http://www.cbc.ca/canada/newfoundland-labrador/story/2009/06/04/suncor-petrocanada-merger.html
Merged Suncor, Petro-Canada ready to compete with 'global supermajors'

Summary
On June 4th, 2009, the share holders of Petro-Canada and Suncor Energy Inc both voted to merge the two companies under the Suncor name. While the Petro-Canada investors approved the plan with a 96% favorable vote, the Suncor shareholders approved with a 98% favorable vote. Suncor stock increased by 4.9% and Petro-Canada increased by 4.8%. As a result of the merger, Suncor will become Canada’s largest energy company and North America’s 5th largest. It will also be the second-largest firm trading on the Toronto Stock Exchange behind Royal Bank. Petro-Canada equity holders will receive 1.23 shares for each Petro-Canada share while Suncor shareholders will receive one share for each Suncor share in the new company. A small investor in Petro-Canada, Letko Brosseau & Associates, is not in favor of the plan, claiming the transaction will undervalue Petro-Canada. Although the deal appears to have many benefits, it still has to be approved by regulators.

Connection
Suncor and Petro-Canada are two corporations which have decided to merge into one corporation. There are many benefits to this decision. For example, the new company will have the financial strength to compete globally. By combining the two corporations, the company will have a resource base of approximately 7.5 billion barrels of oil of proved and probable reserves as well as a contingent resource of about 19 billion boe. Secondly, there will be a much stronger cash flow from current crude oil and natural gas production. However, the shareholders of the two companies will not share the company equally. While the suncor shareholders will own approximately 60% of the new company, Petro-Canada shareholders will own only approximately 40% of the new company.

Reflection
Personally, I feel that it is a good decision to merge the two companies because of the current economic conditions. By joining the companies, the new company will also have a more flexible cash flow. Also, they would not have to compete against each other. Most importantly, by joining the companies together, the company will become more efficient, and will therefore less likely be taken over by a foreign company. There are many Canadian companies which have been taken over by foreign countries already. Hopefully, Petro-Canada and Suncor. Inc will not be one of them in the future.

Federal New Democrats want complete overhaul of EI system

http://www.cbc.ca/canada/british-columbia/story/2009/03/08/bc-ndp-ei-benefits.html

The federal NDP has stated that the Conservative government should lower qualification standards to receive employment insurance benefits. Alex Atamanenko, B.C Southern Interior MP, has received complaint from unemployed citizens who are not able to access employment insurance benefits. As well, statistics show that about 60-70% of people who are currently unemployed are not eligible for benefits in the current system. Although the government as allocated billions of dollars to the employment insurance fund, the government has increased the standards eligibility, making it harder for citizens to collect the benefits they have paid for when they were employed. The federal New Democrats said that the numbers collected by Statistics Canada show that only 43% of unemployed Canadians and 39% of unemployed women qualify for employment benefits under the current regulation. The federal NDP has asked the government to eliminate the waiting period for employment insurance, decrease the works hours needed to quality and finally to expand eligibility to self-employed workers.

  As the rate of unemployment increases, the level of spending in Canada is significantly reduced. As the income of other individuals are decreased, a multiplier affect in created. In order to ease the overall spending decline, individuals may receive some money so that their spending is not significantly reduced. However, many workers who are currently unemployed are not eligible for insurance benefits. In fact, as mentioned earlier, only 49% of unemployed workers are eligible under the current standards. As a result, the negative consequences of unemployment on the economy are greatly increased. The government must work to expand eligibility of employment insurance benefits so that the consumer spending will not significantly decrease.

  There are many negative effects to the economy if the level of spending in Canada is greatly reduced. However, as the unemployment rates in Canada are relatively high compared to other years, the government may not have enough money to spend in employment insurance benefits. If the majority of workers who have lost their jobs do not receive employment insurance benefits, their reduced spending will indirectly effect the income of working family members.  

UK Treasury Fails to Sell Government Bonds

http://news.bbc.co.uk/2/hi/business/7963815.stm

For the first time since 2002, the UK Treasury was unable to sell all its government bonds in a government bond auction. The Treasury wanted to sell £1.75 billion of 40-year bonds. However, investors only bid for £1.63 billion as announced by the Debt Management Office. The bid-to-cover ratio, which is the number of bonds offered over the number of bonds sold, was at 0.93 compared to 1.0 in auctions in the last 7 years. As well, the consumer price index rose unexpectedly in February at an annual rate of 3.2% from 3.0% in January. The Bank of England has begun a policy of quantitative easing. More money will be created to buy government debt in order to inject a total of £75 billion of new money in to the English economy. Ultimately, the objective is no push down the cost of borrowing money.

