Now Is Still Not The Time For Major Borrowing

Government credit bad, Consumer credit good?

First Published Date: June 26, 2009

As the danger of a third election in four years hangs over a nation considered by the rest of the world to be so stable it is “boring”, it would be entirely understandable if the alarm bells in the brain of every Canadian started to ring right about now. After all, the prospects of the nation trading at a deficit any time soon are at present not amazingly good. This, however, has not stopped the press from suggesting that now is the time, if ever the time existed, to get out there, dust off your credit card and prepare to hit the shops with a vengeance. This advice comes via the newspapers from the Finance Minister Jim Flaherty.

If it sounds a little bit reckless for something a Finance Minister might say, this is with very good reason. The minister’s words were somewhat more considered, but by the time the press had had their way with them, it did sound a little bit more like incitement to spend the inheritance. What he actually said was “positive signs in financial markets give us cause for cautious optimism that a global recovery may not be far behind”. He added that Canada would lead this recovery and be at the front of the queue to boost business. There is, perhaps, some amount of mockery in the words as set out in the press, with some journalists not quite sharing the Minister’s optimism for the future.

Much of the implication behind the press reaction to what Minister Flaherty has said seems to be that the minister is saying everything he can think of in order to stimulate consumer spending in a time when the nation’s financial sector could do with a helpful push or two. This is not exactly an untried initiative, of course, but the average family may well be heartened by what they hear from the government. The theory of consumer spending stimulating the economy is a self-perpetuating one. Sure, it’ll boost the flow of cash through businesses. It will, however, only operate that way if it is allowed to, and this means that banks need to be as willing to lend as customers are to spend.

The next year to eighteen months will be interesting for those who like to read the global response to financial situations. Many countries in the developed world, including the United Kingdom, are due to hold general elections to decide on the makeup of their next government. Good governmental marshalling of the global economies in the next year and a half will see more incumbent governments re-elected, but to drop the ball now would be to almost guarantee and end to a government’s hold on power. Indeed, with one country’s economy affecting those of its neighbours, it could be that decisions taken in one country affect the election in another. Should you go out and spend, spend, spend in order to keep a few governments in their seats? Well, only if you can afford it. Now is still not the time for major borrowing.

To streamline and minimize blog maintenance, I will be discontinuing maintaining the Canadapersonalfinancewebsite.com website (however, I will still hold the domain). I will gradually move all articles from this site to A Dawn Journal. This article originally published on the above website on June 16, 2009.