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Flaherty: new direction for Canada’s budget

Need for growth and jobs trumps ending stimulus spending


 

Facing ongoing global financial woes, Canada’s Finance Minister Jim Flaherty has been forced to rethink plans to use his next budget to put an end to stimulus spending. With the country’s record federal budget deficit ($100 billion-plus over two years), Flaherty had said for more than a year that he would shut off the stimulus spending tap as of March 31. But now, Flaherty says the restraint strategy conflicts with Canadians’ worries about the weakness of the recovery. “What I’m hearing really sounds a lot to me like cautious restraint,” he said. “Nothing draconian is being asked for. People
do want us to move toward a balanced budget, but they do not want us to do that at the expense of jobs and growth and the economy.” Flaherty is now describing the upcoming budget in February or March as a “pragmatic” set of policies that will balance the need for economic stimulus with the need to begin emphasizing government restraint in Ottawa. The government will also continue Ottawa’s main infrastructure program—the seven-year, $33 billion Building Canada fund.

Toronto Star


 
Filed under:

Flaherty: new direction for Canada’s budget

  1. Wow, never thot the harper conservatives would blink like this.

  2. Or in other words, "I've no clue how to rein in spending without losing either our base or the independants we need to keep a minority"

  3. I have a much better idea for Mr. Flarherty than increasing government spending. Print money. By which I mean literally print money.

    Don't just increase line item spending on a budget with non-real dollars.
    Don't borrow more money from private investors.

    Print it. Physical dollars.

    It will almost all flow back into government coffers anyways.

    • What about inflation?

      • What about it? No. It will not cause inflation.

        • But won't printing money and putting it into circulation (I'm assuming this is what you'd do) increase the money supply, and therefore, cause the inflation rate to rise? This is basic economics. Please explain how your version of printing money works around this?

          I mean, if it were that easy I'm pretty sure governments -would- print money instead of borrow it if they knew they could get away with it.

          • Joseph, your comment would be right if… all the other sources of money production were still going at their normal rate of emission. They are not. We are actually in a situation where there is an underproduction of money because certain classes of people, even when they swore that they above everyone else should be allowed to do as they see fit because it was best for the economy, have completely jambed the system (only now sort of making a fakey recovery). They have failed in the operation of the duties they contracted to the state to make. The function they were performing (unsuccessfully) now must revert to the state. Hence: BoC must print physical dollars.

          • Hmm, interesting. Is this the New Keynesian viewpoint, or something heterodox like Chartalism?

            I'm curious where this analysis is coming from. Can you cite some professional economists who agree with you? That would probably strengthen your argument on these boards considerably, to have some intellectual heavyweight "expert", or even just some obscure economist's paper/article/blog post arguing in your favour.

            Either that, or you're going to need to explain how exactly these 'classes of people' have 'jammed(sp?) the system'. Are you saying bankers? Speculators? Investors? And how exactly have they faked the recovery? How are they underproducing money?

            I mean, isn't the government funding stimulus in order to simultaneously increase employment and raise the money supply with debt (which is subtly different from just printing money)?

            If I'm correct on this, isn't the danger of just printing money the fact that the increase in the money supply is permanent, as opposed to temporary in the case of debt-driven stimulus? The idea there being that temporary inflation is acceptable during a typical (non-stagflation) recession (with its associated deflationary tendencies) to lower unemployment, but that you don't want that inflation to stick around after the recovery?

          • Chartalism… I had not heard that word before, but looked it up. It does appear that I am advocating something along those lines, but I can not say for sure. I will have to do more reading and check my sources. Still working a lot of this out.

            Anyho… bankster/speculators/hedgefunds/rent seekers = the class of incompetent jambers

            If everyone is so concerned to have checks and balances, I would accept a system where all government funds are deposited with the B o C and, when needed, funds are borrowed at interest from the B o C on the basis of fractional reserve lending (If it is good enough for the Big Five, it is good enough for all the people of Canada). Seeing as how the government would own the bank, the profits would revert to the government. It ends up being the same as borrowing from the bank, but much better in it's results.

          • I'm not an expert, but here are some sources that might be of interest. The Chartalist position is that the paying of Federal taxes is a 'reflux' or destruction of money for the purpose of regulating the money supply. Its purpose is not for revenue generation. Unlike sub-national (non-sovereign) governments which have bank accounts that need to be balanced otherwise their cheques will bounce, the Federal (sovereign) government runs the bank. Federal government spending is simply a bookkeeping operation (an 'efflux' or emission) wherein the Federal Reserve marks up the account of the Treasury Dept.

            So if this is the case, it does not make any difference weather money comes into existence through the selling of government bonds at interest or having the state issue money directly (so-called printing money). This money emission will be destroyed in the paying of Federal taxes in the same way that when banks call in a line of credit there is a diminishment of the money-supply, because with modern credit-money (i.e., non-commodity money) deposits do not make loans, rather, loans make deposits.

            Randall Wray, Understanding Modern Money (available on google books)

            Warren Mosler interview: http://www.youtube.com/watch?v=Z_DO0SpiYyYl

          • Congressman Dennis Kucinich (D-OH) has JUST put forward a bill that deals with precisely this!

