What plan for the upcoming boom?

[Machjo]

Last quarter we recorded deflation in the economy. Now certainly is not the time to worry about labour shortages, inflation, high interest rates, and growing government debt, but rather deflation. This, however, is precisely the time when the government should be looking ahead and drawing up a detailed global and long-term counter-inflation policy. Of course we would not expect the government to implement the strategy while we're in a state of deflation, but it is the time to plan for it, while we're not in any state of panic, thus allowing us to plan it in a calm and rational manner. We may be out of deflation by next month, or maybe next quarter, or maybe later still. But whenever it comes, we should be ready for it now.

This I think is the error that the government for this recession. Since we were not in recession, the government chose to lazy about and not do its job and look tothe possibilities. It should have at lesat considered the possibility of recession, unemployment, and deflation and have a rational plan of attack, not the multi-billion dollar knee-jerk reaction it exhibited owing to lack of preparation. I hope the government wont' repeat this mistake for the upcoming boom, and just as it should have planned for the recession before the recession, so it should be planning for the boom before the boom.

But alas, I doubt they can see that far.

Edited July 25, 2009 by Machjo

[Bonam]

Umm 2-4% inflation per year is healthy and the various governments of Canada (both conservative and liberal) in recent years have succeeded in keeping it there, until the present "recession". Given that the government has been able to maintain its target inflation rate in the past with relatively little difficulty, I don't see why additional planning in this regard is necessary. The upcoming period of recovery will certainly not be some unprecedented boom that we can't keep up with.

[Machjo]

Umm 2-4% inflation per year is healthy and the various governments of Canada (both conservative and liberal) in recent years have succeeded in keeping it there, until the present "recession". Given that the government has been able to maintain its target inflation rate in the past with relatively little difficulty, I don't see why additional planning in this regard is necessary. The upcoming period of recovery will certainly not be some unprecedented boom that we can't keep up with.

There's a difference though. Governments have also pumped large quantities of stimulous spending worldwide during this recession. While that's fine, and perhaps even necessary, in times of deflationary recession, as now, it also means that once the economy recovers, all that stimulous money is still floating around, money that wasn't there before the recession. So now not only is the money that was there before just waiting to be circulated again, but that will be on top of all the stimulous money too, a problem we didn't have before the recession.

Like I said, in a recession, it's not so bad, and maybe even encessary. But after the recession, we need to rake all that excess cash back up again.

In fact, I just found this on the CBC website suggesting that some countries are starting to prlan for this very problem. I hope Canada is among them:

http://www.cbc.ca/money/story/2009/07/20/f...k-round-up.html

[Bonam]

Interest rates will go back up, subsidies and stimulus-related offers will expire, and that'll be that.

[Machjo]

Interest rates will go back up, subsidies and stimulus-related offers will expire, and that'll be that.

Rising interest rates aren't healthy either as that simply increases the debt burden and thus starting the whole cycle towards the next recession all over again.

Instead, if governments could be pro-active in adopting effective policies to increase government revenue and decrease government sepnding as soon as inflation kicks in, no matter how low, this would keep interest rates, inflation, and the debt down simultaneously while preventing labour shortages from occuring all at the same time. Of course there are two potential prices to pay for this:

1. Possible increases to taxes, fines, fees, or other source of revenue, and/or

2. Reductions in government spending.

If the threat is great, either the revenue increase, the spending reduction, or both, may have to be steep. However, I believe it would be a small price to pay to smoothen out future booms and busts in the economic cycle. The question is, will we have the political will to do this, or will we rather just let inflation, interest rates, debt, and/or labour shortages to go up to just repeat the cycle again in a few years or decades facing a deep recession anew.

[Machjo]

My guess is, we'll choose the latter and repeat the whole cycle again unfortunately.

[Moonbox]

My guess is, we'll choose the latter and repeat the whole cycle again unfortunately.

We need reduced spending. Harper and Martin have been overspending for years now.

[August1991]

Governments have also pumped large quantities of stimulous spending worldwide during this recession. While that's fine, and perhaps even necessary, in times of deflationary recession, as now, it also means that once the economy recovers, all that stimulous money is still floating around, money that wasn't there before the recession.

Uh, technically you are wrong.

