Forget Stimulus, Deregulate

Alexander the Great Deregulating the Gordian Knot

Canada managed to escape the initial financial crisis, between late 2007 and early 2009, in better condition than its major global financial partners.  It did so for a variety of reasons.  Canada’s economy is by and large “freer” than that of the other advanced industrial countries, including the United States and Europe.  Canada has historically preformed consistently well on the Heritage Foundation’s Index of Economic Freedom.  Importantly, Canada’s banking sector did not suffer from a collapse of the mortgage market, meaning that there was not a major disruption of financial intermediation between savers and investors. Canada suffered mainly from the ripples originating from countries with which Canadian businesses were interdependent with.

There was an important decline in industrial productivity, and Canadian industry has only begun to recover fairly recently.  Nevertheless, the hit Canadian production took was not as acute as that of the United States — American private investment remains severely depressed, which is the main cause of the stagnation from which the American economy is suffering.  While there are some reasons for concern, the Canadian economy is in a good position to finalize its recovery and grow from there.

There is some fear about the future of Canada’s housing market.  In many ways, this sector resembles that of the United States.  This includes the fact that roughly 90 percent of Canadian mortgages have been securitized by the Canadian Mortgage and Housing Corporation (CMHC), which is a cause for anxiety when correlating the mortgage disaster in the United States with the role played by Fannie Mae and Freddie Mac.  The concern is heightened by the knowledge that there is an overconcentration of banking investment in the mortgage market, much like there was during the years leading to the crisis in the United States (depending on how these assets are being rated, investment in them may even be rewarded thanks to how capital reserve minima requirements have been designed by the Basel accords[1]).

Canada’s housing market may be in better conditions than some believe, though.  Comparatively, inflation has been historically low — generally, the consumer price index has seen a percentage change of less than three percent month-by-month.  Cheap credit manifests itself not only in an increase in investment loans (whether business or housing), but also in a rise in consumer credit.  That the increase in consumer prices remains modest, within this context, is a good sign.  It should also be considered that the different interest rates governed by the Bank of Canada, including the overnight rate, were fairly conservative until only recently.  The same is true for general bank rates, as well.  It was only after the initial crisis that interest rates began to fall (the general bank rate fell from a high of 4.75 percent to a low of .50 percent between November 2007 and May 2010; they now sit at 1.25 percent).

There is, admittedly, a centralization of bank investment into mortgage-backed securities, but at the same time there may be less reason to suspect that these securities are as risky as those in the United States.  Newer investments may be riskier than older ones, and it is certainly true that there may be a shockwave effect if there were even a slight crisis in the mortgage market, but there is reason to believe that the situation is vastly different to that of the United States on the eve of the financial crisis.  The underlying security of bank assets may be safer than realized.

Despite all the positive qualities of the Canadian economy, Finance Minister Jim Flaherty has expressed some concern for its relatively poor performance in the most recent quarter and has declared his intentions to push back his budget balancing policy in favor of shoveling money towards stimulus ventures.  There is some legitimacy behind Flaherty’s uneasiness.  The Canadian economy is very integrated into the global division of labor, meaning that global economic problems have a considerable impact on its health.  Flaherty probably intends to use these stimuli as bulwarks against the possible shockwave that may come with the worsening European economic outlook.  While Flaherty may have some reasons to be afraid, his response could be better.

If there are two things to criticize about the Canadian economy, they are Canada’s high government spending and the relative lack of freedoms on investment opportunities.  That is, how Canadians and foreigners can invest in Canada’s markets is tightly regulated by the Canadian government.  The result of high government spending and tight regulation on investment is a two-prong attack on any economy’s greatest asset in fighting economic discoordination: the entrepreneur.

It is important to remember that the situation in Canadais not as dire as some of the language used here may lead to believe.  Canada rates highly in business freedom.  The country’s financial sector is in order and the provision of credit to businesses has not become overly tight.  Investment and production are growing at reasonably higher rates than in other advanced industrial countries.  These are all positive attributes of the Canadian economy.  The point being made here, though, is that political policy — if there must be any political policy at all — ought to strengthen these particular qualities and avoid undermining them.

Reducing government spending is important.  The less money the government takes from the private sector, the more productive the private sector is.  I have laid out the theoretical case for this in a previous article, “Government Spending is Bad Economics”.  Basically, there are tendencies in the market which help regulate the use of capital in the market.  Generally speaking, market outcomes are relatively more “optimal” than those which stem from government spending.  This is because the government operates outside of the market process (i.e. the coordination process).  If could be summed up in a phrase, it would be: markets economize, governments ration.

