The government confirms it is to press ahead with a complete sale of Royal Mail, following an updated review of the postal service.
“So how long do you plan to keep working?” asked a friend recently, after he went on about his own crafty retirement plan (take his pension at 65, sell his Massachusetts house and move to Florida, play tennis year-round, live happily ever after).
“Um. Forever?” I suggested. “I plan to die at my keyboard.”
I wasn’t joking. Between the economic free fall and putting kids through college, my husband and I will be working for the rest of our lives.
That’s why we made an offer on a house in Canada yesterday.
Why Canada? I’ve loved Prince Edward Island, Canada, ever since I started vacationing there some 15 years ago. The island is gorgeous (see photos at http://images.search.yahoo.com/search/images?_adv_prop=image&fr=yfp-t-892-s&va=prince+edward+island+canada), laid back, friendly, green-minded, and there’s fiddle music everywhere you go. It felt like home the first moment I hiked the red dirt roads between flowering potato fields.
“Yes, that’s fine, but what about the winter?” various friends countered, so I tried traveling to PEI then, too, and found other things to love, like the ice fishing shacks stacked like bright Legos along Malpeque Bay and the snow tornadoes rising like long-skirted fairies in the fields.
But I digress. We made an offer on a house located in the remote eastern corner of PEI because there’s no way that my husband and I can afford to retire here in the U.S. We haven’t seen the inside of the house — there was no realtor around, and we had to leave the next day — but we peered into the windows from the rotted deck, and we’d seen the listing sheet online. We know that this farmhouse supposedly has five bedrooms and two bathrooms. We also know that the house is being sold “as is.” That’s a little scary, because Canadian realtors tend to be honest to a fault. When I surf www.mls.ca with these simple criteria: “Prince Edward Island, $25,000 to $75,000 price range, two bedrooms or more,” I regularly read descriptions like these: “This house has been neglected. Needs a strong arm.” Or, “Small country home that has been left vacant for a few years. Needs a real clean up. The property has no source of heat. Had a wood stove and previous owner took it.”
With this particular house, the phrase that struck me was this one: “Being sold with furnishings and other items too numerous to mention.” What happened to the owner, I wondered, that he would flee or fade away without emptying his house?
Finally, I called our realtor, Anne. She’s a trim, no-nonsense woman who used to make her living fishing for lobster. Last summer, she showed me a few houses while wearing knee-high green rubber boots. “I don’t know where the old fella went that lived there,” she said, “but I can call his nephew down the road and find out more if you’re interested.”
That’s how the island works: if you know one person, you know six, without any degrees of separation. When Anne called back, though, she couldn’t tell me much. Apparently this was an estate sale, someone’s children selling it for someone who had died. The old fella, presumably.
“What about the septic system?” I asked.
“Doubt anybody knows much about that,” Anne said.
“How do I know if I’d have to replace it?”
“Guess you’d have to just dig it up,” she said. “But I wouldn’t recommend it. You might want to leave it be.”
“You mean we’d just buy the house, and hope for the best?” I asked.
“That’s about the size of things,” she said. “If it fails, you’d know it.”
This did not sound promising. On the other hand, if the old fella hadn’t been using the septic system in a while, everything probably had time to drain.
So we made the offer, and now we’re waiting to see if it was accepted. We’ll find out this Friday. Meanwhile, I’m biting my nails.
Despite the fact that we love PEI — and this house in particular, with its charming century-old architecture, peaceful farmland views, and proximity to our favorite beach — I know that this plan is more whimsical than logical. For starters, we have no money. Like so many people, we were nearly flattened by the economic downturn. My husband was laid off twice and two of the start-up companies he joined went under. We struggled to stay afloat as our oldest child started college and we paid health care costs out of pocket for one year, then a second. We finally decided to sell our house and buy a smaller one.
That’s when the real estate market crashed. Our first buyer pulled a runner after we’d gotten locked into buying the smaller house, so we ended up with a bridge loan for a year, until we found another buyer. Goodbye, savings. Hello, credit cards.
With no spare cash under our mattress, we’ll now have to dip into our retirement funds to finance the purchase of this house. Yet another bad idea: Why take a 10 percent hit, rather than wait until we’re old enough to pull the money out without having to pay taxes on it?
Our only arguments in favor of doing so are admittedly weak: our retirement funds are stagnating with the limp stock market, making us think real estate can’t be worse, and the PEI house we want to buy is one that we can easily imagine loving full-time. Plus, it’s for sale right now at an asking price that’s half of its assessed value.
“Prince Edward Island is too far away,” another friend complains. “Why can’t you find a retirement spot closer to home?”
