Comment 72377

By A Smith (anonymous) | Posted December 19, 2011 at 08:30:24 in reply to Comment 72371

>> What about when most of that debt is held by foreign hands? And a situation where many, many countries are facing debt problems?

U.S. debt charges in 2000 were 3.64% of GDP. Today, they are down to 2.79%.

Today, more debt is held by foreigners than in 2000.

So, if the trend continues, then more foreign held debt will likely be a good thing.

>> It (inflation) can get out of hand quite quickly, and Canada's fiscal policies are only going to be able to do so much to help.

Inflation tends to track median wage growth. For example, in the seventies, U.S. median wages rose about 9%/year and as a result, inflation was very high (8.05%). In contrast, since 2007, U.S. median wages have risen at around 1.5%/year and CPI has averaged 1.85% in the same time frame (Nov 07-11).

That's the real value of money (pieces of paper), to encourage buying and selling, work and investment. If unemployment is at 7.4%, then either Canadians (corporations) are hoarding these pieces of paper, or it has flowed overseas and is not coming back in the form of export demand.

In our monetary system, the government can offset this higher demand for savings (indicated by the demand for our debt) by cutting taxes.

In reality, Canada has the ability to "print" as much money as it wants. The trick, however, is to print just enough money so as to encourage job growth and higher living standards and this is best done by cutting taxes and leaving more money in people's pockets.

Consumer spending accounts for 63.2% of Ontario's economy. As it goes, so does job creation. From the end of 2008 to mid 2011, consumer spending has averaged only 2.16%/year. From 1997-2000, it averaged 4.45%/year.

With record household debt, how are consumers going to find the cash to power 4-4.5% consumer spending? And yet, McGuinty keeps raising taxes like the HST, which sucks money out of shoppers pockets.

In 2002-03, provincial debt charges amounted to 2.03% of Ontario's GDP. In the latest quarter, they were only 1.50%. That means McGuinty has at least $80 billion to add to the debt before the actual debt burden approaches 2002-03 levels (based on current debt of $240B).

The HST is projected to raise $19B this year. That means that if McGuinty wanted to, he could scrap the HST (8%) for 4 years.

I wonder if that would help the economy?

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