Money is used to buy resources.  The more money government takes away from the private sector, the more resources the government takes away from the private sector.  The less capital-goods available to entrepreneurs, the less capital-goods that can be invested into the various production processes which make up the structure of production.  The end result of this pattern is to decrease the volume of wealth creation.  We can therefore conclude that government spending comes at a cost.  The cost is the foregone production of the private sector.

Freedom in investment is also paramount if there is to be any degree of flexibility in an economy.  An entrepreneur must have the freedom to move capital around from investment to investment, based on his or her assessment of the profitability of different capitalistic ventures.  If a certain investment is seen as unprofitable, it is preferred to have the degree of flexibility sufficient to cut one’s losses and re-invest in something better.  Generally, the more restrictions a government puts on investment, the less flexible the investment environment is.

It could be argued that some regulation is necessary to avoid predatory investment or investment that is “obviously” bad.  This could be said, for example, of a statute looking to ban subprime lending.  Superficially, the case for this type of regulation is clear.  It becomes more suspect when one begins to realize that the rationale behind these types of investments were not malignant and that their (lack of) security is not as obvious as it may seem in retrospect (in the United States, for instance, there were no investments in the mortgage market rated under AAA — the subprime collapse came as a total surprise).  Regulators tend not take this into account, and the case for this type of legislation is more often than not extremely superficial.

We can also apply the more well-known and repeated arguments that bolster the role of the entrepreneur.  This includes avoiding monetary intervention through the Bank of Canada, such as interest rate manipulation.  Credit expansion distorts relative prices, causing a change in investment patterns which may not be sustainable (what Austrians term “malinvestment”).

Why is the entrepreneur so important?  Wealth production is an outcome of capital accumulation and economization.  That is, an economy’s productivity depends on its level of savings and the efficient use of these savings in the processes of production.  The economic agent who directs this type of activity is the entrepreneur.  The entrepreneur is responsible for investing savings into business opportunities.  Thus, the last thing that should be done is to limit or remove the means of doing as much.  In fact, any government policy should be directed at removing past legislation which may act to hamper the ability of the entrepreneur.

If Canada’s economy suffers a blow-back from the worsening conditions in Europe, it will be Canada’s entrepreneurs leading the escape.  When some business opportunities with Europe become less profitable or no longer available it will be Canada’s entrepreneurs which redirect their resources towards better investment ventures.  This economic restructuring will be the key to maintaining a healthy rate of productivity and economic growth.  Furthermore, in the interest of avoiding major blips, this restructuring should take place as quickly as possible — this is exactly the reason why entrepreneurs should have as much flexibility as possible when making their decisions.

Finance Minister Jim Flaherty certainly has reasons to be wary of possible economic ripples making themselves to Canada from the European crisis.  Advanced industrial economics enjoy extensive, interconnected division of labors.  A crisis in Europe will also affect industry in Canada.  But, Flaherty’s policies to bolster the country’s defenses against such an event are the exact opposite of those he ought to pursue.  Postponing the plan to balance the budget only means that more money will be siphoned away from the private sector and essentially wasted on government programs — this money will not be economized towards the end with the most perceived utility.

If the Canadian government needs to take action, it ought to do it in the exact opposite direction.  It should cut spending and legislate only the removal of regulations that hamper business activity.  In other words, the entrepreneur who operates in Canada should be as free as possible to move his or her capital around into those avenues of investment which are perceived to offer the highest rewards.  If the market process is allowed to work, Flaherty can be reassured that the Canadian economy will adequately deal with whatever problems come from a European debt and currency crisis.

Canada, in fact, is in the perfect position to take these capitalistic steps.  It is already one of the most robust advanced industrial economies in the world, since it managed to remain relatively stable after the 2007–09 credit contraction.  The Canadian economy is also one of the freest of the large advanced economies, meaning it has ample precedent to show the value of a free market attitude.

[1] The role of capital regulations in the United States’ banking industry has been explored in Jeffrey Friedman and Wladimir Kraus, Engineering the Financial Crisis (Philadelphia, Pennsylvania: University of Pennsylvania Press, 2011).

