Upcoming Federal Budget for 2 May

[August1991]

Critics say that Canadians earning between $10,000 and $85,000 annually who don't have children under six years old would be better off under the Liberal income-tax breaks enacted last November than they would be under the one-percentage-point GST cut and targeted measures the Tories pledged in the recent election campaign.

That's because this group doesn't benefit from the annual $1,200-a-child daycare payment the Tories are giving to parents with children under 6.

G & M

This can't be allowed to happen. The federal government is rolling in dough. This money should never have been collected in the first place. Income taxes must be cut (to head off any chance this money will ever get spent on government programmes.) In addition, the federal budget must start the process of cutting spending.

The federal government must get out of areas not within its jurisdiction. Harper's speech in Montreal in which he said that he would be willing to limit the federal government's spending powers is welcome news.

I suspect Harper will want to present an "honest" budget as opposed to the PR exercises the Liberals gave us. Unfortunately, the federal budget is so complex that it can't avoid becoming a political exercice where factual truth is an elastic concept.

For political reasons, the budget will appear to have a small surplus but in fact, a deficit would be better.

And of course, the budget will have the GST cut and the $1200 for kids under six.

Anyone about to buy a car or a house should wait until the first week of May to close. The GST cut will save them a few hundred, or a few thousand dollars.

[geoffrey]

Careful August when you say a deficit would be better. We should aim for a balanced budget. I am in complete agreement that surpluses are a terrible thing, but I feel the same about deficits too. Any move away from tax and spend would be welcome though.

The overhaul people like you and I want to see with the fiscal system can't happen overnight. The government can't just cut taxes 10% to make tax room for the provinces to immediately take over the responsibilities, if they need the additional money. Any movement in that direction though, should be applauded.

Hopefully, however, the Tories will maintain the Liberal tax cuts. I did hear a rumour today on the TV that they are looking at maybe an additional 1 point cut to both middle income brackets on top of it, but it was purely rumour I'm sure. The government can afford it though, and it would be a step in the right direction, a step away from this centralisation of government spending.

--

A note about surpluses, just thought I'd throw this idea out there. To stop the tax and spend mentality, why not refund all surplus money to taxpayers in either a credit on next year's taxes or in a cheque like Ralph. I don't agree with the same amount going to everyone (as some pay more than others), but all surplus money should be returned in dividends to the shareholders (taxpayers). Surplus money belongs to us, not the government, its time we get it back.

[shoop]

The value of the past (and future) Ralphbucks is debateable.

Regardless of your feelings on the issue, they would not have been justified if there was a provincial debt in Alberta.

Surpluses should got to paying down the debt as long as there is a debt.

A note about surpluses, just thought I'd throw this idea out there. To stop the tax and spend mentality, why not refund all surplus money to taxpayers in either a credit on next year's taxes or in a cheque like Ralph. I don't agree with the same amount going to everyone (as some pay more than others), but all surplus money should be returned in dividends to the shareholders (taxpayers). Surplus money belongs to us, not the government, its time we get it back.

[uOttawaMan]

I agree with the idea of the surplus money being divided up and otherwise utilised, rather than the gov't sitting on it like a trophy then spending it at random.

IF there are any economists or otherwise knowledgable people on the subject here, my question is this (purely a question, no political agenda behind it, i really dont know)

What is the purpose if any to paying down our "national debt"? Does it really benefit us economically , or help us for the future somehow? Or is it just some kind of feel good tag the government or parties can run part of a platform off of, by saying, "We are reducing the debt!"?

Edit: I see shoop just made a post regarding debt, all the more reason for someone to explain it to me, so i can contribute at least somewhat intelligently

[geoffrey]

uOttawa,

A large portion of our yearly expenditures at the Federal level (and most provinces) is paying interest on debt.

From the Finance department website:

"The largest single spending item was interest payments on Canada's federal debt (money borrowed by previous federal governments which has not been repaid). These payments—to institutions and individuals who hold federal bonds, Treasury bills and other forms of the debt—cost $35.8 billion, or about 19 cents of every tax dollar." - http://www.fin.gc.ca/taxdollar/where_e.html

That being said, the debt is HUGE. Paying a billion down on it really doesn't accomplish much. $10b for 10 years would reduce that to about $25b a year instead. Is it worth it? Maybe in the long long term.

Personally, I don't think its neccessary or reasonable to pay down the debt.

