ONE CANADA - FIVE YEARS OF Renewal
A Transformative Plan for Relief and Renewal: with a 21st Century Marshall Plan
A 21st Century Marshall Plan
The Canadian economy, like many others, is mired in a housing and productivity crisis, and political unrest being driven by economic insecurity, especially in the form of private debt - mortgages and credit cards.
The current indicators of our economy are deceptive, and we need to understand what is happening.
Canadian prairie rivers offer a metaphor. Sometimes as winter approaches, the rivers are high and a sudden cold snap freezes the surface, creating a solid layer of ice thick enough that it stays in place, even as the waters drop, snow may fall on it, creating the appearance of a solid surface - when if you break through, there can be a drop of several meters into the icy waters - and sometimes another layer of ice, below.
That is where we are in Canada. The regular indicators are misleading and creating the appearance of safety, when some of the economy has already receded. There have been major shocks to the economy in the last 25 years, which have largely been responded to with central bank stimulus or austerity. This has created an “everything bubble” in overvalued assets that has driven the cost-of-living crisis. Housing, commercial real estate.
As it stands, Canada’s dollar is dropping: the Trump administration’s policies are set to drive up inflation and they are already increasing The major driver is not fiscal, tax or government policy. It has been central bank monetary policy. That was the assessment of Jeremy Grantham, a billionaire investor who has predicted many bubbles, is that the U.S. economy (and Canada’s) in a super-bubble. In 2022, his colleague, Edward Chancellor warned that, because of decades of asset inflation driven by monetary policy raising interest rates would “collapse the economy”.
In July 2022, Edward Chancellor warned
“It will turn out to be largely impossible to normalize interest rates without collapsing the economy…
By aggressively pursuing an inflation target of 2% and constantly living in horror of even the mildest form of deflation, they not only gave us the ultra-low interest rates with their unintended consequences in terms of the Everything Bubble. They also facilitated a misallocation of capital of epic proportions, they created an over-financialization of the economy and a rise in indebtedness. Putting all this together, they created and abetted an environment of low productivity growth.”
William White, a Canadian Economist and advisor to the CD Howe institute, the OECD and the Bank of International Settlements, has called for an overhaul of monetary policy in the developed world.
Goals
The goal of this plan is to defuse and mitigate the damage caused by the current crisis, by providing workable and practical strategies that will also inject equity and investment into the economy.
What is required is an injection of equity back into the system as well as a structured reduction in debt, with a 21st Century Marshall Plan.
This is a period of global crisis and Canada can lead the way, and should work with other developed countries, as well as developing countries.
Project Outline
Background and analysis of the current economic situation
Proposal for deflating the current bubble through injections of equity to cancel debt
Support Documents:
How QE contradicts our current economics
Concrete examples of how federal governments running monetized deficits can “Crowd in” private investment without inflation
Debunking the myth of German Hyperinflation.
The Urgent Need for Action
While the factions blame each other, or government, the real problem is that the private economy is falling apart, after a series of massive shocks over many years, where the repairs to the economy kept setting us up for bigger crises down the road.
Those shocks to the economy could have been measured on the Richter scale over the last 30 years and more, including the 1987 stock market crash, and a 1989-1990 recession in Canada and the U.S., and Japan, followed by austerity; The Soviet Union collapses and enters the world market; 1990s currency crises in Asia & Russia; NAFTA; the 1999 dot-com crash; the 9/11 attacks; China entering the World Trade Organization; the 2003 Iraq War; the 2008 Global Financial Crisis; the European currency crisis of 2010; the price of oil plummeting in 2014 because Saudi Arabia and OPEC started a price war; the 2020 pandemic, inflation and price hikes (including through collusion, and what appears to be the unravelling of the “everything bubble.”
In their paper Politics in the Slump: Polarization and Extremism after Financial Crises, 1870-2014, Trebesch, Funke and Schularick studied how politics played out after financial crises. What they found was that politics tended to “take a hard right turn.”
“After a crisis, voters seem to be particularly attracted to the political rhetoric of the extreme right, which often attributes blame to minorities or foreigners. On average, extreme right-wing parties increase their vote share by 30% after a financial crisis… Both before and after World War II, we observe a significant increase of votes for far-right parties. In contrast, parties on the far left of the political spectrum did not have comparable electoral successes after crises. Second, we also find that political polarization increases substantially after financial crises as measured by weaker government majorities, a stronger opposition and a greater fractionalization of parliaments. These effects are considerably more pronounced after World War II than before”
What’s more, these very divisions paralyze governments and drag out crises.
“Increasing fractionalization and polarization of parliaments makes crisis resolution more difficult, reduces the chances of serious reform and leads to political conflict at a time when decisive political action may be needed most. A number of authors have linked political gridlock to slow recoveries from financial crises.”
This document provides an overview of what can be done, as well as providing evidence and theoretical support for innovative alternatives to current policy.
We are very clearly in a period of global crisis. This is a plan that if enacted in Canada (or other countries) could resolve these crises for the better.
We need action now.
I dont know why but it makes me so damn happy to read someone who can bring in valuable insights from a Michael Hudson to a Jeremy Grantham. They are quite diffrent and yet overlap in many ways. Happy to be a paid sub now and I havent found anyone writing this stuff in a Canadian context yet. Gives me hope as someone who on most days has none. Thank you for your writing and analysis.
I’m very pleased to see this level of knowledge and desire for civilized improvement. Much more effective than ‘toddlers’ throwing tantrums.