Conservative Party MP Pierre Poilievre explains how Canada escaped the recession

Conservative M.P. Pierre Poilevre (Nepean-Carleton), a member of the majority government in Canada, explains how Canada embraced the free entreprise system that America has rejected, and the results they got.

Here is the speech that went viral on Youtube:

And here is his article in the liberal Huffington Post.

Excerpt:

In a few days the “fiscal cliff” deadline will arrive and potentially bring massive automatic spending cuts and tax increases. Even if Congress and the President agree to avoid the cliff, the next crisis awaits. Treasury Secretary, Timothy Geithner, wrote the Senate this week to report that the “statutory debt limit will be reached on December 31, 2012,” which will require extraordinary measures to prevent a mass default. These measures will give the government 60 days before it runs out of money and Uncle Sam’s head smashes into the so-called “debt ceiling.”

It has long been said that when the U.S. sneezes, Canada catches a cold. So why have these debt-related ailments in the U.S. not afflicted the Canadian government?

The answer is that Canada has been practicing what the U.S. always preached: free markets, low taxes and minimal state interference. And it is working.

For example, Canada avoided the interventionist policies that led the U.S. to the sub-prime crisis.

In an attempt to expand home ownership, administrations from Carter to Bush Jr. forced banks to offer mortgages to people who would otherwise not qualify for them. Washington then ordered government-sponsored enterprises such as Freddie Mac and Fannie Mae to insure these “sub-prime” mortgages.

According to a 2010 Report on the U.S. Financial Crisis by the World Bank’s Development Research Group, Freddie and Fannie bought an estimated 47 per cent of these toxic mortgages. Harvard financial historian Niall Ferguson indicates that the amount of mortgage debt backed by these government-sponsored enterprises grew from $200-million in 1980 to $4-trillion in 2007.(1) The government pumped so much air into the housing bubble that it burst in 2008. The resulting financial crisis led to government bailouts of the banking sector.

Big government caused the economic crisis. So we are told the solution is more big government. Funny how the problem becomes the solution.

Because the Canadian government did not impose sub-prime mortgages on the country’s charter banks, we avoided the crisis and did not bailout a single financial institution. To keep it that way, Canada’s Finance Minister has ended all government-backed insurance of low-down payment and long-amortization mortgages. In other words, if you want to take on risky debt, taxpayers will not insure you.

Governments must lead by example when managing their own debt and spending. Low debt is the result of low spending. Federal government spending as a share of the overall economy is 15 per cent in Canada (2) and 24 per cent in the U.S. (3). The numbers are not merely the result of prodigious U.S. military spending, though that is certainly a factor. Non-military federal government spending is 14 per cent of Canada’s economy (4), and 18 per cent of America’s (5).

Take a look at some of these graphs from earlier in the year about the Canadian 2012 budget. (This is straight from their government’s web site - they have new transparency/anti=corruption measures now, so the citizens know everything that government does). When comparing the deficit and debt of Canada to the United States, always multiply the Canadian number by 10 to get a benchmark to compare. For example, Canadian GDP is 1.7 trillion, and the US GDP is 15 trillion.

Canada’s budget deficit is around 30 billion, but ours is 1.2 trillion:

Canada Federal Budget Deficit / Surplus 2012

If we were doing as well as Canada, our deficit would be about $300 billion. But we have run up about 6 trillion in debt over 4 years! Not only that, but Canada’s national debt is only $600 billion. If we multiple that by 10, we would expect ours about $6 trillion. And it was that – during the Bush Presidency. But then the Democrats took over the House and Senate in 2007 and everything went wrong and we packed trillions and trillions onto the debt, including about $6 trillion during Obama’s first term.

Canada’s Debt to GDP ratio is 34%:

Canada vs US Debt to GDP

But things are even worse for the United States, now. The current United States Debt to GDP is 105%, according to official U.S. government figures. We are due for yet another credit downgrade, and should see Greece-like levels of Debt to GDP during Obama’s second term. We are spending too much, and we aren’t going to be able to make up trillion dollar deficits even if we confiscate every penny that rich people earn. (And they won’t be daft enough to keep working as hard if we did that – they would move, and probably to Canada)

What is happening to us here in the United States is self-inflicted. We are – and have been – voting to impoverish ourselves and generations of children born and unborn, by punishing those who work hard and play by the rules, and rewarding those who don’t work and don’t play by the rules. It didn’t have to be this way. We could have elected a President who actually knew something about business and economics. Knowledge matters. We can’t just choose a President who gives us the “tingles” and then expect him to perform the actual duties of being President. Competence is more important than confidence. Substance is more important than style.