A somewhat unfounded argument (my opinion) would be that paying down the debt frees up capital to be invested elsewhere, instead of in the government. Well, this is partially false too. The government has that money invested in its assets, paying it back would have a very negliable effect on interest rates or the supply of loanable funds, as we couldn't obviously pay it back in a lump sum.

Now the argument against running large deficits is very real. The government borrowing money competes with you and I borrowing money, and there is an effect called "crowding out." The shrinking supply of investment capital limits growth and raises interest rates. There needs to be a considerable deficit for this to happen, not a few million, but a few billion. As well, we are just increasing those interest payments I mentioned before.

Why can't you just borrow forever and not worry about paying interest, instead just borrow to cover it? Read this:

Late last year [1994], Mexico entered what was termed "an economic emergency". That country depleted it's dollar reserves and a 50% devaluation of its currency ensued. In some troubling ways, Canada is showing some of the same symptoms as Mexico did just before the latest crisis. All countries have some maneuvering space that allows them to avoid disaster, but once it occurs, it may take over a decade to recover from the impact; that is why it has been equated to hitting a wall.

Hitting the debt wall occurs when a country depending on foreign debt and/or investment to subsidize their budget or commercial deficits stops being the recipient of foreign capital flows. The lack of foreign capital flows reduces the demand for the local currency. The increased supply of local currency together with an increased demand for dollars causes then a significant devaluation of the currency. Imports as well become hard to come by, be it Japanese VCRs or raw materials for toothpaste containers. This hurts the industrial base of the country since it can no longer afford to buy those imported supplies needed for production. Further, any obligations in foreign currency are now significantly more expensive to service both for the government and businesses.

Source: http://www.cs.uwaterloo.ca/~alopez-o/politics/dbwall.html

Canada may have been closer than we all thought. Paul Martin handled this well, and Canada needs to thank him, even if it damaged the fiscal balance in the process. Preston Manning also played into this, with ceaseless opposition to further debt.

--

Shoop,

The surplus doesn't belong to the government, they only come about through over-taxation. That money belongs to you and I. Ralphbucks might not have been the best way to spend the money, but does the government have the authority to spend money that it shouldn't have collected? I like Ralphbucks on that basis, that it prevents the government from just taxing to create surpluses so they can spend it on whatever new fancy project appears. We didn't give them permission to pay down the debt, we elect them to spend in their budget, if its not budgetted, it shouldn't be spent! We need to move to a spend and tax instead of a tax and spend.

I discused above my thoughts on debt repayment. Some people do advocate it, some don't. I had this discussion at length with one of my econ profs and he's got me convinced on what I said above, I used to be on your said.

--

I apologise for the long post.

[cybercoma]

The GST cut is good, but the fact that I'm in NB and pay HST not PST and GST may mean I'll still end up paying 15% taxes anyway. No one can seem to answer whether or not the HST will be reduced to 14%. Regardless, a 1% decrease in taxes on what I purchase is negligible unless I buy something large like a car or whatever.

Will the GST benefit eventually be revoked? I know a lot of people that actually depend on that nowadays. Of course, Harper said during his campaign that it wouldn't be, but if they're decreasing GST I don't see why there shouldn't be an equal decrease in the GST checks.

Those of us without children under the age of 6 definitly get the short end of the stick on this budget. The taxes are collected from everyone and everyone should benefit from the government returning that money to our hands. If there is a surplus in tax collection that needs to go back into the pockets of Canadians who drive our economy. The liberal plan of decreasing federal income taxes and/or raising the personal tax exemption was the best plan for Canada. It would put money back into the pockets of the people and really made a large difference to the low income earners. A 1% reduction on consumption tax barely helps anyone and that's IF they even do it.

The point about paying down debt is funny. Everyone knows that it will be beneficial in the future for us to pay down the debt today, except there's one problem with that. Governments last only 4-5 years right now (er...less sometimes), so why would they want to make a difference for canadians 10 or 20 years from now? Obviously because it's the RIGHT thing to do, but immediate results are what the majority of Canadians are looking for and paying down debt to produce results tomorrow doesn't get you re-elected.

How is that problem solved? Do we need a government in power for 10 years or more to solve the problems? Well, that didn't work with the Liberals because they have to fight for their jobs every term...long-term goals can never be a priority. If a government comes in and begins taking away from people today, so that people tomorrow can be better off, they're not going to last very long in office. It's a catch 22, but it needs some serious consideration. I think we need a government that can educate the citizens as to why it's so important for us to cut back now, so Canada can survive tomorrow. But, I'm a pessimist and don't think it'll ever happen.

