Wednesday, November 24, 2010

Canada's Debt Crisis

You know, the Carney-Harper-Flaherty Trio did an incredible job back in 2008. They saw the property bubbles around the world go bust and ensured Canada would do the same in a few more years. The Trio had no idea what the hell they were doing or powerful interests came in and said “do this” and the Trio obliged. Whatever happened, let it be known that we had a chance to bite the bullet in '08 instead of dodging it.

So it goes with Canada – seeing our friends jump off a cliff we figure, “why the hell not?” and go plunging down with them. No one with absolute certainty can tell us how messed up the fundamentals are, but a first step toward recovery would be acknowledging the fundamentals are unsound. Something no bureaucrat or banker is willing to admit.

Mark Carney must know that absurdly low interest rates fuel malinvestments or, to put it one way, “overheat the economy.” During Carney's time at Goldman Sachs he must have witnessed how central planning can destroy entire economies. If we consider for a moment that Carney, Harper & Flaherty knew full well what they accomplishing with this insane monetary/fiscal policy than the Canadian people better call up a lawyer.

Just like the Americans before us, all the Canadian financial institutions are making money off the backs of heavily indebted households. And the Government of Canada is the insurance policy. That is, the taxpayer. Even if these guys did go to jail it's too late to avoid a recession now, but the sooner we start the correction, the sooner it ends.

I don't know how long the recession will go on for, but I guarantee government interference will prolong the process. All stimulus, bailouts and other perversions of the market won't 'help' this time. The false prosperity gimmick is over; the Keynesians like to call this a liquidity trap. The end is near for Canada, figuratively speaking. With Asian demand for our exports we'll start growing again eventually. But in the mean time here's how to turn a financial crisis in a debt crisis, a recession into a depression.

No governments at any level should bailout any companies, institutions, crown corporations, etc.

The government will most likely bailout any major financial institution and anything considered vital to our economy like manufacturing. It may seem like a good idea at the time if one thinks about all the jobs that would be lost. But consider all the jobs that won't be created because these companies weren't allowed to fail. This is a great example of the classic Broken Window Fallacy popularized by Bastiat and Hazlitt.

The Canadian government should let wages and prices fall.

Keeping wages and prices artificially high is counterproductive and let's hope our governments have some sense not to try it. As well as trying to 're-inflate' the bubble. It's literally like blowing air into a popped balloon. It makes you look like an idiot.

Buy the Bank's bad assets

This would be a bailout pure and simple. The Big Five will most likely dump their bad assets onto the Bank of Canada's balance sheet thus keeping the whole ordeal out of the Federal budget. But that's if the banks have any of these made-in-Canada toxic assets. Right now the taxpayers are holding the hot potatoes.

The Bank of Canada should raise interest rates sharply

I have no doubt that Carney will keep interest rates low and everyone will love him for it.

Quantitative Easing I, II, III, IV, V, …

Monetizing the debt. Strangely I can see this being praised in Canada. Now the government can spend all it wants on health-care and national day care without worrying about that nasty debt!

No more stimulus

The last recession was pretty average for Canada but that didn't stop the Government from spending billions in so-called 'stimulus'. In fact, by percentage of GDP we spent more than any other G7 country. Paul Krugman must love Canada's fiscal policy.

The Government of Canada should not welcome the I.M.F.

This is a scary scenario, and I hope it won't get to this point. Paul Martin was an I.M.F. crony yet a lot Canadians regard him as the best Finance Minister we've ever had. I'm afraid these same Canadians would welcome the I.M.F. austerity measures as the only cure to the debt crisis.

Reject any International Currency

Well obviously. But I haven't heard a single word in this country about rejecting the World Bank, the OECD, the G20 or other global organizations that are anti-gold, anti-savings, and pro-Keynesian. Add on top of that Carney's public rejection of gold as a currency – we'll probably be the first country to accept the Bancor.

Return To Free-Market & Sound Money

Cut spending, cut taxes, privatize everything (including money) and put municipalities in charge of it all, then hold elections immediately. Hopefully the end result will be sparse Canadian communities that function together through the market without any traditional means of government.

The odds of this happening in Canada? Pretty damn slim but it's hard to say how the population will react when it becomes apparent that Canada is not immune to the laws of economics.

So let's just hope taxes and government spending get a lot of cuts so the I.M.F. doesn't start snooping around – because I like living in Canada despite its socialism. And as nice as it probably is I don't feel like moving to New Hampshire... not yet anyway.


  1. what aboot hyperinflation?

  2. The thing aboot hyperinflation....

    I don't think it will happen here, it may not even happen in the States. Hyperinflation is bad for the big banks and since the banks are in cahoots with the Fed, I imagine the US will just default on its debt and let the I.M.F. take over... but that's just speculation. Hyperinflation is a very real scenario in the US, and it could happen up here as well.