Filed under: News, Banks, Business, Canada, Capitalism, Community Reinvestment Act, Conservative Party, Conservative Party of Canada, Corporate Tax, Debt, Debt Crisis, Debt Limit, Debt to GDP, Deficit, Economic Growth, Economy, Federal Debt, Fiscal Cliff, Free Enterprise, Free Market, Free Market Capitalism, GDP, Housing Bubble, Inflation, Jobless, Joblessness, Jobs, Mortgage, Mortgage Lending, Obamacare, Pierre Polievre, Recession, Regulation, Spending, Surplus, Taxes, Unemployment

Standard and Poor’s: there may be more downgrades

From CNBC.

Excerpt:

Standard & Poor’s may downgrade the long-term credit rating of the U.S. once again in less than three months after sending shockwaves through the bond and stock markets by stripping the nation of its top notch triple-A rating last week, according to an emergency Sunday night conference call for clients of Bank of America Merrill Lynch.

“We do expect further downgrades,” said Ethan Harris, North American economist, on the call. “We doubt the newly appointed bipartisan commission will come up with a credible long-term deficit reduction plan. Hence by November or December we would not be surprised to see S&P downgrade the debt again from AA-plus to AA.”

Harris said that the U.S. should have avoided the downgrade in the first place by meeting S&P’s demands of a $4 trillion deficit cut and a “demonstrating a sensible budget process.” What they got instead was a “deficit cut of $2.1 trillion and a budget process that’s been extremely chaotic,” said Harris.

[...]“If a disorderly Treasury market leads to the Fed embarking on QE3, repercussions for the dollar will be catastrophic,” said David Woo, head of global rates and currencies research, on the call. “Investors will be quick to conclude that U.S. monetary policy has been subjugated by fiscal policy and the Fed’s independence would be placed seriously into question.”

In other news, Estonia has actually received a recent debt rating UPGRADE:

In the midst of a world embroiled in economic turmoil, a few nations have managed to do surprisingly well—among them, Estonia. After near economic collapse during the 2008–2009 financial crisis, the country has managed to successfully bounce backwith substantial GDP growth, a vibrant trade environment, and a notable budget surplus.

During the first quarter of this year, Estonia had the highest rate of growth in the EU and the biggest drop in unemployment. In July, its credit rating was raised by Fitch to A+, a reflection of substantial economic growth.

But how did Estonia get here? Estonia possesses a flexible, open economy and investment climate that encourages competition and economic growth. It remains one of the world’s freest economies, according to The Heritage Foundation’s Index of Economic Freedom. However, prudent fiscal policies have played the largest role in Estonia’s impressive economic performance, particularly in recent years. Still, the path to fiscal conservatism was not easy; it required a lot of rigorous, painful cutback involving 9 percent of GDP in fiscal adjustments and large cuts to nominal wages.

Notice that Estonia’s economic policies are tea party conservative policies, not socialist policies.

Meanwhile, the White House has yet to respond to our first credit downgrade.

Filed under: News, Barack Obama, Bond, Credit, Credit Downgrade, Credit Rating, Debt, Debt Ceiling, Debt Limit, Default, Deficit, Downrade, Estonia, Interest Rate, Standard & Poor's, Tim Geithner

Calls for Geithner resignation in wake of credit downgrade

Obama Budget Deficit 2011

First, some details about the recent downgrade of America’s credit rating by Standard & Poor’s.

Excerpt:

Standard & Poor’s announced Friday night that it has downgraded the U.S. credit rating for the first time, dealing a symbolic blow to the world’s economic superpower in what was a sharply worded critique of the American political system.

Lowering the nation’s rating to one notch below AAA, the credit rating company said “political brinkmanship” in the debate over the debt had made the U.S. government’s ability to manage its finances “less stable, less effective and less predictable.” It said the bipartisan agreement reached this week to find at least $2.1 trillion in budget savings “fell short” of what was necessary to tame the nation’s debt over time and predicted that leaders would not be likely to achieve more savings in the future.

[...]The downgrade to AA+ will push the global financial markets into uncharted territory after a volatile week fueled by concerns over a worsening debt crisis in Europe and a faltering economy in the United States.The AAA rating has made the U.S. Treasury bond one of the world’s safest investments — and has helped the nation borrow at extraordinarily cheap rates to finance its government operations, including two wars and an expensive social safety net for retirees.

Treasury bonds have also been a stalwart of stability amid the economic upheaval of the past few years. The nation has had a AAA rating for 70 years.

Analysts say that, over time, the downgrade could push up borrowing costs for the U.S. government, costing taxpayers tens of billions of dollars a year. It could also drive up interest rates for consumers and companies seeking mortgages, credit cards and business loans.

