In response to a reader from Canada who feels “internationally neglected”, let’s take a look at some recent news from Canada, the UK, Australia, and China.
Emperor Lord Keynes Has No Clothes
Please consider Chinese give PM Kevin Rudd lesson on neoliberalism.
Kevin Rudd [the Prime Minister of Australia] has been accused by a leading Chinese economist of being “either short of economic knowledge or misleading his readers”.
Dr Xu, who has a doctorate from the University of California and was formerly managing director of the country’s biggest investment bank, says it is not time to resurrect Keynesianism, as Mr Rudd proposes.
“Instead, it’s time to announce Keynesianism’s failure, time to announce the emperor Lord Keynes has no clothes.”
He says the Prime Minister “has used electioneering-style tactics to brand neoliberalism as dogmatic, to paint a clownish portrait of it, seeking to pioneer popular antipathy to this artificial enemy, casting a moral verdict without seeming to care about truth or logic”.
Dr Xu says that Mr Rudd “views himself as an heir of Franklin Roosevelt and Keynes – he wants to use expansionary financial policies to pull the economy out of recession”.
“Instead, it will only add a fresh failure to the Keynesian list, while piling up votes, in the meantime, for the social democrats,” he says. “Although filled with conclusions contrary to facts and unfounded policy prescriptions, it represents a popular post-downturn trend, especially because it comes from a country’s prime minister.”
Anyone who says “It’s time to announce Keynesianism’s failure” has something on the ball.
However, Dr Xu’s statements apply as much to Prime Minister Gordon Brown, Chancellor Alistair Darling, Treasury Secretary Geithner, and especially President Obama who clearly wants to become the next FDR.
Household Debt Threatens Canada’s Financial System
Inquiring minds just might be asking “How much better off in regards to consumer debt is Canada compared to the US?” One possible answer emerges in Household debt emerges as greatest risk to Canada’s financial system.
Surging household debt is emerging as the greatest risk to Canada’s financial system, the Bank of Canada said Monday.
On the whole, the country’s banks and credit markets are as strong as could be expected amid the deepest global recession since the Second World War, the bank said in its bi-annual Financial System Review.
But the risk posed by household balance sheets has grown, [said] the Bank of Canada. The level of debt to income reached a record in the fourth quarter as real net worth dropped 6.7 per cent from the same period a year ago, the central bank said.
Canadians’ household debt is about 140 per cent of disposable income, compared with about 150 per cent in Britain and almost 170 per cent in the United States. The level is about 90 per cent among the countries that use the euro.
Canada’s consumer debt to GDP ratio is quite high but not as bad as in the US. However, 140% is much worse than in the Eurozone. The real measure of how bad things will get is the unemployment rate. I suggest things in Canada will get a lot worse, yet not as bad as in the US.
That said, I cannot avoid pointing out the complete silliness of the Bank of Canada’s statement: “On the whole, the country’s banks and credit markets are as strong as could be expected amid the deepest global recession since the Second World War“.
Excuse me, but that’s like telling someone whose roof of their house was blown off in a hurricane leaving a single wall standing in the wake “cheer up, things are as good as could be expected”.
The Darling Brown Feud
Chancellor of the Exchequer Alistair Darling, signaling a clash with Prime Minister Gordon Brown over spending, said the U.K. government must make tough decisions to curb the budget deficit.
“We must live within our means,” Darling told bankers at the annual Mansion House dinner in London last night. “There are tough choices ahead. I will continue to do whatever is necessary to ensure sustainable public finances.”
Britain expects the biggest budget shortfall in the Group of Seven nations as the worst recession since World War II curbs tax receipts, forcing the Treasury to raise a record 220 billion pounds ($330 billion) from investors. Darling’s comment is aimed at appeasing Standard & Poor’s, which has threatened to scrap Britain’s top-notch credit rating without clear action on debt.
Brown and his Cabinet ally Ed Balls, the education secretary, are pushing for higher spending as the centerpiece of the election campaign. Brown told the GMB union earlier this week that the ruling Labour Party had to “fight as we’ve never fought before” for well-funded public services.
Darling also suggested that businesses and the rich may have to pay more tax, saying that “those most able to bear the burden” will “make the greatest contribution” to stabilizing the public finances.
Slower spending and tax increases are almost unavoidable, whichever party takes office after the next election, given that the budget deficit is forecast by the Treasury at 12.4 percent of gross domestic product in the current fiscal year, the most in the G-7.
Darling does not want to make tough choices. Instead, he wants to increase taxes to appease the unions. Meanwhile, Ed Balls and Brown just want to spend without raising taxes. The only feud here is “Who is the bigger socialist?”
Philip Shaw, chief economist at Investec Securities in London, offers this accurate assessment:
“The economics is giving the message that the deficit needs to come down, but the politics suggest they won’t be doing it.”
Sadly the same applies to the US, Australia, China, Canada, Japan, and the Eurozone countries.
Mike “Mish” Shedlock
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