As with all fads, we should be wary of the deficit chic that has turned the heads of even the most resolute deficit hawks. It will prompt the federal finance minister, Jim Flaherty, in his “stimulus” budget Tuesday to put Canada on the road to a $64 billion deficit over the next two years – surpassing the record $43 billion deficit of the early 1990s that Canadians sacrificed for years to eradicate.

And it’s unlikely to accomplish much. The main reason for this, I suspect, is that Canada is not in an economic crisis at all.

We are buffeted by a worldwide financial crisis, in which global banks loaded with bad loans are in paralysis and simply cannot or will not lend. That’s what triggered and has maintained the global economic misery. And none of the stimulus packages unveiled around the globe will have much if any impact without a drastic overhaul of a financial system that went haywire beginning in 2007 and plunged the world into recession – and is keeping us there.

One thing we know about government bids to kick-start an ailing economy: If, in the urgency of the hour, the money goes out too quickly, much of it is wasted on poorly thought-out projects and programs. And if instead wisdom prevails in the disbursements, necessitating some time and thought to ensure the funds are well spent, the money arrives long after the economy has recovered under its own steam.

Either way, the legacy is an enlarged national debt and debt-service payments; the prospect of “structural,” or permanent, annual deficits – and the likelihood of runaway inflation, as all that additional spending drives up labour and other costs – the fate of Albertans this decade during the height of the oil-sands boom.

The prescription for what ails a once spendthrift U.S. now confronted with a Great Reckoning is not appropriate to Canada. Our U.S.-dominated media intake has convinced many of us that we completely share our neighbour’s misery. Hence the popular belief that we need to weaken our own fiscal condition in emulating a U.S. stimulus package of unprecedented size and scope to be unveiled next month. Yet, conditions in the two nations are vastly different.

The Canadian employment level is expected to dip 1 per cent this year, with a loss of as many as 250,000 jobs. The U.S. is expected to lose roughly four million jobs in 2009, far higher on a per capita basis than Canada.

The Canadian housing market is comparatively stable, while it’s expected that 13 per cent of Americans with mortgages will default and lose their properties to foreclosure this year. The Bank of Canada last Thursday projected robust GDP growth of 3.8 per cent next year, which would make this downturn of briefer duration than the last two, in 1981-82 and the early 1990s.

Most important, our banks are sound, while the largest U.S. and European lenders either are on government-provided life support or are widely expected soon to be in need of government rescue.

Global banks already have suffered about $1 trillion (U.S.) in writeoffs, mostly on U.S.-originated subprime, junk mortgages taken out by folks who had ample reason to wonder if they could make their monthly payments.

But there’s another $1.2 trillion in so-called toxic waste hidden on the books of the world’s largest banks, according to a recent Goldman Sachs report, that has yet to be accounted for and written off, further eroding, or wiping out, the capital reserves of those lenders in the absence of a government bailout. (A second or third bailout, in the case of the biggest troubled lenders.)

The toxic contagion is so widespread among America’s thousands of lenders that the unlikeliest victims are emerging. Boston’s giant State Street Corp., ostensibly a sleepy custodial bank, discovered early last week that, previous assurances to the contrary, it has several billion dollars in toxic assets that must be written off. It appears no bank is safe from grisly surprises.

The bottom line is that the world financial system remains non-functioning, despite drastic bailout activity beginning last year. As with State Street, whose shares plunged 56 per cent in value in one day last week, the likes of Citigroup Inc., Bank of America Corp., Royal Bank of Scotland PLC (Britain’s largest lender), Switzerland’s UBS AG (Europe’s largest bank) and Italian banking giant Unicredito SpA cannot replenish their dwindling reserves by selling more shares because no investor will go near their radioactive stock.

Most global bankers thus will not lend. They’ve gone from acting as though risk did not exist, in the heady days of the U.S. housing and merger bubbles, to fearing even the most minimal risk in renewing loans to their most creditworthy clients. In order to shore up their reserves, and stave off illiquidity, they are hoarding rather than lending the hundreds of billions of dollars in bailout funds they’ve received from the U.S. and European governments.

And this is what keeps us mired in a global economic recession. Every chief financial officer of a major U.S. or European corporation – along with everyone else who deals with banks, from art galleries and orchestras to the millions of corner grocers and beauty salons – is understandably fretful of being turned away in attempting to renew financing for day-to-day operations, never mind expansion plans.

Many firms count themselves lucky to have renewed their bank financing at steeply higher rates. (You’ve noticed that the most layoff-prone Canadian firms are branch plants of foreign companies, whose fate is in the hands of troubled foreign banks.)

It doesn’t help that alternate credit suppliers – hedge funds, private equity, venture capital, pension and other institutional investors – have gone into turtle mode.

The fact that banks now are additionally girding for the usual recessionary uptick in soured credit-card debt and car loans adds to the pressures on lending.

So, just as banks are hoarding rather than lending, employers as varied as Intel Corp., Sony Corp. and Microsoft Corp. – which on Thursday announced layoffs of 5,000 employees – have been engaging in pre-emptive, anticipatory layoffs in desperate bids to save cash and become self-financing until the global credit crisis is somehow resolved.

This in turn results not only in income loss for laid-off employees, but fear among remaining workers that their jobs will be the next to go. Naturally, both categories of Americans have closed their wallets.

With both U.S. business and consumers fearful of sudden loss of credit or income, all of the fiscal stimulus in the world won’t lift the world economy out of its malaise. Recovery will happen only when global banks have been well and truly rescued and made to resume normal lending operations.

