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The big quiet bail out – Euro/Japan central banks propping up stock markets, is the US next?

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You’d think that the golden age of markets, if there was one, would be something like the post WWII economic expansion era. That was pretty impressive, driven by baby boomers and the gigantic wave of consumption that enveloped them. Never before in history had parents worried so much about the outfits that New Baby would wear, and it only got crazier from there.

Fundamentally though, the late 1700s were far more earth-shaking. Not in the consumerist sense; those austere horse-travelers managed to survive somehow without the likes of either Apple or Lululemon, for example, but consider the free-market achievements of that period. The United States came into existence, a profound new experiment in governance and free(ish) markets. In academic circles, famed economist/philosopher Adam Smith coined the term “the invisible hand of the market” in his book The Wealth of Nations. It was a reference to the ability of a market economy to provide benefits far beyond those that accrue to the creator. That is, an inventor of something that becomes wildly successful enriches not only the inventor, but society as a whole. Plus, it is an indirect reference to the ability of markets to efficiently allocate capital.

We tend to forget that wonder of capital markets, particularly as the world drifts into one defined more and more by government intervention. Since the 2008 financial meltdown, governments have gone kind of berserk in attempting to keep the financial world afloat, causing markets to gyrate in increasing spirals through wild-eyed policy guidance as the dollars at stake become stupefyingly large. We no longer have economist/philosophers at the helm; we have economist/desperados who have convinced the world their alchemic ways will work, and they don’t know that it will, but they’re really really hoping.

The new breed of economist has introduced an all new Invisible Market Hand – not one that provides infinite benevolence, but one that is like a forklift driver feeling confident in his/her ability to pilot a fighter jet because the seats are similar.

The strategy of which I speak began in Japan over the past decade. After years of trying to kick start the Japanese economy in various ways, including dropping interest rates to zero, the central bank began buying up treasuries as a means of supporting debt markets. When that didn’t get things going, they took the next step and actually began buying up equities to prop up stock markets. Since then, Europe has started a similar program. And yes, you heard that right – in those jurisdictions, if stock prices fall too much, the market is prevented from self-correcting, and governments are, in effect, breaking the fingers of the original Invisible Hand.

They appear to be stepping in to keep critical sectors of the economy in good shape, and also to enhance the “wealth effect”. The wealth effect refers to how citizens tend to spend more drunkenly when they feel wealthy, and for many that means a healthy portfolio. If someone sees their retirement nest egg shrink from $100,000 to $50,000 in a severe market downturn, those people tend to lockdown spending – a wise reaction. But as we’re seeing, the world keeps turning because we are consumers, and like it or not, consumption makes our world go round. So by making those portfolios stay healthy one way or another, governments seek to put the population in a semi-drunken spending stupor in order to keep the party going. Anyone who’s witnesses a true boom economy will recognize the phenomenon – at the peak of the oil boom 6 or 8 years ago, there were direct flights from Fort McMurray to Las Vegas, and thousands of twenty-somethings were purchasing vacation properties. Suffice it to say that those days are gone.

Don’t expect the new Invisible Market Hand to bail you out if your brother-in-law convinces you to load up some hot stock tip he got from a friend who got it from a friend who got it from a friend, because the “friend” at the end of that chain will be some dubious stock promoter that may or may not end up in jail, and even panicked governments won’t save those souls.

With the new strategies for propping up markets however, we’re starting to see the lengths governments will go to in order to maintain financial stability. You’d think the mountains of debt will lead to a day of reckoning, but, emboldened by the global government response to the 2008 financial crisis, the high priests of finance are becoming more emboldened. That our fate depends so heavily on a squadron of tweedy economists is truly frightening, but we’re all in the same boat, so enjoy the ride…

 

For more stories, visit Todayville Calgary.

Terry Etam is a twenty-five-year veteran of Canada’s energy business. He has worked at a number of occupations spanning the finance, accounting, communications, and trading aspects of energy, and has written for several years on his own website Public Energy Number One and the widely-read industry site the BOE Report. In 2019, his first book, The End of Fossil Fuel Insanity, was published. Mr. Etam has been called an industry thought leader and the most influential voice in the oil patch. He lives in Calgary, Alberta.

