These are stories Report on Business is following Thursday, June 6, 2013.
Wealth at record
Wealth in the United States has hit a milestone.
But, as always, that milestone doesn’t tell the whole story.
U.S. household net worth rose $3-trillion (U.S.) to reach a record $70.3-trillion (U.S.) in the first quarter of the year, according to fresh numbers today from the Federal Reserve.
Also notable is that this was the biggest quarterly gain since late 1999.
Household net worth – the difference between a family’s assets and liabilities – was boosted by stronger markets and higher house prices.
Stocks and mutual funds held by households increased by $1.5-trillion, the U.S. central bank said, while home values jumped by $784-billion.
At the same time, consumer debt burdens declined.
What the Fed report doesn’t show, of course, is income inequality, stubbornly high unemployment or the number of people on the equivalent of food stamps.
As The Associated Press notes, another paper by the Federal Reserve Bank of St. Louis, released just last week, underscored the troubles.
“Average household wealth in real terms, contrary to recent headlines, has not fully recovered; indeed, it is only about halfway back to prerecession levels,” said the paper by Ray Boshara, the director of the regional Fed’s Center for Household Stability, and William Emmons, its chief economist.
“While many Americans lost wealth because of the recession, younger, less-educated and/or African-American and Hispanic families lost the most, in percentage terms,” they said in their May 30 essay, adding that most households have regained less than the average.
Unemployment in the United States stands at 7.5 per cent, with almost 12 million people out of work. The number of long-term unemployed stands at 4.4 million.
And more than 46 million people are part of the Supplemental Nutrition Assistance Program, the modern day equivalent of the food stamps scheme.
Poloz in first public appearance
The new governor of the Bank of Canada sees the global recovery as “more like a postwar reconstruction” that will take time and patience.
Stephen Poloz appeared today before the Commons finance committee and, in his opening statement, at least, gave no hints and didn’t stray from the central bank’s playbook.
The global economy is still struggling, Mr. Poloz told the committee, and it will take time for a sustained rebound, The Globe and Mail's Kevin Carmichael reports.
“Global economic activity is expected to grow modestly this year before strengthening over the following two years,” he said.
“But this is not a recovery in the usual sense. It’s more like a postwar reconstruction. It will require sustained and focused efforts to rebuild global economic potential.”
While Canada came through the meltdown better than most, it was still an unusual recession, with an unusual recovery. But Mr. Poloz does see better times ahead.
“The sequence we can anticipate is the following: foreign demand will recover; our exports will strengthen further; confidence will improve; companies will invest to increase capacity; existing companies will expand and new ones will be created.”
His comments came as both the European Central Bank and the Bank of England held their benchmark rates steady at 0.5 per cent.
- Bank of Canada governor says global recovery like 'postwar reconstruction'
- ECB holds fast as it waits for signs of euro zone recovery
- Kevin Carmichael in Economy Lab: 4 questions for Bank of Canada's Stephen Poloz at committee hearing
Public Mobile sold
The ground continues to shift under Canada’s wireless industry.
Public Mobile, one of the upstarts formed in 2008, said today it’s being taken over by two investment firms, Thomvest Seed Capital Inc., part of the Thomson family, and Cartesian Capital of New York.
This is the latest in a series of developments in the wireless world, following the Canadian government’s decision to nix a deal between Telus Corp. and troubled Mobilicity, another of the new entrants, and a new code of conduct for wireless carriers unveiled by the telecom regulator.
“Despite the current uncertainty in the Canadian wireless industry, Public Mobile’s strong performance and rapid growth continue to attract financial backing from blue chip investors,” said chief executive officer Alek Krstajic.
“This financing is an enormous vote of confidence in Public Mobile’s business and a significant milestone in our company’s history. The support of Thomvest and Cartesian enables Public Mobile to continue the rapid expansion of our subscriber base from a strong and well-funded position.”
Thomvest will be the controlling shareholder in the company, the three said in a statement that projects further turmoil in the sector.
“In the coming months, the Canadian wireless industry will see consolidation, and an important spectrum auction,” said Cartesian partner Paul Pizzani.
- Private equity firms buy Public Mobile
- Ottawa kills Telus-Mobilicity deal
- How Ottawa's plan to foster wireless compeittion sank
- CRTC's new wireless rules let consumers cut the strings on long-term contracts
- Sean Silcoff in ROB Insight (for subscribers): The wireless Plan C is for - and by - consumers
Watchdog slams law
Canada’s privacy watchdog warns today that the country "has fallen too far behind" in protection.
