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The Government of Canada has the fiscal capacity to handle the present macro challenges.
Any notion that the 'fiscal cupboard is bare' is irrefutably, absolutely, 100%, 180 degrees wrong.
Let me offer 3 points of evidence.
1/
Any notion that the 'fiscal cupboard is bare' is irrefutably, absolutely, 100%, 180 degrees wrong.
Let me offer 3 points of evidence.
1/
Why care about the fiscal capacity to act? Think toilet paper.
Without confidence that the Govt has capacity to act, a macro ripple can blow into a macro crisis because people panic and stop spending.
Crisis becomes a self-fulfilling prophecy.
Like toilet paper shortages.
2/
Without confidence that the Govt has capacity to act, a macro ripple can blow into a macro crisis because people panic and stop spending.
Crisis becomes a self-fulfilling prophecy.
Like toilet paper shortages.
2/
I don't want a recession. It hurts people. So, let's dig into why the case for abundant fiscal capacity is so strong.
3/
3/
The federal govt has abundant fiscal capacity.
Just look at the debt to GDP ratio. It is small, and hasn't grown over the last 5 years.
During the 2009-10 recession it grew a bit, but we handled it easily.
We are not anywhere near a 'debt wall'.
/4
Just look at the debt to GDP ratio. It is small, and hasn't grown over the last 5 years.
During the 2009-10 recession it grew a bit, but we handled it easily.
We are not anywhere near a 'debt wall'.
/4
The federal govt has abundant fiscal capacity.
If you don't trust me on that, just read the @PBO_DPB Fiscal Sustainability Report.
They estimate we can spend $41B more while staying on stable debt/GDP long-run trajectory.
/5
https://www.pbo-dpb.gc.ca/en/blog/news/RP-1920-029-S-fiscal-sustainability-report-2020-rapport-viabilite-financiere-2020
If you don't trust me on that, just read the @PBO_DPB Fiscal Sustainability Report.
They estimate we can spend $41B more while staying on stable debt/GDP long-run trajectory.
/5
https://www.pbo-dpb.gc.ca/en/blog/news/RP-1920-029-S-fiscal-sustainability-report-2020-rapport-viabilite-financiere-2020
The federal govt has abundant fiscal capacity.
If you don't believe me, ask Mr. Market.
If the market thinks you're at the end of your borrowing capacity, interest rates spike because of a risk premium.
Interest rates are not spiking. The opposite, actually. 30yr <1%!
/6
If you don't believe me, ask Mr. Market.
If the market thinks you're at the end of your borrowing capacity, interest rates spike because of a risk premium.
Interest rates are not spiking. The opposite, actually. 30yr <1%!
/6
I'm not arguing (yet--but things are changing quickly....) for an *active* fiscal stimulus program.
What I am doing right now is making the argument as forcefully as I can that, if needed, the Fed Govt has the fiscal capacity to act.
/7
What I am doing right now is making the argument as forcefully as I can that, if needed, the Fed Govt has the fiscal capacity to act.
/7
If you think the federal govt should/can smooth over the possible shortfall in spending, how should that happen?
Some ideas:
@LindsayTedds+others
https://www.macleans.ca/economy/economicanalysis/canada-needs-a-coronavirus-stimulus-plan-heres-what-it-should-look-like/
@Claudia_Sahm
http://macromomblog.com/2020/03/08/what-should-the-government-do/
@jasonfurman
https://www.wsj.com/articles/the-case-for-a-big-coronavirus-stimulus-11583448500
8/8 <fin>
Some ideas:
@LindsayTedds+others
https://www.macleans.ca/economy/economicanalysis/canada-needs-a-coronavirus-stimulus-plan-heres-what-it-should-look-like/
@Claudia_Sahm
http://macromomblog.com/2020/03/08/what-should-the-government-do/
@jasonfurman
https://www.wsj.com/articles/the-case-for-a-big-coronavirus-stimulus-11583448500
8/8 <fin>