            "To create a full employment economy as a matter of national economic defense; to provide for public investment in capital infrastructure; to provide for reducing the cost of public investment; to retire public debt; to stabilize the Social Security retirement system; to restore the authority of Congress to create and regulate money, modernize and provide stability for the monetary system of the United States, retire public debt and reduce the cost of public investment, and for other public purposes."
            http://kucinich.house.gov/UploadedFiles/NEED_ACT….

        • "Money loses its value when it has become too much multiplied."

          – King Sigismund of Poland (1526), taken from Adam Ferguson's When Money Dies

          Just what exactly do you think inflation is?

          • Inflation is NOT determined by the amount of money in circulation. It is determined by the amount of money relative to the capacity for a community to produce and consume goods. The best measurement we have of this relation is unemployment.

          • in·fla·tion
            [in-fley-shuhn]

            – noun
            Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation).

            Source: http://dictionary.reference.com/browse/inflation

            I understand that certain "government is the solution" types have made an assiduous (and fairly successful) effort to conceal the link between money supply and rising prices, at least in the mind's of voters. In contradiction to Milton Friedman, they say that inflation is not a monetary phenomenon. Instead, inflation means only "price-inflation", a rise in prices due to one or more of the various malignancies of the open-marketplace, speculators, or — of which you can never be too vigilant — "animal spirits". This theory states that inflation is only a function of the (un)employment rate. It allows its adherents, in periods of soaring commodity prices (ie., now), to state calmly and straight-faced that there is no inflation because the unemployment rate is still high. One would have thought that this theory was left red-faced and stripped of all credibility following the "stagflation" of the 1970s — when prices and unemployment both travelled northward in search of more hospitable climes.

            Unemployment is an excess supply of labour. When it exists it is for the same reason that unsold supplies of anything exist — it's over-priced.

          • The money supply has variously increased (prior to our current crisis) and decreased (what is happening now) both of which happened without the BoC printing money (as your school conceives of "printing money"). The indicators for money supply in the economy that (until so recently) matters most have been decreasing. The shadow lending system has almost completely withdrawn as a source of capital for lending. Money supply is not increasing in volume. While it may be academically true that an overall increase in the money supply causes inflation, it is not currently true that the money supply is increasing. Therefore, printing physical dollars will not increase the money supply, if done at this time.

            Labour is calculated as "over-priced" only in relation to something to compare it too. It has only become (falsely) over-priced because of a number of frauds perpetrated by the corporate theorists (lapdog lackies), that facilitated the dismantling of the regulatory structure that was actively fostering physical economic development in Canada and other industrialized nationstates.

          • Therefore, printing physical dollars will not increase the money supply, if done at this time.

            Huh?

            The argument that printing money does not lead to rising prices has, I suppose, a sliver of plausibility because there is a cause and effect relation that has to be identified.

            But now you are just taking a tautological statement and asserting it is false, like saying "that which is X is not X".

            "Printing physical dollars will not increase the money supply" makes the exact same amount of sense as "Having another child will not increase your number of children".

          • You are wrong. The money supply is decreasing. Printing more dollars, by the B o C will not increase the supply at the same rate as it is decreasing. It isn't as if we have the same levels and the B o C is adding to it. No, we have greatly decreased levels, and the government stimulus is required to provide a supply of money to enable people to continue to make exchanges.

            Is it more reasonable to sacrifice every other sector of the economy to save one, or to make one sector sacrifice so that all others can get back on a proper footing? The banks have had a very, very, good run in this country for quite some time. They can take the pain that this plan of mine will put on their bottom line, so that the rest of the country can gain direct access to what is the rightful property of the Canadian citizens – the power of the federal government to generate credit.

          • Where are you getting your information that the money supply is shrinking?

          • Justin, come on, what do you think happens when lending based on reserve requirements of less than 8% secured by completely bogus paper collapses and the Fed has to do TARP, and somewhere between 1.2 and 12.3 Trillion dollars worth of new money creation? What are they giving money to the banks for? It is so that they can meet their reserve requirements under the Basel II Accords. Banking is so interconnected that there is a cascading effect. Look at the problems in Europe. Why are they having problems? A host of reasons, but to begin with, there isn't enough money available. Why there isn't enough money available is an interesting question. The answer to which shows that it has very little to do with government spending, a great deal to do with government policy, and is entirely rooted in private sector usurpations of public utilities.

          • When the Fed buys assets, even toxic ones, it is adding to the money supply.

          • Yes, but it isn't bringing that supply back to the same level as it was before. The effect is still a net loss or decrease in the money supply.

          • What are you basing this on?

          • look at m1, m2, m3 levels

          • Yes. They're up.

          • And the inflation rate? Why is that not up? According to you and all my other critics, increasing the money supply should have also increased inflation. I might be wrong about the money supply levels being down but it would seem that the increase in the money supply has not increased the inflation rate.

          • * minds of voters

          • Inflation is a boogy man meant to frighten young children. You are clearly beside yourself.

        • ColdStanding, read any introductory economics textbook to learn why governments can't just print money to get out of deficit. This is pretty basic stuff.

          • ColdStanding and I are getting into the male-enhancement business.