What if we could reduce our debt another way? I mean, debt is relative right? If I make $20,000/year and buy a $60,000 car, that's not quite the same thing as making $250,000 and buying a $60,000 car. What if our government drove the economy, put money back into the hands of people, put money into the hands of business and attracted investors? If we increase our GDP that way, our debts may stay the same, but they'd be smaller in comparison to the country's value. I'm the first to admit I'm not the most educated person here, but am I wrong in this thinking?

[shoop]

Geoffrey,

If we operated in a vacuum then your arguments about budgeting would have some credence.

However, we don't operate in a vacuum. We are dealing with a huge national debt, a little under $500 Billion from the last figures I could find. I see it as a matter of responsibility. Just as tax money is our money as citizens, so is the national debt our debt as citizens. Total debt charges have dropped by $15 Billion annually since the last Federal deficit budget in 1995-96. While economic times are good we need to continue reducing the debt for a variety of reasons.

1. Leaving a debt for future generations, when we have the means to reduce it, is the ultimate of arrogance and self-centered behaviour.

2. Continue debt reduction creates more money for program spending down the road in the event of a major economic downturn.

3. Some people are always going to argue for less taxes regardless of the situation as you do in stating that surpluses result from "over-taxation"? Do you then agree that deficits are the result of "under-taxation"?

Here's a prime example in Alberta. How can Calgary be the only major city in the country without a blue box recycling program? That is a new program with many, many benefits. A blue box program increases the amount of recycling, because some people just won't go to the community recycling centres.

Shoop,

The surplus doesn't belong to the government, they only come about through over-taxation. That money belongs to you and I. Ralphbucks might not have been the best way to spend the money, but does the government have the authority to spend money that it shouldn't have collected? I like Ralphbucks on that basis, that it prevents the government from just taxing to create surpluses so they can spend it on whatever new fancy project appears. We didn't give them permission to pay down the debt, we elect them to spend in their budget, if its not budgetted, it shouldn't be spent! We need to move to a spend and tax instead of a tax and spend.

I discused above my thoughts on debt repayment. Some people do advocate it, some don't. I had this discussion at length with one of my econ profs and he's got me convinced on what I said above, I used to be on your said.

[August1991]

What is the purpose if any to paying down our "national debt"? Does it really benefit us economically , or help us for the future somehow? Or is it just some kind of feel good tag the government or parties can run part of a platform off of, by saying, "We are reducing the debt!"?

Good question.

Here's one, very simple way of looking at it: The government (Bank of Canada in fact) issues paper money and this money helps us in our daily life. The government also issues bonds (debt) and these bonds help capital markets to function. It would be foolish if the government took all those bonds away from the market in the same sense that it would be foolish if the Bank of Canada were to take all its money out of the economy.

But I think this will better answer your questions:

Who will do you more good: the guy who wants to cut taxes or the guy who wants to pay down the national debt?

Well, why pay the debt at all? The answer—the one and only answer—is that it has to be paid eventually, and if we don't pay it now, we'll be taxed to pay it later. The more we pay up front, the lower our future taxes.

Link

IMO, I fear that we may have turned budget-balancing, or even paying down the debt, into a political fetish.

I think we do this because we imagine government finances the same way we imagine our own household finances. Government debt is not at all like household debt because governments are nothing like a household. Governments spend other people's money at will; no household (or corporation) can do that. This fact changes entirely the whole debt/deficit question.

The most important criteria to measure a government's economic competence is how much money it spends and how it spends the money.

[August1991]

A large portion of our yearly expenditures at the Federal level (and most provinces) is paying interest on debt.

Perhaps, but the interest rate is the lowest you or I will ever get.

Now the argument against running large deficits is very real. The government borrowing money competes with you and I borrowing money, and there is an effect called "crowding out." The shrinking supply of investment capital limits growth and raises interest rates. There needs to be a considerable deficit for this to happen, not a few million, but a few billion. As well, we are just increasing those interest payments I mentioned before.

If the government raises taxes to pay down the debt, that creates "crowding out" in a very real sense. People have less money in their pocket. It doesn't matter whether the government borrows or taxes to get the money to pay for its expenditures - there will still be "crowding out", to use your term.

