Plan for the worst

by Aaron Wherry

Peter Devries says if Jim Flaherty is really worried about European and American debt, he needs to budget for it.

Good budget planning would include an adequate amount of “insurance” or “prudence” to guard against unforeseen events and inevitable forecasting errors. The purpose of the “insurance” is to protect the fiscal targets as much as possible and to give confidence to financial markets and stakeholders that the targets might actually be achieved. This enhances the credibility of the fiscal plan…

The Minister of Finance has expressed his concern about the debt crisis in Europe and the serious fiscal imbalance in the U.S. Despite the evidence that economic growth is slowing in the U.S., and that interest rates will not only rise in coming years but also be more volatile, he has a built a budget framework that offers very little protection against adverse international developments.




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Plan for the worst

  1. Sorry, Peter, that’s what Canadians want. Jim et al made no bones about that being exactly what they were doing  during the election (Well, actually, they went beyond “no prudence” all the way to “it all be roses” in their campaign), and Canadians went for it.

    So any of you CPC voters who may be concerned about this? Go choke on it. You made your choice, nothing was hidden, and people like me were even screaming about it.

  2. I’m hoping that someday government will cease to be an ideological sink hole and actually become a place of concensus seeking and common sense practises.

    Yeah yeah, I know, what a dreamer eh? LOL

  3. But he DOES have a plan….it’s called ‘The Boom will return, so don’t worry, be happy’ plan.

    Oh sure, occasionally you have to sacrifice a company [preferably a virgin one} and a few social programs down the nearest volcano...but on the whole the Will of Landru...um, the God of the Market [who looks like a giant hand apparently, but is invisible so we don't know for sure] …will prevail.

    No need for surpluses, rainy day funds, investments, forward thinking etc to be involved.

    • I can’t wait for the ‘trickle down’ to begin. 

      • LOL well something always rolls downhill, but it’s never money.

  4. I don’t know who Devries is but I bet he’s a bureaucrat because only a technocrat would want our Finance Minister to ‘plan’ for an event that has not occurred yet and we have no idea what fallout will be if US default on debt payments or when Spain/Italy can no longer afford to pay premium to borrow money.  

    Does Devries think Flaherty and bureaucrats have ability to accurately predict future and plan accordingly? What is Flaherty supposed to do to protect Canadian economy when our two biggest trading partners are facing financial meltdown? 

    Western World is bankrupt but does not want to face facts so pols continue to with three card monte behaviour. 

    King Canute -  …… knew his limitations – even if his courtiers did not – so he had his throne carried to the seashore and sat on it as the tide came in, commanding the waves to advance no further. 

    http://www.viking.no/e/people/e-knud.htm

    • So the reason he shouldn’t incorporate a reasonable contingency is… because he can’t predict the need for it?

      Uh… isn’t that WHY people incorporate contingencies into their planning?

      • What do you suggest for reasonable contingency to stop the economic conflagration that is about to occur any time now?

        “The spreads on Spanish, Italian, Irish, and Portuguese bonds are not widening because investors think that Greece needs a debt swap, or because the solons of Brussels haven’t made enough announcements about the virtues of budget-cutting.  

        They’re widening because there are questions about whether these countries–or Europe–have the economic means or the political will to ensure that investors get paid back.”

        http://www.theatlantic.com/business/archive/2011/07/euro-in-crisis-will-the-latest-deal-restore-confidence/242326/

        “The graph shows lending between banks in different countries. It looks like a web made by an insane spider, which is precisely the point: Banks in the U.S. and Europe are connected by a dense web of interbank lending.”

        http://www.npr.org/blogs/money/2011/07/13/137764054/why-europes-crisis-matters-for-the-u-s-in-1-graph?sc=tw&cc=share

        “Moreover, policy makers noted that although Canadian financial institutions’ total exposure to Greek, Irish, Portuguese and Spanish debt amounts to a mere $8-billion, banks in countries with which Canada has deeper financial ties – namely, the U.S., the United Kingdom, France and Germany – are far more exposed.”

        http://investdb1.theglobeandmail.com/servlet/story/GAM.20110623.RBBANKOFCANADAREVIEWTOROBINATL/GIStory/

        • Well hey Tony, as a conservative I’m sure you know the answer to that in basic terms: spend less than you make and use the surplus to buffer future loses.

          What costs us and future generations more than anything is interest on debt. The difference between this and making interest on monies invested in the economic fundamentals is HUGE.

          I could’ve accepted the stimulus spending more readily if it had been smartly invested in infrastructure that will make money down the road and support economic growth in various regions, but I have the distinct impression they just spread it around willy nilly for the most part.

