Just over a week ago, the G8 and G20 summits wrapped up in Ontario. Predictably, the mainstream media focused their attention on the meathead protesters rather than the actual progress made at the summits.
Now, I have not agreed with our prime minister on several policy issues – income trust changes, deficit stimulus spending, and a proposed ban on Alberta bitumen exports to Asia to name a few. However, last week, the prime minister again demonstrated one of the crowning achievements of his tenure – remaking Canada into a relevant and influential nation in global affairs.
During the summit, the prime minister accomplished two key things. First, he somehow managed to kill all momentum towards an international bank tax. Second, he convinced virtually every developed nation to commit to cutting their deficits in half by 2013.
The first accomplishment was a remarkable show of just how much new-found heft Canada holds with the rest of the world on economic issues. We’ve become the poster boy for how to best regulate banks and markets. During the recent recession, Canada’s banks came through the market massacre unscathed. Our overall economy took a slight dip, nothing compared to the collapse seen in the United States and Europe. Several months ago, a proposal for an international bank tax was floated and had the endorsement of virtually every G8 leader…except one Stephen Harper. The prime minister reminded world leaders that such a tax (which would certainly be passed onto consumers) was no way to stop a future banking crisis; rather he advocated some common sense regulatory changes and bolstered capitalization requirements. In other words, ‘copy Canada and you’ll be fine.’ A decade ago, Canada would have been scoffed at for taking such a bold position. Today, it is just the opposite. Harper’s arguments won over the leaders of much larger economies, and the bank tax was thrown to the curb. Well done.
However, the second victory was the more important one. The recent recession, which now threatens to return for a sequel, was caused by far too much consumer debt passed out by lending institutions like free candy at a Canada Day parade. Eventually, household debt loads became so severe that people weren’t able to make their mortgage payments or could only do so by cutting their budgets in other areas. Less spending meant fewer jobs. Fewer jobs meant more people were unable to make their home and credit card payments. Increased payment defaults meant undercapitalized banks and credit card companies folded, which in turn meant less credit to buy homes and consumer goods, which meant less spending... a downward spiral.
This is when world governments came into the picture. By borrowing trillions to rain down ineffective ‘stimulus’ spending while bailing out banks and distressed companies, global leaders essentially took the consumer debt load that had caused the recession in the first place, and placed it on the shoulders of national and local governments. In other words, they tried to solve a debt crisis by going into more debt. Now that the stimulus spending has been spent, governments are realizing that consumer debt levels are still sky high, the economy is still weak, and runaway national debts now threaten to make the recent recession feel like a mild case of the sniffles compared with what will result from a worldwide government debt crisis.
Take a look at Greece if you’d like a small glimpse.
Up steps Prime Minister Harper. He has convinced world leaders to do what politicians loath – cut spending and move towards balancing their books. He found a way to have the G8 leaders commit to cutting their deficits in half by 2013 – no small feat even for Canada. But it is critical if our world is to avoid a depression.
Overly expensive summit price tag aside - well done prime minister. History may show this to be your finest hour.