Why can't you just borrow forever and not worry about paying interest, instead just borrow to cover it? Read this:

Late last year [1994], Mexico entered what was termed "an economic emergency". That country depleted it's dollar reserves and a 50% devaluation of its currency ensued. In some troubling ways, Canada is showing some of the same symptoms as Mexico did just before the latest crisis. All countries have some maneuvering space that allows them to avoid disaster, but once it occurs, it may take over a decade to recover from the impact; that is why it has been equated to hitting a wall.

Hitting the debt wall occurs when a country depending on foreign debt and/or investment to subsidize their budget or commercial deficits stops being the recipient of foreign capital flows. The lack of foreign capital flows reduces the demand for the local currency. The increased supply of local currency together with an increased demand for dollars causes then a significant devaluation of the currency. Imports as well become hard to come by, be it Japanese VCRs or raw materials for toothpaste containers. This hurts the industrial base of the country since it can no longer afford to buy those imported supplies needed for production. Further, any obligations in foreign currency are now significantly more expensive to service both for the government and businesses.

Source: http://www.cs.uwaterloo.ca/~alopez-o/politics/dbwall.html

Canada may have been closer than we all thought. Paul Martin handled this well, and Canada needs to thank him, even if it damaged the fiscal balance in the process. Preston Manning also played into this, with ceaseless opposition to further debt.

What happened in Mexico is that the government was simply unwilling, for political reasons, to raise taxes on Mexicans because it was easier to get money elsewhere.

The Canadian government has many, many taxpayers it can tap whenever it wants if it needs cash. International lenders know this and so Canadian government bonds have extremely low interest rates.

The only way the Canadian government could declare banruptcy (or even miss a payment on debt) would be if it were unable to collect taxes from Canadians. That was the situation of the Mexican government. It is far from the situation of the Canadian government.

In any case, this is a political issue but it highlights why government debt is so diffferent from household debt.

[Argus]

What is the purpose if any to paying down our "national debt"? Does it really benefit us economically , or help us for the future somehow? Or is it just some kind of feel good tag the government or parties can run part of a platform off of, by saying, "We are reducing the debt!"?

If you are reasonably sure that the good times will continue forever, then we don't really need to worry too much about the debt. On the other hand, even under this scenario, less debt means lower debt payments. The billions spent in interest payments to banks could be spent on better health care, or left in the pockets of taxpayers.

Mulroney had a major problem when he took power. It was the huge debt load built up by the Liberals. That debt load, at a time of sky high interest rates, meant the Tories were forced to devote close to $40 billion annually simply to paying the interest. That severely limited his options in coping with the world-wide recession and in turn required his government to borrow the money - which in turn built the debt higher.

The absense of the debt would mean billions more available to the government now, available to severely cut taxes while increasing social spending. Think of it as paying off your mortgage. Suddenly, you have a lot more discretionary money in your budget.

[August1991]

1. Leaving a debt for future generations, when we have the means to reduce it, is the ultimate of arrogance and self-centered behaviour.

I assume you will leave an inheritance to your children. That will more than cover any federal debt they will assume. More generally, your children will inherit a portion of the debt but they will also inherit all the assets of the government. Even more generally, your children will inherit all the innovations in biotechnology, lasers, the Internet and so on - things you never had. On the downside, your children will inherit depleted resources and possible environmental disaster zones.

Shoop, I am not trying to avoid your question by confusing things. I'm merely making the point that government debt can only be seen in a broader context of society in general.

3. Some people are always going to argue for less taxes regardless of the situation as you do in stating that surpluses result from "over-taxation"? Do you then agree that deficits are the result of "under-taxation"?/quote]Where do we draw the line? The real question here is: what is the appropriate level of spending?

My central point is to concentrate on the level of government spending and put into second place the issue of how to pay for that spending.

No household would do that but a government is not a household.

[August1991]

The billions spent in interest payments to banks could be spent on better health care, or left in the pockets of taxpayers.

So you would have the government raise taxes now, retire low interest government debt so that it would not have interest payments in the future.

But by raising taxes now, Canadian families will not have the cash to retire their high interest credit card debt or pay down more quickly their mortgages. We'd be paying off low interest debt first.

Argus, does that make sense?

----

Going back to the question of the federal budget, my fear is that Harper will do as Bush and increase government spending. For political reasons, he'll keep all the Liberal pork and then he'll boost defence expenditures.

If that happens, then I'll know that government is truly out of control. If Harper can't say no to all the people who want government money, who can?