            Our system requires no lotions, potions, or pills. We simply send you a standard foot-long ruler, except we've replaced the original markings on the ruler so that what was twelve inches now reads twenty-four.

            We guarantee a doubling of your aplomb!

          • "ColdStanding" would be a good name for the product you're selling.

            Not only do we guarantee nominal size enhancement using our patented measuring system, we also promise you'll be "standing" at attention no matter how cold it is!

          • Very good.

            Erection jokes are sometimes hard.

          • Indeed. Fortunately, I rose to the occasion.

          • Some might say this topic is unimpo'tant, but I think that's a huge phallusy.

          • All these jokes are awesome. Especially after 10 beers and at 230 in the morning. Just awesome.

            I love that even at this time Cold Standing's comments were completely insane. "What about it? No. It will not cause inflation." Classic. I love it.

          • See below… it seems CS has been pulling everyone's leg. I hope it was one of our first two.

          • In the sense that you clearly have a very limited exposure to commentaries and schools of thought that could provide some broader perspective on the problem at hand, so I wanted to hugh close to my position to antagonize you and others. I made defense of my position in order to stimulate people to go beyond what they have, more or less, accidentally come to believe is the best response to the problem. I have spent a fair bit of time trying to educate my self, or at least become relatively informed. As a result I could probably argue this from 2 to 3 positions (non-sexual!).

            Very few people made any attempt, save Joseph, to question me as to why I might think it a good idea to print physical dollars. Most of the time it was just dealing with the incredulitity of the obviously naive. Oh, and ignoring penis jokes. Disappointing.

          • There was a recent Angus Reid poll that states the majority of Canadians want an erection in 2011. At least I think thats what it said….

          • Yes, except I heard that that majority consists of all the males in the country and a small, small smattering of the women…could be a bit problematic.

          • You should really stop trying to get a handle on yourself.

          • Tut-tut, ColdStanding. Masturbation jokes are so self-serving.

          • I wasn't suggesting your were being a jerk. Just that your jokes were getting a bit off.

          • Crit_ I do not know why you would advise anybody to read an introductory economics textbook or any other grade of economics textbooks. No other so-called science has failed as badly and completely as what passes for economics today. Sure, there was a sizable failure in the philosophy of mathematics that proceeded the failure… but I do not know how anyone could pretend to be a somewhat informed commentator and expect to have any credibility by making refrence to economics in an attempt to right the ship of state. Completely corrupted.

          • I do not know how anyone could pretend to be a somewhat informed commentator and expect to have any credibility by making refrence to economics in an attempt to right the ship of state.

            I don't know how anyone could pretend to be a somewhat informed commentator and seriously suggest that that Flaherty should fix the deficit by printing more money.

            You're essentially saying: "Universally accepted economic principles bad! Crackpot schemes good!".

            You can trash economics as a "so-called science" all you like, but I don't find it terribly compelling when people criticize something they know nothing about.

          • The GoC has and continues to print money. It is a question of at what rate. If you'd stop for a minute to unknot your knickers, maybe you'd have some chance to _Reason through why it might possibly be a good idea to print physical dollars into circulation as opposed to the other means available. But, no, you had to treat it as some big joke. Shameful.

            What else to expect from someone that puts even a sliver of credence in, what passes for, economic theory these days.

          • Numerous times, you have tried to make an argument to me that goes something like this:

            Big Nasty Corp. from aggressor nation A sets-up shop in victim nation B. The naive, simple people of nation B happily buy up all the goodies that Big Nasty Corp. is selling at cheaper prices than what native B shops are offering. Then, what you call a "looting" occurs when Big Nasty Corp. takes all of those B dollars and returns to nation A.

            My question is, how can it be such a detrimental "looting" when currency flows out of a nation if that nation can just print more currency ad infinitum to no deleterious effect?

          • Maybe you should direct your questions to the Bank of Japan, which has, for nearly 10 years, been printing money for free (0.25% and less). This emission of "money" has been the source of the carry trade which lead to the Icelandic problems and other tomfoolery. This, wholely corrupt, practice has saved the rotten facade of the financial system for far longer than nature or reason would have. It has been an action entirely sanctioned by the BIS, home to central bankers from around the world.

            Drop the algebraic attempts to understand what is going on around you and look at what is actually happening. You are setting up examples with too small a framework and cut off from the adjuvent policies that also need to be implemented with the printing of physical dollars.

          • You are setting up examples with too small a framework and cut off from the adjuv[a]nt policies that also need to be implemented with the printing of physical dollars.

            Oh, this will get better and better: Tell us, professor, just what are those "adjuvant policies" that you failed to sell us on as we shipped the printing presses to the basement of 24 Sussex? Do tell!

          • You'll need a lot of remedial work before you're ready for that course.

          • You want us to believe that printing money out of thin air is our nation's economic salvation, but you won't show us the magic beans that actually let that scheme work?

            No fair!

          • Who said anything about salvation?! Not me. My point was that the most efficient way to stimulate the economy, because the point that the economy must be stimulated has already been ceded, is to put physical dollars directly into the hands of Canadians, so they can, you know, make their own choices as to how to best stimulate the economy. I would have thought you, stout individualist, above most others would place more faith in the ability of individual Canadians to make the choices best for their circumstances as opposed to the G o C doing it.