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27 Responses to “Forget Stimulus, Deregulate”

  1. quietlike1 says:

    I live in the US, and wanted to know if you canadiens think it's better in the coming years to be in Canada. I was looking at Vancouver as a possible place to move -with hopes to get some land further up north in case SHTF and as a 'getaway cabin'. I wanted to get involved in some sort of resource sector, but have no experience. I currently am a poker dealer at a casino, and i know I can probably get in at one of the casinos there, assuming they were hiring -but that would hopefully be a job that would tide me over.
    Would it be better to get out of the Western world, because I'm also considering Chile. Which would be better, and I dont think this is the best place to pose this question, but I couldnt find a forum on here. Also, can you sell seed in BC? I am confused about the laws on this there, because I see that as business opportunity actually. any thoughts would be great.

  2. nonsense says:

    My comment about Washington Mutual fraud was not posted – was there a reason?

    • Redmond says:

      Sorry got deleted by accident- in any case you need to read Reisman before we go any further

      This "market" we live in is closer to a fascistic/corporatist model than anything that could be considered "free" or "capitalistic"

      It isn't as if we here at look out at the world around us and think "all is as it should be". The government at all of it's various levels severely distorts incentives, natural mechanism of profit and loss, etc etc.

      You are complaining about the symptoms of an economic cancer, that cancer is central banking, pure fiat currency, etc etc.

      You and the mainstream media and most politicians etc would like to give the patient a few shots, maybe some massage therapy.

      We would like to aggressively treat this cancer – cut it out, kill it.

      Correct, ACORN had little to do with the big picture, but so did the bad loans.

      You say "why should dishonest people be allowed to prey"?

      You know who is the most dishonest group in this whole situation? The politicians and bureaucrats who tell you that they can fix the system, the central bankers who tell you that they can control the economy by printing just a little more money.

      The crashes and bad banking and loan practices are simply the symptoms, I am looking at the cause of the sickness.

      Do some more reading on our current central banking system before you draw conclusions about the relative "freedom" of the economic system that we live in.


      Good one from north on central banking today

      I suggest u read it.

  3. nonsense says:

    I am sorry, this has little to do with Acorn.

    The banks made the bad loans – WAMU, Chase, Wells Fargo, CitiGroup, Countrywide, and others. People in financial institutions have to be held to a standard of honesty, that even with regulations, they try to circumvent. That is why Enron happened, and the Savings and Loans crisis – and on and on. Free Market philosophy states that the market will sort out the fraud; but that is simply not true, as has been shown over and over again. And why should dishonest people be allowed to prey on the innocent at all? And it was not a small amount – it was huge, almost brought down the world financial system which is still in a crisis (ever read about the part that Goldmann Sachs played in Greece – see

    Nowhere did I see Acorn having to be bailed out – but the banks, which besides the "official" bailout also received undisclosed-until-now loans in the billions from the Fed.

    This 60 minutes interview explains exactly that:

    • Redmond says:

      "Free Market philosophy states that the market will sort out the fraud; but that is simply not true, as has been shown over and over again."

      It absolutely is true – what you don't seem to understand is that we do not live within a free market.

      What has actually been shown over and over again over the last 40 years since Nixon severed the last link to gold is that government monopoly and of the production of money and regulation of the financial markets does not work.

      The most important regulation of a free market – profit and loss, has been effectively eliminated by government intervention. The banks did not care about making bad loans because they new the government would bail them out.

      Again what you have seen over the last 40 years, S&L, LTC, etc etc is a failure of GOVERNMENT and REGULATION. Not of capitalism. The government of the USA and its bureaucrats and central planners have created this market through intervention. This is not a natural outgrowth of the "free market"

      Under the classical gold standard, minimal state and free banking there was high growth, low unemployment, rising prosperity.

      I suggest you read reisman before we go any further:

      The mentality displayed in these statements is so completely and utterly at odds with the actual meaning of laissez faire that it would be capable of describing the economic policy of the old Soviet Union as one of laissez faire in its last decades. By its logic, that is how it would have to describe the policy of Brezhnev and his successors of allowing workers on collective farms to cultivate plots of land of up to one acre in size on their own account and sell the produce in farmers’ markets in Soviet cities. According to the logic of the media, that too would be “laissez faire” — at least compared to the time of Stalin.

      Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright defiled by such statements as those quoted above. Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force. This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual’s own government. This last is accomplished by such means as a written constitution, a system of division of powers and checks and balances, an explicit bill of rights, and eternal vigilance on the part of a citizenry with the right to keep and bear arms. Under laissez-faire capitalism, the state consists essentially just of a police force, law courts, and a national defense establishment, which deter and combat those who initiate the use of physical force. And nothing more.

      Before we go any further

  4. Ross says:

    Sure but is that because these guys were racists or is it because they were attempting to be "politically correct" with who they ruined. It used to be a long-standing stereotype that banks wouldn't give black people loans because they were run by racist who believed black people weren't economically viable. Just as the above mentioned government legislation and ACORN pressuring was meant to ensure low-income loans, it no doubt also pushed for less racial discrimination too.
    I'm not defending the lending policies of these institutions, far from it. I just think it somewhat disingenuous not to acknowledge that much of it was imposed through (supposedly) socialistic regulation. Personally I believe banking corporatists crafted this regulation to work in their favour. It's kind of like Brer Rabbit begging not to be thrown into the briar patch. Through their public private partnerships with government, big corporations creat legislation, which is allegedly meant to protect the little guy from big business but it usually ends up being a trick meant to some how benefit the favoured corporation. The Federal Reserve System is a classic example of this

  5. nonsense says:

    Former Chase Banker Admits His Bank Pushed Minorities Into Subprime Mortgage Loans
    By Pat Garofalo on Dec 1, 2011 at 9:20 am

    One of the most pernicious practices in which the nation’ biggest banks engaged during the lead up to the financial crisis was pushing minority borrowers into subprime loans, even when many of them qualified for prime loans. Wells Fargo had perhaps the most horrifying practices in this department, calling the subprime loans that they pushed in poor, black neighborhoods “ghetto loans.”

    This rampant predatory lending helped inflate the housing bubble; a Center for American Progress investigation actually found huge racial disparities in lending at the big banks that wound up getting bailed out, with minority borrowers far more likely to receive high-priced loans.

    One former banker for Chase — James Theckston — told the New York Times’ Nick Kristof that not only did his bank push minority borrowers into higher-priced loans, but senior executives then tried to cover up the racial disparity in their banks’ lending:

  6. Ross says:

    Here’s a problem with nonsense’s whole “deregulation” (or at least deregulation alone) narrative:
    In 1977 The U.S.A became a party to the International Convention on Economic, Social and Cultural Rights, article 11 (1) of which declares “everyone” has a right to, among other things, housing. Also in 77 the Carter administration hammered the Community Reinvestment Act, through Congress, a law designed to increase housing for the poor, requiring banks to report the number and value of loans issued to low-income people, and also giving community organizations (ACORN for one) the right to “comment” on proposed bank mergers and expansions. Following this legislation ACORN, under the leadership of Madeline Talbott, would protest “unfair lending practices” by filling bank lobbies with crowds of the unemployed. In 1990, she forced the first CRA hearing, claiming the Bell Savings & Loan Association should be denied a request to expand as they failed to meet the CRA low-income lending guidelines. Famously, Now President Obama would become both a lawyer and community organizer for ACORN in the early 1990s.
    Between 1993-99, President Clinton’s Council on Sustainable Development made policy recommendations requiring the U.S government to provide “incentives” to expand housing for low-income people. Secretary of Housing and Urban Development, Henry Cisneros, partnered with ACORN to provide those incentives. To achieve this ACORN held huge demonstrations against local banks that failed to make low income loans. The banks claimed Fannie Mae & Freddie Mac wouldn’t honor these loans due to credit restrictions. ACORN also used Washington lobbyists to reduce these credit restrictions on Fannie Mae and Freddie Mac, eventually insuring that half the mortgages purchased by these institutions were issued to low-income people. The Presidentially Appointed Executives at Fannie and Freddie, their bonuses calculated on the volume of low-income mortgages on their portfolios, became extremely wealthy.
    Here we see how Federal Government regulation strong-armed banks to make the very unpayable loans that led to the crisis. It is illogical that banks would want to make loans that could never be paid back, even loan sharks would rather get their money plus interest rather than breaking your legs. The only reason these organizations would do this is:
    A.)They bet on the housing bubble bursting (Something their actions caused.)
    B.)Many of them new their revolving door relationship with big gov would guarantee them bailouts after everything went haywire.

