Harper May Have to Break Pledges With Budget Deficit, Bank Aid

[jdobbin]

Funny, I feel the exact opposite.

You supported The Pacific Gateway Initiative but opposed Kelowna?

[August1991]

The lack of control Harper has shown on reducing spending is now likely going to fact head on with the world situation. It won't matter why it happened only that it happened if a deficit is produced.

Flipping quickly through this thread, it seems to me that no one has really answered your OP, Dobbin.

IMV, fetishes may have their place in private relationships but they are dangerous in general life. Too many Canadians now have a fetish about "no government budget deficit". In the 1930s, there was a similar fetish about "sound money" or "gold-backed money". This money fetish deepened and prolonged the depression. A similar budget fetish would have the same effect.

I frankly don't care about government budget deficits (as long as they are not a Ponzi scheme). I am concerned rather about government spending.

----

I think the more disturbing fact about this article is that governments around the world are taking ownership of the banking and insurance institutions. My wife was saying a couple weeks ago how it's a good thing our economy isn't in as bad a shape as the US. I told her it will be interesting to see how our government convinces us that it needs a stake in the banking business here with a relatively stronger institutions. The government is telling us it needs to buy in so our banks can remain competitive, that looks like the way it is being sold to us. Perhaps I'm being a little too conspiracy theory-esque, but is no one else concerned that all of our finances, especially mortgages which own our properties, are going to be primarily controlled by the Group of 7? Maybe it's a good thing, I honestly don't know enough about economics and would love to be enlightened on the situation by someone in the know. Can someone explain why all of this is necessary? And what it means going forward?

Cybercoma, in your chat with your wife, you have hit on my main fear too.

I don't like the idea of the State owning banks. In teh long run, no good will come of it.

With that said, in Canada, our banks are a State-enforced oligopoly. Maybe that works.

----

You misunderstand. These are not mortgages being transferred to CMHC. These are mortgage derivatives - not the mortgages themselves.

I have a mortgage with TD bank which the TD bank could well have bundled up with a bunch of other mortages of similar term and interest rate to create a derivative called a Mortgage Backed Security. The mortgages involved are still in the hands of TD bank. However, it is the income flow from these MBS's (the mortage payments I and others are making to TD) that are being bought up by CMHC.

It is the income flow that makes the MBS attractive to investors. TD bank will be paying out the mortgage payments that I and others make to TD to the MBS buyers (CMHC in this case). The attraction to TD bank to issue these things is they get the money they lent me for my mortgage now and don't have to wait 20 years for me to pay the mortgage off....and they would be waiting that long thats for sure.

So bundled up in the MBS is all kinds of mortgages, first second or third - it really doesn't matter because its not the mortage that is changing hands but the promised mortgage payments. The strength of MBS in Canada is that they are required by law to be derived from mortgages that are guaranteed by CMHC. So if I should fail my mortgage requirements to TD Bank, CMHC will pay out whats owing on my mortgage to TD Bank. That has the same effect of guaranteeing the MBS that my mortgage is part of, and no default on the MBS by TD bank will occur.

Its safe as houses. In Canada anyways...

Peter, you are essentially correct. But you ignore the risk of liquidity.

The federal government reduced liquidity risks by its purcahses.

[jdobbin]

Flipping quickly through this thread, it seems to me that no one has really answered your OP, Dobbin.

IMV, fetishes may have their place in private relationships but they are dangerous in general life. Too many Canadians now have a fetish about "no government budget deficit". In the 1930s, there was a similar fetish about "sound money" or "gold-backed money". This money fetish deepened and prolonged the depression. A similar budget fetish would have the same effect.

I frankly don't care about government budget deficits (as long as they are not a Ponzi scheme). I am concerned rather about government spending.

It is precisely why we might end up in a deficit that is so aggravating. Harper wasn't spending Canada out of a recession. He wasn't spending to shore up the economy. He was spending on things that could have easily been contained by reductions elsewhere. He was spending on things like VIA Rail that the Liberal rejected in 2005. Why? Who put the pressure on for that? I think even the Liberal realized that it was a black pit for money.