            Oh, wait, you arn't that guy that made the beer and popcorn comment, are you?

          • Cool! Get the government outta the way, cut taxes, and free up ordinary Canadians to do with their generated wealth as they please.

            Only… that's not what you are advocating. You want to push funny money into their hands and tell them all to go play.

          • Well, no, that isn't what I am advocating. You are projecting. And also reveiling your fundamental mistrust of human beings.

            Funny money refers to fake or counterfeit money. Notes, printed by duely authorized and authenticated sources can not be considered "funny money". You are again demonstrating that you do not understand money creation very well.

          • But why would you object to "funny money"?

            According to you, the problem with the economy is that people do not have enough dollars. If money is "just a token", what's wrong with tokens that do not have the Bank of Canada stamp on them?

          • Nothing (other than the fact that calling it funny money is wrong). That is what I want (actual tokens issued by B o C). What I do not want is for the money needed for the stimulus to a) be borrowed from any other bank than the B o C and b) for the emission of this money to be put through the privately owned channels of the financial intermediaries.

          • Are people, once they receive their money from the BoC, permitted to put their new money in a bank?

          • Yes. But might I recommend one of the many fine credit unions that Canada has to offer.

          • Then you haven't really cut-out the "financial intermediaries", just caused them to miss a turn. Once the money is put in the bank by the people who receive it, it becomes reserves against which the banks can create new loans, ie., new money.

            The problem here is that you are actually a bit of ahead of me. I am arguing against money creation as a solution. You have already determined that money creation is the solution, and are arguing for a different method of money creation than the one we have today.

            What you are arguing for is a money creation method that has the small check of the current system removed (the cost of borrowing, ie., the interest payment). So, really, what you want is an accelerated money creating system.

            I hope you own a wheelbarrow.

          • Two actually, and I have long been fond of the ancient chinese versions. Very useful devices.

            As I have outline elsewhere, the money is still borrowed at interest.

            I do not seek to cut anybody out of where there shouldn't be. A certain portion of the money supply needs to be directly emitted into the economy without financial intermediation. The up coming budget with the planned deficit is the perfect time to do so.

            I have no problem with money going into a financial intermediary AFTER it's emission.

            As stated above, I acknowledge that we have two very different models of monitary policy.

          • What you are suggesting is to fix the economy by wiping-out the assets of every bank, financial institution, insurance company, and pension plan, as well as destroying the purchasing power of every holder of cash balances and every fixed-income recipient, from wage-earners to retirees.

            As one of the great forefathers of economic thought, Jean-Baptiste Say, wrote in his Treatise on Political Economy:

            "…bank notes, supposed to be an inexhaustible source of wealth, were only the means of swallowing up capital, of expending what had never been earned, and of making a bankruptcy of all debts."

            It is amazing that someone who repeatedly refers to voluntary exchanges as "looting", can then turn around an offer the robbing of purchasing power as the great panacea.

          • I think he is a little pissed with me.

            Not at all. I've been running around doing last-minute Christmas shopping for the past three hours.

            Tell him it was just tough love.

            Only if "tough love" is a euphemism for "belligerent befuddlement".

          • Now that I have time to respond, I have deleted my previous post and replace it with…

            There isn't any reasonable connection between the B o C printing physical dollars and your hysterical scenario. As you have demonstrably not been paying attention to any relevent indicators, there has been a wholesale destruction of the assests of those institution that you speak of. This has happened for reasons not related to B o C activities. It has happened because various governments acceded to the lobbying efforts of financial intermediary interests, to everyones' collective detriment. Financial intermediary interests know that they are dependenct upon external regulation for their own legitimacy. They now have to come to understand that regulations also require stringent enforcement as an integral part of the value provided by the external regulation.

            Printing money by the B o C is just the first step in beginning to restore order to markets and the greater physical economy. The B o C isn't to be considered lender of last resort (debt maker) by credit generator of first resort ( credit maker)

          • I suspect that you will be come completely tangled by my response, so look up the Plaza Accords of about '87 to give some context to my comments.

        • No. It will not cause inflation.

          ColdStanding needs to read one of those old Disney comic books.

          Scrooge McDuck, in a flight of temporary generosity, gets into his helicopter (as a kid I did not appreciate the symbolism behind that) and showers Duckville (or whatever burgh it was called) with tons of "free" thousand dollar bills for the good citizens. For one day, everyone celebrates how rich they all are. On the second day, a dozen eggs costs five thousand bucks.

          Printing money by definition inflates the money supply and prices. Look it up.

          • I have always had problems in using your dictionary, MYL. I am highly suspicious of your history books, as well. There are three major collapses of currencies in the past 100 years: Wiemar Republic Germany, Zimbabwae, and the asian currency crisis. Absolutley all of them came about as a result of speculators gaming the system aided and abetted by private banking.

            Further this point of yours is completely illogical: "Printing money by definition inflates the money supply and prices." As has been established elsewhere, you have some a priori beef with your boogyman "inflation", but you are just being sloppy here. Following your logic, the printing of money would be outlawed. The GoC has been printing money since 1936 to curtail the shennagans of the private bank's money printing. Printing money has to happen and in a regulated way. Money's purpose to facilitate exchange, if there is none around, exchange stops.

