Can turkeys fly?
Canadians will find out over the coming months as the economy staggers on.
Canada is now deeply in debt once again. Alberta, BC, Ontario and several other provinces are also in the red.
The federal and provincial spending orgy has been sold as short-term pain to keep industry afloat in the long term.
But there is a good chance it has saddled Canadian governments with crippling debt without guaranteeing Canadian industrial expansion into the future.
For example, Ottawa and Ontario handed billions to GM. And, with that infusion, the automaker is keeping plants open in Canadian cities, like Oshawa.
There, the carmaker is going to manufacture its new V8 Camaro. Is that a sound investment in Canada’s industrial future? We doubt it.
But Prime Minister Stephen Harper is confident.
This week, he insisted his deficit-building stimulus package, much of which hasn’t started to flow yet, has put the economy on the mend.
It’s hard to take Harper seriously.
He’s fighting for his political life, and needs good news if he’s to continue leading the Conservative Party.
Worse, his track record isn’t that sound.
In November, he said the economy was fine. Then the global recession knocked his legs out from under him.
Soon he was singing a different tune.
“We are in a global recession principally—and we have to face this—because a lot of people on Wall Street, because of a lot of people in the private sector more generally—homeowners or consumers—pushed or bought into a very unconservative idea: That they could live beyond their means,” Harper said, once the crisis hit.
Today, just six months later, Canada is running a mind-boggling deficit, and living well beyond its means.
Again, shortly after the US banking system staggered, Harper bragged about Canada’s fiscal prudence.
“Our consumers exercised more restraint and our government made affordable tax reductions, tax reductions that did not drive us into a long-term deficit.”
Again, not true.
The tax reductions, specifically the GST rollback, has significantly impacted the federal government’s ability to pay for core programs, like EI and health care, in the midst of the financial meltdown.
Under his watch, Ottawa is more than $50 billion in the hole, a debt we’ll all be paying off for decades.
And that staggering debt has been wracked up in just six months. It is bound to get larger. Far larger.
A TD Bank analysis released on June 2 asserts that Canada’s deficit will be $172 billion within five years.
Also, the huge deficit increase will take the national debt to more than $600 billion by 2013, wiping out 15 years of federal debt reduction.
This huge debt and deficit will come at a time when the economy will be weakened, so undoing the damage will be a long, slow process.
Programs will be cut and taxes are going to have to rise, increasing costs to Canadians and sucking money out of the economy, retarding the recovery further.
And in the short term, the Canadian dollar is likely to continue rising against a debt-crippled US greenback, making our exports less appealing and our commodities, which are valued in US dollars, less profitable. A double whammy.
Cut-rate commodities, again tied to the US dollar, will assist the economic recovery in Asia, which will start putting pressure on oil reserves, driving up the price, again hurting North American industry and consumers, and sparking inflation.
Harper’s insistence the recession is starting to ease is a particularly odd pitch coming less than three weeks after Finance Minister Jim Flaherty announced the number of Canadians collecting jobless benefits had soared 10.5 per cent in March.
And that we “are going through a deeper economic slowdown than anticipated.”
With the disparate information coming out of Ottawa, one wonders if anyone really knows what’s going on.
But from where we’re sitting, the Canadian economy still looks like a turkey.
Harper insists it will fly.
Time will tell. (Richard Mostyn)