This will occur through short-term nationalization, or the Obama administration’s suggested new “bad bank” to acquire all toxic assets from troubled banks, presumably accompanied by regulatory oversight to ensure the assisted lenders are back to conducting business as usual.

The red herring of stimulus packages is a distraction from the central front in the economic crisis – the need to purge the banking system and to force lenders, if necessary, to resume providing the credit that is the lifeblood of capitalism.

THE PARTY’S OVER – October 2008

By Linda Monk

The Crash of 2008, which is now wiping out trillions of dollars of our people’s wealth, is, like the Crash of 1929, likely to mark the end of one era and the onset of another.

The new era will see a more sober and much diminished America .

The “Omnipower” and “Indispensable Nation” we heard about in all the hubris and braggadocio following our Cold War victory is history.

Seizing on the crisis, the left says we are witnessing the failure of market economics, a failure of conservatism.

This is nonsense.

What we are witnessing is the collapse of Gordon Gecko (“Greed Is Good!”) capitalism.

What we are witnessing is what happens to a prodigal nation that ignores history, and forgets and abandons the philosophy and principles that made it great.

A true conservative (Rep or Dem) cherishes prudence and believes in fiscal responsibility, balanced budgets and a self-reliant republic.

He believes in saving for retirement and a rainy day, in deferred gratification, in not buying on credit what you cannot afford, in living within your means.

Is that really what got Wall Street and us into this mess — that we followed too religiously the gospel of Robert Taft and Russell Kirk?

“Government must save us!” cries the left, as ever.

Yet, who got us into this mess if not the government — the Fed with its easy money, Bush with his profligate spending, and Congress and the SEC by liberating Wall Street and failing to step in and stop the drunken orgy?

For years, we Americans have spent more than we earned.

We save nothing.

Credit card debt, consumer debt, auto debt, mortgage debt, corporate debt — all are at record levels.

And with pensions and savings being wiped out, much of that debt will never be repaid.

Our standard of living is inevitably going to fall.

For foreigners will not forever buy our bonds or lend us more money if they rightly fear that they will be paid back, if at all, in cheaper dollars.

We are going to have to learn to live again within our means.

THE PARTY’S OVER!

Up through World War II, we followed the Hamiltonian idea that America must remain economically independent of the world in order to remain politically independent.

But this generation decided that was yesterday’s bromide and we must march bravely forward into a Global Economy, where we all depend on one another.

American companies morphed into “Global Companies” and moved plants and factories to Mexico , Asia, China , and India , and we began buying more cheaply from abroad what we used to make at home: shoes, clothes, bikes, cars, radios, TVs, planes, computers.

As the trade deficits began inexorably to rise to 6 percent of GDP, we began vast borrowing from abroad to continue buying from abroad.

At home, propelled by tax cuts, war in Iraq and an explosion in social spending, surpluses vanished and deficits reappeared and began to rise.

The dollar began to sink, and gold began to soar.

Yet, still, the promises of the politicians come.

Barack Obama will give us national health insurance and tax cuts for all but that 2 percent of the nation that already carries 50 percent of the federal income tax load.

John McCain is going to cut taxes, expand the military, move NATO into Georgia and Ukraine, confront Russia and force Iran to stop enriching uranium or “bomb, bomb, bomb,” with Joe Lieberman as wartime consigliore.

Who are we kidding?

What we are witnessing today is how empires end.

The Last Superpower is unable to defend its borders, protect its currency, win its wars, or balance its budget.

Medicare and Social Security are headed for the cliff with unfunded liabilities in the tens of trillions of dollars.

What we are witnessing today is nothing less than a Katrina-like failure of government, of our political class, and of democracy itself, casting a cloud over the viability and longevity of the system.

Notice who is managing the crisis.

Not our elected leaders.

Nancy Pelosi says she had nothing to do with it.

Congress is paralyzed and heading home.

President Bush is nowhere to be seen.

Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under.

They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U. S. government behind $5 trillion in mortgages.

They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.

Unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation.

We are just spectators.

What the Greatest Generation handed down to us — the richest, most powerful, most self-sufficient republic in history, with the highest standard of living any nation had ever achieved — the baby boomers, oblivious and self-indulgent to the end, have frittered away.

Added Comments:

How do WE THE PEOPLE put the villains who are responsible under oath and sit them down at public hearings to determine whose necks should meet the guillotine?

Hypocritically, those who had oversight responsibility such as Senator Chris Dodd [Chairman of the Senate Banking Committee] and Barney Frank [Chairmen, House Financial Services Committee] who helped get us into this mess are on every TV channel voicing their righteous indignation and pompously sitting on their elevated platform glaring down at those they are chastising and grilling, trying to pass the blame to others.They are disgusting.

WE THE PEOPLE should be on the elevated platform in judgment and execution of the likes of Chris Dodd, Barney Frank and the rest of the band of thieves and conspirators who are responsible for the financial collapse of the USA.

To name just a few of the culprits:

Henry Paulson Jr, Secretary of the Treasury

Alan Greenspan & Ben Bernanke — Chairman Federal Reserve

Christopher Cox, SEC Chairman.

But not to worry — YOUR PUBLIC SERVANTS who fear being voted out of office will take their self-awarded Golden Parachute Congressional Retirement, give WE THE PEOPLE the finger one last time and head for their safe havens as the World Citizens they are.

However, before they waddle off into the sunset, they will go on record one last time denouncing corporate greed, lavish salaries, and bonuses for their key felons at Fannie May, Freddie Mac, Lehman Brothers & AIG.

Meanwhile, WE THE PEOPLE fiddle while Rome burns and are too lazy and indifferent to vote the scum out of office.