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Balanced budget within reach—if Ottawa restrains spending

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From the Fraser Institute

By Jake Fuss and Grady Munro

This level of debt-financed spending has contributed to an estimated $941.9 billion increase in gross federal debt from 2014/15 to 2023/24. In other words, partly due to its spending habits, nearly one in every two dollars of debt currently held by the federal government has been accumulated under Prime Minister Trudeau.

The Trudeau government will table its next budget on April 16. Federal finances have deteriorated in recent years due to the Trudeau government’s string of budget deficits, and high spending has led to a significant amount of debt accumulation, which imposes costs on current and future generations. Yet if the government presents a plan in Budget 2024 to rein in spending growth, it could balance the budget in two years.

Far from its promise to balance the budget by 2019, the Trudeau government has instead run nine consecutive deficits during its time in office. And it doesn’t intend to stop, with annual deficits exceeding $18 billion planned for the next five years.

The root cause of these deficits is the government’s inability to restrain spending. Since 2014/15, annual program spending (total spending minus debt interest) has increased $193.6 billion—or 75.5 per cent. If we control for population growth and inflation, this represents an extra $2,330 per person.

This level of debt-financed spending has contributed to an estimated $941.9 billion increase in gross federal debt from 2014/15 to 2023/24. In other words, partly due to its spending habits, nearly one in every two dollars of debt currently held by the federal government has been accumulated under Prime Minister Trudeau. Debt accumulation will only continue barring a change in course, as the federal government is expected to add another $476.9 billion in gross debt over the next five years.

Simply put, the Trudeau government’s approach towards federal finances has been characterized by high spending, large deficits and significant debt accumulation.

This approach to fiscal policy is concerning. Growing government debt leads to higher debt interest costs, all else equal, which eat up taxpayer dollars that could otherwise have provided services or tax relief for Canadians. And these costs are not trivial. For example, in 2023/24 the federal government is expected to spend more to service its debt ($46.5 billion) than on child-care benefits ($31.2 billion).

Accumulating debt today also increases the tax burden on future generations of Canadians—who are ultimately responsible for paying off this debt. Research suggests this effect could be disproportionate, with future generations needing to pay back a dollar borrowed today with more than one dollar in future taxes.

Although the Trudeau government promises more of the same for the coming years, this need not be the case. Instead, a recent study shows the federal government could balance the budget in two years if it slows spending growth starting in 2024/25. The following figures highlight this approach. The first chart below displays currently planned federal program spending from 2023/24 to 2026/27, compared with the spending path that will balance the budget, while the second chart shows the resulting budgetary balances.

Figure 1

Figure 2

As shown by the first chart, to balance the budget by 2026/27 the federal government must limit annual spending growth to 0.3 per cent for two years. As a result, annual nominal program spending would rise from $469.4 billion in 2024/25 to $472.3 billion in 2026/27. For comparison, the Trudeau government currently plans to increase annual spending up to $499.4 billion during that same period.

Should the government implement this level of spending restraint, the federal deficit would shrink to $21.8 billion in 2025/26 (as opposed to $38.3 billion), and the budget would be balanced by 2026/27 (as opposed to a $27.1 billion deficit). All told, by slowing spending growth to balance the budget, the federal government would avoid accumulating significant debt. Moreover, this also sets the government up to return to budget surpluses in the following years, which could be used to start chipping away at the mountain of federal debt already on the books.

Rather than continue its current approach to fiscal policy, and risk needing to employ more drastic cuts in the future, the Trudeau government should implement modest spending restraint now and balance the budget.

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Police admit Canadian bribery scandal was nixed without talking to Trudeau, reviewing records

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From LifeSiteNews

By Anthony Murdoch

The Royal Canadian Mounted Police believed there was political pressure to dismiss a government bribery case against engineering firm SNC-Lavalin in 2019 but claimed there was insufficient evidence to proceed.