[shoop]

Your argument wouldn't lead to the belief that there is an appropriate level of National debt.

At what level do you see that?

I am not saying that we need to eliminate the debt tomorrow, but a commitment to reducing the debt is a good thing. Returning all surpluses to the taxpayers is nto good policy. The economy will turn down at some point in the future. This would lead to deficits ... not desirable or good policy.

How to pay has to be the focus. If the upcoming budget didn't have that as a focus we would definitely be running a deficit.

I assume you will leave an inheritance to your children. That will more than cover any federal debt they will assume. More generally, your children will inherit a portion of the debt but they will also inherit all the assets of the government. Even more generally, your children will inherit all the innovations in biotechnology, lasers, the Internet and so on - things you never had. On the downside, your children will inherit depleted resources and possible environmental disaster zones.

Shoop, I am not trying to avoid your question by confusing things. I'm merely making the point that government debt can only be seen in a broader context of society in general.

My central point is to concentrate on the level of government spending and put into second place the issue of how to pay for that spending.

No household would do that but a government is not a household.

[lost&outofcontrol]

What happened in Mexico is that the government was simply unwilling, for political reasons, to raise taxes on Mexicans because it was easier to get money elsewhere.

The Canadian government has many, many taxpayers it can tap whenever it wants if it needs cash. International lenders know this and so Canadian government bonds have extremely low interest rates.

The only way the Canadian government could declare banruptcy (or even miss a payment on debt) would be if it were unable to collect taxes from Canadians. That was the situation of the Mexican government. It is far from the situation of the Canadian government.

In any case, this is a political issue but it highlights why government debt is so diffferent from household debt.

Investors were borrowing money at low interest rates to invest in the Mexican currency to basically make "free money". At the beginning of 1994, interest rates started going back up forcing investors to sell off their investments(Mexican currency) and convert them into US currency depleting Mexican reserves until the Mexican banks could no longer honor loans and investments.

If you want to erradicate world poverty and hunger, put a %0.1 tax on currency specualtion.

[August1991]

Investors were borrowing money at low interest rates to invest in the Mexican currency to basically make "free money".

I can understand how people can invest in a house, a business or even a bond. But how would anyone invest in a currency?

If you want to erradicate world poverty and hunger, put a %0.1 tax on currency specualtion.

Spculation is an integral part of the way markets work so I don't know if anyone would really want to place barriers on speculation, assuming they could. The Tobin tax was a throw-away idea about 20 years ago, and it would do nothing to eradicate world hunger or poverty.

Your argument wouldn't lead to the belief that there is an appropriate level of National debt.

At what level do you see that?

Most theories concern how much we should save compared to how the population is changing, and then how this is related to government borrowing. I frankly find these theories far too hypothetical to be of much practical use. So, my simple answer is to say that I don't know what level of government debt we should have.

I am not saying that we need to eliminate the debt tomorrow, but a commitment to reducing the debt is a good thing.

I'm saying that we need no such commitment and more important, we shouldn't turn the debt into a fetish. Instead, we should look at reducing overall government spending, reducing government regulation (eg. the CRTC) and changing the incentive effects of taxes.

I think Harper said during the campaign that the federal government spending under his government would not increase faster than GDP. I was hoping that he could do better than that.

[Riverwind]

Spculation is an integral part of the way markets work so I don't know if anyone would really want to place barriers on speculation, assuming they could. The Tobin tax was a throw-away idea about 20 years ago, and it would do nothing to eradicate world hunger or poverty.

Every respectable stock exchange automatically stops trading if the stock index falls too quickly in a wave panic selling. The US tax code has different tax rates for short term 'speculative' capital gains. Both are examples of regulatory agencies recognizing that certain kinds of investment activity are not in the benefit of the financial markets as a whole and that it is important to discourage them.

[August1991]

I'm not certain that trading halts (so-called circuit breakers) are a good thing or will last long given the likely future of financial market trading.

In any case, a random afternoon halt in trading is one thing but an attempt to control speculators another.

I was thinking of the idea of a Tobin Tax as a transaction cost. Imposing an extra transaction cost on trades will not reduce market volatility, and it would be just an invitation for market traders to find a way to avoid it - so it wouldn't even raise revenues.

The US tax code has different tax rates for short term 'speculative' capital gains.

Ah yes, and that's why tax lawyers are so well paid.

[shoop]

I don't know why you are hung up on the phrase "turning the debt into a fetish".

