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.