Where could we go? Ohio? Pennsylvania? Tennessee? Even those states are more expensive. We’re not alone in thinking that Canada is the answer. Far from it. The number of U.S. citizens choosing to live in Canada hit a 30-year high recently (http://www.canada.com/nationalpost/news/story.html?id=2101397c-fe7c-4adf-a2d1-8665cb29ac66&k=0
The last time Canada saw such an enormous influx of U.S. citizens was during the political turmoil of the Vietnam war. Now, many are choosing Canada both for economic and political reasons. Our own reasons are simple: we love Canada, and the cost of living in the U.S. has killed us. Once our kids are grown, we imagine eventually selling this house in New England, which is about the same size as the one on PEI but worth 10 times more. We’ll have red dirt roads and fiddle music, potato fields and freshly steamed mussels to keep us happy. We’ll still be working until we drop to pay back our debts. But we can freelance remotely for the same U.S. companies from Canada — my husband as a software engineer, me as a writer — while we make goat cheese, have a few hens of our own and grow our own vegetables, all without a crippling mortgage and punishing health care costs.
It’s a crazy dream. But it’s less of a fiscal nightmare than what we’ve experienced here.
Or am I missing something? Should we back out of this house deal now, while there’s still time to be sensible?
Though the recent global crisis started in the advanced economies, most emerging markets came under pressure; it seemed that no country, especially those most interconnected, was immune from tremendous economic strain. Now, as the crisis abates, there is an emerging consensus that something needs to be done. A better safety net is needed to enable countries with good policies to insure against bad outcomes, especially when they are innocent bystanders caught up in a financial turmoil.
Last week, the IMF took another step toward meeting this need by enhancing its country insurance facilities. Following on from earlier reforms, the IMF Executive Board decided to extend the safety net to a broader set of countries with sound policies and economic fundamentals, making our contingent financial support more tailored to our members’ needs and circumstances. A new staff paper and supplement describe the main elements of these reforms.
The decisions taken by our Board–the rationale for which I wrote about earlier this year — were significant for two sets of countries. For countries with very strong policies and economic fundamentals, these reforms have made our flagship insurance option — the Flexible Credit Line (FCL) — even more attractive. And, for countries with some moderate vulnerabilities, the IMF now offers a new form of contingent protection through a new Precautionary Credit Line (PCL).
Flexible Credit Line
So far, three countries have made use of the FCL: Mexico, Colombia, and Poland. Put in place last year during the depths of the crisis, all three FCLs have been renewed, with senior officials in these countries noting the role played by the FCL in soothing market sentiment and providing them with “policy space” to take countercyclical measures.
Experience with the FCL–as well as extensive discussions across the broader Fund membership–suggested that this credit line for our strongest performers could be even more effective if we made it more flexible (“reserve-like”). Thus, we have made two principal changes. First, an FCL can be longer–up to two years, with a country’s policy strength reviewed after a year–providing an increased measure of predictability. Second, we have removed the implicit cap on its size, allowing it to be determined by the amount of insurance that a member actually needs.
Precautionary Credit Line
Despite making immense strides in improving their policy frameworks, many countries still have moderate residual weaknesses in, among others, fiscal and financial areas, with some susceptible to linkages to foreign banks.
In the most turbulent times during the crisis, these countries ended up lacking contingent protection. The FCL was not an available option, given its high qualification bar. While a Stand-by Arrangement was available in a precautionary form–including with high access as a result of earlier reforms–this traditional crisis-resolution instrument was not used much for crisis-prevention purposes by these countries, identifying a gap in our ability to serve our member countries.
Thus, the PCL was born, designed to fill exactly this gap for members with sound policies. The PCL’s rigorous qualification process is intended to give a “seal of approval” regarding policy strengths in most areas, while also identifying residual vulnerability. Limited ex post conditions are then used to address such vulnerability, thus providing contingent financing as well as credibility to the authorities’ policies. Given the sound policies of qualified members, a PCL provides a large amount of up-front access to financing: as much as 500 percent of a country’s IMF quota could be available during the first year of the PCL, with up to a total of 1000 percent of quota available after a year.
A Global Financial Safety Net
Good policies and frameworks–endorsed with FCLs and PCLs–are certainly the first line of defense. However, as history and the recent crisis have shown, there are times when localized events trigger panic among investors, setting off chain reactions across markets and countries irrespective of fundamentals. The intensity of investor withdrawal during the recent crisis surpassed most expectations, with normalcy returning slowly and only after many forceful measures were taken by the global community, including the leaders of the Group of Twenty industrialized and emerging market economies.
Given this experience, what more can the Fund and the international community do? For our part, the Fund’s member countries have asked its staff to explore options for overlapping layers of protection for the global economy. Reform of the Fund’s lending facilities is but one layer. We are also working on establishing synergies in terms of lending and surveillance with key regional financing arrangements, and are consulting with various stakeholders. We are also considering a Global Stabilization Mechanism, a framework that would allow proactive provision of financing during a systemic crisis to stem contagion.
Our Executive Board has had a preliminary discussion and, building on this, we will be developing these ideas further in the months ahead. Thoughts from our readers are, as always, also welcome.
This post originally appeared at iMFdirect.
