The rattling sound of falling economic dominoes grows closer to home with each passing day. When it was Greece and Venezuela, we shrugged like the good Cynical Realists we increasingly become with each passing day. “Give it up Jake, it’s Athens/Caracas/Chinatown.” Then it was Puerto Rico. At this point even, the deniable still existed. All of these countries were small and struggled to field an A-Team economy.
But what about larger economies? China’s main equities market in Shanghai is now tracking the 1929 DJIA according to CNBC. Again this is half way around the world and still at least technically a communist country. Excuses abound. Just like with Canada. Oh, Wait….
The Governor of the Bank of Canada (BOC), Stephen Poloz, was not kidding when he warned that the first quarter of 2015 would be “atrocious.” After a respectable fourth quarter in 2014, the Canadian economy took a turn for the worse: domestic demand fell by 1.7%, owing to a huge drop in business investment, while the other components of GDP barely registered positive results (see Chart 1).
So nobody is buying Canadian exports, the prices of commodities are falling and efforts to weaken the Canadian Dollar (AKA The Loonie) are not magically generating more aggregate demand. Like the magical phrases in the Harry Potter novels, the Keynesian Voodoo is not having its mythological effect.
The point of all of this, and why it should be of increasingly noticeable concern to the people in charge of the US Economy, is that economies such as China and Canada are a lot bigger and more consequential than Greece, Venezuela and Puerto Rico. China and Canada are major business partners. When your major business partners lose business, you lose business. Had we taken care of business on the Keystone Pipeline Deal, Canada wouldn’t be in this fix quite as badly.
Eventually, we will get our turn to get pulled through the knothole. All socialists eventually run out of other people’s money. There seem to be fewer and fewer other people with money with each passing day. California, Illinois, Rhode Island, Alabama, and numerous other states are not self-regenerating economies. Keynesianism is not the alternative to austerity. It is increasingly the root cause and source thereof.