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Greece Protests; Anti-Austerity Violence Breaks Out
Topic Started: Oct 19 2012, 11:07 PM (1,083 Views)
Brewster
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Yes, all that is good, but the austere measures came first. The tax cuts, the cut back on entitlements, the reduced government size and spending; THEN, as fiscals were brought into balance a nation is in better shape to address and prioritize other program costs.

Wrong again, Ban - once again, you're reading what you want into it.

Tax cuts came LAST, after the budget was balanced. As I have told you several times, the Klien revolution (followed almost to the letter by Martin) starts by fixing the infrastructure, education, etc. Spending rises significantly. Then the regulations are tightened up. The first year or two is ALWAYS getting the house in order, so that industry, etc. has a base to work on, so that they will be in a position to expand.

Germany did the same thing, although they had it tougher than we did, as they had to drag East German infrastructure, etc. into the 21st century.

Once that was done, then the cost cutting began - although in both cases, as far as I know, most of the cutting was done by trimming overhead, admin staff, etc., NOT cutting services. The only major cut not following that rule in Canada was Health Care, where the slashing ended up affecting many Canadians, damaging our reputation, and ended up costing us far more to fix. A very bad error.

ONLY after those actions were in place, and the savings already realized (not just some airy fairy theory) did any significant tax reductions happen.

Got it now?
Edited by Brewster, Oct 21 2012, 03:26 AM.
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Banandangees
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Well, I'll have to take your word on taxes rather than some of the Canadian articles I have read; but, it did take pubic sector cut backs, entitlement cut backs, reduced government size and spending.... in other words, austere measures rather than "spending to prosperity measures" we are using here especially with the last four years:


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By the early 1990s, the realities of the new world economic order were becoming clearer to Canadian companies too. Only at that time, they were also coping with the fallout from the high-inflation years, especially the sharp drop in the prices of speculative investments and the burden of servicing large debts, as well as with declining world commodity prices.

Working their way out of these difficulties was disruptive and painful for Canadian businesses. Defaults, restructurings, and downsizings became the order of the day. With all this, unemployment took a long time to recover from the 1990–91 recession and, in many instances, wages and salaries were frozen or reduced. But whatever else one may say, through this period, our businesses responded to the challenge and did a remarkable job of restructuring their operations and adjusting to the new economic realities.

Canada's other major economic problem in the early 1990s was large budget deficits—federal and provincial. Because of these deficits, public debt was accumulating at an unsustainable rate, and foreign and domestic investors were becoming very nervous about holding Canadian government bonds. As a result, significant risk premiums were built into our interest rates.

By 1994, it had become clear that Canada could be facing a potentially very serious debt problem. If there was any doubt about that, it disappeared in early 1995, when Canada was sideswiped by the Mexican peso crisis. The Canadian dollar came under strong downward pressure, and interest rates rose sharply across all maturities as investors demanded even larger risk premiums.

Just as I believe that the restructuring in our private sector in the 1990s was impressive, I also think that Canadian governments (federal and provincial) responded forcefully and effectively in the mid-1990s to the need to cut fiscal deficits and slow down the accumulation of public sector debt. The overall government sector moved from a total deficit of close to $45 billion or 6 per cent of gross domestic product (GDP) in 1995, to a balanced position in 1997 and 1998, and to surpluses thereafter. Moreover, net public debt as a ratio of GDP fell from close to 104 per cent in the fiscal year 1995/96 to an estimated 80 per cent in 1999/2000. That is some adjustment!

This fiscal restructuring, although essential, was difficult and disruptive. Like the private sector, the public sector too had to undertake significant downsizing and salary restraint.

Overall, given the type and size of structural changes that had to be made, it is not surprising that, for much of the 1990s, unemployment rates in Canada remained high and incomes stagnated.

The turnaround

The economic problems of the 1990s that I have been recounting make for a rather sombre story.

The next chapter of that story, however, is rather more cheerful. Although Canada was late in dealing with past economic imbalances, once our private and public sectors realized the extent of the problems, their response was prompt and effective. And our economic performance has improved materially as a result. Let me highlight some of the major improvements.