          • Following your logic, the printing of money would be outlawed.

            …is where reasonable people should just stop paying attention to you. Look at your comment that begins this thread. You want the government to "print money," and you are implying that it should "print more money" than it is already printing now. Print whatever it feels it needs. Don't spend into deficit. Don't borrow. Just make it up out of nothing.

            That is your sad and illogical definition of "print money" that started this conversation.

            I will STILL maintain that counterfeiters are evil. Whether they be your basement printing press or the government, flooding a marketplace with bogus cash, the destabilizing effect on the people who use such currency is obvious. If you open your eyes to see it.

          • All actions, save severals' knee-jerk reactions, in posting on this thread are voluntary. You deemed yourself worthy to attempt to school me, but have been found making false definitions and faulty logic. As if those were not bad enough, your philosophical underpinnings are wholely naive.

            Case in point: The G o C via it's own institution under the authority of the Crown, can not be considered as a counterfeiter. Nor would it's actions be, in anyway, illegal if it increase the rate at which it printed money to supplment the emission of money into the Canadian economy when the current sources, thanks to financial fraud, are failing to produce the money the Canadian (and other countries) economy needs have.

          • I will, against my earlier better advice to reasonable people, respond…

            Who can tell us why counterfeiting is illegal? Anyone? Right — the people deserve to have some confidence that the money they have is worth something.

            Let's go with ColdStanding's "Following your logic" theme: By ColdStanding's logic, we may as well just do away with that pesky taxation thing. It's just so… inefficient.

            Repairs to Parliament Hill? Thank you, Contractor — the printing presses are almost done.

            Transfers to provinces? Premiers, send your armored trucks to Shipping & Receiving at the Royal Canadian Mint next Tuesday. Eastern provinces can line up in the AM, and Western provinces come after lunch.

            Civil Service Payday? Who needs direct deposit! Go see your manager for your cash-stuffed envelope.

            Fighter jets? How fresh do you like your cash? 'Cuz our cash is really fresh.

            And… presto! Zero deficit, zero taxation, everybody's happy. What could possibly go wrong with this plan? Why has nobody come up with it before?

          • M Y L – money isn't worth anything. It is the ability of the state to sanction it's legality (legal tender) that makes people have confidence in it. People loose confidence in currency only when others continuously slander the good name of a Nation and it's rightful servant government.

            The money supply SHOULD be a representation of the cumulative benefits of dynamic configuration: labour/science/culture/resources. The purpose of human soceity, unless one should misanthropically view otherwise, is to reduce the amount of labour needed for survival. Our soceity needs a regular emission of printed money (an I have never suggested an unlimited amount as you have falsely implied) as a reflection of the degree to which we have increased our productivity. Money, as a physical item, is just a token.

            I am sure that I have asked you before, but you have never presented to this forum an explicit answer to my question: Where does money come from? (Hint: it isn't the stork)

          • National currency exists so that we are a step up from barter in our trade of goods and services. It is, thus, a scorekeeper of wealth. Oh, sure, there are other reasons it's a good idea, especially to governments — it's much easier to compute 5% sales tax on "$24.99" than it is on "a side of lamb and a jar of kerosene." A Big Mac trio is currently worth six or seven Canadian dollars, I think. A litre of gasoline varies from about a dollar to a fair bit over a dollar, depending on the region of the country you live in. Two litres of Coca-Cola can sometimes be had for 99 cents, on sale. Etc.

          • But that currency is only worth something if the government backing it up can actually, you know, back it up. So if the Finance Minister or Treasury Board Minister or Prime Minister were to insanely heed your advice, just what is a Canadian dollar worth anymore? If the issuer of the currency is no longer defending its worth ("we'll just make it up if we need to buy stuff or pay people"), nobody else will believe in its worth, either. Not even your Zimbabwean system-gaming speculators and bankers (who do not deserve nearly the blame that a certain evil crackpot thug ruler who somehow escaped your list of indictment). You'll be the only one left.

          • Equivocation, M Y L. What, exactly, is backing up the Canadian dollar at this moment?

            And how does even 1 Canadian dollar come into existance? Much less the really important question of how ALL of them come into existance. As you have demonstrated that you can, after a fashion, read I might be forced to concluded that your are ignorant of this pivotal question of statesmanship.

          • Q: What, exactly, is backing up the Canadian dollar at this moment?

            A: Trust that the government of Canada is good for that dollar. Trust that there are not gazillions of counterfeit dollars out there. Trust that the government won't just flood the zone with billions and billions more just because they wanted nice shiny things but did not have the confiscated wealth sufficient to exchange for those shiny things.

            If the zone gets flooded with all these other dollars that just magically appeared, all of a sudden nobody has trust in the value of any one dollar. We'll have to trade in two, maybe three, maybe five of those Canadian dollars for a US dollar. McDonald's won't part with its Big Mac trio for anything less than twenty or so of these "dime-a-dozen" loonies. Esso will need a second digit to the left of the decimal point on its neon signs. And nobody will want to work for a "mere" $150K a year.

          • Trust, right. As in, the people and the organizations they represent that made the case they, as opposed to the people in the government, were the best people to trust with the emission of money into the Canadian economy/soceity failed in the exercise of their trust (and I am not, about Canada, talking about the last few years).