          While we can argue about the whys and wherefores, the simple fact is that Paul Martin knew what he was doing in this area and left the conservatives a balanced cheque book they immediately went to town with and have since buggered up with great finesse.

          • fi·nesse/fiˈnes/

            Noun: Intricate and refined delicacy.
            Verb: Do (something) in a subtle and delicate manner.

            You may want to rethink that last sentence. “Verve” may be more appropriate.

          • I stand corrected! LOL

          • “…. Paul Martin knew what he was doing in this area …. ”

            I think Martin knew his onions for two or three years while Finance Minister and left Cons a balanced budget but spending was increasing rapidly since early 2000s and Cons did nothing at all to rein in spending. 

            I am also fan of infrastructure spending and it is scandal that we paying bureaucrats and other public servants so much money in salary and benefits instead of directing that money to where it is actually needed, repairing infrastructure across Canada.

            In history books, late 1900s and early 2000s across Western world will be studied as credit bubble that collapsed. 

            I agree that balancing budgets – society should pay as it goes – should be minimum for any Government. However, blaming Harper now for not having a plan for economic meltdown that is about to occur across Western world is silly.

            Stimulus didn’t work – just like it didn’t work in every other country that tried it – and now we have to pay off even more Government and personal debt.

            Government and society are in perfect synch.

            PJ O’Rourke ~ Every government is a parliament of whores. The trouble is, in a democracy, the whores are us.

            Fin Post, July 2011:

            “The very thing that lifted the economy from the depths of the recession — Canadians’ passion for owning a home — could also be its undoing, warns the chief economist for RBC Global Asset Management.

            Central to Eric Lascelles’ concern is that the availability of cheap credit has driven household debt levels to record highs and soon-to-be-rising interest rates will bear a “palpable” impact on individuals as well as the broader economy.”

            CBC – June 2011:

            “Canadians rang up five per cent more in personal debt in the first three months of 2011 compared with 2010, according to a report released Wednesday.

            TransUnion, a Chicago-based credit specialist, said the average Canadian had almost $26,000 on his or her credit card, bank lines of credit and other borrowing vehicles — excluding mortgages …..” 

            CBC – Oct 2010:

            Canada’s federal deficit for the 2009-10 fiscal year is a record $55.6 billion, Finance Minister Jim Flaherty announced Tuesday.

          • Obviously I don’t blame Harper for the downturn. I blame the rating agencies in the US for overrating and thus allowing the sale of billions in toxic asset backed commercial papers.

            I do however hold Harper responsible for racheting government spending by more than 7% per annum and cutting revenues by billions in the vain hope that nothing ever went wrong right up to the recession.

            That’s WHY we had contingencies built in by Paul Martin, ie for just such an occasion.

            Harper however went on a spending spree from the moment he took office and it hasn’t slowed until now, ie five years later, and even that’s debatable given his insistence on spending billions on prisons and planes.

          • Stimulus didn’t work? Really?
             
            Do you know how close we were to a complete meltdown? As in Argentina style meltdown all the way back to the barter system being the main means of trade?
             
            Did stimulus make things all wine and roses again? Hell no, but given the direction we were heading, stimulus worked. It broke the viscious circle of investor flight-corporate collapse that was starting to develop.

            Anybody who says that the stimulus didn’t work is simply speaking from ignorance of what was going on at the time. Not that that’s necessarily a bad thing.. had more people actually known what was happening there wouldn’t have been any amount of stimulus that could have stopped it.

          • Stimulus didn’t work.

            Really?  ‘Cause I’m pretty sure people were talking about the world possibly entering a second Great Depression, and I’m also pretty sure that that didn’t happen.

    • Only a technocrat can predict a recession in future?  I would think that it’s difficult to predict when in future a recession might happen, but that a recession will happen seems like a certainty to me – not to you? Do you think it is possible that we will never again experience a recession? If there is a a 100% chance that a recession will occur in future why is it a bad idea to make provisions for this when the times are good? 

      • You know the American economy is in bad shape when Mr. Almost-bankrupted-Canada’s-largest-province Flaherty looks sunshine & roses in comparison.

        I have to agree with LL that a recession is a certainty.  I’ll go even further and suggest that everyday Canadians & Americans are in the middle of a decades-long recession — the GDP may have grown, but so much of this growth is too insulated from the non-super-rich that it doesn’t give us any benefit.

        Sometimes I think the biggest difference between politics & religion is that politicians get to manufacture their own apocalypse.

    • So you’re saying he shouldn’t make any sort of budget til he knows what’s happened?

      Perhaps you’re unclear on the concept of what a budget is..
      ..among everything else.

  5. If only some previous government had built up a large government surplus to protect the nation in future times of economic calamity.

    I’m surprised no one ever thought to do that.

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