Economic Crisis Goes Mainstream

In an unusual move, the Bank of Canada issued this week a warning to Canadians on the issue of their indebtedness. In a video entitled “The risk of household financial stress and a sharp correction in house prices”, the Senior Policy Advisor of the Bank, Joshua Slive, talks about the risks highly indebted households are facing in the case of an economic crisis and a correction of property prices.

According to Mr Slive, the large Canadian banks will be able to handle even a large drop in property prices. He does not specify, what he means by “a large drop” – 10 %, 20 %, or more? It is also interesting that, while he is worried about indebted Canadians, he does not worry about the banks that loaned them the money. It is enough to take one look at the Italian banks, in order to see what hapens when a large number of people and businesses default on their loans. Italian banks are dealing with a total of €360 billion of nonperforming loans, which is causing significant instability in the banking sector, to the extend that the third largest Italian bank, Banca Monte dei Paschi di Siena, had to be nationalized by the Italian government, in a last-ditch effort to save it. As Forbes’ John Mauldin writes: “Estimates are that Italian banks may need €40 billion just to remain solvent.” This is what happens when a large percentage of businesses and individuals stop paying their debts.

In yet another surprising article, the Canadian Broadcasting Corporation published the opinion of Scott Reid, who served as Director of Communications to the former Canadian prime minister Paul Martin. In his article, Mr Reid mentions “Four reasons to despair about 2017”. And, while one might not agree with each and every one of his points of view, the mere fact that an article called “Think 2016 was bad? 2017 will be worse” was published by a mainstream media organization shows the changing point of view of people. It is becoming more and more difficult – after Brexit, Trump and the Italian referendum, among others, – for media to ignore the dissatisfaction of ordinary people and the hopelessness of many young Canadians.

Canadians are dissatisfied with the reality of low-paying, part-time, precarious employment. One way to deal with this is having as little debt as possible, and trying to be as self-sustainable as possible. Having lived through tough times, I realized that surviving is not always about how much you make, it is about how much you spend and how much you owe. It can make the difference between living, relatively good, through the difficult periods, or struggling and even losing everything.

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A New Way of Thinking

A new way of thinking about the uncertain future includes many aspects – from the way we live our lives, through how much we spend, to how much debt we carry, and even what education we, or our chidren, should get.

Let’s start in this blog post with the issue of education. It used to be that, getting a post-secondary degree – any degree – meant having significantly better chances for a stable, well-payed job. This notion came, at least in part, from the previous industrial revolutions, which replaced primarily low-skilled factory workers with machines, whereas white collar jobs were not affected as much by automation. Unfortunately, this is no longer the case.

According to a much discussed research by Oxford University, about 47% of jobs in developed countries, and up to 85% of jobs in developing countries, are threatened by automaion and robotization. The following are some of the jobs most likely to be affected by robotization during the next 10 to 20 years:

  1. Loan officers

  2. Receptionsts

  3. Paralegals and legal assistants

  4. Retail salespersons

  5. Taxi drivers

  6. Security guards

  7. Cooks, fast food

  8. Bartenders

  9. Personal financial advisers

  10. Reporters and correspondents

  11. Musicians and singers

  12. Lawyers

And the list goes on, including a total of 700 jobs and their risk of being replaced by a robot.

Did you notice all the jobs that require post-secondary, even university, education? Jobs like paralegals, loan officers and personal financial advisers, reporters and even lawyers? Most of those used to be good, well-payed jobs that people would work for their entire lives, providing for their families. These were also jobs that offered good working conditions, benefits and a pension. Well, not any more. And this is what’s different today, compared to the last industrial revolution.

Paralegals and legal advisers are already being replaced by websites such as “Rocket Lawyer” that offer free legal services in numerous countries. The job of lawyers themselves is getting replaced by computer programs capable of “reading” through enormous amounts of legal documents, in a fraction of the time this would take even a team of legal assistants or lawyers, and for a fraction of the cost. This means less work for lawyers, and more competition for the contracs available.

The job of reporters is also being done by computer software, even today (AP’s ‘robot journalists’ are writing their own stories now). And computer programs do not need sick days, vacations, benefits or a pension. This is the second wave to hit journalists and correspondents – the first one being the ongoing digitalization of newspapers and, for many, – their going out of print.