            If the government does it in house or contracts out private institutions to do the work, the creation of money is still a function of government.

            I fail to understand why you are getting mad at the PROSPECT of the G o C overprinting money and diluting it's value when the private sector financial institutions(here and elsewhere) ACTUALLY cocked the whole thing up by flooding the market with bogus paper and fake appraisals of legitimacy.

            Please give me even one instance where the G o C has been anything other than prudent in printing money? I would assert it only really got off course when it was duped into borrowing the funds it needed from the private banks in the early '70's.

          • I do want to thank you, CS. My first response left me worried that I was attacking your position that was satirical in intent. You have held on to this buffoonery so long now that I am reassured that this is not the case. So, I guess what I am trying to say is, thank you. Merry Christmas.

          • I suspect you do want to wish me a Merry Christmas. I wish the same for you.

            It would have been civil of you, however, to just say so, instead of mixing in the backhandedness. You have no grounds for believing yourself to be in a position to argue your position and pass judgement upon the results (save in your personal opinion). You really do let your temper get the best of you and resort to tones in your writing that do not reflect well upon your character.

          • No, I was seriously worried I was attacking satire, and the "Ha! Fooled you all!" was just waiting around the corner.

            And I did genuinely wish to wish you a Merry Christmas.

          • I did not appreaciate the use you made of my comment. I'll know better for next time.

          • Where does money come from?

            This question is actually a little more complicated than some might think.

            What we now call "money" are banknotes (bills). Banknotes used to be considered money-substitutes which had to be redeemed by the issuer on demand for money. Money, then, referred to a precious metal, usually gold or silver, or both.

            Over time, governments, wishing to free themselves from the manacles of metallic money, have slowly removed the convertibility of banknotes into real money. Banknotes, once backed by precious metals and redeemable in specie, are now unbacked, fiat currency redeemable only in identical unbacked, fiat currency.

            It is important to note that governments could never have made this switch if the word "dollar" (or whatever currency unit) didn't have a generally understood and accepted value because of its history of being redeemable in gold. Members of a primitive, barter tribe would never spontaneously start accepting pieces of paper with numbers on them in exchange for their real goods.

            Fiat money comes only from real money (real things), its dilution comes only from governments.

          • No, that isn't the right answer. You have given a more or less correct history of money, but you have not given an answer to the question, how does a unit of currency, at this point in time get created.

            We were all once members of a primative tribe. Does it not stand to reason that our ancestors saw the advantage of a money system and started to use it? It must, because that is what happened.

            The original fiat money did not come from governments, but from goldsmiths that adopted the fractional reserve system by using deposit receipts as currency. The origin of the dilution resided in the private sector then, as it does now. Banks, by far and away are the largest source of fiat money.

          • Currency can be created by the Bank of Canada. Also, once that currency is held by a bank, it acts as a reserve against which that bank can lend out (create) more money. As you know, this practice is called Fractional Reserve Banking.

            Having a medium of exchange is much preferable to barter.

            Let us say that I own a watch. In an exchange for your shoes, I give you a note that transfers title of the watch to you — you will pick up the watch later by redeeming the note. Next, I give a similar note to madeyoulook in exchange for his hat. The problem here is that I have committed fraud because I have sold something to madeyoulook that was not mine to sell — having already sold the watch to you. This describes the same process as was being committed the goldsmiths of yore. However, the proliferation of this practise is due to governments making it legal.

          • I think that's what Coldstanding is getting at though.. it is the private bank which is creating (lending out) the money, not the Bank of Canada. The BoC is just playing catch-up when it eventually prints some money to satisfy the demand of those occasional lunatics out there who prefer to use cash.

            If I'm reading this right, CS is saying that we should print as much money as the private banks say is out there — and give that "money" to the people, rather than letting it be held in the imagination/accounting-books of the private banks. Presumably this would come hand in hand with legislation that prevented them from being the creators of money in the future.

            I can sort of see the logic behind it, but I think doing such would be like dropping a nuclear bomb on a highway to clear out a traffic accident — yeah, it'd work.. but what would the cost be to all the innocents who were slowly creeping by.

          • I never said to what level I would have the B o C print money. I am not saying that we flood Canada with an unlimited number of dollars. I just want to see the stimulus funds dispersed in actual dollars, not computer entries with financial intermediaries, directly to Canadians.

          • What difference does it make if this distribution is done through physical 'paper money' or a numerical bookkeeping exercise?

            Couldn't the government issue money directly into one's bank account as surely as it takes down digits in one's account when you pay taxes?

          • I seek to dis-intermediate it's distribution. Cheque money is a product of private financial intermediaries. Currently (to varying degrees over the past 15 years) there is a greater incentive for financial institutions to put their money into governments paper than to make the effort to write loans for productive investments in the physical economy.

          • Your "If I'm reading this right, CS…" is completely wrong. I am not suggesting that at all. I am saying that the stimulus should be done in a fashion that will broadly benefit soceity, not just some unjustifiably favoured sector – financial intermediaries. I have suggested, for purposes of stimulating debate (a goal to which I have manifestly succeeded), that the best way to carry out this goal is to put more physical dollars into circulation.

