On the day the DOW soars almost 400 points, the Prime Minister exudes optimism.
In a speech yesterday, Harper predicts Canada will emerge from the global financial crisis faster than any other country and observed that we have avoided government bailouts.
Canada has also not experienced a crippling mortgage meltdown or banking crisis in a financial sector dominated by five large banks; banks which the World Economic Forum said recently had the soundest financial system in the world.
So were home-free, right?
Well… not quite.
The Prime Minister tempered his remarks by saying that, in spite of the strength of Canadian banks, the availability and cost of credit in Canada is being affected by the international financial crisis.
“There won't be a recovery until the U.S. financial system is repaired,” said Harper.
Small detail, that.
There's also the issue of the PM's claim that Canada had avoided any government bailouts.
Exactly what does he think the central bank's actions over the last few months have been?
The Bank of Canada has been pumping $75 billion into the banks through Canada Mortgage and Housing, money which CMHC has been using to purchase mortgage-backed securities.
This has taken these high-ratio loans off of the banks’ books for which, in return, the bankers are supposed to use the buckets of cash to increase lending and lower consumer loan rates.
That hasn’t happened.
Worse Ottawa's failed attempt has pumped more money into the banks on a per capita basis than Washington’s giant $700 billion bailout package.
In addition, in the last budget, Ottawa committed to return to deficit spending of at least $64 billion over the next two years. In the next five years analysts figure we will add $100 billion to the national debt – more than was paid back with all that money collected in GST and saved in government cuts.
On a per capital basis, that’s the equivalent of the US adding $1 trillion to its debt.
No bailouts here? Please!
And it's not working. Lending is still seized up despite these billions in laxatives.
That's why the Bank of Canada has announced it is prepared to go 'nuclear' with plans to attack the crisis.
The BOC will enter unchartered territory and flood the financial system with additional cash by buying up securities in the market though an initiative known as "Quantitative Easing” - a process which Eric Lascelles, chief economics and rates strategist at TD Securities, says amounts to providing “more liquidity to the financial system by essentially printing money.”
So when you boil it down, all is looking good save two nagging factors:
(A) no recovery until the U.S. financial system is repaired, and
(B) the Bank of Canada’s plan to start printing massive amounts of money in lock-step with the United States.
And these factors cling to the legs of the Canadian nation like the two emancipated children who clung to the Ghost of Christmas Present in Dicken’s ‘A Christmas Carol’.
Like the warning given to Scrooge, Canadians should “beware them both, and all of their degree”.
Especially the Bank of Canada's plans to print massive amounts of money.