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December 17, 2019 | Hopeless

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Not a chance, of course. In the summer of 1993 it was a slam-dunk that Kim Campbell would win the PC leadership contest and become Canada’s first female prime minister. Contender Jean Charest tried to unseat her from that throne. He failed.

Then there was pathetic me. Not a chance of winning, but I went through the entire, months-long, coast-to-coast process just to make a point. We were turning into a nation of debt slaves. Something must happen. Politicians had to care.

At the time the federal deficit was a withering $39 billion. Brian Mulroney had just brought in the massively unpopular GST, then walked out the door leaving voters to eviscerate his party, and Kim. (Of course, Jean Chretien kept the tax, blamed the Tories, and reduced the deficit to zero because of it.)

My contribution? I hauled a giant Debt Clock into the arena where the convention was being held, then gave a speech dissing my colleagues, Trudeau (the old one) and the party for being a bunch of grasshoppers. Naturally I lost. Big. As expected.

 

Well today the national debt is $700 billion. After climbing out of a massive deficit hold in 2008-9 thanks to the financial crisis, we’re back into deficits. On Monday Bill Morneau fessed up to a shortfall of $27 billion this year (seven billion more than stated in the election), which will be larger next year. This is even before new promised spending takes place.

But here’s the thing: nobody cares. Yet again.

In fact today politics has so changed that those seeking office brag about how much more they will spend and how much less they will tax. It’s as if we’re a clutch of morons believing money just appears when required. Why shouldn’t we have free education, health care, drugs and retirement plans, or a guaranteed annual income, money for having children and affordable housing? And a tax cut?

An idea called MMT – Modern Monetary Theory – is all the rage on the US political left. It’s been embraced and promoted by rebel Congresswoman AOC as well as heavyweight Dems such as Bernie Sanders and Elizabeth Warren. It says, simply, deficits are harmless, healthy and promote economic growth and expansion especially when interest rates and inflation are low. Governments can just print money, distribute it fairly and – voila – people will spend more and create prosperity. Sort of like that debt jubilee described here a few days ago. Money for nothin’, and the cheques are free.

So long as economic growth outpaces bond yields, the argument goes, governments can stay in the red, keep rolling over the growing debt and society will get richer. Obviously this is the new Trudeau/Morneau mantra. Our federal leaders have given no date for the budget to be balanced, refuse to answer that question, ignore the critics asking for a deadline and assume that you – the voter – couldn’t give a damn.

This is a departure. Harper got deep into deficit, but crawled out. So did Chretien and Martin. Even Mulroney and Mike Wilson were obsessed with balancing the books. But now, as we roll into 2020, crickets. More spending Fewer people paying tax. Don’t bother your pretty little head with the details.

Okay, so what can go wrong? How can the country behave in a way that would cause misery, penury, bankruptcy and serious spousal grief if it was you?

Well, it probably can’t. And MMT is dangerous, since its viability is based on unique conditions.

For example, if interest rates swell – even modestly – the cost of servicing a massive pile of debt goes up fast, eats into government revenues, creating a death spiral. Politicians can’t refinance maturing debt at rock-bottom levels, gutting budgets as debt payments crowd out social spending. The economy is whacked.

MMT contains endless risk. Growing debt levels mean the bond market demands bigger premiums, so governments pay more. If politicians just fire up the printing press to increase the money supply, inflation takes off, popping yields more. Annual deficits and growing debt ultimately fuel rates, making that debt unsustainable. Taxes inevitably shoot higher. That’s why deficit financing has been used historically only as a tool to boost a weak economy or get through a crisis, such as the GFC in 2008-9. When things recover, governments dial back and strive to have revenues cover expenses, or build up a cushion for the next bad patch.

But that was then. This is now. The economy’s fine (says Bill) yet the red ink augments. Deficits are tools no longer. They’re structural. Normal. Routine. During the federal election campaign, did you hear any leaders arguing for less, or promise to balance the books, to restore balance for the benefit of your kids and their spawn?

Nah. It was all about who could buy the most ballots. And that guy won.

Hopeless.

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December 17th, 2019

Posted In: The Greater Fool

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