22 Replies to “Capital is mobile”

  1. Larry Kudlow recently co-authored a book about JFK and how his tax cut inspired Ronald Reagan’s fiscal policies. He’s frequently a guest on John Batchelor’s show and discusses how, in both cases, reducing taxes resulted in economic booms.
    But we in Canada don’t have to worry about tax cuts, do we? After all, we’ve been told from where our economy will be grown, right? Oh, and federal budgets will balance themselves, not to mention that all those middle-class tax cheats will finally get what’s coming to them.
    Then again, what can we expect from a prime minister whose knowledge of economics stops at whether to put a hotel on Park Place or Boardwalk, doing so with play money?

  3. There’s more:
    “It all suggests the U.S. will see higher interest rates down the road. All of this is going to put pressure on a depreciating Canadian dollar.”
    Mintz is right but there’s a large knock-on effect from this. A depreciating dollar means interest rate hikes to stabilize the currency. Coupled with the drain of cash back into the United States means lower bank capital availability and thus an interest rate push upward as well.
    All of this will have some recessionary effect. Things would not be so bad except we have an exceptionally stupid government that doesn’t seem to understand that the interest load on national debt is about to go up as well. After years of making war on creditors at the benefit of debtors (thanks to zero interest rates) it’s about to reverse. God help you if you’ve got a million-dollar mortgage.

  4. A recession in Canada is on the horizon. We missed the big turn down in ’08 but we’ll be in the center of this one.

  5. Speaking of the ’08 recession, can someone remind me which party was in power and who was at the helm that steered us successfully through it. /sarc!
    Talk about irony captcha:
    MARTINS MANOEL
    (MANHOLE) Fixed it!

  6. Drop the Canadian corporate tax to match…it’s your ONLY play. Think they’ll do it? I ain’t holding my breath.

  7. I’m not so sure about cgh’s prediction for higher interest rates. The next time the economy hiccups, every central bank on the planet will be driving interest rates down again, because all they care about is backstopping the spending habits of liberal politicians and homeowners who have confused their house with an ATM. Several countries in Europe are now embracing the idiocy of negative interest rates, and I predict that Canada will follow suit eventually. I doubt that Morneau or Trudeau would object in the least.

  8. The reason we are about to be hit with a tsunami in taxes is because we deserve it, and I mean ALL of us. The 60 percent of us who did not vote Liberal went into the voting station marked our ballot quietly, no muss, no fuss, believing that the road mapped out by the conservatives and Harper had stood us in good stead through the previous ten years. We were prepared to continue on this road to slow prosperity and a return to the Canada that we knew could be achieved. What we didn’t count on was the feeble minded among us that believed a guy that hugs unicorns and gets concerned because Santa Claus doesn’t return his calls could actually run a country from the heart out.
    https://www.ctvnews.ca/politics/trudeau-channels-drama-teacher-days-in-distracted-driving-psa-1.3728228
    Politics like war is a heartless business, and we better be prepared when we go to the polls in 2019.

  9. Heh, raise spending and call it a tax cut…I guess the naive believe that…treat souless corporations as ‘people’, except at tax time. Some ‘people’ more equal than others…
    A pretense of Equality under the law…commie philosophy.

  10. Dennis, I agree with you about European and government spending and interest rate policies. However, the recent plunge starting in 2008 was only possible because the US led the way down with ‘quantitative easing’. If US interest rates go up, as the US tax legislation will produce, then everyone else will have to follow suit. Otherwise their currency values will fall through the floor.
    Certainly Canada will follow suit, because our currency has to follow US trends. Without such, there will be a yet greater flood of capital out of Canada to the US.Because our economies are so heavily linked, Canadian currency has to stay within a certain range of US currency. That means interest rates, and our interest rates typically have to be higher than the US.
    If Canada does not follow suit, the flood of cash into the US out of Canada will cause a huge loss in equity in the TSX. Given how much pension funds are now invested in equity, if the Bank of Canada doesn’t keep interest rates on par with the US, the pension funds will start bleeding huge amounts of cash as well.
    Make no mistake, this is deadly serious, and the wrong response by our government will indeed bring on a very serious recession.