To get the money to pay for all that stimulus spending, governments have either used money raised by taxes or used money raised by selling government bonds. In either case, taxes or bonds, there is less money in public hands and so there is no "new" money "floating around", as you put it.

I suppose you might mean the "new money" created by central banks. This new money isn't floating around in the economy though. I suppose you are aware that the housing market and stock market have gone down/become volatile in the past few months. As a result, many people have shifted (some of) their savings (financial wealth) into cash or near cash securities. Central banks have wisely accommodated this preference for cash.

[madmax]

The 3rd quarter results haven't come in yet, and I am tired of all this speculation that somehow we are out of the wods.

I have just followed another plant closure in which the #1 client with 85% of the business wanted to maintain production in Ontario, but was forced to move to the United States in a takeover bid. That doesn't help Ontario.

Also, a major corporation that Harper made a stop at has just announced a significant layoff last week, and Ironically another company that Dion visited closed its doors for good.

These people will not be rushing out to purchase.

Nor will those people laid off at Nanticoke, and Tony Clements dithering hasn't helped the situation. Leaving US STEEL in the position of strength when he should have acted immediately, US Steel sees our government as weak, and is not in fear of the threatened $10,000 per day fine.

Business is booming so much, that not only does Ontario not need to build a nuclear reactor, Bruce Power has voluntarily shut down 2 more because of a lack of demand for power because of industrial slowdown.

There won't be an upcoming boom... but a leveling off.

The future as I see it will be all financing and insurance procedures can be done more affordably offshore.

We don't need these higher paid people and the office overhead, when everything can be done offshore and through the internet...

Then we will become internationally competitive...

[Smallc]

Jobs trail the economy. Also of note, Ontario is a large part of the economy (40%), but not the entire economy.

[Moonbox]

Jobs trail the economy. Also of note, Ontario is a large part of the economy (40%), but not the entire economy.

Yeah jobs also trail a faltering economy as well. We still haven't seen anywhere near the whole picture in terms of job losses. There are many more to come.

[Topaz]

I wonder how many of the employed are full time and how many are part time. It seems more businesses are going to part time worker rather than full time which does help the people who are working and may lose their jobs. Perhaps they could change the EI law they part timers don't have to pay into EI since they won't get it. We still have a high unemployment rate and some of those even taking training may not find a job after they end the training so the provinces will be hit with more welfare. The Feds won't have the income tax revenues, so the how is the Feds going to get this mess under control????.....lets have an election and hope the Libs win and then we can be on the other side of the Commons and its not OUR problem! How can anyone have faith in a lawyer for a Finance Minister to get Canada into and out the mess we are in?

[M.Dancer]

Perhaps they could change the EI law they part timers don't have to pay into EI since they won't get it.

Unless EI law have changed, part timers are eligble with a few restrictions. I believe they have to work more than 15 hours a week and have had the job for at least 1 year

[Jerry J. Fortin]

What boom? Did I miss something here? I still see jobs disappearing, a sliding house market, weak stock markets and negatives everywhere. Where are the real positives?

[Smallc]

Yeah jobs also trail a faltering economy as well. We still haven't seen anywhere near the whole picture in terms of job losses. There are many more to come.

That's right, but it doesn't change the fact that the economy is starting to stabilize, even if the job situation isn't.

[Machjo]

Uh, technically you are wrong.

To get the money to pay for all that stimulus spending, governments have either used money raised by taxes or used money raised by selling government bonds. In either case, taxes or bonds, there is less money in public hands and so there is no "new" money "floating around", as you put it.

I suppose you might mean the "new money" created by central banks. This new money isn't floating around in the economy though. I suppose you are aware that the housing market and stock market have gone down/become volatile in the past few months. As a result, many people have shifted (some of) their savings (financial wealth) into cash or near cash securities. Central banks have wisely accommodated this preference for cash.

Sorry, I should have worded myself more clearly. You're right. However, there are similarities. Let's suppose my lazy and sloppy wording had been taken literally, that the government had literally 'printed' more money to put into the economy. Not a bad thing per se when we're suffering from deflation, but it would mean of couse that we'd then have to take that money back out of the economy afterwards.

