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December 2, 2008

Cluster$%#@ to Power

This is the worst possible scenario.  Amidst the most severe economic turmoil since the Great Depression, Canadian politics got interesting.  Not good.  Of course, I hope no one is under the impression that the concerns of the guerrilla faction, namely the leaders of the opposition parties, is entirely concerned with the absence of a stimulus package.  The plans for this coup were put in place weeks ago by Jack Layton and the Separatists; and there could not be a worst time to be getting politically creative, it will be the economy that suffers.

Canada's economy, still regarded by many as a bastion of stability amidst the world's other large economies, actually exceeded analysts' expectations last month while others continue to falter.  The country's gross domestic product expanded by an annualized rate of 1.3%, the fastest in a year, last month, a month which saw some of the most volatile stock market movements in 20 years.  While Britain and the U.S. wane under the pressure of the crushing lack of credit, Canada's approach has squeezed stability and modest growth from our industry.  Obviously, it is unlikely that this will continue with exports declining as they are (1.4% last quarter, the fifth straight decline), but a rash, emotional approach to this situation will destabilize confidence and certainly create uncertainty.  The wherewithal of a coalition government, one led by Dion and backed by socialists and separatists, is, though historic, an unlikely, unproven, and confusing alternative to what is in place now.  

The Canadian dollar will certainly depreciate as a result of this politically driven turmoil, and considering the fall in commodity prices and weakened American demand, will not prove advantageous to the Canadian manufacturing and resource industry.  Interest rates will rise in pursuit of fleeing capital, which will make credit even less accessible, making investment in infrastructure and development less productive and less profitable.  

A stimulus package from a coalition will undoubtedly be influenced considerably by the NDP, preying upon the acquiescence of the Liberals, desperately clinging to power.  A socialist stimulus package would likely be focused on consumers rather than industry.  Rather than corporate tax breaks and subsidies to provide incentive and support for investment in infrastructure to support sustainable growth, for example, the coalition would benefit most from a package that pacifies voters with consumer focused incentives, such as Bush's tax rebate that delved out about $1,200 to each citizen in the U.S. last February.  As Bush's example showed this type of incentive program would prove ineffectual, even disastrous, since consumers are free to spend as they wish.  The $1,200 that Bush dished out went, in large part, to foreign exports, which is no help to the domestic market, some even stashed the money in the bank for darker days, like today.  The Liberals do have some economic heavyweights that seem poised to act as advisers, if a coalition is to take over governing, who would likely see the impracticality of this approach.  The issues are that the Liberals may have no choice in the matter and as a result, no one knows what is in store or who would be involved or in which capacity.  

The point is that the very economy that the coalition says it's protecting will suffer on account of their actions, certainly in the near-term, likely in the long.  The cornucopia of potential quagmires we are headed towards if we are led by a coalition government of liberals, socialists, and separatists is a distasteful, abhorrent, godless thing to behold.  Of course, the Conservatives are not without blame in this mess, and there are points in their fiscal update that definitely deserves vilification, but to usurp the government as its walks a tight rope through these volatile times is hypocritical to the very cause the coalition seems committed to resolve.  In the long-term, this may prove as politically disastrous for the liberals, NDP, and Separatists, as it will prove to the economy in the short-term.

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