Econ Ch7 Retailers' pain in the cards

With the recent recession, many small and large businesses across North America have gone bankrupt. One of the smaller reasons for this is because of the excess usages of credit cards by businesses, and the additional fees that come along with them. Due to this, Senate and Commons have decided to probe credit card fees, in order to save small business from unnecessary expenses. Although very convenient, credit cards have a 2% fee, which has slowly gone higher in recent months, because of extra offerings for users. This will definitely alleviate some pressure from owners.

http://www.vancouversun.com/business/fp/story.html?id=1393636

There are many forms of payment: cash, cheque, and of course, credit. With a lowering of credit card fees, businesses will be more willing to use their cards, rather than be afraid of extra costs. In turn, this would help the cash in and out flows around Canada, with more spending across the board; moreover, this would benefit the unemployment issues currently, with more spending, no matter what it is spent on.

I believe this is a good plan by the Senate and Commons. Although credit card fees are not the biggest problem in this recessionary period, it is a problem none the less. This will hopefully increase consumer spending in Canada, which would ultimately decrease unemployment. However, one of the downfalls to this plan is that revenue made by card companies will drop. Even with more and more people using credit cards, the credit card companies would not make as much, without the original 2% fee. All in all, this is a great way to take the heat off of small business owners, looking to use their credit cards.

Econ Ch6 Carney May Cut Canada Interest Rate to Record 0.5% as GDP Drops

With the economy the way it is, many companies and businesses are not only doing what it takes to survive this recessionary quarter, but also to do what it takes to help keep us from a recession. It was reported on March 3, 2009 The Bank of Canada has slashed their 1% interest rate to an all-time low of 0.5%. This cut in the interest rate was decided upon by the Bank of Canada governor Mark Carney, which was only two days before the European Central Bank and Bank of England were going to cut to new lows as well.

http://www.bloomberg.com/apps/news?pid=20601082&sid=ay1nAkWkn47M&refer=canada

Because the unemployment rate is high, spending among consumers is very low. By lowering the interest rate, this would hopefully increase loans given, and give people more of a reason, which would ultimately increase spending, because in the end, the way to get out of this recession, ironically, is to spend. This is part of the monetary policy, whereby this will eventually be implemented among chartered banks all across Canada. Another reason for this interest rate would be the hopes of the money being loaned to be used to invest in businesses; this would help to slow down the unemployment rate, because there is more money in businesses to be expended.

Although I feel this plan is overall a good idea, there are many different ways people may spend this borrowed cash that may cause even more economic problems in the future for Canada. Remember, the whole reason for the US economy in turmoil is because of loaned cash from the government that was unable to be paid back by borrowers, because of bad investments. There will obviously be more changes to be made, but this was a much needed move by the Governments of Europe, England, Canada, and possibly the US.

FAC Ch 4: BMO buys AIG's Canadian life insurance unit

It is essential to evolve one’s business; in order to do such a thing; you must make acquisitions that benefit the company. This is the case for BMO financial group, which, on Tuesday January 13th, purchased American International Group for $375 million cash. This purchase is undoubtedly going to help BMO expand financially, and will assist in it being one of the top four largest banks in Canada. According to John Aiken, an analyst at Dundee Securities, this deal was a steal for BMO, as they bought it for less than 1.1 times AIG’s book value, which actually had an average industry valuation of 1.3 times.

http://www.financialpost.com/news-sectors/trading-desk/financials/story.html?id=1171778

By, purchasing AIG, BMO has insured itself more potential of earning revenue in the future. This will give them more diverse selling activities and collections of revenues from customers, now with a $375 million entity in their hands. For the former AIG shareholders, however, this was the complete opposite. Although they had acquired sufficient revenue, it had to be sold, in order to pay off a $60 billion loan from the US government. Because BMO now has two very different sources of income, they may need to have two separate earnings management meanings, so as to run the operation section of the business more accurately.

Although the cost of AIG was quite high, especially when we think of the economy the way it is today, I believe this is a wise decision by the BMO financial group. $375 million is a lot of money, but it the cost of AIG may have been much higher, if not for their $60 billion loan from the US government. This will give BMO a wider range of customers, and more sources for revenue. Even with quite a bit of money already used for the purchase of AIG, with the right selling activities, like proper promotions, much higher revenues will be produced.

Economics Ch5: Canada Lost 129,000 Jobs in January: Statscan

With the bad economic conditions we are currently under in North America, job losses are at an all time high, seeing unemployment numbers growing to be more than those of the early 1990's and 80's recessions. The unemployment rate increased from 6.6% to 7.2% in the month of January, which is about 129,000 lost jobs, totalling over 213,000 since October of 2008. This number has already surpassed the previous expectations by economists of 44,000 lost jobs, and who knows when this trend will slow down. BMO economists predict that by the end of 2009, the unemployment rate will have broken through the 8% barrier.

http://www.cbc.ca/money/story/2009/02/06/januaryjobs.html

These rates were obtained through the Labour Force Survey, which takes the number of unemployed workers in Canada, and divides the number of the labour force. Although some may see this unemployment incline as nothing more than a temporary issue, it has and will affect the many markets in North America. Consumer confidence and spending will be much lower, as potential customers would not want to spend their little amounts of cash on unnecessary products. This, in return, has and will continue to cause a very low cash flowed- quarter for most markets.

With the demand for workers getting lower and lower, there is bound to be some more lay offs to come. For those who own their own business, it is important to realize that because unemployment is high, products/ services being sold will be much lower in demand, equalling a very difficult quarter of operation for businesses. When it comes to working citizens, alternative jobs should be thought of, because job losses are at a very high rate, and to be more prepared for a lay off, it’s good to look at other options for your career. At this point in time, no single person is at an advantage, and struggle is as high as it can be.