    • nonsense says:

      Senate panel finds major fraud at Washington Mutual

      Washington Mutual, based in Seattle, became the biggest bank failure in U.S. history when it collapsed in September 2008. (George Frey/bloomberg News)

      Washington Mutual, based in Seattle, became the biggest bank failure in U.S. history when it collapsed in September 2008. (George Frey/bloomberg News)
      Network News
      Associated Press
      Tuesday, April 13, 2010

      The mortgage lending operations of Washington Mutual, the biggest U.S. bank ever to fail, were threaded through with fraud and the bank's own inquiries were unable to stop the deceptive practices, according to a report by Senate investigators.

      The investigators said the bank's pay system rewarded loan officers for the volume and speed of the subprime mortgage loans on which they closed. Bonuses even went to loan officers who overcharged borrowers or levied stiff penalties for prepayment, according to the report being released Tuesday by the investigative panel of the Senate Homeland Security and Governmental Affairs Committee.


      This was fraud according to all laws on the books.

  7. Chris Buors says:

    Ever hear of the Community Re-Investment Act? It forced banks to lend to people unlikely to repay.

    The idea that there were no regulations to stop the banks is ludicrous when legislation existed that forced the banks to lend to sub-prime borrowers.

    • Jonathan M.F.C. says:

      The CRA played some role, but not the predominate one. Like I write above, I really suggest Friedman and Kraus' Engineering the Financial Crisis.

    • nonsense says:

      Which legislation that forced banks to lend to sub-prime borrowers? All I have read is that banks did this on their own, just to keep the business moving (WAMU for example). In fact, one of the perpetrators recently committed suicide – why would she do that if she was abiding by the law. And there were hearings in congress to get to the bottom of this. Why would there be hearings if it was covered by legislation.

      Please provide a link to the legislation that forced the banks to lend to sub-prime borrowers. Thanks.

      • Redmond says:

        Will do nonsense. It is called the community reinvestment act.

        Government intervention was present at every step of the way leading up to this collapse – you can't look at this in isolation, these continual booms and busts have been getting worse ever since Nixon cut the final link that the USD had to gold in 1971.

        I would say the most important government intervention in the USA is the monopoly on the production of money substitutes and the ability that it has to manipulate the interest rate for he entire country, some might say the entire world.

        Sub-primes were only a small part of this problem, the crash of 2008 was not caused by sub-primes.

        The crash of 2008 was caused by the federal reserve creating a country-wide housing bubble. Incidentally a bubble that was called for by none other than Paul Krugman.

        We will have an article on Glass Steagall at some point in the future.

      • Jonathan M.F.C. says:

        Evidence shows that no bank invested in a single mortgage bond that was rated less than triple-A, whether subprime or not.

  8. nonsense says:

    Quite the opposite – the housing crisis and the financial crisis in the US occurred BECAUSE of deregulation. Talk about Orwellian interpretation of the facts.

    Loans were being given to people who were unable to afford them because there was no regulation to stop the banks from doing so. These toxic assets were bundled up and sold to unsuspecting buyers because there were no regulations to stop that from happening. Glass-Steagel was put into place after the first depression to stop financial corruption ever happening again. When Glass-Steagal was overturned, all hell broke loose – the wealthy made out like bandits and the bulk of the population were screwed. Hence the 99% movement.

    "Harper credits regulations for preventing bank bailouts" Google and read the article; and Harper is a conservative.

    I am beginning to think that Libertarians are flat-earthers.

    • Redmond says:

      Deregulation and specifically Glass-Steagall had zero to do with the crisis

      From Tom woods.

      Sick of that one?  Me too.  Here’s the quick note I sent someone who asked Professor Walter Block this very thing.

      “I cover this in detail in my forthcoming (February 7) book Rollback.  For now, I’d ask your friends for specific examples of deregulation that led to the present crisis.  They can’t name one.  There isn’t a repealed regulation that would have prevented the securitization of mortgages, or prevented banks from holding such securitized mortgages as investments.  Banks were allowed to do this all along.  If they cite the so-called repeal of Glass-Steagall they are even more clueless.  The partial lifting of barriers between commercial and investment banking had exactly zero to do with the financial crisis.  (Much more on this in my book.)

      “Moreover, who could possibly look at banking and think this was a deregulated industry?  Regulation is absolutely everywhere.  No one seems willing to consider the possibility that regulation may simply have failed, that regulators may be human beings rather than demigods, etc.  Walter is right: banking is the most heavily regulated industry in America.  There are already 115 agencies regulating the U.S. financial sector.  Your friends think things would improve if there were 116.  They are stuck in an interventionist worldview they cannot break free of.  The thought never occurs to them that the very institutions that are supposed to provide stability may be the sources of instability — beginning with the Federal Reserve.  This story is told in my book Meltdown, which Walter recommended.”

