Canada's debt

[Smallc]

Canada's total debt will jump more than 30 per cent by 2013-14 under current economic conditions, the Toronto-Dominion Bank said Tuesday in a new forecast.

The bank said Ottawa's auto bailout package, as well as a lagging economy, will add $167 billion in new public borrowing over the next five years.

That means government debt, estimated at $462.9 billion at the end of fiscal 2008-09, will rise by 36 per cent during the period to almost $630 billion, according to Don Drummond, TD's chief economist, and Derek Burleton, the bank's director of economic analysis.

But wait, there's more:

The federal deficit will peak at $51 billion in 2009-10 and then drop marginally to $45 billion in the next fiscal year. By 2013-14, the final year of TD's outlook, Ottawa's shortfall will be at $19.4 billion.

Canada's debt to jump to $630B in 5 years: TD Bank

Now who are we to believe, the bank who told us we'd be in deficit before the government did, the bank that is said to be the best managed on earth, and the bank that has a former Deputy Minister of Finance as it's Chief Economist....or Jim Flaherty?

[waldo]

Now who are we to believe, the bank who told us we'd be in deficit before the government did, the bank that is said to be the best managed on earth, and the bank that has a former Deputy Minister of Finance as it's Chief Economist....or Jim Flaherty?

well..... clearly... trust and believe in Deficit Jim!

TD warns that Ottawa's forecasts are way off

Mr. Flaherty told reporters that Bay Street forecasters are entitled to their view.

"I am sure different economists will have different views," he said. "But I am not going to respond to this economist and that economist, day after day."

[capricorn]

Now who are we to believe, the bank who told us we'd be in deficit before the government did, the bank that is said to be the best managed on earth, and the bank that has a former Deputy Minister of Finance as it's Chief Economist....or Jim Flaherty?

At Ignatieff's request, David Dodge met with him early in May at Stornaway.

Liberal Party Leader Michael Ignatieff has quietly reached out to an economic brain trust that includes former Bank of Canada governor David Dodge as his party begins developing a new platform that sources say would serve as an eventual trigger to bringing down the Conservatives.

Liberal sources said that Mr. Ignatieff met Mr. Dodge, TD Bank Financial Group CEO Ed Clark and two other notable economic thinkers at an exclusive dinner at his Stornoway home a few weeks ago.

---

“He was posing the question; ‘If I were prime minister, what are the things I ought to be doing?'” the source said.

http://www.theglobeandmail.com/news/politi...article1145799/

The above article does not say what advice Dodge gave Ignatieff. A week later, Dodge commented on the deficit.

Former Bank of Canada governor David Dodge said on Sunday that the Canadian government's deficit, which will exceed $50-billion this year, is right given the recession, though lawmakers must commit to cut it later.

"The Canadian federal deficit of 3% of GDP, in a year where the output gap is as large as it's going to be, is certainly not inappropriate," Dodge, a former deputy minister with the Finance Department, said in remarks at an economics conference in Toronto.

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"To preserve confidence in the future stability of public finances, it's very important that Canadian governments, federal and provincial, now make commitments to the reduction or the elimination of that discretionary spending at some point in the future," Dodge also said.

http://www.financialpost.com/news-sectors/...html?id=1650816

So it's not presumptuous to conclude that Dodge made his views on the deficit known to Ignatieff in their tête-à-tête in May, that is, that the deficit is appropriate given the depth of the recession. But Ignatieff continues to hammer on the deficit.

Ignatieff cites four reasons to topple the government.

He listed four issues which will determine the Liberal decision:

-The "major medical crisis" provoked by the shut-down of the isotope-producing nuclear reactor at Chalk River.

-The government's refusal to adopt equal access to Employment Insurance across the country.

-The fact that only six per cent of infrastructure funds have actually started flowing.

-The ballooning federal budget deficit.

http://www.google.com/hostednews/canadianp...1f2jPOyJ-0lgs0g

As election campaigns go, I wonder which of the above four issues will resonate most with voters. Throwing all of them into the mix may be too much to juggle, especially for someone without any campaigning experience.

[Smallc]

The deficit keeps getting bigger. Taxes were cut too fast....and now we'll have to cut spending again to get out.

[M.Dancer]

The deficit keeps getting bigger. Taxes were cut too fast....and now we'll have to cut spending again to get out.

Last year there were complaints that the Tories hadn't really cut taxes so I am assuming that you are talking about the MArtin Chretien tax cuts

[Smallc]

I'm talking about the GST cuts...and yes, the they have cut taxes....and they left us no room to maneuver. We would have been in deficit no matter what...but we migh have been able to get out again. Right now it looks like that will be difficult.

