Sleeping with a sick elephant

"Living next to you in some ways is like sleeping with an elephant," Canadian prime minister Pierre Trudeau said to the Washington Press Club in 1969. Even when our U.S. neighbour was being a sweetie, he said, Canadians had to cope with the giant's "every twitch and grunt."

Canadians beware. There are increasing signs that the elephant is suffering from a protracted illness. The poor old pachyderm is sick. So it is not just twitches and grunts we have to worry about.

Now I'm not talking about combat weapons at political rallies or wild rantings about death panels. Years of public health care here in the frozen north mean we Canadians are hardened to death panels. They hold no fear for us. And being raised on U.S. film and television we just assume all Americans are packing.

No, no. I am talking about economic health and this week there are some worrying new symptoms.

Misery loves company

When you are sick with someone else, there is a certain comfort to it. Both of you moping around in housecoats, carrying individual boxes of Kleenex. Taking turns in the john. (Or, if you live in Canada, running shivering to the outhouse.) Sharing morose smiles. A perfect state of empathy. Even if one of you is an elephant.

But this empathy is cracking. Canadians, confound them, are turning optimistic. The latest consumer confidence figures for Canada show we are getting happy. Time to spend. Time to dip into those great piles of savings people have in their bank accounts and under their mattresses and stimulate the economy.

In the U.S., the news was much more gloomy. The U.S. Conference Board warned that American consumer confidence slipped from July to August. Gallup said spending was down. And with the Cash for Clunkers program having gone kerplunkers, car-sales figures should soon begin to slide.

Perhaps most worrying was the announcement from the Federal Deposit Insurance Corporation saying that it had run out of money. That's the fund that protects ordinary people's deposits if their bank goes belly up.

The thing that shocked even experts was the fund's announcement that it expects a lot more banks to go bust. It said it expects to have to pay out $100 billion over the next few years, much more than its previous estimates.

Creative accounting

The insurance corporation has a solution: it is doing some fancy accounting, getting member banks to pay their future fees in advance so the banks can put the money on their books as credits and still allow the corporation to spend the money now. Even this was considered better than going back to the taxpayer, cap in hand, for another bailout.

U.S. depositors should not worry about losing their cash. The solution looks safe and secure. And the treasury is still waiting in the wings. But it is one more sign that the elephant is not recovering as quickly as we have all been hoping. Banks are still failing. Consumer spending is slowing down just in time for Christmas. Unemployment remains high and is expected to linger for years. Public and private debt remains a painful burden.

We may be optimistic. But with all the will in the world we cannot carry an elephant.

Here in Canada, unemployment still hurts, but things were never as bad as they were south of the border. Our government's budget was balanced when this mess started. Our housing market never crashed. We never used Cash for Clunkers to rob from tomorrow's car sales. Our banks remain strong. Our consumers grow confident.

We are out of our housecoats and ready to go to work. But as we head out the door, we hear the elephant's toilet give a mighty flush.

And here is the serious difficulty for our politicians and policy-makers. Our prime minister and finance minister and bank governor have noted it repeatedly. It is one of the great conditions hovering over a Canadian recovery. We may be optimistic. We may be ready to go back to work and to spend. But with all the will in the world we cannot carry an elephant.

As you crawl into bed, you are quite sure the elephant is getting better. Gradually. There are a few twitches and grunts as you settle in. They are unsettling. Nothing worse. But there is one thing keeping you awake. You are still afraid that if you doze off, you will wake to that one awful word. "Whoops."