I have already noted the influence of technology and globalization in changing the world economy during the 1990s. This influence continues and, if anything, is accelerating. Indeed, the world seems to be going through a real technological revolution—a revolution spawned by the increasing efficiency and declining costs of computers and fibre optics and their application to information processing and communications.

The United States has been at the forefront of this revolution. But, as far as we can tell, Canada is not that far behind.

Once Canadian businesses sorted out the required restructuring and reorientation of their activities in the first half of the 1990s, they quickly came to realize that they had to adopt and invest in the new technology to become more competitive. U.S. firms served both as a role model and a competitive prod in this regard. Investment in new machinery, equipment, and technology by Canadian businesses began to pick up in 1996 and, as a ratio of our GDP, has been rising continuously.

This pattern looks remarkably similar to the one in the United States—only with a lag of about four years. In the United States, the investment in equipment and technology, which had begun early in the 1990s, started paying off around 1996, with rather impressive gains in productivity. Over the past five years, U.S. productivity growth (measured as output per person-hour) has averaged 3 per cent.

Although it is still early days, there have been encouraging signs of a pickup in Canadian productivity growth this past year. I see no reason why Canada cannot benefit from a process similar to the one that has been at work in the United States. However, the extent of any future gains in our productivity is still difficult to gauge at this point.

There is, of course, more to the recent favourable economic news in Canada than just the early signs of a pickup in productivity growth. For example, there have also been substantial gains in employment. The unemployment rate, which had reached 11 per cent in the early 1990s, dropped to below 7 per cent in 2000—its lowest level in over 25 years. Incomes, too, have been rising. Adjusted for inflation, personal disposable income has increased by an average of almost 3 per cent per year over the past four years.

The fiscal restructuring has also figured importantly in our improved economic performance. The reduction in deficits and the subsequent move to surpluses, together with the declining debt levels of the government sector, have helped to eliminate the risk premiums in our interest rates that cost us so dearly in the early 1990s.

Indeed, for much of the period from mid-1996 to late 2000, Canadian interest rates were lower than comparable U.S. rates. This has, no doubt, been an important factor behind the surge in business investment in Canada since 1996, which is so important if we are to take advantage of new technology and enhance our ability to compete internationally. Low interest rates have also encouraged households to buy houses, cars, and other major consumer goods—purchases they had tended to postpone earlier in the decade.

The role of monetary policy

I have left a detailed discussion of the role of monetary policy (and of the Bank of Canada) for last.

To explain the role of monetary policy through the 1990s, I need to go back to the 1970s and 1980s. As I said before, this is when some of the serious economic policy problems in Canada, and elsewhere, really started.

In the late 1960s and early 1970s, the world economy was booming. And the large U.S. military expenditures during the Vietnam war amplified the boom. OPEC took advantage of strong world demand to restrict the supply of crude oil and push prices up. In the face of these pressures, inflation went up everywhere, including here in Canada. It took monetary authorities around the world a while to realize that rising inflation was not just the product of a series of temporary special factors. By the time most central banks reacted, inflation had become entrenched and proved very difficult to bring down.

The persistent inflation of the 1970s and 1980s undermined economic performance worldwide. Canada did not escape unscathed.

Because inflation creates uncertainty, it makes it much more difficult for households and businesses to judge future prices and to make sound economic decisions. High inflation encourages speculation rather than productive investments. It raises interest rates. And, in the end, it exacerbates both the booms and the busts.

Restrictive monetary policies in the United States and in Canada during the early 1980s finally brought inflation down from its double-digit levels. But fears of inflation lingered, encouraging continued debt-financed speculation in real estate and other assets. By the late 1980s, inflation pressures were on the rise again.

In Canada, those pressures, and the fears of ongoing inflation that had been undermining our economic performance, finally eased after the successful implementation of the inflation-reduction targets adopted in February 1991. Inflation promptly declined to around 2 per cent, and inflation-related hedging and speculation gradually disappeared.