          • The BoC isn't playing catch-up, it leads the process. It buys assets from the banks (with (poof!) out of thin air money), which increases the reserve holdings of the banks, against which they can create more money, according to the reserve requirement set by — you guessed it! — the BoC.

          • OK, now I see where your objections are coming from. You don't like the concept of fractional reserve banking. You are a metalist. You want commodity back currency. I that, you demonstrate a greater degree of radicalism than my self. My solution, mostly with in the bounds of the system as it is currently construed, doesn't require as much structual change as yours. You don't like it because it is still, in your school's word, fiat money. I do not call it that. Money, in my school, is a token, with no intrinsic value.

          • And what does one do with these tokens?

          • Please don't play possum. You know very well what to do with them.

          • I thought you were going to tell me that one exchanges them for goods and services.

            If that is indeed the answer, my next question is: how many tokens need to be exchanged for any given good?

          • Any chance you'll fast forward to the gotcha point?

          • There's no gotcha point. At least, not one toward which I am trying to steer you. I'm just trying to work this all out step-by-step.

            Our disagreement, it seems to me, is about prices, ie., the exchange value of those tokens. It stands to reason that if we want to know what happens to prices under different circumstances, we first need to know what prices are and/or where they come from.

            It is to this end that I ask you, how many tokens need to be exchanged for any given good?

          • In the interest of facilitating this fascinating discussion, I thought this paper from University of Missouri-Kansas economist Randall Wray speaks to the point that C S is making about economic orthodoxy and the separation of fiscal and monetary policy. However, instead of stimulating economic growth by directly distributing paper money as C S argues would be desirable, Wray focuses on the possibilities of full employment without inflation through "employee of last resort" government programs. He argues that by setting a 'wage anchor' in this way, there would be greater price stability as the private sector has a stable point of reference for setting prices.

            Furthermore, I believe that the classical argument against C S's proposal is that "you cannot push on a string." In other words, there is no guarantee that people will spend this newly acquired money in the productive economy. They could just save it, or pay back bills, etc, etc.
            http://www.cfeps.org/pubs/wp-pdf/WP28-Wray.pdf

          • Thanks for that, Aberhart. What really surprised me in this series of exchanges is how quick everyone was to tell me how I am wrong without making any suggestion of how it could be done better or what a better course of action would be.

            As to your "Furthermore,…" in other words, they would do with the money what they normally do with the money. The difference being that there will be an increase in the supply of money to offset the amounts withdrawn by interest payments. The money for the principle of a loan is created, but the money for the interest due is not ever created.

          • I am most certainly not making the argument that creating money will not work because people might not spend it. I think creating it is bad, whether or not they spend it.

          • Riddle me this, then, JW: when money first go going, you can use for your consideration the example of Benjamin Franklin using his printing press to create the dollars for the Bank of Philedelphia in the 1700's, before the war, how could it be used for exchange tokens if it wasn't printed first? Money has a need for regulation. It has an emission phase (printing) and a withdrawl phase (taxation). It is a product. It is manufactured. It must be regulated. It is a utility that MUST be publicly owned.

            Perhaps you would be so kind as to illustrate for us how you think it best to generate money for the economy so that it can be used as exchange medium.

          • You have a very peculiar idea of taxation if you think it is only some sort of balancing process meant to regulate the money supply.

            Taxation has zero affect on the money supply. The government does not take taxed money and burn it, it spends the money on government employees and buys things that improve (wink!) our lives — like great, big Olympic Games!

            Money "first got going" a long time before Benjamin Franklin. Historically, governments have had to debase the currency (either by printing paper money, or by removing some of the gold in the gold coins) in order to finance their silly wars. Debasement of money has always been a way of stealing purchasing power from the unsuspecting public.

          • I grant that it did get going along time b4 BF came round. But… It is an excellent example, with good historical documentation of a money system, with innovations, starting up.

          • An excellent example of what?

            I don't know the entire monetary history of the United States, but I do know were on a gold-standard in the 19th and early 20th centuries. In the 20th century, various schemes were concocted to push the U.S. off the gold-standard in stages, the final blow being Nixon's closing the gold window in 1971.

            I don't know what exactly Ben Franklin "started-up", but I don't think it lasted very long.

          • Look it up or don't, as is your pleasure.

          • I don't see the importance of pursuing this line of arguement you are advancing. I am not suggesting anything that will be different from the common experience of money use. It will be non-inflationary because of other factors in the economy over the near term. I am just aiming to disintermediate the distribution because I suspect that a significant factor for the increase in the deficit is the fact that borrowing from private institutions for financing the deficit is a major source of money being drained out of the economy.

          • I am not suggesting anything that will be different from the common experience of money use.

            Yes, you are!

            The common "experience" of money is that is has to be earned by someone before that person can spend it. This means that the person has contributed some sort of value to the economy before he or she has the token(s) to go and consume a value from the economy.

            What you are advocating is eliminating the production side of the money process.

          • So am I to assume that you are against income producing asset classes as well? The emission of money by the B o C would be a) to balance the fact that the money to pay the interest on a loan is not in anyway created, therefore, to pay the intest, it must be looted from somewhere's else b) a payment of the portion of the cultural and productive gains made by the collective assets of Canada to it's citizens – cause we earned it.