A downgrade could also have a cascading series of effects on states and localities, including nearly all of those in the Washington metro area. These governments could lose their AAA credit ratings as well, potentially raising the cost of borrowing for schools, roads and parks.

Jim Demint responds by calling for Tim Geithner’s resignation.

Excerpt:

Sen. Jim DeMint (R-S.C.) responded to the nation’s downgrade at the hands of Standard & Poor’s by calling for the resignation of Treasury Secretary Timothy Geithner.

Saying “enough is enough,” the Tea Party favorite pressured President Obama to remove his top economic official and adopt a new perspective.

“The President should demand that Secretary Geithner resign and immediately replace him with someone who will help Washington focus on balancing our budget and allowing the private sector to create jobs,” he said in a statement. “For months he opposed all efforts to reduce the debt in return for a debt ceiling increase. His opposition to serious spending and debt reforms has been reckless and now the American people will pay the price.”

After S&P put the nation’s rating on negative watch back in April, Geithner said there was “no risk” the US would be downgraded.

“No risk of that, no risk,” he said at the time in an interview with Fox Business Network.

Yes, there is no risk the same way that the 864 billion stimulus was supposed to keep unemployment below 8% – except that unemployment shot up over 10%.

I saw this status update from a friend on Facebook:

If you don’t understand the current financial crisis in our country, here’s a simplified explanation: “If the US Government was a family, they would be making $58,000 a year, they spend $75,000 a year, & have $327,000 in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72,000 a year. These are the actual proportions of the federal budget & debt, reduced to a level that we can understand.” – Dave Ramsey

The Obama administration has had three one-and-a-half trillion dollar deficits in a row. That is nearly TEN TIMES the last Republican budget deficit in 2007. That was the last year that the Republicans held the House and Senate. The last year before Nancy Pelosi and Harry Reid came into power.

Filed under: News, Barack Obama, Bond, Credit, Credit Downgrade, Credit Rating, Debt, Debt Ceiling, Debt Limit, Default, Deficit, Downrade, Interest Rate, Standard & Poor's, Tim Geithner

John Boehner stands up for spending cuts and job creation

Obama went on television last night to argue for more wasteful spending and higher taxes on job creators. I guess he thinks that 1.65 trillion dollar deficits and a 9.2% unemployment rate is acceptable for working families, as long as he isn’t personally affected by it.

The Wall Street Journal did not like Obama’s speech at all.

Excerpt:

The Obama Presidency has been unprecedented in many ways, and last night we saw another startling illustration: A President using a national TV address from the White House to call out his political opposition as unreasonable and radical and blame them as the sole reason for the “stalemate” over spending and the national debt.

We’ve watched dozens of these speeches over the years, and this was more like a DNC fund-raiser than an Oval Office address. Though President Obama referred to the need to compromise, his idea of compromise was to call on the public to overwhelm Republicans with demands to raise taxes. He demeaned the GOP for protecting, in his poll-tested language, “millionaires and billionaires,” for favoring “corporate jet owners and oil companies” over seniors on Medicare, and “hedge fund managers” over “their secretaries.” While he invoked Ronald Reagan, the Gipper would never have used such rhetoric about his opposition on an issue of national moment.

[...]Apart from shifting blame for any debt default, the speech was also an attempt to inoculate Mr. Obama in case the U.S. loses its AAA credit rating. He cleverly, if dishonestly, elided the credit-rating issue with the debt-ceiling debate. But he knows that Standard & Poor’s has said that it may cut the U.S. rating even if Congress moves on the debt ceiling. Mr. Obama wants to avoid any accountability for the spending blowout of the last three years that has raised the national debt held by the public—the kind we have to pay back—from 40% in 2008 to 72% next year, and rising. This will be the real cause of any downgrade.

Speaker John Boehner made clear in his speech that the GOP doesn’t want a default but wants more genuine cuts in spending. Mr. Obama is betting his rhetoric will cause the public to turn against the GOP, but we wonder if voters will be persuaded by a man whose concept of leadership is the politics of blame.

Thankfully, John Boehner isn’t going to let Obama get away with wrecking the economy any more.

Here’s Boehner’s response:

The transcript is here.

Obama’s Monday night speech was insulting, deceptive, vindictive and divisive. He doesn’t know how to solve a problem by getting people who are opposed to him to buy into a compromise plan. Instead, he just goes in front of cameras and insults the people he has to work with. That is not the right way to get people to work together. Imagine if a manager in a private company called a press conference to excoriate some people on a different team in that company. Is that any way to get people working together to solve a problem? To point fingers at your co-workers and poison the well? It’s juvenile. Where is his plan? How is he solving the problem?

