Deficit Watch

I don't post too much to the blog these days, and even back when I posted more often, I tried to avoid making predictions. One exception to this rule came a little over two years ago when I wrote a post entitled, "Good Bye Budget Surplus, We Hardly Knew Ya" in which, after detailing the history of Conservative economic mismanagement and explaining why so-called Conservative parties always end up running deficits, I wrote,

"I can't say for sure what will happen under a Conservative government. Maybe enough of that old Reform small c-conservatism remains and they will keep us in the black, but if I was betting man, I'd bet that a Conservative government which lasts more than 2 years will put us in deficit sooner or later.

Then we will see whether our hard-learned lesson about deficits (manifested as a fear of turning into pumpkins if we run a deficit) is still remembered, or if the deficit apologists will come out in force and we will begin the slide down the slippery slope into large Bush-style, day-of-reckoning-is-coming deficits."

Sure enough, right on schedule, "Federal government runs $517M deficit in April, May"

Yeah, we might not end up in a deficit this year (especially if asset sales help cover operating losses - as happened in part last year as the 'Conservatives' sold off Canada's legacy of prime real estate around the world to help make the books look better in the short term), but they're working on it.

Best of Both Worlds

If you look back at the last century, the two most noticeable negative economic episodes were the great depression of the 30's, when the popping of a large credit bubble led to deflation and massive unemployment and idle resources, and the oil shocks of the 70's, when sudden increases in the price of basic resources that society is built on led to rampant inflation combined with lacklustre economic conditions - stagflation in a word.

Currently, we are seeing both the deflation of a global credit bubble AND sudden increases in the price of oil and other resources. It's no wonder that people who pay attention to these things can't seem to agree on whether we should be worried about deflation or inflation - but do agree that we ought to be worried.