Did Trudeau serve Turkey to Canadians this Thanksgiving?
The collapse of the Turkish economy follows policies similar to Trudeau's
In 2004, Turkey was enjoying a bit of a boom. Real growth of almost 10%, government debt at a modest 58% of Gross Domestic Product (GDP) and unemployment falling. Erdogan came to power in 2003 and in his first few years of power Turkey enjoyed robust economic growth fueled in part by government deficits and in part by foreign capital inflows. The government deficits seemed small in relation to Turkish Gross Domestic Product (GDP) and many economists lauded the success of Turkish economic policies.
Turkish deficits as a percentage of GDP
The rapid growth of Turkey’s economy since Erdogan took power has been funded by foreign debt, largely denominated in U.S. dollars, and now approaching $450 million, which seems small for a country with a population of 85 million and a GDP of $720 billion.
Encouraged by success and threatened by COVID, Turkey did what most countries did and increased spending, with a surge in its fiscal deficit this year. As foreign debt grew and government spending continued to rely on borrowing, Turkey began to experience high inflation, rising from low single digits in 2018 to the 20% range today. Turkey ignored 4% inflation as “transitory”, a bit like Canada is doing today.
As inflation soared, foreign investors became nervous about the risks to their investments and baled out. An exodus of foreign investment contributed to the collapse of the Turkish lire and a mounting economic crisis.
The loss of confidence in the Turkish lire had dire consequences. The external debt valued in local currency is rising despite its fall in U.S. dollar terms. High rates of inflation are crippling wages and driving many Turks into poverty. The reluctance of the Erdogan government to raise rates early in the crisis accelerated the decline. The Turkish economy is now a mess and it got there through short sighted policy decisions.
Canada faces similar problems.
Canadian growth has benefited from external financing with Canada’s foreign debt following a similar path to Turkey’s and reaching 143% of GDP in 2020. Creditors now hold over $2.4 trillion of Canadian paper.
With Canadian government spending virtually out of control, it should be no surprise that Canadian inflation rates have begun to rise sharply and now sit at 4.7%.
Canada’s central bank and Trudeau government have been reluctant to move quickly to raise interest rates to protect the Canadian dollar, calling the rise in inflation “transitory”. Bank of Canada governor Tiff MacLem said that while inflation was “transitory” that didn’t mean it would be short lived. The central bank’s solution to rising inflation in the context of the Trudeau narrative was to redefine “transitory”. The Canadian dollar is now coming under pressure.
Canada is not in serious trouble, at least not yet. The speech from the throne gave Canadians some idea whether spending will be restrained, inflation brought to heel, and policy decisions taken on a tone more constructive for economic growth. Such policies would probably forestall any economic crisis.
But those steps are unlikely.
Trudeau is committed to his specious “climate change” narrative and will keep raising the useless carbon tax (I pointed out the folly of the carbon tax in an earlier article). Government spending will continue at a reckless pace and will be funded both by borrowing at very high levels and by higher taxes which have never been correlated with economic expansions. Inflation is unlikely to abate. Instead of dealing with the important economic issues facing Canada in the post-pandemic era, Trudeau espouses based on “feel good” euphemisms like '“reconciliation” “inclusiveness” and his never ending climate change charade pretending these are progress despite the reality that none of these will improve Canada’s economy and the attack on energy will undoubtedly cause economic harm.
If inflation keeps rising, the government will be forced to raise interest rates or watch it spiral out of control. Higher rates may need to be very high to keep the dollar from a major rout and if they fail, a lower dollar will raise the price of imported goods while the damage to paychecks from higher prices will compel unions and companies to cope with a need for higher wages, and the inflationary cycle will be upon us. If foreign investors lose confidence in the Canadian dollar, the foreign debt will exact a price as capital flows out of Canada. In Trudeau, we have a leader lacking any iota of economic understanding backed by Finance Minister Crystia Freeland who has made her disdain for successful people clear in her book “Plutocracy”. Ideologues like Trudeau and Freeland are dangerous to Canada’s future but are popular among voters.
That unfortunate reality puts Canada at risk.
We in this group for anybody who need