Follow the money

The CBC quotes the very credible C.D. Howe Institute saying: “Canada is officially in a recession that’s been caused by the COVID-19 pandemic, the C.D. Howe Institute’s Business Cycle Council declared Friday … [because] … The council, which monitors recessions and recoveries in Canada, said the economy peaked in February, just before drastic measures to slow the spread of the coronavirus that causes COVID-19 were implemented across the country … [the Council said, in a statement, that] …  “Members agreed that by applying the council’s methodology to the preliminary data available, Canada entered a recession in the first quarter of 2020.”” I’m certainly not surprised. I’ve been saying that since just before the last election, in October 2019.

But it gets worse.

Screen Shot 2020-03-24 at 11.54.54Dr Nouriel Roubini, who I cited about five or six weeks ago, writing (again) in Project Syndicate, reminds us that “After the 2007-09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major  that made another crisis inevitable. And now that it has arrived, the risks are growing even more acute … [but, he says] …  Unfortunately, even if the Greater Recession leads to a lackluster U-shaped recovery this year, an L-shaped “” will follow later in this decade, owing to ten ominous and risky trends.

What’s a Greater Depression?

Dr Roubini explained that back in March, in an article in Project Syndicate. He says that none of the likely models will work. We will not, he says, see a V-shaped recovery ~ a sharp drop followed by a quick and equally sharp recovery, nor even a U-shaped one ~ a sharp decline followed by a period of stagnation and followed by a recovery. It will not even, he suggest, be an L ~ as was the Great Depression: a sharp decline followed by a long period of stagnation. It will, he suggests, be I-shaped, everything, everywhere will fall … and fall … and fall some more.

Nouriel Roubini explains ten risks that face all developed economies and he concludes that “These ten risks, already looming large before COVID-19 struck, now threaten to fuel a perfect storm that sweeps the entire global economy into a decade of despair. By the 2030s, technology and more competent political leadership may be able to reduce, resolve, or minimize many of these problems, giving rise to a more inclusive, cooperative, and stable international order. But any happy ending assumes that we find a way to survive the coming Greater Depression.

Now, even though I blame Justin. Trudeau and Bill Morneau for borrowing and spending when good Keynesians, having inherited a balanced budget from Stephen Harper,  would have been stifling public spending and paying down debt, not adding more ~ even though interest rates were low, I do not blame them for their response to the COVID-19 crisis. They are doing what most of the world’s governments are doing because that’s what the people want and it’s also what the conventional wisdom says is right. But we must all know that the money that Prime Minister Trudeau is throwing at the problem is borrowed money and will have to be paid back … using my tax dollars and yours, and our children’s and grandchildren’s hard-earned tax dollars, too.

Canada is entering a recession. The Globe and Mail reports that the Europeans predict this will be, at least, ““a recession of historic proportions.”” The latest US jobless figures are the worst since 1929. It’s going to be ugly and Canada should have been much better prepared. Four years of a Trudeau majority which began with a balanced (by Stephen Harper) budget and ended with a billowing debt were wasted because Canada has little or nothing to show for all that spending. In all likelihood, when the fiscal chickens come home to roost and Canadians discover, again, that a Trudeau has spent wildly ~ popularly, but wildly, it will be up to Conservatives to clean up the mess.

It took, as I have pointed out before, 15 years for Mulroney and Chrétien-Martin (who were fiscal conservatives) …

deficit.001

… to dig Canada out of the fiscal hole left by Pierre Trudeau. And The Economist predicts that Canada (and the world) will have to recover with an economy that is, at best, only about 90% as strong as pre-pandemic. Stephen Harper led Canada through the Great Recession with good, sound policies. Justin Trudeau and Bill Morneau are digging a much deeper hole because they started from within a hole of their own making but, in this situation, they cannot obey the First Law of Holes and stop digging.

I hope the Conservatives, a party which I also hope will soon be led by Erin O’Toole, will have the courage to do what’s needed, when, inevitably, Canadians turn to them because the fiscal situation is terribly bleak.

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