●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
Canada has found the magic economic elixir we all should drink – at least according to this article
Smart Economics: Canada Teaches US Lessons in Fiscal Responsibility
John GiokarisinBusiness, National Debt
If lawmakers in Washington want to find out how sound economic policy and fiscal responsibility looks like on a national level, they need look no further than our neighbors to the north. That’s right, Canada.
Ever since Conservative economist Stephen Harper became prime minister of Canada in 2006, the country has seen revenues and investment increase, unemployment and deficits decrease, and for the first time in history, the average Canadian household is richer than the average American by $40,000.
You may be asking yourself, “How the heck did that happen?” Here’s how:
For starters, when Harper and his Conservative minority-government came to power six years ago, they implemented a series of tax cuts. Canada’s corporate tax rate has been lowered from 22% in 2006 to 15% in 2012.
The U.S., however, has maintained a 39.2% corporate tax rate (when including state and local taxes), now making us the highest in the world.
Right. Taxing corporations is the worst possible economic idea plan. A corporate tax is nothing more than starving the goose that lays the golden eggs.
Canada’s income tax rates are also substantially lower than America’s – setting its top bracket income tax rate at 29% vs. America’s 35%.
Another wise move. Because the U.S. and Canada are Monetarily Sovereign, taxes do not support government spending, so not only should be reduced, but actually could be eliminated. A Monetarily Sovereign government has no use for tax dollars.
Along with tax cuts, Harper has enacted significant government spending cuts. He reduced federal spending last year by 6.2% primarily by eliminating waste and prioritizing spending by department. For instance, he implemented budget increases for departments entrusted with security and law enforcement – such as a 21% boost to jails — but cuts of roughly 20% to unnecessary environmental protection programs.
Uh oh. Spending cuts to “unnecessary“(?) environmental programs?
In his 2012 budget, he pledged to cut $5.2 billion in federal spending every year for the next three years. Among the cuts are $31 billion from provincial health transfers, $377 million slashed from foreign aid and international development, 10% trimmed from CBC’s funding over three years and eliminating the Canadian penny.
More “Uh oh.” “Health care transfers” are the dollars the Canadian government gives to the provinces (like our states) to support health care, post-secondary education and welfare. The Canadian government is trying to balance its budget on the backs of its poorest citizens. Sound like a good idea?
Harper’s administration has worked to streamline the approval process for resource development and to collaborate on a broad, market-focused national energy strategy to capitalize on the country’s vast natural resources. They identified a handful of priority areas, such as regulatory reform, improving energy efficiency and developing new energy export markets.
Translation: Environment be damned. Cut regulations. Drill, baby. Drill!
And what is the result of these tax cuts, spending reductions, and energy job creation? Are people starving and children crying? Are trees dying and birds not flying? Did the sun not come up again?
No, quite the opposite. Canada has now seen their unemployment rate drop from a post-recession high of 8.3% in 2009 to 7.2% in 2012.
Their budget deficits have been cut in half from $53.8 billion in 2009 to $24.9 billion in 2012 and the country’s now on the path to balancing its budget by 2015. They are now the #1 supplier of foreign oil to the U.S.
Short term, Canada is turning itself into China, where exports trump environment, but long term will be quite another matter. An example of this short-term thinking can be found in the following, which was referenced by the above article:
Budget: Deficit to be eliminated over three years; moderate economic growth expected
By Gordon Isfeld, Postmedia News, 3/29/12
OTTAWA — The federal government nailed down its moving target for balancing the budget on Thursday, saying it will eliminate the shortfall over the next three years and post a surplus by 2015-16, as Canada’s economic outlook improves.
“In less than two years, we have already cut the deficit in half,” Finance Minister Jim Flaherty said. “We did it by ending our targeted and temporary stimulus measures, and by controlling the growth of new spending.”
The government on Thursday cut its deficit estimate for the current year to $24.9 billion from $31 billion — roughly in line with economists’ expectations — and set the shortfall for 2012-13 at $21.1 billion. The deficit is expected to shrink to $10.2 billion in 2013-14 and go down to $1.3 billion the following year.
The surplus (!) should come in at $3.4 billion in 2015-16, and reach $7.8 billion a year later.
Before we get too giddy at Canada’s “sound economic policy,” let’s look at a couple of fundamentals:
Gross Domestic Product = Government Spending + Private Investment and Consumption + Net Exports Simple algebra says that for the left side of the equation to go up, the right side must go up.
For GDP to rise, Government Spending and/or Private Investment and Consumption and/or Net Exports must rise. But Canada’s model depends on reduced Government Spending. So for the plan to succeed, Private Investment and Consumption and/or Net Exports not only must rise, but must rise more than Government Spending falls.
But Canada is not planning for just a balanced budget. No, Canada wants a budget surplus. This means taxes must exceed spending. A budget surplus requires that more dollars come out of the economy than will be pumped back in.
With fewer dollars available, how will Private Investment and Consumption, not just increase, but increase more than the reduction in Government Spending? The answer: It can’t. There is no magic where fewer dollars lead to greater Investment and Consumption.
And that brings us to the final term in the equation: Net Exports. Canada traditionally has had a positive balance of trade:
If Canada can, as it seems to promise, ignore the environment, cut regulations, and “drill, baby, drill,” Net Exports might be sufficient to support economic growth, (the German model).
But at what cost? Is reduced government spending which for a Monetarily Sovereign nation, costs nothing, worth reduced support for health care, post-secondary education, welfare and the environment?
Being Monetarily Sovereign, Canada can support any size government deficit, but can Canadians support support reductions in their health, education and environment?
My prediction: Unless Canadian Net Exports somehow rise to even higher levels than ever (probably requiring a major rape of the Canadian and world environment), the Canadian economy is doomed.
Monetarily non-sovereign governments, like the provinces (or American states), cannot spend, long term, more than their income. But, for a Monetarily Sovereign nation to run a balanced budget, much less a net surplus, is the height of suicidal lunacy.
Back in 2005, I predicted the euro nations were doomed (“Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.“)
My prediction was based on reduced money supply. It took six years for the euro cracks to widen enough for the world to see. Canada’s cracks may not take that long.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports