Harper's unnerving confidence TheStar.com - Federal Election - Harper's unnerving confidence
September 17, 2008
Thomas Walkom
Canadians will need more than a steady hand on the tiller to weather the financial crisis erupting in the United States.
We'll need a government that is not theologically enslaved to free-market orthodoxy, one that has the imagination to navigate economic waters that are largely uncharted.
I say "largely" because what is happening in the U.S. – the bankruptcy of one large investment bank, the shotgun sale of another and travails of yet a third financial giant – is not unprecedented.
It's called a run on the banks and it happened in 1929. Then, the failing banks were retail deposit-taking institutions that lent out more than they took in. Today, they are wholesale investment giants engaged in a similar process.
It is a legalized kiting scheme that works as long as no one calls anyone else's bluff. But once someone does, and all those with money in the scheme demand repayment, the edifice collapses.
The result, as those of my parents' generation found in the 1930s, is devastating. Credit lubricates the economy; when it dries up, everything seizes.
Business owners who are no longer able to negotiate loans lay off workers; people lose their homes. Unemployment begets unemployment.
Unchecked, a credit crisis can lead not to recession but to a full-blown worldwide depression.
What is different about this financial crunch is that it comes on top of two others. The first is an energy crisis that has sent gasoline prices skyrocketing and driven oil-dependent firms, like airlines, out of business.
The second, related, crisis is the currency upheaval that has pushed the value of the American dollar down and that of oil-producing countries, like Canada, up. It's the currency crisis that has shuttered factories throughout southern Ontario, from Oshawa to Welland to Windsor.
Up to now, Canada has been lucky. The money Ontarians lose in manufacturing has been made up for by that which Alberta and other resource-rich provinces pull in from soaring commodity prices. Money has been recycled, jobs created and the unemployment rate kept down.
When Prime Minister Stephen Harper says the fundamentals are sound, what he really means is that we're fortunate enough to own raw materials that well-heeled foreigners want to buy.
But now, as the financial crisis spreads, those foreigners aren't quite as well-heeled. The price of oil is falling – not good news for the high-cost Alberta tar sands and those firms that have been servicing them. Indeed, Canadians now face the worst of worlds: stubbornly high retail gas prices (bad for consumers); declining wholesale oil prices (bad for Alberta) and a dollar that, while falling against Asian and European currencies, is still high relative to its American counterpart (bad for Ontario).
All of these troubles will pale, however, if the world financial crisis escalates. The Bank of Canada, the country's central bank, is wisely pumping money into the system. But we won't be able to insulate ourselves entirely from a serious international credit crunch.
The best we could hope for is a government willing to use the levers of the state (including, but not limited to, deficit financing) to shelter Canadians from the destructive savagery of capitalism's dark side.
"If we were going to have some kind of big crash or recession, we probably would have had it by now," Harper said on Monday.
Would that he were correct. Unfortunately, he is not. The danger is in the future. And the Conservative leader's blithe approach to that danger is singularly unnerving.
http://www.thestar.com/FederalElection/article/500414
