Tag Archives: IMF

Don’t fear the “R-word”

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Economists tremble at the appellation’s very utterance. Politicians descend into denial at the term’s deployment in the mainstream media. And, when the “R-word” hovers into view, regular folks batten down the hatches and check the condition of their rainy day funds stored neatly under their mattresses.

But are recessions really all bad, after all?

Sure, they tend to increase the amount of joblessness in society. They devalue personal savings and investments. They dampen business opportunities, and they generate the sort of fear and loathing that a 100-year blizzard often engenders.

Now that Canada is in one (a recession, that is), despite protestations to the contrary of our fearless, federal leaders, we might properly expect a slow, agonizing grind in the months, or even years, ahead.

Still, it ain’t necessarily so.

According to an item on the investopedia website, posted by financial writer Chris Seabury, recessions enable economies to “clean out the excesses. During this process, inventories drop to more normal levels, allowing the economy to experience long-term growth as demand for products picks back up.”

What’s more, these cyclical downturns – typically identified after the gross domestic product shrinks in two consecutive months – have an almost refreshing, levelling effect. As Mr. Seabury writes, “Recessions. . .help keep economic growth balanced. If the economy grew unchecked at an expansionist rate for many years, this could lead to uncontrolled inflation. By having recessions. . .consumers are forced to cut back in response to falling wages. These falling wages force prices to drop, creating a situation in which the economy can grow at normal levels without having prices run away.”

They can also “create massive buying opportunities in huge asset classes. As the economy runs its course, the markets will readjust to an expanding economy.”

Notably, perhaps, “economic hardship can create a change in the mindset of consumers. . .(who) stop trying to live above their means (but) within the income they have. This generally causes the national savings rate to rise and allows investments in the economy to increase once again.”

In fact, writes Stijn Claessens and M. Ayhan Kose in the International Monetary Fund’s research department, “There were 122 completed recessions in 21 advanced economies over the 1960–2007 period. Although this sounds like a lot, recessions do not happen frequently. Indeed, the proportion of time spent in recession – measured by the percentage of quarters a country was in recession over the full sample period – was typically about 10 per cent.”

So while recessions can clean out the pipes and tune up the engine of any economy, they don’t last forever, even if it only seems that way.

In my adult life, I’ve gamely weathered four downtowns – 1981-82; 1991-1993; 2000-2001; and 2008-2009. They didn’t kill me. In fact, I might even say, they made me stronger. Certainly, they made me smarter about debt, equity, and never taking anything for granted in the precarious, capricious world of money management and the revolving doors of the labour market.

None of which is to say that economic dislocation is preferable to long-term stability. Still, it’s worth noting that droves of Canadians endure near-permanent states of recession thanks to patently unfair, negligent policies of various governments at every level.

And, as this country appears to be heading into another one of its multi-month, economic head colds, only the mighty among us will truly fall.

In this company, of course, belong politicians who overpromise and underestimate their own power to affect the course of human affairs just in time for a general election.

They do, indeed, need fear the “R-word”.

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Countdown to ‘debt-a-geddon’ in New Brunswick

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New Brunswick’s debt clock counts down, by the millisecond, to eternity, tallying a number so vast it beggars comprehension.

Still, there it is on one of the Canadian Taxpayer Federation’s (CTF) websites. Now $11,551,675,188.79; then $11,551,675, 204.44. In a few minutes, it’ll roll over at $11,551,676,000.00 and the nauseating cycle will begin again.

Granted, the CTF is not what you might call a fun bunch. In fact, among all the deeply earnest interest groups and think tanks in Canada (and there are a lot of these taking up office space in charming cold-war-era, cinder-block edifices along the Ottawa-Gatineau corridor), it has always seemed, to me at least, the one most likely to suffer whatever passes in the institutional world for a nervous breakdown.

But sometimes Chicken Little is right; the sky really is falling. Certainly, the CTF’s online presence is the stuff of waking nightmares for the fiscally prudent.

According to the press release that accompanied the organization’s debt-clock launch this week, “In December 2013, the Department of Finance predicted the net debt of the Province would grow by $587.2 million. That means the debt is growing by $1.6 million every day, $67,031 per hour, $1,117 per minute or $18.62 every second.”

In fact, the amount the provincial government allocates annually to service the the debt (interest payments) exceeds the budgets of all but three ministerial departments. That’s a whopping $660 million down the drain each and every year till deadbeat-a-geddon arrives with its four court-appointed officers of the apocalypse: accountant, lawyer, trustee, and bailiff.

Of course, New Brunswick isn’t the only province of Canada that sets the CTF’s tongue clucking.

“The (CTF) released new documents obtained through the Freedom of Information and Protection of Privacy Act that reveal some materials purchased for the Bluenose were sold to the (Nova Scotia) government at a whopping 43 per cent mark-up,” the organization announced last month. “These big mark-ups are just the latest in a series of questionable uses of taxpayers’ money.”

Meanwhile, in Ontario, the CTF wants the provincial government to give serious thought to its myriad recommendations for producing “new revenues and savings of over $13 billion, more than enough to balance the budget in 2014. The recommendations also include a legislated debt-repayment schedule to force the government to pay down Ontario’s $272.8 billion provincial debt.”

Yet, of all the provinces, New Brunswick always seems to earn the CTF’s sharpest opprobrium. Is that because, of all the provinces, New Brunswick has, for the moment, the least going for it, economically and industrially, and the most difficulty bridling its public spending? “You can only borrow so much before you go broke,” the Federation’s Atlantic director Kevin Lacey is fond of saying.

That’s certainly correct. But it is government’s enormous borrowing powers – the ones they grant to themselves and redeem in markets all over the world – that is precisely the problem. Unlike people, private enterprises and institutions, they don’t easily go broke, a structural protection that, paradoxically, deepens the injury and prolongs the misery until, hey presto, one day you wake up and it’s Greece. Gee, now how’d that happen?

New Brunswick road back to fiscal health is hard, but clear.

On the expense side of the ledger, cut program spending wherever costly duplications and redundancies are found; consolidate essential services wherever possible; and shrink the size of the civil service and of government, itself.

On the revenue side, the options are far more limited. Still, robust commercial activity is the only durable source of legal swag for public coffers. To thrive, the private sector needs reliable infrastructure, a skilled and educated labour force, a comprehensible regulatory environment, and, naturally, a reasonable tax climate.

Oddly, enough, as New Brunswick Finance Minister Blaine Higgs struggles with his debt burden, his federal counterpart Jim Flaherty is merrily on his way to balancing the nation’s books, and then some.

In fact, he’s so confident he’s politely ignoring the International Monetary Fund’s advice to loosen up the purse strings and start investing in strategic initiatives that might make the Canadian economy more competitive for the good times that surely follow.

Thanks, but no thanks, fellas. In a year or two, we’ll be sitting on a surplus of two or three billion bucks.

And you know how vast, incomprehensible numbers blind us, here in Canada, to everything else, especially practical common sense.

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