Thursday, May 28, 2009

Politics is a dirty game (2)

Governments like economists, rarely make accurate predictions about issues related to money. That's ironic of course, because that's what they both supposedly deal with much of the time. Neither were able to predict the economic meltdown that we are in the midst of, and neither can predict the costs involved with trying to fix the meltdown. Governments tumbled over one another to come to the aid of the moribund North American car companies, yet Chrysler and GM are either bankrupt or soon will be. A lot of good that did.

In Canada the Harperites reluctantly tried to staunch the bleeding by throwing money at the wound created by the meltdown. The problem with throwing other peoples money is that its difficult to properly estimate amounts. First they estimated a $34 billion deficit this year, today they estimate a $50 billion deficit, about a 47% miss - oops. If this type of reckoning holds true we could be looking at close to a $70 billion deficit. But its only money right? Will that fix the problems? I predict they will have the same success as they had trying to save the auto sector, which is to say - none. Of course the loyal opposition headed by newly crowned prince-in-waiting Mikey Ignatieff and his economist henchman Johnny McCallum screamed that the government was irresponsible running up such a large deficit and that Finance Minister Flaherty should resign for bad guessing. The two opposition characters first criticized the Harperites for too little stimulus and not getting the money out the door fast enough. Its a dirty game.

In the end though, we're all going to pay for this one way or another. Large deficits add to the (check out the CTF debt clock) federal debt and will need to be paid off somehow. Either governments raise taxes or restrain spending. Are either of those serious options for future Canadian governments? Not unless more Libertarians are elected really not likely. The only hope for governments here and everywhere else is to pay off the debt with inflated future dollars. Why not print the money? This guarantees that our future dollars are worth less and the more that is printed the less your money will be worth and the smaller the debt the government will have to repay. Inflation is still under control right now, but some of you will recall just a few short months ago when deflation was a worry. You needn't have worried, the government will defeat deflation by the power of the printing press.

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