Stimulating our way into debt crises
Corcoran pretty much nails it again. Except of course for the fact that we’ve had plenty of warning. And since Mr. Corcoran was so good as to raise the issue of Keynesianism – an economic dogma the roots of which, if we’re aware of them at all, are considered so arcane by the public as to be incomprehensible – this journal will take the opportunity to school ya by pointing out once more this brilliant musical Hayek vs Keynes rap smackdown.
Flashback: The Federal Reserve as Giant Counterfeiter | IMF warns against retreat from stimulus spending | No new stimulus, economy ’stabilized’: Harper | Can’t say if federal stimulus is working: watchdog | Liberals call stimulus numbers ‘fiction’ | Flaherty, USA say no to global financial tax, yes to continued ’stimulus’ at G20 | G20 to pledge continued ’stimulus’, examine international reserve fund | Aspiring government economists must reveal views on stimulus plan | The Keynesian quagmire | Carney says G20 must stay the course on stimulus | G20 agrees to continue economic stimulus measures; Geithner shops international reserve accord | Former NY governor Spitzer: Federal Reserve is ‘a Ponzi scheme, an inside job’ | Budget officer ‘can’t tell’ if stimulus plan working | G8 leaders see no early end to stimulus | Flaherty looks for way to end stimulus | Harper lays out stimulus spending in progress report | Economist Warns Fed Will Bring About Zimbabwe Style Hyperinflation | Stimulus needed now, Bank of Canada says | Obama signs stimulus bill | Congressman warns unread ’stimulus’ bill will prolong agony | US Congress reaches deal on economic stimulus package | Pass stimulus or watch out, Obama warns | $12B for infrastructure forms key pillar of stimulus package | Brace for a big, ‘comprehensive’ budget: Harper | Transport Minister Baird calls for dramatic action on stimulus package | Obama calls for ‘dramatic action’ on stimulus package | The ugly spectre of ‘new Keynesianism’ and the self-appointed Guardians | Maybe we should look at Zimbabwe before trying to print our way out of a money crisis | Britain to introduce massive stimulus package | Deficits ‘essential,’ Harper says | A New World Financial Order: It Better Work This Time | Flaherty lauds Keynesian global ‘economic stimulus’ strategies | Who are the Architects of Economic Collapse? | The Bush gang’s parting gift: a final, frantic looting of public wealth | Wanted: a new financial order | World needs new Bretton Woods, says Brown | Why Paulson’s Plan is a Fraud | Congressman Ron Paul: Bailout Will Destroy Dollar, World Economy | Congressman Ron Paul Schools Fed Chairman Bernanke on the Bailout Plan | Global ‘liberalization’ illusion under threat. Economist calls for world economic regime, Keynesian saviour. Irony? | Soros points out regulated markets fail to operate on market fundamentals, calls for more regulation | The Illustrated Road to Serfdom
Terence Corcoran, The National Post
February 11, 2010
The fiscal fall of Greece is a reminder that fiscal mismanagement produces monetary hurricanes without warning
In the context of the general idea that government spending and lots of it, including really big deficits, stimulate growth and prosperity, the current fiscal crisis in Europe is a fascinating case study. The same EU economic actors who constantly warn that cutting off government stimulus spending would crush the nascent economic recovery are simultaneously busy bailing out at least one of their own. Greece is performing the usual Keynesian economic miracle of having stimulated itself into near bankruptcy.
The fiscal failure of a single European nation might be a marginal economic event in itself, except that Greece is now part of the euro currency block. In some ways, Greece is like a province in Canada. It’s on its own, until it runs into trouble. Then the whole multi-governmental structure starts to look shaky. As Greece’s fiscal crisis dawned, the value of the euro began to fall as investors and traders focused on the general fiscal mess building across Europe. Spain is also stimulating its economy into risky territory, along with Portugal and Ireland. The United Kingdom, while not part of the euro currency block, is also performing the Keynesian trick of building prosperity by running its economy into the ground.