The failure of the UK Treasury to sell all its government bonds is a sign of decrease in demand which could be affected by many factors. In order to buy a bond, businesses must reduce the amount of money in its bank deposit; however, the businesses may be saving their money in preparation for the future if they expect their profits to decrease. The fact that the Consumer Price Index rose unexpectedly, may also have influenced the demand for government bonds. Inflation decreases the value of bonds as they pay a fixed interest rate over time. When government bonds are sold, the ability of the charter banks to lend money is decreased because the reserves of the chartered banks have been reduced. When the government bonds are not sold, more money is retained in the circulation. However, the government needs this money in order to carry out its plans to revive the economy and continue to meet its previous commitments.

The lack of demand for government bonds shows how worried the consumers are about the future economy. Many are trying to keep funds available so that the money can be used when they are needed. If that money is used to buy a bond, they the consumers can no longer use that money until the bond has matured. However, if consumers do not buy government bonds, then the government may not have enough to spend. As predicted by BBC’s business editor Robert Peston, the bond sales in 2010 may have to sell for £200 billion in order to fund the plans the government have organized to revive the economy. If the government does not have sufficient funds to continue their plans then the task of coming out of the recession may become more difficult.

Bank of Canada Decreases Key Borrowing Rate

http://www.cbc.ca/canada/montreal/story/2009/03/03/bankrate.html

Summary
The Bank of Canada has dropped its interest rate by one-half of a percentage point to 0.5 per cent. The interest rate has now been reduced by 4 percentage points since the bank commenced the latest cycle of easing in December 2007. The Bank of Canada stated that their real gross domestic product for 2009 is expected to decline by 1.2 per cent, with a rebound of 3.8 per cent in 2010. However, many critics felt that this forecast is overly optimistic. Other measures to provide monetary stimulus is also being considered by the bank, perhaps through credit and quantitative easing. The decision made by the Bank of Canada to lower its lending costs was quickly followed by a number of Canada’s big chartered banks as they lowered their prime rates to 2.5 per cent.

Connection
The main topic in Chapter 6 is Gross Domestic Product, or GDP. The GDP is affected by a number of factors, including investment and savings which significantly impacts the Bank of Canada as well as other banks around the world. During this time of economic recession, people tend to increase the amount of savings in expectation of a lower income, or losing a job. As a result, the amount of investment in the economy decreases. The Paradox of Thrift can be applied to this situation. In attempting to save more, the equilibrium RGDP is lowered. As a result, the total income earned in Canada declines, leading to layoffs as we are experiencing now. Consequently, people are not able to save as much as they intend. By decreasing their interest rates, The Bank of Canada aims to increase to amount of investments in the economy. Lower interest rates will encourage investments that were not feasible at high rates as well as provide an incentive for people to invest. While this is good for people who want to borrow money for investments, it may not be beneficial to those who want to save money.

Reflection
Personally, I would question how effective the lowering of interest rates would be on boosting the economy. While I feel that this will indeed cause an increase in investments in the economy, I think that many people will be reluctant to invest under such economic circumstances. Instead, people will be inclined to save more of their income in order to prepare for the future. Simply lowering the interest rate will not be enough to boost the economy in my opinion. The Bank of Canada must put other methods into affect to ease the decline GDP.

Canada's Inflation Rate Eases to 1.2%

http://www.cbc.ca/canada/toronto/story/2009/01/23/inflationdecember.html

At 1.1 per cent, Canada’s inflation rate has slightly eased for the month of January in comparison to last year’s increase of 1.2 per cent. The price of gasoline and passenger vehicles has decreased according to Statistics Canada. As a result of the sharp decline in the price of gasoline, the increase in consumer prices seen in December were the smallest increase since January 2007. However, while the price of gasoline declined the prices for food increased. During the 12-month period, the price of food has risen 7.3 percent. Deflation can be seen in the Maritime Provinces such as Nova Scotia, where the 12-month decline was 0.2 per cent. As stated by Statistics Canada, this was the first annual price change in any province that fell into negative territory since October 2006. A number of economists predict that the inflation rate of Canada will decline in the coming months.

Demand-pull inflation and cost-push inflation are two causes for the rise in consumer prices. These causes can also be used to explain the decrease in consumer prices, or deflation seen in the past month. The decrease in gasoline prices is the main factor in the decline of the national inflation rate. In the summer months of 2008, there was a significant increase in gas prices because of a decrease in supply of crude oil. This resulted in cost-push inflation. However, as the gas prices became less affordable for consumers, the demand for oil decreased. As a result, inflation caused by demand-pull inflation eased, resulting in lower prices for gas. However, for other items which are needed for survival such as food and clothing, the consumer prices have followed regular trends of inflation.

