Scott Clark and Peter DeVries write that we are headed for a very large deficit. But it's manageable:
It won’t be long before people will start asking about what all this will do to the deficit. The December 2019 Economic and Fiscal Update (Update) forecast a deficit of $28.1 billion for the current fiscal year. That was before COVID-19 and the sharp decline in oil prices. This has now been increased by $27.4 billion to $55.5 billion, assuming only $27.4 billion will be required and the economy rebounds quickly after one quarter. But it could be much higher if the ERP [Economic Recovery Plan] is in place for nine months, rising to $110 billion (4% of GDP).
But this ignores the impact of shutting down the economy. Right now no one knows. Private-sector economists are all over the map as to what could happen over the next 12 months. Some are forecasting a decline in real GDP for one quarter only, others for three quarters. Some expect only a marginal decline in GDP, while others expect double-digit quarterly declines.
The government would be wise not to table a budget or even an Economic and Fiscal Update at this time. This would be prudent and quite understandable in the current circumstances. We are living in a world of complete uncertainty both globally and domestically. The current health and economic environments are intertwined and extremely volatile. Quarterly economic data for the first quarter will not be available until May and for the second quarter until August, although monthly data published in the interim will provide an indication of what is happening.
Recent history provides a little perspective:
During the 2008/2009 financial crisis, the deficit in 2009/10 reached $56.4 billion of which $18 billion was attributable to the stimulus measures, meaning that economic developments amounted to $38.4 billion of the deficit outcome. Real economic growth declined for three consecutive quarters, by 1.2 per cent, 2.3 per cent and 1.1 per cent, respectively.
If the economic impacts were similar, this would result in a deficit of $93.9 billion for 2020-21. However, GDP is much larger now than in 2009. In addition, the impact of COVID-19 on the economy is likely to be much greater than that of the financial crisis. Finally it is very likely the government will have to extend the policies announced to date to the second half of 2020-21. This could add another $55 billion to the deficit. A deficit of $150 billion (6% of GDP) or higher is very possible.
But people shouldn't panic when they see big numbers:
This is a manageable deficit. It is a cyclical deficit, not a structural deficit. It can be eliminated relatively quickly once the COVID-19 is halted in Canada and other countries, the global economy and domestic economy begin to recover and temporary anti-virus policies are removed.
There are times when going into debt is simply required policy.
Image: Investopedia
7 comments:
Who cares about a deficit? I mean, really, a deficit is only ourselves putting a future obligation on ourselves.
It seems to my simplistic mind that what we should make sure of is that those obligations are paid back in our country to ourselves. If we fall into the trap of letting foreign billionaires lend us money on the stupid neoliberal pyramid scheme now extant, we'll also find we have to pay it back in some foreign currency, likely the US dollar. No, we should expect that we pay back in Canuck bucks. If those folks don't want to lend because of that and their greed, fine. Screw 'em. If they agree, then we see some likelihood of future investment coming along to protect what they've already lent as the currency gains strength. No need to give the country away, it's far enough gone as it is.
FDR tried this in his own way to avoid the big money predators, and unfortunately got snookered by the banks and Wall Street into dropping a lot of those programs progressives tout so much today. By 1937 the chicken was being strangled and plucked anew, but the banker erosion started right from the moment FDR was elected.
https://dissidentvoice.org/2020/03/how-to-crush-a-bankers-dictatorship-a-lesson-from-1933/
This article is by Matthew Ehret who seems to have some clue. He's out of Montreal and fronts the Riding Tide website along with two other Canucks. You can go there and read about them and tackle some articles on art, Shakespeare etc., besides today's news. This is a different kind of approach from the usual progressive wring one's hands and wonder what to do next stuff. These people are not flakes -- look at their credentials.
https://risingtidefoundation.net/about-us/
You can navigate from there and be happy there's some independent thought being performed not tied to traditional political party outlooks. Gotta tickle the neurons sometime or remain bewildered.
BM
Thanks for the link, BM. It looks very interesting. Bankers make a habit of following their money.
Lawrence Martin writes, "In the US, they're all leftists now, even the Trump Republicans.
https://www.theglobeandmail.com/opinion/article-in-the-us-theyre-all-leftists-now-even-the-trump-republicans/
Deficit, debt; who gives a damn anymore.
I have seen many recessions that end with we have to have balanced budgets , no deficits, yada yada.
Once again the world monetary supply is about to be cut off at it's legs.
All of this to prop up an economy that has allowed huge financial benefit to the already owners of the 1% who are, no doubt, frothing at the gills at the thought of disaster capitalism.
Our recession is not about coronavirus ; it was going to happen anyway.
Look forward to world where corporate bailout becomes the word of the day.
Look for companies that look to ten or twenty years of growth based upon their ability to secure financing today!
The lowly taxpayer is no less off the hook for inflating the cost of the future.
Seven and eight years car payments, no payments until next year on consumer products also puts pressure on the monetary supply.
There is a sucker bought every minute.
TB
Martin is echoing what Richard Nixon said back in the 1970s: "We're all Keynesians now." Only national governments have the wherewithal to deal with crises like these, Mound.
Given our recent history, there is no doubt that a sucker is bought every minute, TB. But, if we are going to get out of this, money will have to go to ordinary folks, not the rich. They keep the economy going.
I'd like to publish your comment, Anon. but it has to be initialed.
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