Can Harper make the tough choices? If he can, I think it has been shown that Canadian think highly of someone who will steer the ship and be tough. Harper has not been tough except on his critics.

[Peter F]

The federal government reduced liquidity risks by its purcahses.

Yes, that is true. Macro-Economically speaking I understand why they did so. But I have to wonder, what risks do these lending institutions take? The whole underlying concept of capitalism is risk, yet, it seems, that is the last thing we want them to do...unless its only in small amounts. But 25 billion isnt chump change and so the Canadian government assumes the entire risk that the mortgage co's undertook in the first place. The government issues the bonds to buy the MBA's, and if they fail, the government sucks it up.

What do the mortgage companies suck up? $25 billion dollars. What do they do with it? Well, whatever they want: Hoard it, buy Canada Bonds, invest in Google, issue loans; and collect all the profits from those actions. And the risk they undertake? Still no risk. If things go south they will be looking for 25 billion more that us taxpayers can risk for them. On the other hand, if things go south fiarly quickly, they will hoard that money anyways to limit thier supposed 'risk' of Other Peoples Money, and be looking for government to buy more billions of stuff from them in order to reduce thier liquidity risk.

This isnt capitalism - this is feudalism.

[Smallc]

You supported The Pacific Gateway Initiative but opposed Kelowna?

Yes...throwing money at the same problem time and time again hasn't seemed to fix it yet. There's no reason that it would this time.

Edited October 17, 2008 by Smallc

[jdobbin]

Yes...throwing money at the same problem time and time again hasn't seemed to fix it yet. There's no reason that it would this time.

Yes that is what Harper has done in a more scattergun way with some of Quebec and Manitoba funding announcements. Some of them easily breeze past Liberal promises.

The big difference with Kelowna was that it had the support of all ten provinces. When you have Raplh Klein telling Harper that he is wrong on Kelowna, you gotta think maybe it was cut because of ideological reasons.

[Moonbox]

Is that why he flipped so fast on floor crossing, appointing Senators, cancelling the income trust?

The income trust was a giant tax loophole for corporations. It was unfair to leave it as it was and anyone who held onto these investments recovered their money in short order because the law didn't take effect immediately. As for appointing Senators, the Senate right now is dominated by partisan Liberals right now. It would be silly to leave the Senate that stacked for the Liberals. If we were to have an entire new Senate elected that might be a better idea.

Drummond assumes the same spending.

He basically encourages the spending.

But then you say it is pragmatic.

I said I'm being pragmatic. I mean that I acknowledge Harper's failings, realize he is a hypocrite, but vote for him anyways because his policies have benefited me and the opposition was promising less money in my wallet and just as much if not more spending.

His bullying and making every vote a vote of confidence was brinkmanship that polarized the nation to such a fine point that he wasn't able to break the logjam and now unless there are olive branches all around, we are headed straight for dysfunction once again.

The Liberals had been threatening for a year to bring his government down. It's not 'bullying' to call these threats out as cowardly rhetoric and advance your platform in the face of an extremely weak opposition. We will see more of the same.

Come on. The Canadian economy save for the manufacturing sector was bubbling along. All of the spending Harper was doing in those years previous wasn't to shore up that area. It was for VIA Rail, a military college and UFO museums.

The Canadian economy depends largely on the manufacturing sector. It has been slumping for years now as the dollar has risen. The only thing that was 'bubbling along' in the Canadian economy was resource based.

As for the 'outrageous' spending increases you've mentioned, the only one I agree with is the UFO museum. Total waste of money IMO, but for some reason there are fools out there (hey Quebec) who think this sort of crap is important. As for military colleges, if you can link how much that is costing us maybe we can discuss what it's worth to have well-trained officers for our soldiers risking their lives around the world.

VIA-Rail spending is NOT new spending. It is reinstatement of Liberal funding that was planned but cancelled under Paul Martin because of the sponsorship scandal.

The spending was excessive and unnecessary. It wasn't needed to shore up a slumping economy.