The only people I see solving the problem are intelligent people like Paul Ryan, John Campbell, Tom Price, Tom McClintock, Mike Simpson, Ken Calvert and Tom Cole. People who work weekends developing solutions. People who understand how to write policies. People with degrees in economics, business and finance. People with private sector experience running businesses and creating jobs. Obama isn’t one of those people. Obama just reads a teleprompter. He doesn’t know how to create jobs – he never did it before becoming President. So why did we elect him?

Filed under: News, Barack Obama, Budget, Budget Deal, Cut Cap and Balance, Deal, Debt, Debt Ceiling, Debt Limit, Deficit, Government, Jobs, John Boehner, Path to Prosperity, Paul Ryan, Spending, Taxes, Unemployment

Do the Boehner and Reid plans address the concerns of credit agencies?

Obama Budget Deficit 2011

The Heritage Foundation assesses the new Boehner and Reid plans: can they stop us from getting our credit downgraded?

First, the credit agencies:

The second and even more crucial issue is whether Congress will take necessary action beyond the next year to bring our debt under control over the medium and long-term.  This is where the rating agencies really voice their strong concern. Again, Standard & Poor’s:

Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree to a plan that, while avoiding a near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio.”

Moody’s response is similar:

The outlook assigned at that time to the government bond rating would very likely be changed to negative at the conclusion of the review unless substantial and credible agreement is achieved on a budget that includes long-term deficit reduction. To retain a stable outlook, such an agreement should include a deficit trajectory that leads to stabilization and then decline in the ratios of federal government debt to GDP and debt to revenue beginning within the next few years.

What the rating agencies are saying is that Congress and the President must pass legislation that immediately begins to rein in deficits and bring our debt down to more acceptable levels, and either keeps it there or continues to drive it down further.

Right now, there are two plans on the table, because the Senate rejected Boehner’s “Cut, Cap and Balance” plan. Do either of these plans address the concerns of the two credit agencies?

The Boehner proposal would cut $1.2 trillion in discretionary spending.  There is no assurance that these cuts will occur, but let’s assume they do.  Let’s even be generous and assume that they are – in the words of S&P– “enacted and maintained throughout the decade.”  This would cut debt held by the public from its projected $24.9 trillion in 2021 to $23.7 trillion, and when measured against the economy from 104% to 99.4%.  Certainly, this is an improvement, but it is hardly declining from today’s levels, nor would these cuts fundamentally restructure entitlements – the real driver of our deficits in the future.

Step two in the Boehner proposal would reduce deficits by an additional $1.8 trillion over ten years.  Even assuming these cuts all happen, and even assuming they were all spending cuts – a broad assumption given the President’s rhetoric surrounding tax hikes on the wealthy – this would bring publicly held debt down to 92% of GDP. Better, but not that much.  Even throwing in interest savings from deficit reduction would bring this down to 88%.  Again, not much improvement and far worse than today’s debt ratio.

The Reid proposal doesn’t move the ball forward enough either.  At best it falls somewhat short of Boehner’s $3 trillion by $800 billion ($1.2 trillion in discretionary and some confusing savings to be had from winding down operations in Iraq and Afghanistan of $1.0 trillion.)

Neither of this week’s dueling debt ceiling proposals would pass the test from Moody’s or Standard and Poor’s for a credible, firm and actionable plan that would turn the tide of our deficits to put our debt on a manageable track. And if that holds true, then a downgrade by the rating agencies could occur smack in the very election year the President is trying to scoot through.

[...]The fact is, the only plan that could likely pass muster with Moody’s and Standard and Poor’s is House passed, Cut, Cap and Balance.  Why?  They tackle spending with firm caps that are enforceable, and before the end of the decade bring spending down to 19.9% of GDP and keep it there.

My guess right now is that Obama is going to sign the Boehner plan into law. He has no choice, Boehner pwnd him in the deal negotiations. Obama is going to have to yield, or all the blame for the default will go on HIS shoulders. As much as I like the new Boehner plan, it doesn’t look like it’s going to stop our debt rating from being downgraded. We needed to pass the Cut, Cap and Balance plan, but the Democrats rejected it. Think of that when interest rates shoot up. A debt downgrade is going to cause WIDE-RANGING repercussions in the lives of ordinary working families.

Filed under: News, AAA, Barack Obama, Boehner Plan, Budget, Credit, Credit Agency, Credit Rating, Cut Cap and Balance, Deal, Deal John Boehner, Debt, Debt Ceiling, Debt Limit, Debt Rating, Democrat, Downgrade, Entitlements, Medicaid, Medicare, Moody's, Obamacare, Regulation, Reid Plan, Repeal, Republican, Revenue, Spending, Standard & Poor, Tax Rates, Taxes