With the euro plunging and interest rates rising, a crisis of sorts loomed. As a result, Greece may get bailed out by Germany and other European nations who aren’t yet as deep in red ink as their neighbours. The euro crisis is a demonstration of the weakness in the euro model, in that the legal structures binding the nations together as a single national currency unit are inadequate. Greece was on its own until it could no longer go it alone, and now, by force of economic emergency if not law, the people of Germany and France are going to have to pay for Greece’s fiscal mess.
The fiscal fall of Greece and the teetering of Portugal and other nations is a reminder that national fiscal mismanagement produces monetary hurricanes that land with little warning. It would be absurd to draw parallels between Canada and Europe today, since Canadian deficit spending and debt levels are still below European levels. But Canada’s national federal-provincial debt is not that much below average European levels – and it is rising. The gross debt of federal and provincial governments as percent of GDP in Canada is about to soar above the 80% ratios found in Europe.
It may be forgotten now, but what the euro is going through today is identical to what Canada went through in the 1990s. The Canadian dollar came under massive selling pressure, triggering a near crisis that forced Liberal finance minister Paul Martin and the Chretien government to bring in spending cuts and deficit-reduction plans. The argument for keeping the spending going and running the deficits then is the same as now: government spending stimulates the economy and the deficits were part of an essential growth strategy.
The crisis in Europe, even if contained to Greece in the short run through a major European rescue operation, will not be the end of global fiscal crises. Spending bubbles, including deliberate ones brought in to stimulate economic activity, are hard to reverse – especially if they don’t deliver the promised growth. Rising interest rates and currency turmoil are the inevitable result of the fiscal extravaganzas now running in Europe, the United States and Canada.
Within Canada, the combined federal-provincial stimulus budgets are being portrayed as essential to maintaining the economic recovery. Just wait, they say. As the economy turns around, the big deficits in Ottawa and the provinces will reverse themselves and Canada will be back on the road to strong growth and balanced budgets. That miracle showed up this week in Alberta’s budget numbers. From a record $4.7-billion deficit in the next fiscal year, Alberta is forecast to rise effortlessly to a balanced budget within two years. The turnaround will come from a 40% increase in tax and royalty revenues and essentially no increase in spending.
In Ontario, its budget will reflect a fiscal meltdown that’s even more severe. Ontario isn’t Canada’s Greece, but it is part of a national fiscal mess that is growing in scale. None of the spending and deficits would matter if the flood of government stimulus money produced growth. As we seem to be seeing in Europe, countries are stimulating their economies into economic crisis.
Source | See also under Money: EU leaders reach secret Greek bailout deal | Will Greece set off ‘global debt bomb’? | Carbon trade phish scam disrupts exchanges | The Federal Reserve as Giant Counterfeiter | EU cautions Greece about its deficit | Consumer debt loads are the new concern | No solution in dispute over Iceland deposits | Davos 2010: George Soros warns gold is now the ‘ultimate bubble’, calls for IMF to handle climate fund | High dollar to slow recovery, central bank says | Record surge in UK inflation | Sarkozy says world currency disorder unacceptable | UK: Interest rates and quantitative easing on hold | Iceland blocks central bank debt repayment deal | Canadian Gold giant faces Honduras inquiry into alleged heavy metal pollution | Canada’s rate hikes will be tied to the Fed | Mint’s missing gold now accounted for | Canadians struggling to dig out of debt | Gold surges above $1,200 | A world awash in debt | U.S. markets fall on Dubai crisis | We’re running out of gold: miners | Russia to add loonie to reserves: report | RCMP: Big error behind missing gold at Royal Canadian Mint | Fed Sicks Attack Dogs On Ron Paul After Audit Amendment Passes | Americans Deserve a Transparent Federal Reserve | Current And