Could some of it had been spent better? Likely it could have been. The Dion/Martin Liberals certainly wouldn't have done any better. A deficit over the next few years is good economic policy. Don Drummond says so and so do most economists out there. I find it interesting how you'll quote Don Drummond as an expert supporting your opinions but then when we read further into what he's saying and find something contradicting your point of view, all of the sudden he's no longer the expert and you disagree with him.

Edited October 17, 2008 by Moonbox

[capricorn]

So bundled up in the MBS is all kinds of mortgages, first second or third - it really doesn't matter because its not the mortage that is changing hands but the promised mortgage payments. The strength of MBS in Canada is that they are required by law to be derived from mortgages that are guaranteed by CMHC. So if I should fail my mortgage requirements to TD Bank, CMHC will pay out whats owing on my mortgage to TD Bank. That has the same effect of guaranteeing the MBS that my mortgage is part of, and no default on the MBS by TD bank will occur.

Thanks for that clarification Peter. I presumed that second and third mortgages would not be something CMHC would want to back because of the risk factor.

[jdobbin]

The income trust was a giant tax loophole for corporations. It was unfair to leave it as it was and anyone who held onto these investments recovered their money in short order because the law didn't take effect immediately.

That claim that people recovered their investments has no basis in fact if you read the Report on Business and Financial Post. There is lots written about this and many analysts dispute the claim the government made on why they did it.

As for appointing Senators, the Senate right now is dominated by partisan Liberals right now. It would be silly to leave the Senate that stacked for the Liberals. If we were to have an entire new Senate elected that might be a better idea.

I have no problem appointing Senators. It is how the system was set up. I do have a problem appointing a Senator to a primary cabinet portfolio where they are beyond questioning in the House of Commons.

Harper sold people a bill of good on Senate elections. The truth is that he would face a constitutional challenge and would have likely lost if he imposed it on Quebec. So, by all means appoint Senators, stop whining that about being blocked when the logjam is of your own making.

He basically encourages the spending.

No, he didn't. He just assumed Harper would not cut.

I said I'm being pragmatic. I mean that I acknowledge Harper's failings, realize he is a hypocrite, but vote for him anyways because his policies have benefited me and the opposition was promising less money in my wallet and just as much if not more spending.

It remains to be seen whether Harper will leave more money in your pocket at the moment. His spending remains a major problem.

The Liberals had been threatening for a year to bring his government down. It's not 'bullying' to call these threats out as cowardly rhetoric and advance your platform in the face of an extremely weak opposition. We will see more of the same.

The bullying covers more than just how he deals with the Opposition. It is how he deals with a lot of people. Continue the brinkmanship and he will see an election inside of three months.

The Canadian economy depends largely on the manufacturing sector. It has been slumping for years now as the dollar has risen. The only thing that was 'bubbling along' in the Canadian economy was resource based.

Please. Even Ontario was seeing major consumer spending, homes being built, office towers under construction. If you want to insist Canada was in a recession since 2006, it just doesn't fly. And it isn't like Harper's spending was directed solely at manufacturing, was it?

As for the 'outrageous' spending increases you've mentioned, the only one I agree with is the UFO museum. Total waste of money IMO, but for some reason there are fools out there (hey Quebec) who think this sort of crap is important. As for military colleges, if you can link how much that is costing us maybe we can discuss what it's worth to have well-trained officers for our soldiers risking their lives around the world.

WE had a military college in Kingston. Harper re-opened one in Quebec for millions. Still waiting to hear the final costs. As for the VIA RaIl or the rail line in Flaherty's riding, total waste of money.

VIA-Rail spending is NOT new spending. It is reinstatement of Liberal funding that was planned but cancelled under Paul Martin because of the sponsorship scandal.

It is new spending if Harper re-instated it.

Could some of it had been spent better? Likely it could have been. The Dion/Martin Liberals certainly wouldn't have done any better. A deficit over the next few years is good economic policy. Don Drummond says so and so do most economists out there. I find it interesting how you'll quote Don Drummond as an expert supporting your opinions but then when we read further into what he's saying and find something contradicting your point of view, all of the sudden he's no longer the expert and you disagree with him.

