Comment 72131

By A Smith (anonymous) | Posted December 11, 2011 at 19:13:08 in reply to Comment 72030

In order to create jobs we should immediately send out rebate cheques and/or cut taxes for low-middle class earners.

Oh, but wait! What about the deficit.

Well, first of all, the deficit only refers to the governments obligations. In fact, public deficits are just the flip side of private sector savings. Think about it, if the government cuts our taxes, where does that money end up? In our bank accounts, that's where.

That explains why we have seen higher Canadian household debt, even while the Feds have claiming victory over their own debt. They have been draining our bank accounts through higher taxes (13% HST, health tax) and lower transfer payments (welfare stagnation).

The good news is that when public debt/GDP goes up, it also tends to lead to much lower "real" inflation.

For example, have you noticed the great rise in home prices and oil the last decade? That happened as public debt/GDP was falling.

In contrast, from 1981-1986, as Canadian federal debt went from 30%-53% of GDP, home prices remained at around $75k. In that same time frame, oil prices fell from $US35-$14/barrel.

From 1986-1990, Canada's federal debt flattened out, while home prices doubled (~$75-150K) and oil increased from $US14-23/barrel.

From 1990-1998, home prices in Canada remained flat as federal public debt reached its highest level since WWII, averaging around 65% of GDP. In that time, oil prices fell from $US23-$11.

We also know that the Bank of Canada has the ability to buy bonds in the open market, thus essentially guaranteeing that interest rates stay as low as they want them to be. No risk from bond vigilantes that are attacking the weaker economies of Europe.

More cash in consumers pockets = more spending = more sales for businesses = greater need to hire workers.

It's that simple.

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