These changes are happening right before our eyes – it’s enough to go to a grocery store and see all the electronic self-serve cashier machines that were nowhere to be seen only a decade ago, replacing cashier jobs; or to visit a fast food restaurant, and take a look at all the electronic self-order machines. Yet, for some reason, most people still continue to think about life and education in the exact same way they did during the 1970s and 1980s! They still encourage their children to get a degree – any degree, at any cost, – believeing that this is the only way to get a good, well-payed job. And, as their children so often realize upon graduation, this is no loger the case.

So, before you decide on whether college and university education is good for you, or for your children, please consider first the amount of debt you will incur in the process, the chances of getting a job after graduation, and what salary that job will offer. Will you be able to live with what you have left after paying for your student debts? How long will it take you to pay off your debt – if you have a stable job, which, unfortunately, is rarely the case these days, when precarious working conditions are more often the norm. And think if it is really worth it to put so much time, efforts and money into something that might not bring you a better job or better working conditions than, say, a skilled worker.

Think twice about each and every decision you make – like, for example, is it worth it, in the long term, to pay thousands upon thousands of dollars for music lessons for your children, when one philharmonic orchestra, after another, after another are either imposing pay cuts on their musicians, or simply firing them and closing. And even a job at a philharmonic orchestra is not easy to get! If, however, you want to do this because you believe that music skills and literacy are important, that’s something else.

It is possible to have a relatively good quality of life even in our uncertain times, but the way to achieve that today, more often than not, is not the same as it was only 20-30 years ago. Times are changing, fast, and we need to keep up with them and to adapt to the changes around us in order to survive, or risk jobless indebtedness.

A Return to Blogging

It has been a while since my last blog post, and a lot has happened since then. While I have been vlogging regularly on my YouTube channel, the backyard harvest season, and back-to-school period, have taken most of my time. With winter already coming, I would like to get back to sharing my thoughts on my blog as well.

In November, in a result that surprised the world, the US elected a new president. An election result resembling the Brexit vote, the discontent of the people and their desire for change. Just days ago, a similar outcome of the Italian constitutional referendum – backlash against the status quo. It reminded me of the way people in post-comunist Eastern Europe were looking for change in the perpetual economic crisis we were living in.

The election results, time after time, showed also the way ordinary people see the world we’re living in – the “jobless recovery”, the fake unemployment statistics, the rising prices of goods and services, the decreasing quality of life. This is what people hope will change.

Personally, I did not support either Mrs Clinton or Mr Trump. It is a fact that, no matter who got elected, the situation the US would still be the same – the US national debt would still stand (as of November 11, 2016) at $19.86 trillion, there would still be more than 94,609,000 people ‘not in the labor force’, and the labor force participation rate, at 62.8%, would still have been at near-historic lows.

For Canada, these same numbers are: National debt of $633.7 billion (as of December 6, 2016), number of people ‘not in the labor force’ for 2015 was more than 10,000,000, and the labor force participation rate was at 65.8%.

The new reality of part-time, low-paying jobs and temporary work, is where people want to see change. They want to have better jobs, higher salaries, job security, benefits and pensions. This is the reason for the frustration expressed by Canadians during a young workers’ summit last month when, during a meeting with the Prime Minister Justin Trudeau, young people turned their backs on him, in order to show the Prime Minister how they feel he has turned his back on them. It was also their reaction to the remarks, a few days earlier, of the federal finance minster, Bill Morneau, that people should get accustomed to precarious working conditions – meaning multiple careers, part-time and/ or temporary work, with no benefits or pension, often times at a low or minimum wage. He simply told them to get used to ‘the new normal’, the new reality we’re living in.

Unfortunately, Mr Morneau is right: “high employee turnover and short-term contract work will continue in young (and not so young) people’s lives”, and there really isn’t much that he, or Mr Trump in the US, can do about it. At the very least, he is honest about it.

We have a number of different processes, all hapenning simultaneously, and all of them leading to the same result – more part-time jobs, less jobs available, and lower salaries. Some of the more important of these processes are: globalization, automation and robotisation, and an aging baby boomer population that will need more healthcare, pensions, etc.

In my next articles, I will try to go into more details about each and every one of these processes. I will also start laying out some simple steps that could help with the rising cost of food, living more frugally, and having a (relatively) good quality of life despite the changes that we are witnessing all around us. We need to change our way of life, and our way of thinking, in order to survive this “new normal”, survive these tough times we are facing.

And, while we are hoping that the government will, in fact, think about  ‘How do we train and retrain people as they move from job to job to job?’, and that the government will also provide the help promised by Mr Morneau as he said that “we need a way to help people through their career … something that will soften that blow”, in addition to all of that, we still need to find ways to help ourselves too.