Good Sunday Morning – July 5

Good Sunday Morning!

This Sunday finds me finally out of the 14 day isolation from the last trip to Ottawa and on my way back.  The House will sit this coming Wednesday July 8th, and I’ll arrive tomorrow for the Finance Committee meeting on Tuesday.

On Wednesday, Finance Minister Bill Morneau will provide the first economic update since the pandemic began.  It will not be a budget. In case you were wondering if you missed the budget, you haven’t.  The planned tabling of the 2020-2021 budget was originally scheduled for March 30.  It was postponed due to COVID-19 without a new date chosen. The coming economic statement from Bill Morneau is not an economic update.  He has described it as a “snapshot.”

In anticipation of whatever he thinks Canada’s finances look like at the moment of this snapshot, despite all the other critical and urgent issues demanding attention (systemic racism, police killings of unarmed people – indigenous and of colour, the climate emergency), I will take the rest of this Sunday missive to try to put some context around a sea of red ink.

I am not fundamentally worried about our economy.  True, if alone in the world, for no particular reason our government had set a loony course to balloon the debt and deficit, I would be plenty worried.  I would be calling for Morneau’s head – or at least his resignation.

But Canada is responding to the biggest single global economic hit since the Great Depression. And we are acting in lock step with what most major economies are doing. As reported by the International Monetary Fund, all central banks around the world are basically taking the same three steps –  significantly easing  monetary policy, slashing interest rates, focused on increasing liquidity in the markets, and buying billions and billions of dollars in bonds: “To date, central banks have announced plans to expand their provision of liquidity—including through loans and asset purchases—by at least $6 trillion and have indicated a readiness to do more if conditions warrant.”

Canada, like most industrialized countries, concentrated in getting money into the hands of its citizens as fast as possible in order that people would heed the public health warnings and stay home.

The programmes were not perfect and far too many are still struggling. I am not at all pausing efforts to get help to people, institutions and businesses that need help. But billions of dollars in spending was approved in record time for a wide range of new programmes. Nothing was perfect. And everything would have been better if delivered sooner, but without these Herculean efforts, our economy would be in much worse shape and far more Canadians would have succumbed to COVID-19.

The roll-out so far deserves more praise than damnation. Restarting the economy, re-opening businesses and borders must continue to be done carefully. We know we are not out of the woods yet.

The question I hear a lot is how are we going to pay for all this?

I take a lot of comfort from the April report of the Parliamentary Budget Office (PBO).  PBO looked at how much fiscal headroom do we have for the announced spending.

The PBO emphasized two things:

1) That we went into the pandemic in relatively good shape. Pre-COVID-19, our debt to GDP ratio was 30.6 %.  The best in the G-7 and we had nearly full employment. In other words, like a healthy person getting COVID-19, a healthy economy getting the economic whallop of the pandemic, we will do relatively better than others.

After all this spending due to COVID-19, debt to GDP ratio will rise to 38.1%.  But this is not a worst-ever debt to GDP problem.  In 1995-96, it stood at 66%.  That was what led to the, admittedly quite painful, slashing of spending under former Finance Minister Paul Martin.

2) The PBO stressed that this spending is all temporary.  In that, the PBO compared it to spending in the Second World War.

“For example, the measures that were implemented during the peak years of World War II resulted in massive deficits (e.g., averaging 21 per cent of GNP per year over 1942 to 1945 ; however, they were not permanent in nature. Indeed, shortly following World War II, the federal government registered the largest-ever budgetary surplus as a share of the economy (5 per cent of GNP in 1947).”  (PBO’s estimate of federal fiscal room in Fiscal Sustainability Report 2020, March 20, 2020)

I can predict the blistering questioning in Parliament from the Official Opposition.  To listen to Andrew Scheer and his Finance critic Pierre Poilievre you would swear there was no pandemic.  Yes, this is a minority parliament, but the spending was approved through motions that required unanimous consent.  Back in March, the first version of the bill for new spending included some outrageous over-reaching, such as giving the minority government the power to set taxation and spending rates unilaterally until the end of 2021!  That draft (embargoed and never tabled) lasted less than 24 hours.  All the opposition parties were all over it and a lot of Liberals were shocked as well.

So parliament has been functioning and we have held government to account.

We will hear a lot from the Conservative ranks about Canada losing our triple A credit rating from the New York-based bond rater Fitch. The ability of Standard and Poor’s, Moody’s and Fitch to boost or cripple economies around the world is one of the key reasons Greens do not like debt. We particularly do not like debt held by commercial banks. Moving from triple A to AA+ means that as interest rates rise again, more of our public dollars will have to go to banks, debt charges, and not to health care and public spending.  These bond raters are outrageous. They played a key role in the triggering of the 2008 crisis by continuing to give AAA credit ratings to derivative products not worth the paper they were written on. Regulatory reform of these bond raters is long overdue.    I am including a number of links here to the on-going critique of Fitch and their lot.

The Indisputable Role of Credit Ratings Agencies in the 2008 Collapse, and Why Nothing Has Changed

Ratings agencies suffer ‘conflict of interest’, says former Moody’s boss

This brief summary, from an academic review, makes the key points:

“The three dominant international credit rating agencies – Standard & Poor’s, Moody’s and Fitch – have been accused of many faults including:

Read more here.

For now, the costs of borrowing are very low.  We will likely rebound and get back the AAA rating as long as the government does not listen to voices calling for austerity. We will need continued financial stimulus spending to bring our economy out of its medically-induced coma.

We do need a real economic update. We do need the Auditor General’s budget to be boosted to keep track of the effectiveness of government spending.  We do need to take the advice of former Auditors General, Sheila Fraser and Michael Ferguson, and direct CRA to go after the off-shore money.  We will also need to have a conversation about the role of Modern Monetary Theory to ensure we can do all of this, including fixing those things that the pandemic has revealed as fundamentally unjust.

We also need a minority parliament to hold on to the ability to make decisions together to keep spending. Otherwise, we risk a deep Depression.  And, as a country, we need to play our role in a global effort to contain a pandemic, act on the climate emergency and get people back to work – safely.

Some days, I am glad I am not the Finance Minister.

Have a great week,



This weekly newsletter is published by Elizabeth’s EDA in Saanich-Gulf Islands. You can sign up for it here.