Economics 12- Article: N.B. Government Charts Plan with Deep Corporate Tax Cuts

With the economic troubles, some of Canada’s provincial governments have taken action on cutting certain taxes, and making an easier lifestyle for their citizens. One of these provinces is New brunswick. The government plans to cut corporate income tax to single digits, which would give them the lowest corporate tax level in Canada. A flat 10% income tax has been recommended by the Select Committee of Tax Reform, which would begin in 2009, and fully shape up to its full potential by 2012. With this, New Brunswick would have one of the best investment climates in Canada, claims Niels Veldhuis, the director of fiscal studies at the Fraser Institute.

The big picture here is taxes. With a decrease in income taxes from a non flat tax of a maximum of 18% to a flat tax of 10%, spreading the wealth among the province would be of major concern. Although this new tax would help out many working-class citizens in NB and increase the financial position of the province among Canada, a lot of people in need of extra health care may find it troubling that the lack of taxes paid by much wealthier people may not be able to cover their healthcare costs, as they once did. This system has been used by the US for years, and clearly, has not worked. There is a huge gap between the rich and the poor now, because the main goal of the Republican government in the past has been to keep taxes fairly low, which helped the rich get richer, but made the poor helpless in their financial needs. With the help of Barack Obama as president, their tax rates will soon become much more progressive, mirroring most of the provinces in Canada.

This new plan by NB, I believe, will not be beneficial to the province in the long run. Even though it will help out the province through this harsh economic time, government funds will be much lower, by 2011/2012. These funds could be used for better healthcare, funding for less fortunate families, and rebuilding certain areas in the province that need it. I believe the entire country should stick to one system only, which is progressional tax. Although I do not enjoy the thought of paying higher tax rates as income goes up, this system has been implemented for many years, and has been working since. So, why change a good thing?

http://www.cbc.ca/money/story/2008/12/17/nb-tax-reform.html

Financial Accounting Ch 3- Article: Making a Success of Designer Jeans

During this point in time in the North American markets, not only are large corporations at risk of financial failure, but also small businesses. One of these small businesses is Dorinha Jeans Wear, owned by Dorinha Reynolds herself. Although she only has a small business, rather than a corporation, she caused quite a stir in 2001 with her designer label, and has now decided to have a relaunch for 2009. As an entrepreneur herself, the advice she gives to other aspiring entrepreneurs is to “Get off your duff, and take a chance” and try to not think of the possible risks of failure.

http://www.canada.com/vancouversun/news/business/story.html?id=feec0f55-6f38-4f48-a669-56a030c35fd8

Because Dorinha only owns a small business, many of her transactions and bookkeeping are much less complex, when compared to a large corporation. For example, when it comes to financial statements such as income statements, she would most likely use a single step format, instead of a multistep format. This is because she does not have shareholders and board of directors, who may want to be specified on what types of revenues and expenses are made and used in a period. Although there is a small difference between the different income statements, it is important her business makes enough gross profit, in order to cover all her costs. As she continues to follow the accounting cycle, it is crucial she notices the trends her business is having, and know when it is time to lower prices, decrease wages, increase prices, make lay off, etc.

One thing that was shocking to me was the advice she gave to aspiring entrepreneurs. I agree that it is important to take some chances when starting a business, but you must have some discretion to the risks. During the beginning stages of opening a business, you do not want to put yourself in a position where you can lose almost everything you own, especially when you are not financially stable. This is especially a bad time to start a business, with this current financial crisis. She says to not procrastinate in starting a business, but at the same time, it is better to be safe than sorry.

Economics Ch 3- Article: Pass The Plate

With all the economic turmoil of late, many problems have come up for company owners. These companies include car makers, such as General Motors, Ford, and Chrysler, all of which have asked the Senate Banking Committee to hand a possible cash bail out for each of the companies. This situation is not only happening in the US, European unions are also thinking of giving a €40 billion in soft loans to carmakers. Although Ford has stated that they may be able to scrape by and barely pay all its bills by the end of the year, this is not the situation for both GM and Chrysler, who will definitely need financial aid from the government.

http://www.economist.com/business/displaystory.cfm?story_id=12638642

Government involvement is a major issue in this situation. Although these companies are privately owned, the government can still help them be bailed out of this predicament. A bailout would be a positive effect for the carmakers, allowing them to continue producing automobiles, only at a lower rate, but is negative to its third party- the environment. If the government grants cash for the car companies, the environment will be greatly affected, because of the many more cars out there contributing to pollution; and if the government doesn't grant the money, it will be responsible for thousands of jobless American citizens- GM alone already employs over 266,000 workers around the world. They have to keep in mind however, that GM and Chrysler are not small car companies: if these two companies were to go down, Ford may also plunge in the markets, due to the fact that all three companies get their automobile parts from the same supplier.

This to me, comes as a surprise, because GM, Chrysler, and Ford are some of the largest carmakers around the world, so having them on the verge of bankruptcy is astonishing, even with the recent slumps in the market. When it comes to whether or not the government should give the companies a grant, many factors come into play. In 2007, GM lost $38.7 billion in lost profits and Chrysler $2.92 Billion, so doesn’t this seem like giving to a lost cause? The $25 billion asked by all three companies combined does not even compare to the $38.7 billion debt for GM. Although GM has played a large role in revolutionizing the automotive world, it is time they step down and allow the more popular carmakers of today to take over. The debts of Chrysler and Ford are much lower; therefore, it would be reasonable to bail out Ford and Chrysler, rather than GM