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By A Smith (anonymous) | Posted December 20, 2011 at 17:03:56 in reply to Comment 72420
>> So Bank of Canada buys Ontario (or Canadian) debt, and the country repays it by printing more money down the road, when necessary?
Pretty much, plus the interest we pay the Bank of Canada on the debt gets returned to the Department of Finance. This way we can keep our interest charges as low as we want.
>> This would slowly devaluing the currency to something more "acceptable" than its presently high level?
Sure, if we cut taxes to zero and let private savings accumulate to crazy levels, then our dollar would fall. But that would not be the goal. The goal would be to cut taxes just as much as to make up for people's demand for savings.
In a recession, people slow spending and increase savings. This could be because of fear, or just because bank debt is too high. The net result is that businesses respond by laying off workers.
In order to counteract this fear and keep people working, the government needs to cut taxes for consumers. By doing this, people are then able to increase spending and/or pay down debt. With healthy spending, businesses are forced to keep workers on the payroll, or even expand their workforce.
In this sense, taxes act as a fuel injector, putting just enough money into the economy so as to keep the economic engine functioning at healthy levels.
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