[M.Dancer]

I'm talking about the GST cuts...and yes, the they have cut taxes....and they left us no room to maneuver. We would have been in deficit no matter what...but we migh have been able to get out again. Right now it looks like that will be difficult.

Might be a little easier if there are spending and (corporate) tax cuts.....

[capricorn]

The deficit keeps getting bigger. Taxes were cut too fast....and now we'll have to cut spending again to get out.

Yes, it's a mess. An election will come sooner or later and given the polls, it's a toss up whether we'll have a Conservative or a Liberal minority. Neither party has presented any plan to deal with the deficit in future years. This is not at all surprising. Why would the parties spend the time and energy developing a plan they would not be in a position to implement? They're too busy trying to shoot down and look better than their opponents. Most Canadians are now conditioned to the fact that we're in deficit, and are more concerned with the here and now than with future outcomes.

[benny]

Yes, it's a mess. An election will come sooner or later and given the polls, it's a toss up whether we'll have a Conservative or a Liberal minority. Neither party has presented any plan to deal with the deficit in future years. This is not at all surprising. Why would the parties spend the time and energy developing a plan they would not be in a position to implement? They're too busy trying to shoot down and look better than their opponents. Most Canadians are now conditioned to the fact that we're in deficit, and are more concerned with the here and now than with future outcomes.

If one wants to see a big debt to be replaced by a big surplus, then replace the idea of income or consumption taxations by the idea of economic rent capture.

http://www.gpo.ca/node/1788

[geoffrey]

Your an idealist my friend, not a realist.

1. Print just enough money to stop the deflation (any more than that woud be harmful) and put that money into ethical funds. This would have a few advantages:

a. It would put more money in the economy by increasing demand for funds, thus providing businesses with the funds they need.

b. It would ensure that the money goes towards promoting ethical industries.

c. Once the economy picks up (which is when we're most at risk of inflation) the government could then start to sell those shares and take that money back out of the economy. This would kill two birds with one stone by putting money into the economy in a recession while being able to pull it back out of the economy in tmes of inflation, thus helping to stabilize the conomy.

d. It would allow us to increase spending without having to borrow. In fact, if we have debt, we could even pay down the debt with this printed money.

Printing just enough money to stop deflation is exactly what we're trying to do. However, it's not that simple. Economics has so many moving parts one could never be EXACTLY right. Not even close to right. It's really a shot in the dark. Monetary policy has significant lags, you see results many months after a policy is inacted. That makes it VERY difficult to make precise adjustments.

a - Putting more money into the economy increases the supply of funds and lowers rates... it does not increase demand (the opposite).

b - Ethical industries are quite subjective. Most would say Monsanto is not an ethical company. But their technology allows billions to be fed. Too many moral grey areas. I don't want the government making moral decisions. Further, ethical funds make lower returns on average.

c - And crash the economy by removing all that investment?

d - Printing money to reduce debts will *always* cause inflation.

I think your a little misled by the media on how the government "prints money." It doesn't really just print it. The Bank of Canada is the money "printer" in Canada. When the Bank of Canada wants to EXPAND the money supply, it buys securities (generally government bonds, but in the US it's expanded to corporate names) on the open market. It gives people cash for bonds. When it wants to CONTRACT the money supply, it sells securities and takes cash away from people in exchange for bonds.

When the government issues a bond, and the Bank of Canada buys some of that, that is also "printing money." The Bank of Canada has not been involved in this to any extent greater than normal practices at this time. Small manipulations here and there, but nothing large scale like the Fed has done.

It's not like Jim Flaherty (elected representives have no control over money supply at all anyways) can just print up some cash and buy an ethical fund. You can free up cash in the markets for individuals to invest, but the government is generally pretty restricted from printing its own money for investment.

[benny]

Printing just enough money to stop deflation is exactly what we're trying to do. However, it's not that simple. Economics has so many moving parts one could never be EXACTLY right.

An economy is not a mechanical device but a strategy game. Monetary policy is tricky because of private agents' incentives to bet against public officials on issues involving public goods, externalities and moral hazard.

[Oleg Bach]

The banking community is the government - what they say is true and what gov says is to maintain their careers and free ride.

[benny]

The banking community is the government - what they say is true and what gov says is to maintain their careers and free ride.

The government is the principal and the chartered banks are only its agents and the incentives of agents don't coincide with the ones of the principal.