You are completely wrong. Drummond says said it is unacceptable to run deficit for a long time and he thinks Harper is headed that way.

http://www.theglobeandmail.com/servlet/sto...NStory/politics

His estimates are based on spending and tax plans as set out in the 2008 budget and assumes that revenue collected by the government will “soon begin to deteriorate” as the worsening U.S. economy drags down Canada.

“I really couldn't see a credible scenario in which they [deficits] didn't last for a long time,” Mr. Drummond said.

The economist said his deficit projections show that the Tories will be under pressure to trim spending.

“Many economists have said it's acceptable to run a modest deficit for a short period of time, but there's virtually nobody on record as saying it's acceptable to run deficits for many years in a row,” Mr. Drummond said.

“I don't think you can tolerate a deficit of that magnitude going on for four years,” he said of his projections.

So...does Drummond support a deficit over a few years or is that wishful thinking?

Please read more of what he says. He indicates he thinks some major program cuts are in order. In his words, some of them have to be "nuked."

We have seen in the past that the Liberals are capable;e of that. Are the Tories? By your account, you think running a deficit for a few years is a good thing.

Edited October 17, 2008 by jdobbin

[Moonbox]

That claim that people recovered their investments has no basis in fact if you read the Report on Business and Financial Post. There is lots written about this and many analysts dispute the claim the government made on why they did it.

A report done by the Finance Department under the LIBERALS indicated that the Income Trusts were costing the federal and provincial governments hundreds of millions. This is why Income Trusts taxes were re-evaluated.

I have no problem appointing Senators. It is how the system was set up. I do have a problem appointing a Senator to a primary cabinet portfolio where they are beyond questioning in the House of Commons.

Appointing Senators is status quo then huh? Well good thing for the conservatives then that Trudeau and others set the precedent in appointing senators to cabinet. It's a terrible thing when Harper does it though...just terrible.

What's also particularly hard to swallow is that you are outraged at the conflict of interest in Senator/Cabinet appointment but somehow it's okay because the 'system was set up' so that the major check and fail safe on our ruling government is run by people who were appointed by the ruling government. This is one of those cases where I'm not impressed with Harper.

No, he didn't. He just assumed Harper would not cut.

Drummond implied, but went pretty much as far as saying that the consequences of cutting government spending in an economic downturn would be a bad thing to do. He didn't argue against a short term deficit. He argued against long term deficit running a la Trudeau/Mulroney.

The bullying covers more than just how he deals with the Opposition. It is how he deals with a lot of people. Continue the brinkmanship and he will see an election inside of three months.

There will not be another election for at least another 1.5-2 years. Who will oppose them? I don't think he cares if he makes friends in a whiney parliament when he knows he doesn't have an effective opposition. Why would he play nice? He practically has a majority government now and the threat of the Liberals doing something is very unlikely to materialize any time soon.

Please. Even Ontario was seeing major consumer spending, homes being built, office towers under construction. If you want to insist Canada was in a recession since 2006, it just doesn't fly. And it isn't like Harper's spending was directed solely at manufacturing, was it?

WE had a military college in Kingston. Harper re-opened one in Quebec for millions. Still waiting to hear the final costs.

The economy has been slowing since mid-2007. This is when the banks started showing huge losses. This is when the Canadian dollar started approaching par. The economic crisis has come as no surprise to a lot of people.

As for the spending, it doesn't have to be directed at manufacturing to be effective. Throwing money at manufacturers only encourages them to be inefficient. The important thing is to just get money flowing in the economy. More money in the economy means more spending.

As for the VIA RaIl or the rail line in Flaherty's riding, total waste of money.

It is new spending if Harper re-instated it.

It was cancelled in the first place because money was hidden and siphoned through it for the sponsorship scandal. It didn't look good on Paul Martin's books to be increasing funding for an organization party to corruption.

You are completely wrong. Drummond says said it is unacceptable to run deficit for a long time and he thinks Harper is headed that way.

Haha. First off, he's predicting a budget deficit four years forward with no spending cuts. If Harper runs multi-billion dollar deficits 4 years in a row he'll have lost my support as well. As of yet, we haven't seen what his 2009 budget is and we don't even know if he's going to keep his recent spending promises. You'll probably be outraged if he doesn't keep his spending promises though too.

