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Economy

Conrad Black: Hard currency standard the best way to fix Canada’s teetering economy

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The country should fix the value of its currency to the value of a combination of precious metals, oil, basic housing and food

Canadians have been advised to prepare themselves for economic stagnation for the first half of this year and a reduction in the whole year in per capita net income for Canadians, (the GDP divided by the population). I find myself resistless against the temptation to inflict upon patient readers yet again my program for a radically different approach to fiscal and monetary management that will capitalize on Canada’s strengths and resume the long-lost progress back toward being, except for petro-states and tax haven states, the wealthiest per capita country in the world except for the United States, and with a more prosperous lower income bracket than the United States. The present ruling orthodoxy of central banking and national treasury management is one where all currencies are steadily losing value by being inflated at various rates and are measurable only in relationship to each other. There is no such thing as a hard currency as that phrase was known a century ago when the principal currencies were linked to the price of gold.

If someone casually reads the works of Dr. Samuel Johnson in the 18th century and of Charles Dickens a century later, it is clear that the cost of a quart of milk, a loaf of bread, or normal lodging for a night in London did not change. In the intervening century there were booms and busts in the economy but not inflation. It was only after the terrible destruction of the First World War in which 16 million European men in the prime of their lives were killed and tens of millions wounded or enfeebled by disease, and there was terrible destruction in Belgium and eastern France and parts of Eastern Europe, that inflation became unavoidable. It became practically impossible to maintain a sustainable level of public confidence without expanding the money supply and direct or indirect relief of the unemployed and dispossessed, and the world’s currencies began to lose their value.

Through the 1920’s Germany staggered under an artificial weight of reparations for the First World War: Germany was substantially responsible for the outbreak of the war by giving a ”blank cheque” to Austria-Hungary against Serbia, but those countries and trigger-happy Russia all share in the blame for the start of that terrible war. The Austro-Hungarian Empire collapsed and was broken up and Russia was taken over by the Communists and Germany was left to pay the victorious powers for the cost of the war. Predictably, it could not afford this burden, and borrowed money to pay some of the reparations and then defaulted on the resulting loans. The speculative bubble in American equities (especially) eventually burst, a terrible depression settled upon a still war-shattered world, and our masters in government could see no escape except to spread money around in welfare, workfare, and soon enough, rearmament and the conscription of huge numbers of people to the armed forces and defense production industries. The Second World War followed and the postwar arrangements were much more satisfactory than after the First World War, because the United States did not plunge into isolationism but rather took the lead in promoting international cooperation.

Nearly 80 years have followed without a major war between the most powerful countries; democracy and the market economy have expanded greatly and the percentage of chronically poor people in the world has declined from approximately 70 per cent in 1945 when most of Europe and Japan and large parts of China were a rubble heap, to under 10 per cent now. These are astounding achievements but they have been accomplished in part because of a steady and deliberate debasement of all the currencies in the world. Generally incomes have risen at a rate higher than the rate of inflation so collective and average personal net worth have increased but the entire economic monitoring system is on a ski slope.

In all of the circumstances, it is time for some substantial reforms, and Canada, as a very rich country both in its natural resources and the skill of its workforce is in a position to be an innovative influence. There is precedent for this: John Turner as finance minister connected taxes and benefits to rates of inflation. Brian Mulroney and Michael Wilson moved federal government tax revenue significantly from income taxes to taxes on non-essential spending. Jean Chrétien and Paul Martin devolved many joint federal-provincial spending requirements downwards to the provinces, which largely passed them on to the municipalities.

This chiefly enabled the federal government to balance its budget for 14 consecutive years. Stephen Harper attempted to assure a reduced public sector share of GDP by reducing the federal sales tax (HST), mistakenly confident that he would not be succeeded by a regime that believed that deficits solve themselves. Canada should fix the value of its currency to the value of a combination of agreed quantities of precious metals, oil, basic housing and food: a yardstick that would reflect the value of the most desirable commodities and the cost-of-living to people of modest means. We would resurrect the concept of a hard currency but attached not to a relatively rare and elite precious metal such as gold, but rather to a combination of resources representing the wealth of this country and modified by the cost-of-living to people of vulnerable incomes. This would be too varied a yardstick to be vulnerable to speculation. The desirability of hard and stable currencies would become obvious and would quickly be emulated. As much as can practically be done, we should shift the source of government revenue from taxes on income to taxes on non-essential spending: elective spending. This would make taxes more easily and economically collectible by giving them a somewhat voluntary status: people don’t have to buy luxury goods, or indulge themselves opulently. They sometimes choose to do so and are rightly less resentful of taxes on self-indulgent spending than they are of governments seizing the money that they have earned.

Cash payments to unemployed people who are capable of working should be converted to workfare programs where, when appropriate, the unemployed are trained up toward occupations where there is a shortage of qualified people. The private sector should be tax-incentivized to hire people, provided they are not simply replacing others who have been laid off at a reduced net cost to the employer. Tax incentives should be provided to those occupations that genuinely add value such as manufacturing, agriculture, and legitimate research and academic instruction. We need more plumbers and fewer graduates in gender studies. The federal government should withhold assistance to sections of the health care and education systems that do not meet reasonable standards of administrative efficiency and an internationally competitive level of service. Canada’s schools have to be liberated from the tyranny of the teachers’ unions, private medicine must be accepted, and the necessary incentives put in place to ensure that our ratio of doctors to population is adequate. When it is necessary to cool out the economy, we should have standby taxes on inflationary categories of spending and sharp reduction of taxes on savings and investment income before raising interest rates. The Bank of Canada inflation target should be reduced from two per cent to zero.

Any introduction of most of the foregoing program, based on pride rather than shame at our bountiful natural resources, would reduce the flight of capital that is slowly strangling Canada’s competitive position. There would be a flood of retained and incoming investment to the benefit of all Canadians.

 

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.

The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.

CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.

This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.

While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.

Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.

The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.

This report by The Canadian Press was first published Nov. 7, 2024.

Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.

The Canadian Press. All rights reserved.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

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As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.

Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.

A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.

More than 77 per cent of Canadian exports go to the U.S.

Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.

“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.

“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”

American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.

It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.

“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.

“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”

A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.

Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.

“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.

Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.

With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”

“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.

“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”

This report by The Canadian Press was first published Nov. 6, 2024.

The Canadian Press. All rights reserved.

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Economy

September merchandise trade deficit narrows to $1.3 billion: Statistics Canada

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OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.

The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.

Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.

Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.

Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.

In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.

This report by The Canadian Press was first published Nov. 5, 2024.

The Canadian Press. All rights reserved.

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