The Personal Information Protection and Electronics Documents Act, Privacy Commissioner Jennifer Stoddart says, is no longer up to snuff and needs to be brought into modern times.
“The protection of privacy is not child’s play,” she says.
“It demands a law that is strong and mature, nuanced and effective,” she adds in her annual report to Parliament.
“PIPEDA, conceived in another millennium, is no longer up to the task.”
Ms. Stoddart, who will soon be leaving after a decade in the job, called for an overhaul of the law, in co-operation with other countries.
“While other nations’ data protection authorities have the legal power to make binding orders, levy hefty fines and take meaningful action in the event of serious data breaches, we are restricted to a ‘soft’ approach: persuasion, encouragement and, at the most, the potential to publish the names of transgressors in the public interest … All told, stronger enforcement measures in PIPEDA would provide incentives for organizations to their responsibilities more seriously in the first place and build in privacy protections up front, knowing that the financial consequences of breach under a stronger regime could be real and significant.”
That’s not to say her group hasn’t made strides. Indeed, it has probed and settled several cases, some of them frightening.
Her report outlines how one company installed software on the laptops it was renting out. This software snooped on the users in terms of collecting data, key strokes and web cam photos. The company agreed to stop and destroy what it had already gathered.
In another case, people with sexually transmitted diseases alleged that a dating website for members with STDs was storing their information in a broader network. The companies in question agreed to make their practices more transparent.
And in yet another case cited, a teenage girl was the target of a phony Facebook account in her name. Some of her friends in the real world “friended” the fake account, which became home to a “barrage” of inappropriate remarks.
Facebook agreed to bring in new measures, Ms. Stoddart says.
She doesn’t expect such threats to ease, but rather probably expand.
“With the astonishing capability of modern computers to collect, store, manipulate and interpret data, personal information has become a red-hot commodity.”
Fiscal standings on better track
Canadian governments could get their financial houses back in order sooner than we think, which could be a plus for them come election time, one of the big banks believes.
That could mean they balance their budgets at a faster pace, or “ease up” on restraint measures, Canadian Imperial Bank of Commerce said today.
“Canadian governments are selling themselves short,” said economists Warren Lovely and Emanuella Enenajor.
“With ample insulation against today’s still-tepid economic climate and prospects of a more forceful 2014-15 global expansion, federal and provincial governments will enjoy some important fiscal breathing room,” they said in a new report.
“In response, deficit elimination timelines could be accelerated, recovering ground given up in the past year. Alternatively, some governments will be in a position to ease up on spending restraint without jeopardizing budget targets, hinting at a less onerous medium-term fiscal drag. Incremental wiggle room also creates scope for new fiscal initiatives that could hold the key to re-election for some.”
They don’t see much change in the 2013-14 fiscal year, but the two years after that are another matter.
Indeed, Mr. Lovely and Ms. Enenajor believe a pick-up in economic growth will shave $30-billion off the deficits of the federal and provincial governments in that two-year period.
“That already sounds impressive enough,” they said.
“But if anything, Canada’s finance ministers could end up being even more pleasantly surprised. Powered by external markets, we see Canadian nominal GDP growth topping 5 per cent in both 2014 and 2015, comfortably north of the weighted average growth forecast built into current fiscal plans.”
While Canada boasts a triple-A rating, better-than-forecast timelines would “defuse a lingering threat” to the ratings of some provinces, they added.
Game of thrones
No, they’re not like the rest of us, but kings and queens are grappling with austerity, too.
In Britain, the royal family has faced cutbacks and the way in which it is paid in the post-crisis era, and is under scrutiny for expenses.
In Spain, according to The Telegraph, King Juan Carlos decided recently to forego the €21-million ($28.4-million Canadian) royal yacht. (I know, right? Unemployment in Spain is at 27 per cent.)
And now, the royals of Belgium are going to have to pay taxes for the first time, Reuters reports.
This follows a controversy surrounding Queen Fabiola and her reported plans to skirt taxes via an estate transfer.
According to the report, the queen’s funding will also be slashes to €450,000, or some $590,000 U.S. from €1.3-million. (I know, right?)
Back to the Commonwealth, here’s what the Monarchy says on its official website: “The Monarchy has sometimes been described as an expensive institution, with Royal finances shrouded in confusion and secrecy. In reality, the Royal Household is committed to ensuring that public money is spent as wisely and efficiently as possible, and to making royal finances and transparent and comprehensive as possible.”
Streetwise (for subscribers)
- 4 questions for Bank of Canada's Stephen Poloz at committee hearing
- Why Bitcoin doesn't have what it takes
ROB Insight (for subscribers)