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It'll be the economy, economy, economy in 2009

October 24, 2008

The financial crisis washing over the world is a fitting metaphor for the end of the Bush administration.

The worst U.S. government since Reconstruction after the Civil War will end its eight years in office with the country's financial services sector besieged and broken, its deficit heading toward $1-trillion a year, a recession at hand, and America's economic leadership universally pilloried.

Economic misery will be bequeathed by President George W. Bush to his successor, Barack Obama, with stock portfolios ripped apart, retirement savings depleted, homes foreclosed, unemployment rising.

U.S. foreign policy, so widely disliked, will now be joined by its economic policy as something the world no longer trusts. No more will U.S. officials lecture others about how they should run their affairs when the U.S. under the Bush administration has so lamentably run its own.

The meeting the Bush administration has called for mid-November is really something forced on it by Europeans. It will be the first in a series to try to reconfigure international economic institutions, work that will be carried forward by the post-Bush administration. No country at that Washington meeting will or should listen to the Bush administration, given its track record and dwindling days in office. Indeed, British Prime Minister Gordon Brown has been the leader, and Washington the follower, in the recent stages of the recovery plan.

Countries, alas, can neither run nor hide from the effects of this U.S.-inspired meltdown, as the Bank of Canada soberly reminded Canadians yesterday.

Canada is too entwined with the U.S. to avoid being sideswiped, despite having done many things right in the past 13 years. Those good things - such as fiscal surpluses, declining debt-to-GDP ratios, and more stringent banking regulations - have cushioned Canada from what would have been a much worse hammering.

Still, the Bank of Canada warns that the financial crisis, the U.S. recession and the fall in commodities prices will make for a rough 15 to 18 months. So swiftly have matters deteriorated that the bank has "revised down considerably for 2008 and 2009" its economic projections since the ones it offered in July.

Very slow to non-existent growth is expected through 2009, with an upturn coming only in 2010. Maybe, but growth projections that far away should be taken with a large dose of salt. Already, Ontario has announced a $500-million deficit that could easily go higher, and B.C. Premier Gordon Campbell has announced a series of emergency measures. Other provinces will be revising their projections downward.

Politically, this downdraft means that everything will revolve around the economy for the rest of 2008 and all of 2009. Platforms can be tossed away, especially those of the Liberals and the NDP, since they were based on forecasts now wildly dated. The Harperites, too, will be hard-pressed to fulfill their promises, including the one about not running a deficit.

The Liberals, with a new leader expected in the spring and smarting from so many abstentions in the last Parliament, might want to force an election in the second half of 2009, just in case the Bank of Canada is correct that strong growth will return in 2010. Better for an opposition party to fight an election with the economy in the dumps than when it soars.

The Harperites are likely to cut spending or run a deficit, since they won't raise taxes. The premiers, naturally, have already warned against any cuts to transfers, with some of them recycling that old canard about how the Chrétien-Martin government licked the deficit on their backs.

This historical revisionism is false. Transfers were indeed reduced, but so were the budgets of every federal department except two - aboriginal affairs and justice.

Lower energy prices will certainly help manufacturing, but they'll also retard movement toward a greener economy. With fossil fuel prices high, renewables looked correspondingly more competitively priced. That competitive position will be weaker if, as the bank projects, oil hovers in the $80-to-$88-a-barrel range. Remember, though, those prices are still well above where oil was two or three years ago.

And two or three years ago, the Harper government was rolling in dough. It forked over tax cuts and billions to the provinces, and kept spending above the inflation rate. Governing sure was easy then.


Posted on Friday, October 24, 2008 at 01:28PM by Registered CommenterElaine in | CommentsPost a Comment | References1 Reference

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