Now if instead of producing money, the government just borrowed its way out of recession, then that still leaves us with the question of how to pay for it with rising inflation, interest rates, etc. While counterdeflationary printing of money might be beneficial in times of recession, it's certainly not beneficial in a boom. So when the boom hits, printing our way out of debt will not be a wise option. So though you were technically right and I was wrong in my sloppy post, the end result will still be the same more or less: the government will need to raise revenue (either through taxes, fines, service fees, selling off government assets, etc.) and/or reduce spending. So the solution sill be similar with the difference that the money then saved will have to go towards paying the debt.

[Machjo]

What boom? Did I miss something here? I still see jobs disappearing, a sliding house market, weak stock markets and negatives everywhere. Where are the real positives?

Before the recession, you wre likely among the ones saying:

"What recession? Did I miss something here? I still see people working everywhere, rising house markets, healthy stock markets and positives everywhere. Where are the negatives?"

Ever heard of planning ahead?

[madmax]

That's right, but it doesn't change the fact that the economy is starting to stabilize, even if the job situation isn't.

What emperical data do you have to support the statement the economy is starting to stablize?

[Bonam]

What emperical data do you have to support the statement the economy is starting to stablize?

The Bank of Canada statement and the empirical data that support it.

[Machjo]

The biggest concern I have is with repeating the recession fiasco. Before the stock market crash, not one politician that I know of had any plans for so much as a potential recession. Only after the crash did most party leaders react, with Harper the exception, and that in the beginning of a recession. Then, we had debate end up in prorogation of parliament, and finally, long-winded debate and finally action. By the time action came, however, special interest groups had already had plenty of time to all get their hands in the pot.

Now I could see a parallel happen with a boom too. Imagine the following parallel scenario:

We climb out of recession and everyone's happy. Later, we have an election, and right in the middle of the election, the stockmarket experiences a sudden price jump and the market really starts to heat up. Only then do politicians finally wake up to the reality of a boom, though some still deny it. After the election, we have another prorogued Parliament, and finally agreement, but only after a bunch of special interest groups have already secured minimum wage hikes, salaries and other financial services pinned to the inflation rate, government mandated price freezes, etc. You get the picture. Another fiasco like the recession.

Now of course we might be lucky and we could be sounding an alarm for nothing. But considering that so much as the possibility of infltiton should be enough to get any responsible politician raising this in Parliament to try to work out a plan now that Parliament can agree to so that when inflation does strike, a plan of action is already in place to be implemented.

Would it really be too much to ask for politicians to plan ahead?

[Jerry J. Fortin]

Before the recession, you wre likely among the ones saying:

"What recession? Did I miss something here? I still see people working everywhere, rising house markets, healthy stock markets and positives everywhere. Where are the negatives?"

Ever heard of planning ahead?

Actually I was one of the folks saying, "How are our kids going to afford a house?" The positives were are focused around unsustainable growth, which is what really happened with the real estate markets and the economy in general. The boom and bust society is something I am very used to because I come from Alberta. Even so, markets are speculative at best and the bulls and the bears come and go as they please. I have always said that you should only put into the stock market what you could afford to lose, sort of like going to the track or the casino. You shouldn't expect to win, but be real happy if you do, its a gamble no matter how you look at it.

Planning ahead is actually were I come from! I don't take risks that I don't have to.

[Machjo]

Actually I was one of the folks saying, "How are our kids going to afford a house?" The positives were are focused around unsustainable growth, which is what really happened with the real estate markets and the economy in general. The boom and bust society is something I am very used to because I come from Alberta. Even so, markets are speculative at best and the bulls and the bears come and go as they please. I have always said that you should only put into the stock market what you could afford to lose, sort of like going to the track or the casino. You shouldn't expect to win, but be real happy if you do, its a gamble no matter how you look at it.

Planning ahead is actually were I come from! I don't take risks that I don't have to.

Sorry. Then I'd just misread your quote to suggest that governments need not plan ahead. My mistake.

[Jerry J. Fortin]

Sorry. Then I'd just misread your quote to suggest that governments need not plan ahead. My mistake.

That is the only real function for government!

[Machjo]

That is the only real function for government!

What is the only real functin of government? To plan ahead, or to not do so? I'm not sure which you mean? And how would that apply to things other than the economy, such as military, etc.?

[Jerry J. Fortin]

What is the only real functin of government? To plan ahead, or to not do so? I'm not sure which you mean? And how would that apply to things other than the economy, such as military, etc.?

Planning is the function of government. Unfortunately day to day operations seem to take precedence.