Read more: Country Insurance Facilities, Emerging Market Spreads, International Monetary Fund | Tagged: Capital Flows, Economic Crisis, Surveillance, Economic Research, Imf, G-20, Emerging Markets, Regional Financial Safety Nets, Flexible Credit Line, Reserves, Global Financial Safety Net, Systemic Crisis, Contagion, Systemic Shocks, Precautionary Credit Line, Financial Crisis, Business News
President Barack Obama at his press conference today drew a stark contrast between his administration and the Republicans in Congress who are dedicated to obstructing any sound economic program for purely short-term political advantage. He also made a convincing case for ditching George W. Bush’s reckless, deficit-ballooning government relief program for rich people and corporations. It was a great economics seminar on how the Republican/Chamber of Commerce “free market” policies over the past decade brought the country down to the sorry state it now finds itself. But as a political salve for suffering Democratic congressional and state candidates it didn’t do much to change the dominant narrative.
Unfortunately, the president stopped short of making a dramatic announcement that he was appointing Harvard Professor Elizabeth Warren to head the new financial consumer protection bureau. That announcement would have energized the Democratic base and provided candidates at the local level with evidence that the administration in Washington still has a pulse with respect to the interests of middle-class Americans.
But on Professor Warren’s future job prospects he was cagey — unnecessarily so.
“I’ll have an announcement soon about how we’re going to move forward,” is all he said. The only thing this stance accomplishes is to reinforce the narrative that he is still leaning toward Tim Geithner, Larry Summers, and Rahm Emanuel instead of Professor Warren on the central economic issues and attitude toward Wall Street. Elizabeth Warren is quite simply the only person affiliated with the administration in any way who has clearly stood up for the vast majority of Americans who earn $50,000 a year or less. She’s been a fighter against the Wall Street interests that Obama seems committed to coddling. Memo to White House: Coddling Wall Street is not very popular these days.
Professor Warren is the “Change” Obama talked about for two years while he was running for president. If he doesn’t have the guts to appoint her and names someone else to head that agency it will take even more of the wind out of the sails of the Democratic base going into the elections. He ducked the Warren issue and thereby missed a great opportunity to bridge a small section of the yawning “enthusiasm gap.”
The only questions that matter politically right now are: How did the president’s press conference today help politicians like California Senator Barbara Boxer, who is being savaged in a barrage of mean-spirited and inaccurate television ads paid for by out-of-state money from the national Chamber of Commerce? And how did the President’s remarks today help candidates who are targeted by the $100 million post-Citizens United corporate slush fund managed by Karl Rove called “American Crossroads?”
The Afghanistan portion of his press conference was by far the weakest. The idea that Hamid Karzai is going to do anything to curb “corruption” is a foolish delusion. For a moment the President’s eloquence left him and he seemed to be channeling George W. Bush. Someone has got to get through to him that a country that is reeling economically cannot continue the costly illusion of being a global hegemon. The military budgets and the costs of the wars are bleeding the U.S. treasury dry.
The supreme irony here is that there shouldn’t be any kind of “enthusiasm gap” going on at all because, let’s face it, Obama is the very best president we could ever elect in our corrupt and money-soaked political discourse.
Obama’s political hack Chief of Staff, Rahm Emanuel, who sparked Sarah Palin’s saccharine wrath by calling progressives “retarded,” (whose leaving would be the best development for the Obama White House since the inauguration) has been whispering in the President’s ear for two years that there was political gold ($$$) by playing nice with Wall Street and screwing over his progressive base; hence, the great “enthusiasm gap” of 2010!
Remember the lengthy primary of 2007-08? A great many Democrats who comprise the base of the party believed they had cast their vote against Hillary Clinton in order to block a Clinton restoration. Yet it seems a Clinton restoration is what they got. It’s not surprising then that two years later these same base voters lack “enthusiasm.” The spectacle of a Democratic president forsaking those who elected him to court an imaginary “center,” or to “reach out” to a recalcitrant and belligerent Republican minority has an aura of déjà vu to it.
Dispirited Democrats might be a little less dispirited right now if President Obama had beaten up on Wall Street a little more, or forced banks to renegotiate underwater mortgages, or fought for single payer health care, or held to account former Bush officials who were responsible for some of the more egregious abuses, or appointed an Education Secretary who values teachers, or withdrew U.S. military forces from Afghanistan, or . . .
There is an “enthusiasm gap” between Republican and Democratic voters where there shouldn’t be. But there also appears to be an outbreak of American amnesia. It wasn’t long ago when we could see James Carville on CNN nightly denouncing people who switched their votes from Clinton to Obama as “Judases.” In Fall 2010, the meta-text feels like a widespread understated longing on the part of the chattering classes for a 1994-style Republican route. Obama must continue to talk directly to the American people but he also must take concrete steps toward reinvigorating public institutions, unapologetically, and throwing a lifeline to a drowning middle class.
Read more: Corruption, Hamid Karzai, Barbara Boxer, Bill Clinton, Elizabeth Warren, Professor Warren, American Crossroads, Karl Rove, Midterm Elections, President Barack Obama, Democratic Party, Economic, Wall Street, Rahm Emanuel, Senator Barbara Boxer, Obama Press Conference, Hillary Clinton, Afghanistan, Republicans, Chamber of Commerce, Policy, 2010 Elections, James Carville, Cnn, Politics News