We have seen in the past that the Liberals are capable;e of that. Are the Tories? By your account, you think running a deficit for a few years is a good thing.

For a few years, yes. For many years? No. Referring back to Chretien Liberals of the 1990's for their good fiscal management also loses some of its effect when the current Liberals are promising to do a bad job themselves.

[jdobbin]

A report done by the Finance Department under the LIBERALS indicated that the Income Trusts were costing the federal and provincial governments hundreds of millions. This is why Income Trusts taxes were re-evaluated.

And other reports indicated the damage of ending the income trusts could be greater. This is all well documented in the National Post.

Appointing Senators is status quo then huh? Well good thing for the conservatives then that Trudeau and others set the precedent in appointing senators to cabinet. It's a terrible thing when Harper does it though...just terrible.

I disagreed with Trudeau when he did it. Thankfully, it has been quite some time since it has happened although I didn't expect Harper to do it given what he believes is the Senate's weakness. But support him all you want, I figured Trudeau was wrong on the subject.

What's also particularly hard to swallow is that you are outraged at the conflict of interest in Senator/Cabinet appointment but somehow it's okay because the 'system was set up' so that the major check and fail safe on our ruling government is run by people who were appointed by the ruling government. This is one of those cases where I'm not impressed with Harper.

My personal opinion is that the Senate should end. However, I don't want to open the constitution because the minute you do, everyone and their dog will want to change something else.

Harper should stop thinking he can unilateral elections for provinces that don't want them. The Constitutional amending formula would probably slap in down in that regard. I figure he has gotten a legal opinion to that effect.

Drummond implied, but went pretty much as far as saying that the consequences of cutting government spending in an economic downturn would be a bad thing to do. He didn't argue against a short term deficit. He argued against long term deficit running a la Trudeau/Mulroney.

He said once it starts, it would likely last years. And he doesn't support it. I've seen no evidence that Harper had control over his spending.

There will not be another election for at least another 1.5-2 years. Who will oppose them? I don't think he cares if he makes friends in a whiney parliament when he knows he doesn't have an effective opposition. Why would he play nice? He practically has a majority government now and the threat of the Liberals doing something is very unlikely to materialize any time soon.

If he runs a deficit, look out. He is vulnerable in a lot of ways.

The economy has been slowing since mid-2007. This is when the banks started showing huge losses. This is when the Canadian dollar started approaching par. The economic crisis has come as no surprise to a lot of people.

Total bull if that is used to justify Harper's spending. He wasn't pump priming the economy.

As for the spending, it doesn't have to be directed at manufacturing to be effective. Throwing money at manufacturers only encourages them to be inefficient. The important thing is to just get money flowing in the economy. More money in the economy means more spending.

There was plenty of money flowing until fairly recently. GDP growth, jobs were all doing well even in Ontario. The high dollar hurt the manufacturing sector but we didn't need the spending the Tories did.

It doesn't even sound like a real fiscal conservative could ever make that claim. The only one I have ever heard make it is you.

Do you know of anyone else who makes the claim that spending was necessary to keep things going back in 2007?

It was cancelled in the first place because money was hidden and siphoned through it for the sponsorship scandal. It didn't look good on Paul Martin's books to be increasing funding for an organization party to corruption.

VIA was a black hole. Harper should have left well enough alone.

Haha. First off, he's predicting a budget deficit four years forward with no spending cuts. If Harper runs multi-billion dollar deficits 4 years in a row he'll have lost my support as well.

I'll remind you of this conversation because I think you will find a reason to support the Tories even if they run large deficits in the years to come.

As of yet, we haven't seen what his 2009 budget is and we don't even know if he's going to keep his recent spending promises. You'll probably be outraged if he doesn't keep his spending promises though too.

Will I? I will cheer him on if he can reduce spending.

For a few years, yes. For many years? No. Referring back to Chretien Liberals of the 1990's for their good fiscal management also loses some of its effect when the current Liberals are promising to do a bad job themselves.

We have gone over this before in other threads. It wasn't a few years, it was many years of sound financial management.

Harper is the boss now. Time to shape up.