  11. Cgh is correct as the BoC will not want to see a return to a $0.62 C-dollar, one reason being US protectionist sentiment and Presidential pandering would likely increase even more if that’s possible. Given our other economic handicaps (governance mostly), we will likely have to have a premium over future US interest rates.
    Canadian smugness is about to be answered.

  12. I absolutely agree that Canada’s central bank is bound to follow the lead of the Federal Reserve. If the Fed continues to raise interest rates, then we will follow suit in order to maintain the relative value of our currencies within what the government considers to be an acceptable range. Having said that, I would argue that the only reason the Federal Reserve is raising interest rates right now is so that they have some room to slash them the next time the economy falters. Overall, I think the worldwide trend is in favour of declining interest rates, which creates serious difficulties on its own. The United States has a massive problem with debt like everyone else and when faced with a choice between cutting spending or slashing interest rates, they will pick lower interest rates every time.

  13. Dennis, that’s not the only reason the Fed is raising rates. US inflation is now running 2.2%. That’s getting close to the target of 3%. Yes, the US has a problem with debt, as do all countries. But none of them can let inflation get out of control, otherwise we’re back to the stagflation of the ’70s.
    Again remember that these tax cuts are going to bring back to the US a very large proportion of the $3 trillion in US assets held outside the US. Every time the US does this kind of tax holiday on offshore accounts, it repatriates about half of the overseas holdings. That alone will produce inflationary consequences in the US without rising interest rates to keep them in check. And $1.5 trillion is going to produce a huge boom in the US financial markets, equities and securities both.

  14. Sooo?
    – Running around taking Selfies with Teen age; (potential new Special Liberal Voting Bloc)
    – & Setting up “Meet & Greet Cocktail Parties” only the Wealthy Liberal Crony Insiders were invited for discussions with the Guests wants” with Liberal Cabinet Ministers.
    – & bringing in any and all regardless whether the New Islamic Immigrants needed security as long as they were Muslim and unenlightened Rote learned 7th + 8th century Caliphate resurrectionists.
    Is not the Liberal Government’s concerns while OUR largest Trading Partner MOVES the World’s Greatest Market for Canada’s Goods & Services INTO the 21st Century while a Feckless Cabinet runs around Sticking Canadains wth yet another -Silly Carbon Taxes
    –NO other Industrial Nation ; now headed down the Islamic/Muslim Slide into Sharia Law- Great Britain & France & Germany & Sweden & Holland & Denmark will be Jamming up Their Countries Economy with more Taxes.
    Sad; so Sad; what deceitful self serving Publishers & Media Production Company’s are able to do in Destroying Canada’s standing as “The Most respected Country in the World” to being some where around ___Fifteenth___ in only TWO years from October 2015 to NOW.

  15. You could be right about inflation,cgh, but I would wager that when the 3 percent inflation target is achieved, the central banks and their political masters will up the target to 4 percent and so on. As interest rates rise, so does the burden of debt payments and while this might not be too difficult for the U.S. federal government to manage, it could create a lot of headaches for heavily indebted state and local governments, not to mention large numbers of homeowners who have not budgeted for higher interest payments. Most politicians prefer inflation over bankruptcies. I personally view inflation as a horrific evil, but then I am not a politician.

  18. yeah, really. Beyond grasp…And how is investments, jobs & capital flowing to the states shocking news?!? This has been happening in Canada since shiny son got elected. I would be flowing to the states too if I could.

  19. When God said, “go forth and multiply ” she was referring to money. That’s exactly what money does. It finds the best market and…multiplies

  20. Dennis, you’re absolutely right about inflation being horrific. We just have to look at the nightmare called Zimbabwe. You’re also right that politicians prefer inflation over bankruptcies, as the latter gets them out of office toute suite. The problem is that politicians only know how to spend money, not how to build an economy which makes it.
    As to the US, Trump & Co. are likely gambling that so much money comes back to the US for reinvestment that the economic growth triggers stronger federal revenues even at a lower tax rate. This is the gamble he’s taking, and it will be interesting to see how it turns out.

  21. Is there any of those Hollywood types left in the U.S. ? I thought they all moved after Trump was elected . Frankly , who gives a Sh – I mean hoot .

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