The Canadian economy is forecast to contract 0.8 percent in 2009. The budget put forward yesterday commits the government to substantial deficits for the next four years. $20 billion cut to personal income taxes. Home renovation tax credit. An additional $50 billion to the Insured Mortgage Purchase Program. $12 billion in new infrastructure spending.
All this for a 0.8 percent contraction in 2009? Our political leaders are still only hinting at the severity of the current crisis
Canada may well do better than most other advanced economies during this financial crisis. But just how bad will it get?
We can summarize the current economic mess simply: greed plus incompetence plus an irrational belief in market efficiency equals disaster.
A helpful article to gain context behind this simple statement can be found in this New York Times article “The End of the Financial World as We Know It”.
Everyone seems to be guessing at strategies and outcomes to contain this mess. And regardless of all the stimulus plans by governments, 2009 will be a very, very tough year in terms of economic pain.
What lies ahead are some very painful debt liquidations. The U.S. economy will have to write down capital by almost one and a half times GDP — worse than the Great Depression.
The recovery will take time. At least a year and perhaps longer.
There are some reasons to be optimistic. With the market basically at half price, a dollar is a more powerful instrument. Assuming, of course, that you have a dollar to invest. Investment dollars are weak dollars in over-priced markets. They are strong dollars in cheap markets.
I find it hard to comprehend the lack of competence of the U.S. administration under George Bush and the deplorable conduct of the leaders of the major financial services companies. Although the next few years will be difficult for Canadians, this crisis will serve as a reminder to think about real wealth.