Former IMF Heads Call For New Global Currency | U.S. urges China to strengthen currency | Federal Privacy Commissioner raises alarm over terror security measures | George Soros Calls for World Currency and “New World Architecture” | U.S. dollar sags on global financial leaders’ omission | Gold rallies to record above $1,100 | Bank of England extends quantitative easing to £200bn | G20 Meet To Finalize Dumping Of Dollar This Weekend? | Gold prices surge as India buys IMF reserves | Plentiful paper currency buffing gold’s shine | Soros: China Will Lead New World Order | The time has come for North American monetary union | Loonie continues race toward parity with U.S. dollar | Dollar Reaches Breaking Point as Central Banks Shift Reserves | Flaherty drafting voluntary code for new credit company debit cards | Gold continues record-breaking run | Gold price rises to all-time high | Fisk: Nations to hasten demise of dollar in new world order | Banks balk at new credit card rules | Tight credit new threat to rebound, IMF warns ahead of Istanbul meeting | US dollar set to be eclipsed, World Bank president predicts | Dollar to fall under scrutiny at G20 summit | Credit card debt balloons | IMF approves $13bn gold sale to boost lending fund | US credit shrinks at Great Depression rate prompting fears of double-dip recession | Canada’s $1-trillion debt baby | Gold regains $1,000 | UN wants new global currency to replace dollar | Gold toys with $1000/oz | China Set to Buy $50 Billion in IMF Notes | Investors dump money market funds | More US Bank Failures and The Coming Deposit Insurance Bailout | Industrial demand for silver sharpens bullish view | Underwhelming GDP growth fails to move stocks, loonie | Ottawa plans U.S. dollar bond | A Stock Market Rally Engineered by Government | Central bank of Canada stands ready to inflate currency in response to strong loonie | Credit delinquencies up 24% in June | Derivatives rear their ugly head again: Leveraged ETFs outed | Former NY governor Spitzer: Federal Reserve is ‘a Ponzi scheme, an inside job’ | Global demand for gold investment soars 38% in past year | Cost Of US Bailout Hits A Whopping $24 Trillion Dollars | Timothy Geithner: travelling bond salesman | Record quarterly profits and bonuses: Goldman Sachs makes out like a bandit on taxpayer’s dime | Fed ‘Independence’ or Fed Secrecy? | Medvedev Unveils “World Currency” Coin At G8 | More Canadians in arrears on credit payments | The search for the mint’s missing gold | China calls anew for super-sovereign currency | Central banks to take off ‘training wheels’ | Congressman Ron Paul Slams Federal Reserve’s New Dictatorial Powers | Central Bank of Canada ‘considering’ regulatory changes, ‘continuous private liquidity creation’ | The next cellphone trick: transferring money | Royal Canadian Mint’s ‘lost’ gold worth a mint | Bullion and Bandits: The Improbable Rise and Fall of E-Gold | No one talking about dumping dollar: China minister | China explores buying $50bn in IMF bonds | Has the Mint’s gold vanished? | Chinese economists deem huge holding of US bonds “risky” as Geithner visits | Soaring loonie adds to anxiety over economy | Economist Warns Fed Will Bring About Zimbabwe Style Hyperinflation | Federal deficit to top $50B | Canadian households $1.3-trillion in debt | Digital Money Forum Pushes For Electronic Currency | Obama signs U.S. credit card reforms into law | Credit card changes benefit families, Flaherty says | Quebec pension fund managers boosted derivatives holdings despite warnings | Leaked 1955 Bilderberg Docs Outline Plan For Single European Currency | Banker at heart of credit crisis leads plan to buoy auto sales | Bank of Canada poised to print money to buy bonds | Credit companies seek to avoid regulation, create global debit system | Congressman: Reckless Spending And Taxation Prolonged Great Depression | Barclays, Lloyd’s, RBS join Goldman-Sachs in the black | Goldman-Sachs to repay TARP loan, resume private operations, bonuses, at “earliest time” possible | Bilderberg chairman: ‘Bilderberg helped create the Euro’ | Financial Rescue Nears US GDP as Pledges Top $12.8 Trillion | US backing for world currency stuns markets | UN & IMF Back Agenda For Global Financial Dictatorship | Geithner Plan Will Rob US Taxpayers: Stiglitz | US unveils P3 plan to monetize debt, nationalize banks | Bank crisis spawns new kind of gold rush | Wall Street’s Big Takeover |Financial Post editor: America’s future at risk of ‘inflationary outburst’ | U.N. panel says world should ditch dollar | IMF poised to print billions of dollars in ‘global quantitative easing’ | G20 officials pledge ‘whatever action necessary’ to revive economy | Mainstream Financial Publication Finally Admits that Austrian Economists Were Right | UK Central Bank begins using ‘new’ money | Central bank tactics pushed to brink | IMF emergency fund is doubled to $500bn, Northern Rock bank granted $14bn bailout | EU backs sweeping new financial rules, more power for IMF | Gold Tops $1,000, First Time Since March as Recession Deepens | Zimbabwe drops state currency monopoly, pegs prices to US dollars | How realistic is a North American currency? | All maxed out? Budget measures would improve credit access | Gold surges past $900 mark | Prominent Economist: Crisis Caused By Government Interventions | Zimbabwe unveils 100 trillion dollar banknote | Bank of England cloaks books, fears of monetary manipulation arise | Canadians starting to save cash, shun debt | Analyst: One Third Of Banks Could Collapse or Merge In 2009 | Banks won’t say where U.S. bailout money going | UK: Bailiffs get power to use force on debtors | IMF Chief Warns Of Riots In Response To Economic Crisis | Bank of Canada ready to monetize distressed equities | The ugly spectre of ‘new Keynesianism’ and the self-appointed Guardians | ‘Outrage’ greets banks’ failure to match rate cut | Mexico to downsize metal in coins to save a few cents | Icelanders storm central bank in protest | UK closer to joining euro, EU commission president says | Iceland turns 90 amid economic ruin, currency freeze | Maybe we should look at Zimbabwe before trying to print our way out of a money crisis | Obama appoints architects of economic collapse, financial globalism to economic team | Paulson, Bernanke defend change of plan: $700-billion now to be given directly to banks | Manipulation Of Gold And Silver Prices Further Exposed | Now the consumer crunch: falling credit limits, rising interest rates | Coming soon to your cellphone: Your credit card via RFID chip | A New World Financial Order: It Better Work This Time | Analysts Predict Hyper-Inflation To Push Gold To $2000, Oil to $300 | Ottawa to pour another $50B into mortgage markets | Bank of Canada adds $8B to credit markets | Fed Hides Destination Of $2 Trillion In Bailout Money | Flaherty lauds Keynesian global ‘economic stimulus’ strategies | Who are the Architects of Economic Collapse? | ‘Smart’ Credit Cards, Pilot Project set the Groundwork for Wireless Credit Wallets | Russian government calls for new World Order | New credit cards may shift unauthorized-transaction liabilities to the holder | IMF may need to “print money”, act as “world’s central bank” as crisis spreads | Greenspan tells Congress he’s shocked by credit crunch | Ottawa to guarantee interbank lending | Globalists Exploit Financial Meltdown In Move Towards One World Currency | Wanted: a new financial order | EU leaders to meet Bush and plan “refoundation of capitalism” | Loonie leaps, then reverses course | Bush outlines radical plan to part-nationalise banks | World needs new Bretton Woods, says Brown | IMF prescribes state regulation of ‘global financial order’ | Behind the panic: Financial warfare over the future of global bank power | Tim Rogers: Global Bankers Have Unleashed Inflationary Holocaust | New World Order: Global co-operation, nationalisation and state intervention — all in one day | Federal Reserve Moves to Monetize Commercial Paper Debts | Bank of Canada greases financial system with $12B in new cash | Congressman Ron Paul: Bailout Will Destroy Dollar, World Economy | Canadian Supreme Court refuses to hear appeal in ABCP case | Bank of Canada piles on in global inflationary swindle | Central banks continue inflating global economy | Court Grants Big Banks Immunity from Lawsuits over Derivatives Losses | Financial ’super cop’ role for Fed | Ottawa warns on gold-backed Web trades | Inflation takes over as public enemy No. 1 | Fed eyes Nordic-style nationalisation of US banks | Treasury’s Plan Would Give Fed Wide New Power | Consider a continental currency: Jarislowsky | Globalization makes national currencies obsolete | Vicente Fox Admits Plan For Single NAFTA Currency | Fraser Institute: The Case for the Amero
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