Knowing the way government works, we need to have serious debt reduction targets. An incentive for not increasing program spending is needed.

The Liberals $3B a year surplus targets are a little weak. According to Finance department estimates if achieved they would reduce debt to GDP ratio to 25% in 2015 and 20% in 2020.

The Government will continue program reviews, thus holding the line on spending increases.

Yes regulatory changes are needed. The CRTC does need to be reviewed. We have seen the benefits of reducing regulation from the Mulroney years. More needs to be done.

Most theories concern how much we should save compared to how the population is changing, and then how this is related to government borrowing. I frankly find these theories far too hypothetical to be of much practical use. So, my simple answer is to say that I don't know what level of government debt we should have.

I'm saying that we need no such commitment and more important, we shouldn't turn the debt into a fetish. Instead, we should look at reducing overall government spending, reducing government regulation (eg. the CRTC) and changing the incentive effects of taxes.

I think Harper said during the campaign that the federal government spending under his government would not increase faster than GDP. I was hoping that he could do better than that.

[Argus]

The billions spent in interest payments to banks could be spent on better health care, or left in the pockets of taxpayers.

So you would have the government raise taxes now, retire low interest government debt so that it would not have interest payments in the future.

But by raising taxes now, Canadian families will not have the cash to retire their high interest credit card debt or pay down more quickly their mortgages. We'd be paying off low interest debt first.

Argus, does that make sense?

IMHO we should pay our own way. If the debt was created during our generation, because of our poor choices, we should be paying it off. Besides, as with personal finance, it's always a good idea to have low debt. It leaves you options in the even you suddenly find yourself in a situation where you have to run huge deficits for whatever reason (ie, war, depression, national disaster etc). Since we CAN pay down the debt now without undue hardship, we should be doing so. As for people who run up high interest credit card debt - in most cases they simply made poor choices, and it's up to them to retire that debt as they can.

Going back to the question of the federal budget, my fear is that Harper will do as Bush and increase government spending. For political reasons, he'll keep all the Liberal pork and then he'll boost defence expenditures.

I have no fear of that happening. Running a deficit in order to cut taxes is a nearly unforgiveably opportunistic exercise in poor fiscal management. Too many of his party would never accept a deficit. They pride themselves on sound fiscal management. Bush is an abberation, and his party leaders are fools. Harper is not that dumb, and Canadians would look very poorly on anyone who introduced a deficit budget without an emergency of some kind.

[Argus]

I think Harper said during the campaign that the federal government spending under his government would not increase faster than GDP. I was hoping that he could do better than that.

We don't really know how much his hands are tied. I recall a lot of pieces in the media in the dying days of the Chretien regime speculating on how he had initated long term programs which deliberately spent away all the surplus for years to come in order to tie Martin's hands and give him little or no economic room to manoeuvre. And that was before Martin himself started spending money like a drunken sailor and promising everyone and his brother all the money they could possibly spend. Harper can renege on some of these things, like the so-called daycare program, but he will be stuck with many. And if he wants to do things himself, like put more money into defence and security, while cutting the GST as promised, his options are limited.

[shoop]

I don't have much fear of that happening either. As long as there is the political will in Canada to stay the course on balanced budgets we will continue to do so.

The way things stand a deficit budget would be political suicide for the CPC.

I have no fear of that happening. Running a deficit in order to cut taxes is a nearly unforgiveably opportunistic exercise in poor fiscal management. Too many of his party would never accept a deficit. They pride themselves on sound fiscal management. Bush is an abberation, and his party leaders are fools. Harper is not that dumb, and Canadians would look very poorly on anyone who introduced a deficit budget without an emergency of some kind.

[lost&outofcontrol]

I can understand how people in a house, a business or even a bond. But how would anyone invest in a currency?

You're kidding right? It's the largest investment sector in the world. Over a trillion dollar moves around each day! link Country's economies are destroyed by currency speculation. Look at the Asian crisis, Mexico, Argentina etc...

We aren't talking about small time investors here. During the late 80's to early 90's, the Mexican currency was appreciating vis-a-vis the US dollar higher at a higher rate than US interest rates. Investors were borrowing cash to purchase Mexican Pesos for a guaranteed return. In late 1993-early 1994 the federal reserve started increasing rates forcing investors to liquidate their Mexican investment into greenbacks. So while foreign investors bailedl out making a tidy profit, the people of Mexico are stuck with paying for the greed of these investors.

