Out of bullets

Last November the feds said they’d spend $40 billion more than they collected running the place. That would be added to the debt.

In a best-case scenario, our non-financial Finance Minister added, that could be $35 billion. In the worst case, maybe $45 billion. And on Monday, suggests the budget watchdog agency in Ottawa, we expect to hear it hit $46 billion.

This is just the start, not the end. The year 2025 will mark an entire decade of Trudeau deficits, and he will leave (probably) after the next election with no timetable for Canada to balance revenues and spending. It will be an enduring legacy.

The ‘fall’ economic statement this year comes just before Christmas and the adjournment of the House of Commons – where nothing is being done because of a Conservative filibuster. Parliament costs about $70,000 a day to run, and for the last three months no work has been accomplished, as the Poilievre forces seek to bring down the government.

It’s a mess. An embarrassment. Most Canadians have no idea the legislature is effectively dead. Since Tariff Man’s recent bomb, Pierre Polievre has said he would allow the House of Commons to unlock long enough to pass enhanced (cosmetic) border security measures – costing another billion.

In addition, as mentioned here yesterday, there is another $4.6 billion coming in lost GST revenues and $250-per-citizen cheques. Maybe. That stuff has to be passed by MPs. Plus a $20 billion spending bill so that government benefit payments keep flowing.

The federal debt is already $1.243 trillion. The cost of that is about $47 billion – in interest. That takes 10.2% of all the taxes collected. Provinces are also in hock, of course. And homeowners owe $2.2 trillion in mortgages, 70% of which come up for renewal in the next 25 months.

Did I mention this is a mess? And now our politicians are actually going to run up the national credit card to help the Americans secure their own border. If we don’t, they’ll hurt us. In priivate life this is called a protection racket.

Yesterday the PM told an audience that Trump is the real deal and tariffs will occur. Canada, he added, will retaliate.

Cue the economists – who are paid to model out this stuff. The conclusions are stark, should Trump impose the duties (he will) and should Trudeau fight back (he vows). “If the US imposed a 25% tariff on all goods imported from Canada with or without Canadian retaliation, then the result would be a swift and severe recession on America’s northern doorstep that would crush demand for US imports,” says Scotia.

Scenario A: if Tariff Man strikes and we try to spend our way out of the mess by doing what Poilievre is urging, expect a recession twice as bad as Covid with unemployment rising 2.2%, a 56-cent dollar and interest rates crashing lower by 2.75%. Yes, 1% VRMs would be back. Would house prices go nuts again?

“Under Trump’s threatened 25% tariffs and assuming at first that Canada did not retaliate, the result would be that Canada’s economy would contract by a peak 3.8% q/q SAAR and lose 2.7% of GDP in the long-run. The BoC’s policy rate would go down 275bps, the UR would rise 2.2 ppts, core inflation would fall -0.9% and the exchange rate would depreciate by about 20%.”

And what happens if Canada gets manly, with Governor Trudeau arguing the tariffs are grossly unfair then slapping duties of our own on everything we import from the (other) States? Yes, you could forget affording blueberries for a long, long time. Plus the recession would grow far worse, inflation would rage and the Bank of Canada would pivot and seriously increase rates. Real estate could not survive that.

“With full retaliation by Canada, Canada’s economy would contract by 5.6% at peak, lose 4.5% of long-run GDP, the policy rate would go UP 275bps, the exchange rate would fall by about 21%, the UR would rise 3ppts and core inflation would rise by over 4 ppts.”

So into this vortex of uncertainty and danger, our leaders will stand on Monday and likely admit Ottawa missed its bad-case deficit target. Even when there was no Trump. No big tariffs coming. Even during robust population growth. Even as the CB cut rates four times. When things were normal, and we played in the calm sun.

Now, as the shooting starts, we’re compromised. Caught in the can with our pants down.

About the picture: “Thank you for publishing the picture of George a few weeks ago!” writes John. “We all got a big kick out of it here. I’m sending a picture of Libby, my in-laws dog who passed away yesterday. She was my partner’s family dog from her teen years and lived a grand life to the age of 15. Thanks for all the great, recent advice about navigating at Trump based economy.”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2024/12/10/out-of-bullets/