I believe that the low-inflation environment that was firmly established in the first part of the 1990s contributed significantly to Canada's improved economic performance later in the decade. Since the early 1990s, there has been greater certainty about future prices. Investment and savings horizons have, consequently, lengthened. Interest rates have come down. And, in contrast to our experience during the Mexican crisis, Canada rode out the impact of the Asian financial turbulence of 1997–98 with only a limited slowdown in output and employment growth.

The way ahead

Partly because of the difficulties we experienced in the 1990s, many Canadians remain sceptical about our economic future. They look at the extraordinary performance of the U.S. economy through much of the past decade, and Canada's record looks lacklustre by comparison.

But I believe that there are considerable grounds for optimism. I say that primarily because of the improvements in our economic fundamentals that I have described.

Indeed, good economic performance starts with a foundation of prudent economic policies. In this regard, low and stable inflation, together with a declining public sector debt, now provides a stronger base for the Canadian economy than we have had in three decades. In addition, there is the shift in business attitudes towards greater focus on cost control, productivity, and international competitiveness.

How well we do in the future will depend on us getting a number of things right. Above all, we must ensure that we sustain and build on the progress made on the inflation, fiscal, and business fronts.

But other things are also important. We must find the level of taxation that offers scope for entrepreneurship and risk-taking, while also allowing a level of government services that gives Canadians the degree of social support that can help them accept, respond, and adjust to a rapidly changing world.

We must also think about the skills Canada needs to be able to exploit fully the benefits of rapid global economic change. This means strategic partnerships between employers and employees to promote on-the-job training, and partnerships between industries and educational institutions to improve skills and to develop new ones, suited to today's advanced technologies. This is very important if we are to avoid skill shortages that could constrain the expansion of our economy.

Conclusion

To conclude, our economy has been expanding robustly over the past five years, inflation has remained low, employment and incomes have been rising. And we are now seeing encouraging signs of a productivity payoff from the restructuring of the past decade—a payoff which, if sustained, would provide the basis for rising standards of living for all Canadians in the future.

Some of you may wonder if this conclusion is not overly optimistic in the face of a slowing U.S. economy. Since tomorrow is our next pre-set date for announcing changes in the Bank Rate, I hope you can appreciate that I cannot comment on the current economic situation. We will be doing that in tomorrow's press release.

What I can say is that the points I have been making here today are about the improvements we have seen in the fundamental, longer-term trends in our economy. Because of these improvements, our economy is now in a better shape than it has been for some time to deal with all kinds of external shocks—including fluctuations in U.S. demand for our products.

What I see ahead are challenges, but not the serious problems we were facing ten years ago. Today, we have an economy with sound foundations, well-placed to rise to these challenges and prosper.
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This year's planned financial approach:

Federal budget 2012: Conservatives to cut 19,000 public service jobs

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Tough times are coming as budget announces layoffs, salary cuts, smaller workspaces and raises the age of retirement by five years.

OTTAWA—Tough times are coming for federal civil servants as the new federal budget announces job losses, salary cuts and smaller workspaces, and raises the age of retirement by five years.

An overall spending review that identified about $5.2 billion in ongoing savings will mean the federal government — the largest employer in Canada — will be handing out a lot of pink slips in the near future
.

The overall reduction in federal spending means about 12,000 government jobs will be lost to layoffs over the next three years and another 7,200 positions will be eliminated by attrition through retirement and voluntary departures.

That will reduce total federal employment by about 19,200 people, or 4.8 per cent. The job losses will hit Ottawa and the surrounding region the hardest.

The Conservative government claimed that things will not be nearly as bad as the austerity measures being brought into force in Europe, or as when the Liberal government of Jean Chrétien — when Paul Martin was finance minister — cut spending drastically to eliminate the deficit in the 1990s and reduced federal employment by 14 per cent.

“We have no need to undertake the radical austerity measures imposed by the federal government in the 1990s,” Finance Minister Jim Flaherty said in his budget speech. “The savings we have identified are moderate. They will amount to less than 2 per cent of federal program spending overall.”