The Royal Canadian Mounted Police (RCMP) confirmed that it never talked with Prime Minister Justin Trudeau or was able to view secret cabinet records before dismissing charges in a bribery scandal involving the large engineering firm SNC-Lavalin.

The RCMP’s admission came after intense questioning before the House of Commons ethics committee late last month.

As per Blacklock’s ReporterRCMP commissioner Michael Duheme testified, “No one is above the law,” adding that there was “insufficient evidence to proceed” with the investigation.

In a 2021 memo titled RCMP Assessment Report: Obstruction of Justice SNC-Lavalin Affair obtained from Access to Information requests last October by Democracy Watch, the RCMP noted that it did not doubt there was indeed political pressure to stop criminal prosecution of SNC-Lavalin.

“However, for it to be an offence under the Criminal Code, there must be more than a technical violation,” the 2021 memo read.

During the House of Commons ethics committee meeting in February, Duheme said he had considered the SNC-Lavalin case routine, noting, “We approach every investigation in the same manner.”

Staff Sergeant Frédéric Pincince, who serves as a director of investigations, admitted that the RCMP never questioned Trudeau in the SNC-Lavalin case but gave no reason.

“He was not interviewed,” testified Pincince, to which Conservative MP Larry Brock asked, “Was there at least an attempt to interview Justin Trudeau?”

“No,” Pincince replied.

In October 2023, Canadian Liberal MPs on the ethics committee voted to stop the RCMP from testifying about the SNC-Lavalin bribery scandal.

In June 2023, LifeSiteNews reported that the RCMP denied it was looking into whether Trudeau and his cabinet committed obstruction of justice concerning the SNC-Lavalin bribery scandal.

SNC-Lavalin was faced with changes of corruption and fraud concerning about $48 million in payments made to Libyan government officials between 2001 and 2011. The company had hoped to be spared a trial and prosecution deferred prosecution agreement.

However, then-Attorney General Jody Wilson-Raybould did not go along with Trudeau’s plan, which would have allegedly appeared to help SNC-Lavalin. In 2019, she contended that both Trudeau and his top Liberal officials had inappropriately applied pressure on her for four months to directly intervene in the criminal prosecution of Montreal-based global engineering firm SNC-Lavalin relating to its scandal involving corruption and bribery charges connected to government contracts it once had in Libya.

Commissioner mum on whether there was ‘reluctance’ to charge a sitting PM

During the ethics committee meeting, Brock asked Duheme if there was an “overall general reluctance in charging a sitting Prime Minister?”

“I would say to that, we follow the evidence and if the evidence warrants charges, we charge,” Duheme replied.

Brock then asked if the RCMP obtained “all relevant documents to further the investigation?”

Duheme admitted that “we were limited with the information that we had access to.”

Brock pressed him, asking, “Is that a yes or no, sir?” to which Duheme replied, “I don’t know,” adding, “We didn’t know.”

“We don’t know, we still don’t know to this day all the information that is out there,” Duheme responded.

Brock then pressed Duheme, asking why the RCMP did not “exercise its absolute statutory right under the Criminal Code to obtain a production order or search warrant from a justice to obtain those cabinet documents?”

Duheme said the RCMP were not “able to obtain enough information or evidence.”

As for the initial investigation concerning SNC-Lavalin, Wilson-Raybould testified in early 2019 to Canada’s justice committee that she believed she was moved from her then-justice cabinet posting to veterans’ affairs due to the fact she did not grant a request from SNC-Lavalin for a deferred prosecution agreement rather than a criminal trial.

Of note is that a criminal conviction would have banned the company from landing any government contracts for 10 years.

Trudeau flat-out denied it was being investigated by the RCMP.

Less than four years ago, Trudeau was found to have broken the federal ethics laws, or Section 9 of the Conflict of Interest Act, for his role in pressuring Wilson-Raybould.

On February 12, 2019, Wilson-Raybould resigned from her veterans’ affairs post and Treasury Board president Jane Philpott quit in March 2019. They both cited a lack of confidence in the Liberal government’s handling of the scandal.

Then, in April 2019, Trudeau turfed Wilson-Raybould and Philpott from his caucus, meaning they were no longer part of the Liberal Party.

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