Saturday, December 18, 2010

Canadian Economy

Well, so much for all the talk that the mainstream media in the US goes easy on President Obama. President Obama is turning out to be the best Republican President the US has had for a long while. Like other democratic Presidents before him, like Bill Clinton, he is leaning on and seeking the support of republics on his administrations policies. On December 17, 2010 he signed into law an 858 billion dollar economic stimulus that will, as reported by the US media, cut taxes for the super rich.

In my view cutting taxes is not the best way to stimulate an economy. Government and the private sector need to work together to provide long-term sustainable jobs that can’t see the minimum wage in the rear view mirror. A focus on long-term, necessary investments in Canada’s infrastructure is a good start to create those kinds of jobs and should be expanded. This will help provide funding for cost-efficient social programs for all Canadians.

Prime Minister Harper is long on cutting corporate taxes and public spending. Neither of these two will do anything to stimulate Canada’s fragile economy. He is fighting a national unemployment rate that is in the 8% range. Harper has bailed out the banks and the auto industry, ran up a $56 billion 2010 budget deficit, and has run Canada into an historic national debt. Finance Minister Flaherty has projected it will hit well over $500 billion by 2011-12 and that was predicated on a 2009-10 deficit of $33.7 billion, not the actual $55.6 billion.

Now consider interest rates going up and the resulting cost to government to service that debt. Also, consider that the average Canadian family carries $1.50 in debt for every $1.00 they have in disposable income and how an increase in interest rates will affect their service charges.

The Prime Minister always talks about the strength of Canada’s economic fundamentals. Economic fundamentals is a broad term, which includes economic measures as interest rates, the government’s budget deficit, the country’s balance of trade account (relating to exports and imports), the level of domestic business confidence, the inflation rate, the state of (and confidence in) the banking and wider financial sector and consumer confidence. With these economic fundamentals in mind it may be that Prime Minister Harper and President Obama are not on the right economic track for Canada or the US. Only time will tell.