[geoffrey]

The government is the principal and the chartered banks are only its agents and the incentives of agents don't coincide with the ones of the principal.

Chartered bank management are the agents of their shareholders. Not sure how the government figures into this picture.

[benny]

Chartered bank management are the agents of their shareholders. Not sure how the government figures into this picture.

Canadian banks shares are traded in Canadian dollars which are a public good belonging to government.

[geoffrey]

Canadian banks shares are traded in Canadian dollars which are a public good belonging to government.

What the hell?

[benny]

What the hell?

Money is about seignoriage.

[Moonbox]

Money is about seignoriage.

Seigniorage doesn't make the Canadian Banks agents of the government. The government can certainly influence them and the markets with monetary policy, but the Charterd Banks are still going to act in the best interest of their shareholders first.

Edited June 3, 2009 by Moonbox

[benny]

So by that logic, it's actually a privilege the government grants me to be able to wear the underwear I have on because I paid Canadian dollars for it and that's a public good belonging to the government. My underwear is a public good?

Did I miss something? DID THE USSR WIN???

It is not your face but the face of the Queen that appears on the Canadian currency.

[Moonbox]

It is not your face but the face of the Queen that appears on the Canadian currency.

I edited my post and took that out sorry. I think I understood finally at least what you were TRYING to say, although it still doesn't really make sense.

[sharkman]

I think the whole scary Tory debt thing is just not getting traction in Canada. When our beloved Obama is willing to dig a multi-trillion dollar hole for his citizens, well then debt must be the way to go, and mere 10 of billions is actually pretty small.

[Jerry J. Fortin]

The national debt right now is simply a non-issue. We can handle this and a hell of a lot more before things get completely out of whack. The real issue is the "whack" job done to the economy by the government. Spending is the real issue, not debt or deficit. Spending is the root, deficits and debts are only symptoms of the actual problem. Governments need to understand their own spending before they can actually do anything.

[benny]

Seigniorage doesn't make the Canadian Banks agents of the government. The government can certainly influence them and the markets with monetary policy, but the Charterd Banks are still going to act in the best interest of their shareholders first.

The government is the lender and therefore the shareholder of last resort.

[capricorn]

The national debt right now is simply a non-issue. We can handle this and a hell of a lot more before things get completely out of whack. The real issue is the "whack" job done to the economy by the government. Spending is the real issue, not debt or deficit. Spending is the root, deficits and debts are only symptoms of the actual problem. Governments need to understand their own spending before they can actually do anything.

The Liberals had a program review in the 90s which resulted in scaling back the public service and some programs were eliminated. But in the ensuing years until their defeat in 2004, they increased spending and the bureaucracy burgeoned to pre 90s levels. So the savings were short lived.

The Conservatives have tried to scale back without success. None of the interest groups want their pet areas downsized and the Conservatives are hammered every time they suggest cuts to anything. In their minority situation, it's almost impossible for Conservatives to make spending cuts that will be approved by the House.

John McCallum supports spending review but does not think any program cuts should be made during economic downturns.

An annual spending review that triggered an electoral backlash in Quebec is under way again with Ottawa calling on a new list of senior bureaucrats – including several in the arts – to scour their budgets for savings of 5 per cent.

Sources have told The Globe and Mail that the departments of Indian and Northern Affairs, Natural Resources, the Canada Mortgage and Housing Corporation, Via Rail and several other departments and programs have been told to begin identifying low-priority spending and to consider reallocating the cash to other areas.

The government has also tabbed the Canadian Broadcasting Corporation, Telefilm Canada, the Canada Council for the Arts and the National Film Board to look for the savings. All departments in government must eventually face a review at some point within a four-year cycle announced in 2006. This year's group is the third to go through the process, known as Strategic Review.

---

Liberal finance critic John McCallum said he supports the process, but that it should be suspended in the current downturn because it runs counter to the government's effort to stimulate the economy.

“I'm a great believer in that sort of thing in normal times because when we were in government, that was one of my jobs,” he said.

“But I do not think when we're in the middle of a deep recession that this is the time to do this. The time to do this is after the economy recovers.”

http://www.theglobeandmail.com/news/nation...article1165977/

Conservatives are hamstrung in efforts to cut spending and the Liberals want spending to remain at current levels. So the bottom line is that there will be no cuts to government spending for many years to come. Only if the Conservatives gained a majority would we see a serious attempt at cutting the fat. As things, stand this is not in the cards.

[Smallc]

The Conservatives have tried to scale back without success.

They have? When? Where?