Entries from January 2009 ↓

“Canada now has the strongest economy in the G7. Last month, more than 100,000 new jobs were created – the biggest one-month gain ever. We’re going to get through this together. Our election platform is not full of grandiose, costly promises. It’s a prudent approach. We can afford it.  We’ll never go back into deficit.”
- Stephen Harper, October 14, 2008.

“The deficit will be $64 billion over two years…”
- Stephen Harper spokesperson, January 22, 2009.

 

Fresh off our orgy of realtor-bashing, let’s move on. Bigger stuff to worry about.

As you know, Bay Street swallowed another 300 points Thursday. Sure, new numbers showed pre-Christmas retail sales were in the crapper. Yes, the smart guys in charge of RIM are being ripped apart by the stock cops for allegedly diddling with options. Yeah, oil’s crashed. Meanwhile, Microsoft and Sony are shedding jobs. US housing starts are at the lowest point since ever. It’s ugly.

Even an unexpected and non-credible Bank of Canada forecast that everything will be okay by 2010 didn’t impress the market much. Because we have bigger stuff to worry about.

It’s now official. Ottawa will spend $64 billion (at least) more than it takes in over the next two years. In the next five years analysts figure we will add $100 billion to the national debt – more than was paid back with all that money collected in GST and saved in government cuts. On a per capital basis, that’s the equivalent of the US adding $1 trillion to its debt – which it will be doing this year.

Amazingly, we’ll have gone from a $12 billion surplus to a $32 billion deficit in three years. Needless to say, this hasn’t happened before.

Sure, I know government stimulus is needed, but here’s why this is so dire:

* First, it shows how close we are to the tipping point. Barack Obama may be a spend-happy kinda guy, but Stephen Harper is not, and neither was George Bush. The fact these less-government types are rushing to embrace Depression-era spending  is because, well, we’re close to one. Far closer than the average person believes, or has been told.

Evidence of that has come in the quiet little $75 billion bank bailout now taking place in Canada, in plunging consumer spending, the loss of almost 150,000 full-time jobs in the last 60 days, the crash in commodity prices, collapsing corporate profits, the bankruptcy of Nortel, diving home equity and a deterioration of national finances which is without precedent.

* Second, deficits today mean taxes tomorrow. After the temporary tax cuts in next Tuesday’s budget, you can kiss goodbye the idea of paying less, for a generation. Capital gains taxes will never come down, nor property taxes or provincial surtaxes. So if you’re not planning to aggressively mine every remaining tax shelter, make your mortgage tax-deductible or shield wealth, you lose.

* Third, more debt today means way more inflation later. The government over the next few years will be winding the clock right back to the late 1990s, when the need to pump out bonds to help service the debt fuelled both inflation and rates. Once this mess is over – recession or depression – you can look forward to the carrying costs of your mortgage doubling.

As I said, desperate times require desperate measures. And governments in both Canada and the US which allowed lax mortgages, radically increased spending, saved nothing and sat on their thumbs until the financial storm was ripping off the roof, now have little choice. This is crisis, and we must burn the artwork to keep warm.

So, watch the government well. Do the opposite. Your family comes first.