My last post on the OT subject, I promise.

[August1991]

I don't know why you are hung up on the phrase "turning the debt into a fetish".

Because a balanced budget has become a fetish of the Left and Right in Canada. Call it received wisdom, or conventional truth. And it's false. (It is like talk of "sound money" in the 1920s.)

The balanced-budget obsession leads to misguided economic policies, and it also provides a misleading idea of government what is.

IMHO we should pay our own way. If the debt was created during our generation, because of our poor choices, we should be paying it off. Besides, as with personal finance, it's always a good idea to have low debt.

That, in a nutshell, is the fetish. And it's wrong. It allowed Paul Martin to go around the country claiming to be a good manager because he balanced the budget when he was incompetent because he boosted government spending.

Argus, if you had access to all of your neighbours' bank accounts for your personal finances, would it make any sense to talk about balancing your budget? No. The only thing that would matter is how much of their money you were spending.

I have no fear of that happening. Running a deficit in order to cut taxes is a nearly unforgiveably opportunistic exercise in poor fiscal management. Too many of his party would never accept a deficit. They pride themselves on sound fiscal management. Bush is an abberation, and his party leaders are fools. Harper is not that dumb, and Canadians would look very poorly on anyone who introduced a deficit budget without an emergency of some kind.

No, Harper will do as Martin. He'll boost government spending but balance the budget and you guys will go around saying he's competent.

All things considered, when a government has a deficit, it's easier for a politician to say no.

[August1991]

I can understand how people in a house, a business or even a bond. But how would anyone invest in a currency?

You're kidding right? It's the largest investment sector in the world. Over a trillion dollar moves around each day! link Country's economies are destroyed by currency speculation. Look at the Asian crisis, Mexico, Argentina etc...

We aren't talking about small time investors here. During the late 80's to early 90's, the Mexican currency was appreciating vis-a-vis the US dollar higher at a higher rate than US interest rates. Investors were borrowing cash to purchase Mexican Pesos for a guaranteed return. In late 1993-early 1994 the federal reserve started increasing rates forcing investors to liquidate their Mexican investment into greenbacks. So while foreign investors bailedl out making a tidy profit, the people of Mexico are stuck with paying for the greed of these investors.

My last post on the OT subject, I promise.

Maybe we should move this discussion to the international category. (What's the "OT subject"?)

[facetious remark with grain of truth]The Mexican Peso is a piece of paper that offers no interest at all. I can't imagine why anyone would invest in piece of paper, much less one that offers a zero interest rate.[/facetious remark with grain of truth]

I love this quote from the FP opinion piece linked above:

Moreover, the tax must be designed in order to place the burden on speculative profit, rather than on legitimate hedging. Of course, there are bound to be differences in interpretation of market behavior. Selling large amounts of C$s may constitute "hedging" against political uncertainties to one person, while others see it as pure "speculation" against the C$.

I have always wondered why the word "hedge" is acceptable but the word "speculation" is pejorative. Let's just call them all hedge fund investment traders and then the problem won't exist.

And to think, our taxes are used to pay the author's salary since he's attached to the North-South Institute.

[lost&outofcontrol]

(What's the "OT subject"?)

The subject of Mexico's economic crisis isn't all that relevant to this thread and I didn't want to crap on this thread(More than I already have).

[facetious remark with grain of truth]The Mexican Peso is a piece of paper that offers no interest at all. I can't imagine why anyone would invest in piece of paper, much less one that offers a zero interest rate.[/facetious remark with grain of truth]

But isn't most investments based on this concept? If alot of people purchase stocks/bonds/a currency, then the price goes up, if alot sell then the price goes down.(simplification I know)

I love this quote from the FP opinion piece linked above:

Moreover, the tax must be designed in order to place the burden on speculative profit, rather than on legitimate hedging. Of course, there are bound to be differences in interpretation of market behavior. Selling large amounts of C$s may constitute "hedging" against political uncertainties to one person, while others see it as pure "speculation" against the C$.

I have always wondered why the word "hedge" is acceptable but the word "speculation" is pejorative. Let's just call them all hedge fund investment traders and then the problem won't exist.

And to think, our taxes are used to pay the author's salary since he's attached to the North-South Institute.

I agree with you but the impact of currency "hedging" is much greater and direct than hedge fund investments. Currency speculation has the possibility to bring a country's economy down leaving its citizens with the bill.