posted by Victor Galis


Of course they will. Underinvestment in their oil industry will push their output down whether they'd really like to cheat or not.

It was probably better not to invest in their oil industry. The extra oil wouldn't have been cheaply produced.