Quote:
Originally Posted by Doctorfever
Right.
But make no mistake, the liberal government spending is contributing to inflation. The deficit spending is undermining the goal of raising interest rates.
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Canada represents ~2.5% of global government spending. And the CPC is saber rattling about cutting 4% of government expenditures. 0.1% of global government spending would have virtually no effect, especially when the trade balance and value of our currency would erase any of the local impacts you think we are gaining, and that's before you even start to think about down stream economic impacts and productivity gains that may or may not have come from that spending (for example without the covid supports, would we have seen massive layoffs, and the huge lags in re-training while the rest on the world boomed over the past two years).
I appreciate the logic, but at the end of the day the tipping point on this inflation run was a supply shock, and it continues to run because of ingrained expectations. If we had not kept the country liquid than it would have been harder to access goods and probably would have made the problem worse. At the same time when we are teettering on the edge of recession, cutting government spending is more likely to be a tipping point which will drive up deficits rather than rein them in, so it's a much more complex balancing act that you seem to be thinking. Unless you are willing to tax some of the record profits over the past 2 years, that might help with deficits, that's probably the simplest solution and really a lot of the advocates for rate increase cite the need to cool the labour market and that might be a more direct way of accomplishing that.