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The Government of Canada has the fiscal capacity to handle the present macro challenges.
Any notion that the & #39;fiscal cupboard is bare& #39; is irrefutably, absolutely, 100%, 180 degrees wrong.
Let me offer 3 points of evidence.
1/
Any notion that the & #39;fiscal cupboard is bare& #39; 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& #39;t want a recession. It hurts people. So, let& #39;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& #39;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 & #39;debt wall& #39;.
/4
Just look at the debt to GDP ratio. It is small, and hasn& #39;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 & #39;debt wall& #39;.
/4
The federal govt has abundant fiscal capacity.
If you don& #39;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">https://www.pbo-dpb.gc.ca/en/blog/n...
If you don& #39;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">https://www.pbo-dpb.gc.ca/en/blog/n...
The federal govt has abundant fiscal capacity.
If you don& #39;t believe me, ask Mr. Market.
If the market thinks you& #39;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& #39;t believe me, ask Mr. Market.
If the market thinks you& #39;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& #39;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/
https://www.macleans.ca/economy/e... href="https://twitter.com/Claudia_Sahm">@Claudia_Sahm
http://macromomblog.com/2020/03/08/what-should-the-government-do/
https://macromomblog.com/2020/03/0... href="https://twitter.com/jasonfurman">@jasonfurman
https://www.wsj.com/articles/the-case-for-a-big-coronavirus-stimulus-11583448500
8/8">https://www.wsj.com/articles/... <fin>
Some ideas:
@LindsayTedds+others
https://www.macleans.ca/economy/economicanalysis/canada-needs-a-coronavirus-stimulus-plan-heres-what-it-should-look-like/
http://macromomblog.com/2020/03/08/what-should-the-government-do/
https://www.wsj.com/articles/the-case-for-a-big-coronavirus-stimulus-11583448500
8/8">https://www.wsj.com/articles/... <fin>