Patty Ducharme, national executive vice-president of the Public Service Alliance of Canada, said the cuts are too deep.

“This is a government that makes bad decisions and is going to make those bad decisions be paid for by public sector workers and by the public that relies on those services in their day-to-day lives,” Ducharme said Thursday.

A coalition of public sector unions called Professionals Serving Canadians expressed concern the cuts would affect public services in addition to jobs.

“This budget continues with the drastic reduction of the public service to meet the bottom line, but at what cost?” Gary Corbett, the president the Professional Institute of the Public Service of Canada said in a news release on behalf of the coalition. “We are very concerned that programs critical to the safety and security of Canadians are impacted.”

The Conservative government notes federal employment grew by about one-third, or 95,000 jobs, between 1998 and 2011 and these cuts only reverse that trend by 20 per cent.

Salaries for civil servants are also being reduced to bring them more in line with private sector compensation, and severance packages for people who retire or quit their jobs will also be eliminated following negotiations.

The Public Service Pension Plan will also be adjusted so that employee contributions will eventually equal what the government puts into the plan, with each side contributing 50 per cent, instead of the 36 per cent they contribute this year.

Anyone who joins the federal public service beginning next year will see their normal age of retirement raised from 60 to 65 years old.

Members of Parliament and senators will see their pensions adjusted too, but not until after the next election.

“Neither the public servants nor the parliamentarians are contributing adequately to their pension plans when compared with others in our society,” Flaherty told reporters at a news conference Thursday. “It will take some time to get there, but that’s the direction.”

Stephen Taylor, director of the National Citizens Coalition, said his group is encouraged by the pension changes because that eats up a lot of government spending and there has been little room to manoeuvre.

“The headline spending of this government is the statutory spending and there is little they can do about it except to restructure certain statutory requirements or eligibility requirements,” Taylor said Thursday.

Other changes that will affect public servants include more telephone and video conferences to cut down on travel expenses and more “efficient and effective office accommodations” in federal buildings.

Environment Canada and Natural Resources Canada are losing 160 vehicles, and the government will be merging the “back offices” of departments and agencies with similar policy goals, such as Health Canada and the Public Health Agency of Canada.

Even diplomats are getting the squeeze, with some postings being extended to “deepen Canadians’ contacts on the ground” — and cut down on moving costs.

Employees based overseas will have less money to spend on rent and the government is also selling $80 million worth of official residences abroad.

“More modest quarters will not impact the ability of our diplomats to do their jobs and will reduce the number of required staff, resulting in further operating savings,” the budget says.


Very, very little of the above approach has any similarity to the Obama administration approach over the last four years and it's obvious.
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Brewster
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That's an awful lot of verbiage.

And NOT ONCE in all that does it mention cutting services like Canada Pension, Health Care, Education, etc. It does mention upping the age of retirement, but that is only for the OAS plan - the smallest part of our Pension scheme.

And it NEVER mentions cutting taxes, particularly on the rich and corporations.

While it has only vague similarities to the little bit Obama has managed to get through Congress, (and it shouldn't, as the Reps haven't even let him get to what would be Step 1 of the Klein Revolution),

NOTHING of the above approach has any similarity to the suicidal Romney/Ryan plan (as best anyone can tell through all the Etch-a-Sketch events) and it's obvious.

You're still only seeing what you want to see, not what's really there.
Edited by Brewster, Oct 21 2012, 07:42 AM.
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Banandangees
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Well then, Canada must have done it by spending and taxing it's way to financial stability... in the Obama fashion. There is apparently no difference in the "recovery policies" of Martin/Harper and Obama.

So what then, in four more years of Obama copying Martin/Harper policies of tax and spend, beefing up public sector and increasing entitlements we should be out of our financial nightmare and an economy firing on all 12 cylinders and in the process save Canada from a disastrous America that would happen following a frugal, fiscal conservative policy plan? Oh happy day!
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