I have definitely seen the effects of deflation in the past month around the city. For example, auto dealers are willing to give away a new BMW for every apartment purchase in West Vancouver. In comparison to the economic situation sin the United States, and North Korea, Canada is still doing well in the global economic downturn. In my opinion, Canada will most likely see inflation rates decrease in the coming months. This may help relieve consumers who are struggling in the current economy. Moreover, the low prices may help create the demand needed to increase economic activity in Canada.

Quebec Economic Stimulus Plan: Tax Break for Home Renovations

http://www.cbc.ca/canada/montreal/story/2009/01/14/mtl-reno-credit-1401.html

Introduction

Quebec Finance Minister Monique Jerome-Forget announced a new tax credit may be given to residents who renovate their homes in the coming year. The tax credit for new renovations is part of a liberal plan aimed to stimulate the Quebec economy. Homeowners who are eligible for the tax credit would receive reimbursement for 20% of renovation expenses, up to a maximum of $2,500. It is expected that the stimulus plan will protect approximately 25,000 jobs in Montreal’s manufacturing and construction sectors as well as create up to 2,000 new jobs in the construction industry this year alone. However, opposing parties are critical of the plan.

Connection

As discussed in chapter 4, the government may choose to control price increases and unemployment through taxes. Through the tax credit, the liberal government is attempting to increase spending in Quebec on the construction industry. Greater demand for renovations will provide work for more construction workers. This will create new jobs in the coming year. It is likely that the government wants to expand the construction industry in Quebec, as this industry was chosen for the tax break that was not given to other sectors. The tax break may also help eliminate under-the -table agreements, although this is unlikely. Moreover, this is not the intent of the liberal government. Another problem which arises is that the plan only provides new jobs in the construction industry. Thousands of people have lost their jobs in a very short span of time. Most of these people are not construction workers. Although the plan may provide a number of jobs, many people will continue to be unemployed.

Reflection

The tax break is not a good approach to stimulate the economy in my opinion. Although post-secondary education is generally not required for work in this field, training in construction is still expected. Therefore, even new job openings will be available only for people who are already working in the industry. Secondly, the plan is expected only to provide 2000 new jobs in the coming year. That number is not significantly high in comparison to the jobs which have been lost or expected to be lost. In the receding economy, I believe most people would be reluctant to spend their money on something that is for luxury rather than a need. The tax break does not provide in my opinion an incentive with enough appeal to greatly stimulate the economy in the coming year.

Toxic Water Created by Oil Industry

http://www.cbc.ca/edmonton/features/dirtyoil/tailings.html

Summary

Alberta's oilsands produce over 1.8 billion liters of toxic wastewater daily. Known as tailings, this wastewater is left after bitumen, which is used to make conventional crude oil, is separated from the sand on top of it. Tailings have been stored in open-air lakes for decades. However, there has been no attempt in the past to empty the lakes or the land reclaimed. Several plans to reclaim the ponds have been discussed, including the creation of End Pit Lakes, using tailing thickeners, cycloning or centrifugation. Some of the toxic tailings have leaked into the Athabasca River. The health implications of this pollution are vast. Research has shown that there are elevated rates of cancers among the citizens of Fort Chipewyan, a small village of 1,200 downstream from the oilsands. The residents, which rely on fish as a major food resource, have noticed their fish are deformed with crooked tails, bulging eyes, skin tumors and humpbacks. Although the government has never had formal regulations on tailings management of enforcement mechanisms, the concern of initiating these regulations have been increasing.

Connection: Third Part Effects

Tailings causing extremely high levels of mercury and arsenic in water have lead to the increased rate of cancer to residents of Fort Chipewyan. This is an example of negative third party effects. As a result of the free-market system and the lack of government regulation in the past, the oil industry has ignored the need to keep this toxic water under control. Furthermore, placing a system to capture the toxins would cost a lot of money. Recently, Alberta's Energy Resources Conservation Board released a policy which required the oil industry to submit its plans for the construction and operation of tailings ponds. Companies may be forced to invest a significant sum of money in controlling tailings. This may be further reflected in the price of crude oil from Alberta in future months.

Reflection

In my opinion, Alberta's Energy Resources Conservation Board has been slow in its decision to regulate the tailings created by the crude oil industry. Since crude oil is a source of Alberta’s major revenue, it would be logical to ensure that no harm is done to the environment in obtaining it. The lives of many people have been put at risk because Fort Chipewyan’s most dominant food resource has been damaged. The fish can no longer be consumed. The economy of this small village can easily fail simply because of the ignorance of the oil industry. The Energy Resources Conservation Board as well as the oil industry must act quickly to repair the crisis that has emerged.