            And no, I am not eliminating the production side of the money process, I am correcting an accounting error that arrises from naive assumptions about the nature of money in an advanced industrial economy.

          • The same money that is paid for products is paid as interest. What you are not realising is that money circulates. Just as a single ten dollar bill can be used in exchanges for a sandwich, a movie ticket, a hat, a book, an interest payment, a steak, a phone bill, an interest payment, a train ticket, an interest payment, an interest payment…, so the given stock of money can cover numerous interest payments as it flows through the economy.

            Certainly there would be a problem if everyone went to pay off his or her debt at the same time, but this is an impossible scenario.

          • Which is precisely why I want it in the form that is most likely to encourage it's circulation.

          • What encourages money's circulation is more products to buy. Spending does not create production, production creates spending.

  4. And so Flaherty proves that he has no idea on how to do his job.

  5. I think Flaherty and Harper have done a pretty good job for the last few years. Its been a better ride than the way Federal Liberals ran the country into the ground in the last recession. This was a bigger storm but we did a lot better.

    Goes to show you it does matter who is in Gov't Federally.

    • The Liberals ran the country into the ground?

      What fantasy world do you live in?

  6. Of course the same people on this board who criticize Flaherty would argue he is deaf and doesn't he know people are hurting blah, blah, blah. Now he is suggesting that the recovery may be too fragile as the IMF recently said to begin big spending cuts and they still criticize..

    • The Minister of Finance will always going to be the most critcized job in my opinion, when it comes to peoples money, do not mess with it,I personally like him and think he is doing a good job!!

      Have a wonderful Christmas Hollinm and all the best in 2011!!!

      • Hey Claudia….Not surprisingly I agree with you. Flaherty will do what he thinks is in the best interest of the country and take the knocks from the anti Conservative government crowd.

        I wish you as well a very Merry Christmas and a Happy and Healthy new year. See you in 2011.

        • Thank you Hollinm, see you soon, with what I hope will be a very exciting political year!!

  7. Obviously, Canada needs a conservative party. Monsieur Bernier, PLEASE start knocking some heads around at caucus!

  8. If this be original, I bow to you in wholly unworthy awe.

    Jack who?

    • Original it be.

      Thank you, madeyoulook. I meant this to be a small gift to the intrepid and indefatigable defenders of liberty, sanity, and good humour, of whom you are the superlative example. Merry Christmas.

  9. This is hilarious, and very well-written! You should post this on some American blogs.

    • Thank you, Crit_Reasoning.

      It did occur to me that there would be corners of the net with audiences much more receptive to the genre. Alas, I don't know them. So I decided to stay local and make it a gift to the sagacious interlocutors who keep me informed, intrigued, and inspired. Merry Christmas.

      • Merry Christmas, Justin!

  10. Quote "People do want us to move toward a balanced budget, but they do not want us to do that at the expense of jobs and growth and the economy."

    This makes it awfully clear Flaherty's plan up to this moment was to balance the budget through job killing, economy slowing cuts to government spending. Expect Flaherty to announce drastic tax increases now, having promised quite the oppostion for years.

  11. So in other words…Flaherty has no clue what he is doing. Quel surprise.

    Its almost funny how history repeats itself. Almost.

    Take the statements from M. Wilson ….Mulroney's Finance Minister and compare them to Honest Jim…It is almost like Flaherty did a cut and paste. Very similar.

    Once again we will have to rely on those heathen Liberals to clean up the mess.

    That is your opening Conservative trolls…get out your talking points.

  12. While Mr Flaherty mulls the budget process, Canadians should be asking a few pertinent questions. For example ,why during the greatest economic downturn since the great depression were the federal public servants given a general pay RAISE, at a time when we have one of the highest deficits in history. Another question ? Why are public servants of this country , who are paid by the taxpayer, the only group left with defined benefit pension plans, while those who actually produce wealth in the country are left with defined contribution pension plans with 1% interest rates and a stock market going nowhere. The final question. How is that after the greatest financial shock to the world economy in eight decades ,that Canadian banks are reporting record profits ? Could it be that the great banking system that Flaherty is always trumping is charging outrageous fees to consumers and this is the source of their profitability, at the expense of everyone else. In summary , how is it that the only two sectors in the economy, the banks and public servants were the only ones not touched by the downturn. This does not happen by accident. It happens when government policy protects them at the expense of everyone else. And that my friends is known as corruption.

  13. Hey, I believe that there are other credible parties to consider, other than the Libs, Cons or Dippers.

    Take a look at this one. http://canadianactionparty.ca/ Tell me what you think. (I am currently undecided)

  14. Here's a new direction: Stop the useless Mass Immigration and we won't have to waste so much money on "resettlement", whether it's spent in Ontario or redirected to some other province. Mass Immigration is making our budget problem much worse than it has to be, not just at the federal level but also at the provincial and local levels, where gov'ts are going broke paying for health care, education and welfare, for new arrivals who are unlikely to be ever be able to pay much into the system.

  15. It is humourous but the main topic is the wrong party. The Dem's inherited the mess created by the Rep's in the previous 8 years.

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