Monday, July 4, 2011

A Royal Mess

In recent days, our papers, tweets and news stories have been filled with the latest surrounding the royal visit to Canada. Well, here in the hallowed halls of A Guy Watching Politics, we decided to get on board with such regal themes - but in our own way.

Now, before any of you monarchists reading this shout "off with his head", I should clarify. When I say "royal mess" I am not referring to the state of our constitutional monarchy. What I am referring to is the global economy; something Canada needs to see stabilize or our deficit reduction plan could get know.

By now we all know the lines. The recent financial crisis was the worst faced since the Great Depression - true. But Canada fared better than most western countries due in part to the regulatory framework governing its financial institutions - also true.

This is not to say we didn't suffer. A quick look at our deficit and our job loss numbers will illustrate how difficult this was for Canada. Yet while it may have cost us a King's ransom, in the end we came through better than many of our global colleagues.

So what is the danger now?

Recall that we entered the initial crisis in relative good economic health. Yes, we were already running a small deficit, but by and large we were in good shape. The measures taken in the 1990s helped ensure we were able to better withstand the crisis than others with poorer public finances.

However, should the global economy enter into another such crisis, this time arising from sovereign debt in the EU and the US, what tools are left to help us? Interest rates can't be lowered and governments do not have the capacity to take on more debt, as states are running huge deficits.

In 2008-2010, we had monetary and fiscal space within which to act. This is no longer the case - our toolbox isn't empty, but we have used the best tools already. Not just Canada, but everyone.

This in part explains the strong interest in states like Canada and the U.K. to review public spending. Governments need to get back to a stronger financial footing sooner rather than later, in the event that things do not improve. If economic growth cannot be counted on to get you out of deficit, public spending has to be addressed. Sadly, this truism is lacking from our political discourse.


So dear reader, when you see yourself getting transfixed by the latest comings and goings of the royal visit, consider the following:

- the global economy is in somewhat of a royal mess;

- we paid a King's ransom in terms of job loss, lowered interest rates and massive injections of government dollars to survive the initial crisis;

- today, governments' ability to withstand a similar such crisis is more limited as they have already used the tools available leaving them in a position in which all the King's horses and all the King's men might be unable to fix the economy again.

All to say, our policy makers face some hard facts and tough choices. What are they doing to prepare Canada and Canadians for what might come our way? This should be a major topic of discussion, but it isn't. This is something on which government should be engaging public opinion. They are not.

I know it isn't always pleasant for a government to seek views and open debate on such controversial topics. However, as the saying goes heavy is the head that wears the Crown...

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