    • Redmond says:

      On top of that, Canada had NO equivalent to glass Steagall – so why didn't the same thing happen here?

    • Jonathan M.F.C. says:

      It's not just libertarians who think that Glass-Steagall had nothing to do with the financial crisis. I would suggest David Leonhardt's article on the subject published in the New York Times. Also, look at the relevant sections of Jeffrey Friedman's and Wladimir Kraus' Engineering the Financial Crisis, even though they do come from a libertarian perspective. But, the latter work is very empirical.

      The main concern is that this "repeal" of Glass-Steagall is, in part, highly fictitious. The act was not repealed in full by the Gramm-Leach-Bliley Act. In fact, the important provisions which the media claimed were repealed were not actually repealed (that is, the division between investment and commercial banks were not entirely repealed — the division remained intact).

      I'm not really interested in entering into debate, but I would suggest actually looking at the facts — not popular misinterpretations of them.

      • nonsense says:

        Sweden is enjoying its lowest borrowing cost ever relative to Germany as investors reward the biggest Scandinavian economy for cutting its debt to less than half Europe’s average and enforcing discipline at its banks.

        Almost two decades after resolving its last banking crisis, Sweden boasts the world’s best-performing bond market. The country, which opted to stay outside the euro, has paid down its debts and imposed stricter controls on its lenders. Sweden’s government made a profit on its 2008 financial rescue, will post a budget surplus this year and pays less than any other European Union member to borrow for 10 years.

        A real life example of regulations that work. Sweden is laughing all the way to the bank. And as for facts, there are credible economists who tout the failure of the Glass-Steagall repeal. We did not have these financial problems before 2000 to this extent. Unfortunately, theorists do not understand the harm that is done to real, life people. I am very glad this conversation is happening here and all over the world, and possibly we will all end up following Sweden.

  9. Bill Kenny says:

    Europe is not a country, it's a continent made up of a wide and very disperate group of countries some of whom are just as economically competent as Canada.

    • Jonathan M.F.C. says:

      But it is a region that is united, in large part, by a common currency. As such, monetary policy at the ECB affects all Eurozone countries. No less, the heavy amount of inter-investment into each other's government bonds makes each economy highly dependent on the [lack of] safety of those investments.

  10. Marten says:

    "IfCanada’s economy suffers a blowback from the worsening conditions in Europe, it will beCanada’s entrepreneurs leading the escape. When some business opportunities with Europe become less profitable or no longer available it will beCanada’s entrepreneurs which redirect their resources towards better investment ventures."

    You misinterpret the European situation. There is no economic crisis, just a crisis of public debt of some nations which had high inflation rates in the past with their sovereign currencies and then publicly overspent under a pooled currency, the Euro. Normally the answer would be simply inflation (or leaving the monetary union) but they don't go for that.

    In fact Business in Europe is quite profitable, in particular in the nations with fiscal discipline.

    • Jonathan M.F.C. says:


      Whatever the situation is with "business in Europe" (which is not "quite profitable" in all countries, given the high rates of unemployment which pervade most European countries — evidence that business investment is still depressed), the fact remains the the "crisis of public debt" that you point out is an economic crisis. It is an economic crisis, because when one country (Greece, most likely) defaults on its debt, it will force banks to find liquidity to cover these costs — i.e. a credit contraction. It will also force investing countries to find liquidity to find these costs, which will handicap the affordability of their own debt, and will also make banks think twice before investing further funds into this debt.

      What this means is that the public debt crisis necessarily translates into European business, because it will be European business that will feel the consequences of a credit contraction.

  11. mstob says:

    I am curious, where have you seen evidence for rising real wages in Canada?

  12. Ben says:

    A clarification on my last comment: when I said our purchasing power has remained stable over the last 15-20 years, I meant REAL purchasing power (i.e., a 1% rise in price is accompanied by an approximate 1% rise in incomes). In fact, our real purchasing power has been increasing over time, as shown by a rising real GDP (so incomes are rising faster than prices). Obviously, nominal purchasing power (the amount of goods and services that can be purchased for $1) falls over time, but that is not important if real purchasing power remains stable.

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